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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 9, 2001
REGISTRATION NO. 333-53146
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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PRE-EFFECTIVE AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CIENA CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 3661 23-2725311
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification Number)
incorporation or
organization)
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1201 WINTERSON ROAD
LINTHICUM, MD 21090
(410) 865-8500
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
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MICHAEL O. MCCARTHY III
SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
1201 WINTERSON ROAD
LINTHICUM, MD 21090
(410) 865-8500
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Copies to:
MICHAEL J. SILVER
AMY BOWERMAN FREED
HOGAN & HARTSON L.L.P.
111 SOUTH CALVERT STREET
BALTIMORE, MD 21202
(410) 659-2700
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective and all other
conditions to the merger contemplated by the Agreement and Plan of Merger dated
as of December 18, 2000, as such agreement may be amended, described in the
enclosed Prospectus have been satisfied or waived.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act of 1933 registration statement number
of the earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act of 1933, check the following box and list the
Securities Act of 1933 registration statement number of the earlier effective
registration statement for the same offering. [ ]
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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 OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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The information in this prospectus is not complete and may be
changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these securities
and we are not soliciting offers to buy these securities in any state
where the offer or sale is not permitted.
CYRAS SYSTEMS, INC.
47100 BAYSIDE PARKWAY
FREMONT, CALIFORNIA 94538
, 2001
[CYRAS GRAPH]
MERGER PROPOSED -- YOUR VOTE IS VERY IMPORTANT
Dear Cyras stockholder,
Cyras has entered into a merger agreement with CIENA Corporation. As a
result of the merger, Cyras would become a subsidiary of CIENA and you would
become a stockholder of CIENA. The Cyras Board of Directors is furnishing this
prospectus and proxy statement to you to solicit your proxy to vote for adoption
of the merger agreement and approval of the merger at a special meeting of
stockholders to be held on , 2001, and at any adjournment or
postponement of that meeting.
If we complete the merger as proposed, each share of Cyras preferred stock
and Cyras common stock that you own will be converted into shares of CIENA's
common stock, unless you exercise appraisal rights under Delaware law. CIENA
will issue approximately 27,000,000 shares in the merger to Cyras stockholders.
We will determine the number of shares of CIENA common stock into which each
share of Cyras preferred stock and common stock will be converted immediately
prior to completion of the merger in accordance with formulas specified in the
merger agreement and described in the attached materials. There is no
established public trading market for Cyras common stock or Cyras preferred
stock. CIENA common stock is quoted on the Nasdaq National Market under the
symbol "CIEN." The closing price for CIENA common stock reported on the Nasdaq
National Market on , 2001, was $ per share.
This is CIENA's prospectus relating to its offering of shares of CIENA
common stock to Cyras stockholders in the proposed merger. It contains important
information concerning CIENA, Cyras, the terms of the proposed merger and the
conditions which must be satisfied before the merger can occur. YOU SHOULD
CAREFULLY CONSIDER THE RISK FACTORS RELATING TO THE MERGER AND CIENA THAT ARE
DESCRIBED STARTING ON PAGE OF THIS PROSPECTUS AND PROXY STATEMENT.
In addition, holders of Cyras preferred stock are also being asked to
approve the automatic conversion of their stock (other than series E preferred
stock) into Cyras common stock, at the closing of the merger.
THE CYRAS BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE
FOR ADOPTION OF THE MERGER AGREEMENT AND APPROVAL OF THE MERGER, AND
IF YOU ARE A HOLDER OF CYRAS PREFERRED STOCK, FOR THE AUTOMATIC CONVERSION OF
THAT STOCK.
Your vote is important regardless of the number of shares you own. We urge
you to read the enclosed materials carefully and to complete, sign and date the
enclosed proxy card and return it promptly in the enclosed prepaid envelope,
whether or not you plan to attend the special meeting of stockholders. Your
prompt cooperation and continued support of Cyras is greatly appreciated.
Sincerely,
[Alnoor Shivji Sig]
Alnoor Shivji
President and Chief Executive Officer
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATOR HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS AND PROXY STATEMENT. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
PROSPECTUS AND PROXY STATEMENT DATED , 2001
FIRST MAILED TO STOCKHOLDERS ON OR ABOUT , 2001
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CYRAS SYSTEMS, INC.
47100 Bayside Parkway
Fremont, CA 94538
(510) 623-6600
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 2001
We will hold a special meeting of stockholders of Cyras Systems, Inc. at
a.m., local time, on , 2001 at the Fremont Marriott, 46100
Landing Parkway, Fremont, California 94538, to consider the following proposals:
1. The holders of common stock of Cyras, voting as a class, and the holders
of preferred stock of Cyras, voting together as a class, to consider and vote on
proposals:
- To approve and adopt the Agreement and Plan of Merger dated as of
December 18, 2000 by and among Cyras, CIENA Corporation and CO
Acquisition Corp., a wholly owned subsidiary of CIENA, a copy of which is
attached as Appendix A to the accompanying prospectus and proxy
statement, and to approve the merger of Cyras with CO Acquisition Corp.,
whereby holders of Cyras stock will receive for each share of Cyras stock
held, a fraction of a share of CIENA stock based on a formula described
in the attached prospectus and proxy statement and in the merger
agreement;
- To ratify the appointment of Douglas Carlisle as stockholder
representative to act on behalf of the stockholders in connection with the
merger;
- To grant Cyras's board of directors discretionary authority to adjourn
the special meeting to solicit additional votes for approval of the
merger; and
- To transact such other business as may properly come before the special
meeting or any adjournment or postponement thereof.
2. The holders of preferred stock of Cyras, voting together as a class, to
cause the automatic conversion of the preferred stock, other than series E
preferred stock, held by them into the common stock of Cyras immediately prior
to the effective time of the merger.
CYRAS'S BOARD OF DIRECTORS HAS APPROVED THE MERGER AGREEMENT AND
UNANIMOUSLY RECOMMENDS THAT YOU VOTE TO APPROVE AND ADOPT THE MERGER AGREEMENT
AND TO APPROVE THE MERGER OF CYRAS AND CO ACQUISITION CORP., AND TO APPROVE THE
AUTOMATIC CONVERSION OF CYRAS'S PREFERRED STOCK, OTHER THAN SERIES E PREFERRED
STOCK, INTO CYRAS'S COMMON STOCK IMMEDIATELY PRIOR TO THE MERGER AND TO RATIFY
THE APPOINTMENT OF MR. CARLISLE AS STOCKHOLDER REPRESENTATIVE.
We describe the merger more fully in the accompanying prospectus and proxy
statement, which we urge you to read.
Only Cyras stockholders of record at the close of business on January 31,
2001 are entitled to notice of and to vote at the special meeting or any
adjournment or postponement thereof. Any Cyras stockholder may inspect the list
of the stockholders of record eligible to vote at the meeting by coming to
Cyras's offices during normal business hours from March , 2001 through the end
of the meeting.
YOUR VOTE IS IMPORTANT. TO ASSURE THAT YOUR SHARES ARE REPRESENTED AT THE
SPECIAL MEETING, YOU ARE URGED TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY
CARD AND MAIL IT PROMPTLY IN THE POSTAGE-PAID ENVELOPE PROVIDED. WE ENCOURAGE
YOU TO DO THIS WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON.
YOU MAY REVOKE YOUR PROXY IN THE MANNER DESCRIBED IN THE ACCOMPANYING PROSPECTUS
AND PROXY STATEMENT AT ANY TIME BEFORE IT HAS BEEN VOTED AT THE SPECIAL MEETING.
IT MAY BE POSSIBLE FOR YOU TO VOTE IN PERSON AT THE SPECIAL MEETING EVEN IF YOU
HAVE RETURNED A PROXY. PLEASE REVIEW THE PROSPECTUS AND PROXY STATEMENT FOR MORE
INFORMATION.
By Order of the Board of Directors,
[Armando Castro Sig]
Armando Castro
General Counsel and Secretary
Fremont, California
February , 2001
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THIS PROSPECTUS AND PROXY STATEMENT INCORPORATES BY REFERENCE CERTAIN
DOCUMENTS FILED WITH THE SEC BY CIENA WHICH CONTAIN IMPORTANT BUSINESS AND
FINANCIAL INFORMATION ABOUT CIENA THAT IS NOT INCLUDED IN OR DELIVERED WITH THIS
PROSPECTUS AND PROXY STATEMENT. THESE DOCUMENTS ARE AVAILABLE WITHOUT CHARGE TO
CYRAS STOCKHOLDERS UPON WRITTEN OR ORAL REQUEST. STOCKHOLDERS MAY REQUEST COPIES
OF THESE DOCUMENTS FROM CIENA CORPORATION, 1201 WINTERSON ROAD, LINTHICUM,
MARYLAND 21090, ATTN: GENERAL COUNSEL, TELEPHONE (410) 865-8500. TO OBTAIN
TIMELY DELIVERY, STOCKHOLDERS MUST REQUEST THIS INFORMATION NO LATER THAN
, 2001.
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TABLE OF CONTENTS
PAGE
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QUESTIONS AND ANSWERS ABOUT THE MERGER...................... iv
SUMMARY..................................................... 1
RISK FACTORS................................................ 13
FORWARD-LOOKING STATEMENTS.................................. 21
THE SPECIAL MEETING OF CYRAS STOCKHOLDERS................... 22
General................................................ 22
Date, Time and Place................................... 22
Purpose of the Special Meeting......................... 22
Record Date for the Special Meeting.................... 22
Voting of Proxies at the Special Meeting and Revocation
of Proxies............................................ 22
Votes Required for Approval and Adoption of the Merger
Agreement and Approval of the Merger.................. 23
Quorum and Abstentions................................. 23
Solicitation of Proxies and Expenses................... 24
Board Recommendation................................... 24
THE MERGER.................................................. 25
General................................................ 25
Background of the Merger............................... 25
CIENA's Reasons for the Merger......................... 28
Recommendation of the Cyras Board and Reasons for the
Merger................................................ 30
Opinion of Cyras's Financial Advisor................... 33
Interests of Cyras Officers and Directors in the
Merger................................................ 38
Accounting Treatment................................... 40
Listing on the Nasdaq National Market.................. 40
Governmental and Regulatory Approvals.................. 40
Federal Income Tax Consequences........................ 40
Appraisal Rights of Dissenting Stockholders of Cyras... 42
Cyras 4 1/2% Convertible Subordinated Notes Due August
15, 2005.............................................. 44
TERMS OF THE MERGER AGREEMENT AND RELATED TRANSACTIONS...... 45
General................................................ 45
Structure of the Merger................................ 45
Management After the Merger............................ 45
Conversion of Cyras Preferred Stock and Common Stock;
Treatment of Options and
Warrants............................................. 45
Options Granted Outside the Conversion Formula......... 47
Preferred Stock Purchase Rights........................ 47
Treatment of Options and Warrants...................... 47
Exchange of Certificates; Fractional Shares............ 47
Effective Time......................................... 48
Representations and Warranties......................... 48
Business of Cyras Pending the Merger; Other
Agreements............................................ 50
No Solicitation by Cyras............................... 51
Additional Agreements of CIENA and Cyras............... 52
Indemnification........................................ 53
Directors' and Officers' Insurance and
Indemnification....................................... 53
Conditions Precedent to Each Party's Obligation to
Effect the Merger..................................... 54
Conditions Precedent to Obligations of CIENA........... 54
Conditions Precedent to Cyras's Obligations............ 55
Termination of the Merger Agreement.................... 55
Waiver and Amendment of the Merger Agreement........... 64
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PAGE
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Expenses............................................... 64
Stockholder Agreements................................. 64
Restrictions on Resales by Affiliates.................. 58
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA................. 59
UNAUDITED PRO FORMA COMBINED BALANCE SHEET.................. 60
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS........ 61
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL DATA........ 62
INFORMATION ABOUT CIENA..................................... 64
General................................................ 64
Additional Information................................. 64
INFORMATION ABOUT CYRAS..................................... 65
Business............................................... 65
Management's Discussion and Analysis of Financial
Condition and Results of Operations................... 73
CERTAIN TRANSACTIONS........................................ 77
STOCK OWNERSHIP OF MANAGEMENT, DIRECTORS AND MORE THAN FIVE
PERCENT STOCKHOLDERS OF CIENA............................. 77
STOCK OWNERSHIP OF DIRECTORS, EXECUTIVE OFFICERS AND MORE
THAN FIVE PERCENT STOCKHOLDERS OF CYRAS................... 79
COMPARISON OF STOCKHOLDER RIGHTS............................ 81
General................................................ 81
Capitalization......................................... 81
Voting Rights.......................................... 81
Number and Classification of Directors................. 82
Removal of Directors................................... 82
Filling Vacancies on the Board of Directors............ 82
Charter Amendments..................................... 83
Amendments to Bylaws................................... 83
Action by Written Consent.............................. 83
Notice of Stockholder Actions.......................... 83
Right to Call Special Meeting of Shareholders.......... 83
Dividends.............................................. 84
Liquidation Rights..................................... 84
Conversion and Redemption.............................. 84
Registration Rights.................................... 85
Additional Rights of Cyras Stockholders................ 87
Stockholder Rights Plan................................ 88
TRANSFER AGENT AND REGISTRAR................................ 88
OTHER MATTERS............................................... 89
Legal Matters.......................................... 89
Experts................................................ 89
Other Matters.......................................... 89
WHERE YOU CAN FIND MORE INFORMATION......................... 89
APPENDIX A AGREEMENT AND PLAN OF MERGER
APPENDIX B SECTION 262 OF THE DELAWARE GENERAL CORPORATION
LAW
APPENDIX C FORM OF ESCROW AGREEMENT
APPENDIX D FORM OF STOCKHOLDER AGREEMENT
APPENDIX E OPINION OF CYRAS'S FINANCIAL ADVISOR
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QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHEN AND WHERE WILL THE SPECIAL MEETING TAKE PLACE?
A: The special meeting will be held on , 2001, at a.m.,
local time, at the Fremont Marriott, 46100 Landing Parkway, Fremont,
California 94538.
Q: WHAT DO I NEED TO DO NOW?
A: You should carefully read and consider the information contained in this
prospectus and proxy statement. You should then complete and sign your proxy
and return it in the enclosed return envelope as soon as possible so that
your shares will be represented at Cyras's special meeting. If you sign,
date and mail your proxy card without identifying how you want to vote, your
proxy will be voted "FOR" the merger, "FOR" approval of conversion of the
Cyras preferred stock (other than the series E preferred stock) and "FOR"
ratification of the appointment of Douglas Carlisle as stockholder
representative. If you do not vote, it will have the same effect as a vote
"AGAINST" the proposals.
Q: WHO MUST APPROVE THE MERGER?
A: In addition to the approvals of the boards of directors of CIENA, CIENA's
wholly-owned subsidiary, CO Acquisition Corp., and Cyras, and the approval
of the sole stockholder of CO Acquisition Corp., all of which have already
been obtained, the holders of a majority of the common stock of Cyras voting
as a class, and holders of a majority of the preferred stock of Cyras,
voting together as a single class, must also approve and adopt the merger
agreement and approve the merger.
Q: CAN I CHANGE MY VOTE AFTER I MAIL MY SIGNED PROXY?
A: Yes. You can change your vote at any time before your proxy is voted at the
special meeting of Cyras's stockholders. You can do this in one of three
ways. First, you can deliver a written notice stating that you would like to
revoke your proxy. Second, you can complete and deliver a new proxy. If you
choose either of these two methods, you must deliver your notice of
revocation or your new proxy for Cyras shares at the address on page
BEFORE YOUR PROXY IS VOTED. Third, you can attend the special meeting of
Cyras's stockholders and vote in person.
Q: SHOULD I SEND IN MY CYRAS STOCK CERTIFICATES NOW?
A: No, you should not send in your Cyras stock certificates with your proxy.
You will receive instructions for exchanging your Cyras stock certificates
if the merger is consummated.
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: If you have any questions about the merger or if you need additional copies
of this prospectus and proxy statement or the enclosed proxy, you should
contact Cyras's General Counsel at (510) 623-6600.
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SUMMARY
This summary highlights selected information from this prospectus and proxy
statement. It does not contain all of the information that is important to you.
You should carefully read the entire prospectus and proxy statement and the
other documents to which this document refers you to fully understand the
merger. See "Where You Can Find More Information" on page . In this prospectus
and proxy statement, "we," "us" and "our" may refer to either CIENA or Cyras
depending on the context, while "you" and "your" refer solely to stockholders of
Cyras.
THE COMPANIES (PAGE )
CIENA CORPORATION
1201 Winterson Road
Linthicum, Maryland 21090
(410) 865-8500
CIENA is an established leader in the rapidly growing intelligent optical
networking equipment market. We offer a comprehensive portfolio of products for
communications service providers worldwide, including long-distance and
metropolitan optical transport, intelligent optical core switching and network
management solutions. CIENA's customers include long-distance carriers,
competitive and incumbent local exchange carriers, Internet service providers
and wholesale carriers. We have pursued a strategy to develop and leverage the
power of our technologies to change the fundamental economics of building
carrier-class tele- and data-communications networks, thereby providing our
customers with a competitive advantage. CIENA's intelligent optical networking
products are designed to enable carriers to deliver any time, any size, any
priority bandwidth to their customers. Furthermore, our products allow service
providers to optimize their investments in fiber-optic infrastructure while
positioning them to easily transition to next-generation optical network
architectures.
CYRAS SYSTEMS, INC.
47100 Bayside Parkway
Fremont, CA 94538
(510) 623-6600
Cyras, a development stage company founded in July 1998, designs, develops and
markets next generation optical networking solutions for telecommunications
carriers. The Cyras K2 product is designed to deliver the functionality of
multiple pieces of equipment in a single platform, the network optimization and
efficiency required in today's increasingly data-oriented environment and the
cost-effectiveness and scalability that carriers demand. By deploying Cyras's
products in their networks, carriers can optimize their use of existing
capacity, transport data in native form without undergoing wasteful processing
and more precisely allocate bandwidth to the parameters of the traffic being
transported. The K2 product is designed to provide carriers with a solution that
can be rapidly implemented with substantially less expensive initial capital
investment and anticipated lower lifecycle costs, as compared to traditional
transport systems. The K2 product is still in development and is not
commercially available, and Cyras has not recognized revenues to date from any
product sales.
VOTE REQUIRED (PAGE )
Holders of a majority of the outstanding shares of Cyras common stock, and
holders of a majority of the outstanding shares of all series of Cyras preferred
stock, voting together as a class, must vote in favor of adoption of the merger
agreement before the merger can occur. There were 62,195,944 shares of Cyras
common stock and 137,855,817 shares of Cyras preferred stock, comprised of
7,200,000 shares of Cyras series A preferred stock, 70,143,996, shares of Cyras
series B preferred stock, 52,646,118 shares of Cyras series C preferred stock,
7,594,947 shares of Cyras series D preferred stock and 270,756 shares of Cyras
series E preferred stock outstanding as of the record date. Each holder of Cyras
common stock is entitled to one vote per share and each holder of Cyras
preferred stock is entitled to one vote for each full share of common stock into
which its shares are convertible.
In connection with the merger agreement, CIENA and several Cyras stockholders
beneficially owning in the aggregate 36,648,543 shares of common stock,
representing approximately 58.9% of the outstanding Cyras common stock entitled
to vote at the special meeting and 55,616,994 shares of Cyras preferred stock,
representing approximately 40.3% of the outstanding preferred stock entitled to
vote at the special meeting, entered into agreements under which they agreed to
vote
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their shares in favor of the merger and approval of the merger agreement.
The form of this stockholder agreement is attached as Appendix D to this
prospectus and proxy statement.
GRANT OF OPTION TO CIENA (PAGE )
Cyras stockholders owning in the aggregate 36,648,543 shares of Cyras common
stock, representing approximately 58.9% of the outstanding Cyras common stock as
of the record date and 55,616,994 shares of Cyras preferred stock, representing
approximately 40.3% of the outstanding preferred stock as of the record date,
have granted to CIENA an option to purchase their Cyras shares. The option is
exercisable under several circumstances, including those when Cyras is required
to pay CIENA the $80 million termination fee provided for under the merger
agreement. CIENA required these stockholders to deliver the option as a
condition to CIENA's willingness to enter into the merger agreement. Although
the number of shares of Cyras capital stock subject to the option is not
sufficient to ensure the approval of the merger with CIENA, if the option is
exercised following receipt of a competing offer to purchase the capital stock
of Cyras, CIENA's consent may be required to complete the closing of that
alternative transaction.
SPECIAL MEETING OF CYRAS STOCKHOLDERS (PAGE )
The special meeting of Cyras stockholders will be held on , 2001 at
a.m. at the Fremont Marriott, 46100 Landing Parkway, Fremont,
California 94538. At the special meeting, you will be asked to vote to adopt and
approve the merger agreement and to approve the merger and to ratify the
appointment of Douglas Carlisle as stockholder representative. The preferred
stockholders will also be asked to vote to convert their preferred stock (other
than series E preferred stock) into common stock of Cyras.
You can vote, or submit a proxy to vote, at the special meeting if you were a
record holder of Cyras common stock or Cyras preferred stock at the close of
business on January 31, 2001. You can vote your shares by attending the meeting
and voting in person or you can mark the enclosed proxy card with your vote,
sign it and mail it in the enclosed return envelope. You can revoke your proxy
at any time before it is exercised.
THE MERGER (PAGE )
WHY CYRAS'S BOARD RECOMMENDS THE MERGER (PAGE )
The board of directors of Cyras unanimously recommends that its stockholders
vote "FOR" the approval and adoption of the merger agreement and approval of the
merger.
The Cyras board believes that increasing competition and industry consolidation
would make it increasingly important for Cyras to grow and gain critical mass in
order to compete with larger companies with substantially greater resources and
broader, integrated product offerings. Cyras's management has considered a
number of alternatives for enhancing its competitive position, including growing
through the acquisition of smaller companies that could extend Cyras's product
offerings and enhance the distribution of Cyras's products and services, and
merging with a larger company. The Cyras board believes the merger proposed with
CIENA addresses these issues.
In reaching this conclusion the Cyras board of directors considered the
following factors, among others:
- the merger will provide Cyras stockholders with shares of CIENA common
stock which are listed on the Nasdaq National Market in a tax-free
transaction;
- the combined company will offer complementary product lines, a larger
breadth of products offered and can be a single source provider to its
customers of a range of complementary products; and
- the combined company will have greater resources for product marketing
and distribution.
TOTAL CONSIDERATION CIENA WILL PAY
At the effective time of the merger, CIENA will issue 27,000,000 shares of its
common stock in exchange for all of Cyras's outstanding common stock and
preferred stock, plus an additional number of shares of CIENA common stock to
reflect the consideration that Cyras is entitled to receive in exchange for
outstanding stock options and warrants. CIENA has calculated that the
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maximum number of CIENA shares that will be issued or reserved for issuance upon
the exercise of Cyras stock options and warrants is 28,134,000, which, as of
February 1, 2001, have an aggregate value of approximately $2,534,000,000. CIENA
also will indirectly assume the $150,000,000 aggregate principal amount 4 1/2%
convertible subordinated notes of Cyras, and these notes will be convertible
into CIENA common stock, as described under "The Merger -- Cyras 4 1/2%
Convertible Subordinated Notes Due August 15, 2005."
WHAT YOU WILL RECEIVE IN THE MERGER (PAGE )
In the merger, you will receive a fraction of a share of CIENA common stock for
each share of Cyras common stock or preferred stock that you own, in each case
as determined by application of the formulas set forth under "Terms of the
Merger Agreement and Related Transactions -- Conversion of Cyras Preferred Stock
and Common Stock." You will receive cash for any fractional share of CIENA
common stock that you would otherwise receive in the merger.
For purposes of the following examples, we have assumed that the holders of
Cyras series A, B, C and D preferred stock will vote in favor of automatic
conversion of their shares into Cyras common stock immediately prior to the
effectiveness of the merger, but that holders of Cyras series E preferred stock
will not elect to convert their shares because the expected proceeds of the
merger with CIENA is expected to result in a substantially higher price per
share for the series A, B, C and D preferred stockholders, but is expected to
result in a lower price per share for the series E preferred stockholders. To
illustrate, if the merger had occurred on February 1, 2001, when the CIENA stock
price for purpose of the conversion formula was $90.0625, holders of Cyras
common stock would have received approximately 0.13 of a share of CIENA common
stock for each share of Cyras common stock that they own, having a per share
value as of that date of $11.33. Because the liquidation preference of the Cyras
series E preferred stock is $18.467, the holders of the series E preferred stock
will receive more shares of CIENA common stock by electing not to convert their
shares into Cyras common stock unless the closing price for CIENA common stock
used to determine the per share consideration at closing exceeds approximately
$147 per share. By contrast, a holder of Cyras series D preferred stock, which
has a liquidation preference of $2.695 per share, will receive more shares of
CIENA common stock by electing to convert its shares into Cyras common stock
unless the closing price for CIENA common stock used to determine the per share
consideration at closing is less than approximately $21.40 per share.
For holders of Cyras common stock (including shares of common stock issued on
conversion of Cyras preferred stock):
The following chart gives a few examples of the number of shares of CIENA common
stock that a holder of 10,000 shares of Cyras common stock would receive in the
merger given the range of average closing prices of CIENA common stock and the
value of those shares at these prices. The chart does not include cash received
for fractional shares or cash paid in respect of dissenting shares.
AVERAGE
CLOSING NUMBER OF SHARES
PRICE OF OF CIENA
CIENA COMMON VALUE OF SHARES
COMMON STOCK ISSUED AT OF CIENA COMMON
STOCK CLOSING STOCK ISSUED AT CLOSING
-------- ---------------- -----------------------
$70.00
$80.00
$90.00
$100.00
$110.00
$120.00
$130.00
For holders of Cyras series E preferred stock:
The following chart gives a few examples of the number of shares of CIENA common
stock that a holder of 1,000 shares of Cyras series E preferred stock would
receive in the merger given the range of average closing prices of CIENA common
stock and the value of those shares at these prices. The chart does not include
cash received for fractional shares or cash paid in respect of dissenting
shares.
AVERAGE
CLOSING NUMBER OF SHARES
PRICE OF OF CIENA
CIENA COMMON VALUE OF SHARES
COMMON STOCK ISSUED AT OF CIENA COMMON
STOCK CLOSING STOCK ISSUED AT CLOSING
-------- ---------------- -----------------------
$70.00 264 $18,467
$80.00 231 $18,467
$90.00 205 $18,467
$100.00 185 $18,467
$110.00 168 $18,467
$120.00 154 $18,467
$130.00 142 $18,467
3
11
Ten percent of the CIENA common stock that each Cyras stockholder would
otherwise be entitled to receive will be deposited in an escrow account that may
be used to compensate CIENA if it is entitled to indemnification under the
merger agreement. Any escrowed shares not used to indemnify CIENA and which are
not subject to an unresolved claim for indemnification by CIENA will be
distributed to each Cyras stockholder following the first anniversary of the
consummation of the merger. See below under "Indemnification and Escrow
Agreement."
The Cyras certificate of incorporation provides that all outstanding shares of
Cyras preferred stock will automatically convert into common stock as a result
of the merger if holders of more than 66 2/3% of the outstanding preferred stock
approve the automatic conversion. However, a separate vote of the holders of the
series E preferred stock is required to approve the conversion of the series E
preferred stock if the proceeds to Cyras stockholders on a per share basis are
less than the series E conversion price, which currently is $18.467. In the
unlikely event that the holders of Cyras preferred stock (other than the series
E preferred stock) do not elect to convert their shares, the aggregate number of
shares of CIENA common stock issued in the merger will not be reduced, but the
exchange ratio applicable to the Cyras common stock will be increased, resulting
in the Cyras common stock holders receiving proportionately more of the merger
consideration.
PLEASE DO NOT SEND YOUR STOCK CERTIFICATES AT THIS TIME.
APPRAISAL RIGHTS OF DISSENTING STOCKHOLDERS (PAGE )
IF YOU OBJECT TO THE MERGER, DELAWARE LAW PERMITS YOU TO SEEK RELIEF AS A
DISSENTING STOCKHOLDER AND HAVE THE "FAIR VALUE" OF YOUR SHARES OF CYRAS COMMON
STOCK AND CYRAS PREFERRED STOCK DETERMINED BY A COURT AND PAID TO YOU IN CASH.
CIENA WILL NOT BE OBLIGATED TO COMPLETE THE MERGER IF HOLDERS OF MORE THAN 2% OF
CYRAS'S STOCK EXERCISE THESE APPRAISAL RIGHTS.
If you are a Cyras stockholder and wish to dissent, you must deliver to Cyras,
prior to the vote on the merger at the special meeting, a written demand for
appraisal of your shares. You also must not vote in favor of the merger
agreement. To not vote in favor of the merger agreement, you can either:
- vote "no" in person at the special meeting or by proxy;
- abstain from voting;
- fail to vote; or
- revoke your proxy, if you returned a duly executed proxy that did not
contain voting instructions.
Beneficial owners of shares of Cyras common stock or Cyras preferred stock whose
shares are held of record by another person, such as a broker, bank or nominee,
and who wish to seek appraisal, should instruct the record holder to follow the
appraisal procedures of Delaware law. The relevant provisions of Delaware law
are technical in nature and complex. If you wish to exercise appraisal rights
and obtain appraisal of the fair value of your shares, you may wish to consult
with legal counsel, because the failure to comply strictly with these provisions
may result in waiver or forfeiture of your appraisal rights.
A copy of the relevant section of Delaware law governing this process is
attached as Appendix B to this prospectus and proxy statement.
INDEMNIFICATION AND ESCROW AGREEMENT (PAGE )
If the merger occurs, all holders of Cyras capital stock who have not elected
the appraisal rights described above, will be obligated to indemnify CIENA and
its affiliates against losses due to the breach or inaccuracy of any of Cyras's
representations or warranties, or breach of any Cyras agreements in the merger
agreement. This obligation is limited to 10% of the total number of shares of
CIENA common stock issued in the merger to the holders of Cyras capital stock.
An escrow arrangement will be established at closing to hold this 10% amount.
Stockholders will have a one time right to elect to instruct the escrow agent to
sell their escrow shares and hold the proceeds in the escrow account. Subject to
ratification by the stockholders, Douglas Carlisle will serve as Stockholder
Representative to administer the escrow on behalf of all former Cyras
stockholders. The escrow and indemnification obligations will end one year after
closing. At that time, the escrowed shares will be released to the former Cyras
stockholders, reduced by any claims paid to CIENA. See "Terms of the Merger
Agreement and Related Transactions -- Indemnification."
CONSEQUENTLY, IN SOME CIRCUMSTANCES YOU COULD BE REQUIRED TO FORFEIT TO CIENA
SOME OF THE
4
12
CIENA COMMON STOCK YOU WOULD OTHERWISE RECEIVE IN THE MERGER.
WHAT IS NEEDED TO COMPLETE THE MERGER (PAGE )
Several conditions must be satisfied before the merger will be completed. These
include:
- approval of the merger by the Cyras stockholders;
- receipt by Cyras and CIENA of opinions of tax counsel, described further
below; and
- exercise of appraisal rights by holders of no more than 2% of Cyras's
stock.
If the law permits, CIENA or Cyras may each waive any or all of the conditions
for the benefit of its company and stockholders and complete the merger even
though one or more of these conditions have not been met. We cannot assure you
that the conditions will be satisfied or waived or that the merger will occur.
FEDERAL INCOME TAX CONSEQUENCES (PAGE )
The merger is intended to qualify as a reorganization under Section 368(a) of
the Internal Revenue Code which means that Cyras stockholders will not recognize
any federal income tax gain or loss as a result of the merger, except with
respect to cash received in lieu of fractional shares and cash received in
exchange for Cyras shares by Cyras stockholders who dissent to the merger. Both
Cyras's and CIENA's obligations to complete the merger are subject to their
receiving legal opinions that the merger will qualify as a reorganization under
Section 368(a) of the Internal Revenue Code. These opinions are subject to
qualifications and assumptions, and are described in more detail under "The
Merger -- Federal Income Tax Consequences." You should read that section
carefully, since different tax consequences may apply to you because of your
individual circumstances or because special tax rules apply to you.
THESE MATTERS ARE VERY COMPLICATED. YOU SHOULD CONSULT YOUR TAX ADVISOR FOR A
FULL EXPLANATION OF THE TAX CONSEQUENCES OF THE MERGER TO YOU.
DIFFERENCES IN THE RIGHTS OF STOCKHOLDERS (PAGE )
If the merger is completed and you do not elect appraisal rights, you will
become a stockholder of CIENA. Your rights would continue to be governed by
Delaware law but your rights would be governed by CIENA's certificate of
incorporation and bylaws, rather than Cyras's certificate of incorporation and
bylaws. Your rights as a stockholder of CIENA will differ from your rights as a
stockholder of Cyras. To review these differences in more detail, see
"Comparison of Stockholder Rights" on page .
TERMINATION OF THE MERGER AGREEMENT; EXPENSES (PAGE )
CIENA and Cyras may mutually agree at any time to terminate the merger agreement
without completing the merger, even if the Cyras stockholders have approved it.
Either party, so long as it has not materially breached the merger agreement,
may terminate the merger if:
- the merger has not been consummated by June 30, 2001;
- Cyras stockholders do not approve the merger; or
- a court or any regulatory authority forbids the merger to occur.
Cyras may terminate the merger agreement prior to obtaining stockholder
approval, so long as it has not breached the merger agreement, if the Cyras
board of directors determines to pursue another transaction that it believes to
be superior to the merger, and CIENA does not match the offer made in the other
transaction. CIENA may also terminate the merger agreement if Cyras's board of
directors withdraws, modifies or amends, in any respect adverse to CIENA, its
recommendation in favor of the merger or determines to pursue another superior
transaction. Cyras has agreed to pay CIENA a termination fee of $80 million if
the merger agreement is terminated under either of these circumstances and
specified other circumstances if a third party has made a proposal to acquire
Cyras. The merger agreement also requires Cyras to reimburse CIENA for its
out-of-pocket expenses, up to a maximum of $1.5 million, in those situations
where the termination fee is payable.
OPINION OF CYRAS'S FINANCIAL ADVISOR (PAGE )
Cyras's financial advisor, Credit Suisse First Boston Corporation, has delivered
a written opinion to the Cyras board of directors as to the fairness, from a
financial point of view, to the holders of Cyras common stock, other than
affiliates of
5
13
Cyras, of the common stock exchange ratio provided for in the merger. The full
text of Credit Suisse First Boston's written opinion, dated December 18, 2000,
is attached to this document as Appendix E. We encourage you to read this
opinion carefully in its entirety for a description of the procedures followed,
assumptions made, matters considered and limitations on the review undertaken.
CREDIT SUISSE FIRST BOSTON'S OPINION IS DIRECTED TO THE CYRAS BOARD OF DIRECTORS
AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER AS TO ANY MATTERS
RELATING TO THE MERGER.
6
14
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF CIENA
The information in the following selected consolidated financial data is
derived from CIENA's audited consolidated financial statements. You should read
this information in conjunction with such financial statements and the notes to
the consolidated financial statements, which are incorporated by reference in
this prospectus and proxy statement. See "Where You Can Find More Information"
on page . CIENA's financial statements as of October 31, 1999 and 2000, and
for each of the three years ended October 31, 2000 were audited by
PricewaterhouseCoopers LLP, independent accountants. CIENA has a 52 or 53 week
fiscal year which ends on the Saturday nearest to the last day of October in
each year. For purposes of financial statement presentation each fiscal year is
described as having ended on October 31. Fiscal 1997, 1998, 1999 and 2000
comprised 52 weeks and fiscal 1996 comprised 53 weeks.
YEAR ENDED OCTOBER 31,
---------------------------------------------------
1996 1997 1998 1999 2000
------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenue.................................... $88,463 $413,215 $508,087 $482,085 $858,750
Cost of goods sold......................... 47,315 166,472 256,014 299,769 477,393
------- -------- -------- -------- --------
Gross profit............................. 41,148 246,743 252,073 182,316 381,357
------- -------- -------- -------- --------
Operating expenses:
Research and development................. 8,922 23,773 73,756 104,641 129,069
Selling and marketing.................... 5,641 22,627 47,343 61,603 90,922
General and administrative............... 6,346 11,476 18,468 22,736 34,000
Settlement of accrued contract
obligation............................ -- -- -- -- (8,538)
Purchased research and development....... -- -- 9,503 -- --
Pirelli litigation....................... -- 7,500 30,579 -- --
Merger related costs..................... -- -- 2,548 13,021 --
Provision for doubtful accounts.......... 76 489 806 250 28,010
------- -------- -------- -------- --------
Total operating expenses......... 20,985 65,865 183,003 202,251 273,463
------- -------- -------- -------- --------
Income (loss) from operations.............. 20,163 180,878 69,070 (19,935) 107,894
Other income (expense), net................ 653 7,178 12,830 13,944 12,680
------- -------- -------- -------- --------
Income (loss) before income taxes.......... 20,816 188,056 81,900 (5,991) 120,574
Provision (benefit) for income taxes....... 3,553 72,488 36,200 (2,067) 39,187
------- -------- -------- -------- --------
Net income (loss).......................... $17,263 $115,568 $ 45,700 $ (3,924) $ 81,387
======= ======== ======== ======== ========
Basic net income (loss) per common share... $ 0.62 $ 0.76 $ 0.19 $ (0.01) $ 0.29
======= ======== ======== ======== ========
Diluted net income (loss) per common and
dilutive potential common share.......... $ 0.09 $ 0.55 $ 0.18 $ (0.01) $ 0.27
======= ======== ======== ======== ========
Weighted average basic common shares
outstanding.............................. 27,634 151,928 235,980 267,042 281,621
======= ======== ======== ======== ========
Weighted average basic common and dilutive
potential common shares outstanding...... 184,814 209,686 255,788 267,042 299,662
======= ======== ======== ======== ========
OCTOBER 31,
-----------------------------------------------------
1996 1997 1998 1999 2000
------- -------- -------- -------- ----------
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents................. $24,040 $273,286 $250,714 $143,440 $ 143,187
Working capital........................... 42,240 338,078 391,305 427,471 639,675
Total assets.............................. 79,676 468,247 602,809 677,835 1,027,201
Long-term obligations, excluding current
portion................................. 3,465 1,900 3,029 4,881 4,882
Mandatorily redeemable preferred stock.... 40,404 -- -- -- --
Stockholders' equity...................... 10,783 377,278 501,036 530,473 809,835
7
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SELECTED HISTORICAL FINANCIAL DATA OF CYRAS
The following selected financial data should be read in conjunction with
Cyras's financial statements and notes thereto and "Cyras's Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this prospectus and proxy statement. The statement of
operations data for the period from July 24, 1998 (inception) to December 31,
1998 and for the year ended December 31, 1999 and the balance sheet data as of
December 31, 1998 and 1999 are derived from Cyras's financial statements that
have been audited by Deloitte & Touche LLP, independent auditors, and are
included elsewhere in this registration statement. The statement of operations
data for the nine months ended September 30, 1999 and 2000 and the period from
July 24, 1998 (inception) to September 30, 2000, and the balance sheet data as
of September 30, 2000, are derived from unaudited financial statements also
included in this prospectus and proxy statement. The unaudited financial
statements have been prepared on substantially the same basis as the audited
financial statements and, in the opinion of Cyras's management, include those
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the financial position and the results of operations for
the periods presented. Historical results are not necessarily indicative of the
results to be expected in the future and results of interim periods are not
necessarily indicative of results of the entire year.
PERIOD FROM NINE MONTHS ENDED PERIOD FROM
JULY 24, 1998 SEPTEMBER 30, JULY 24, 1998
(INCEPTION) TO YEAR ENDED ------------------ (INCEPTION) TO
DECEMBER 31, 1998 DECEMBER 31, 1999 1999 2000 SEPTEMBER 30, 2000
----------------- ----------------- ------- -------- ------------------
(IN THOUSANDS)
STATEMENT OF OPERATIONS
DATA:
Operating expenses:
Research and
development............ $526 $ 9,345 $5,602 $27,919 $37,790
Sales and marketing....... 78 493 315 4,421 4,992
General and
administrative......... 190 2,265 1,267 4,124 6,579
Amortization of deferred
stock compensation..... -- 59 -- 17,301 17,360
---- ------- ------ ------- -------
Total operating
expenses............. 794 12,162 7,184 53,765 66,721
Interest (income) expense,
net....................... (69) (436) (122) 641 136
---- ------- ------ ------- -------
Loss before income tax
expense................... 725 11,726 7,062 54,406 66,857
Income tax expense.......... 1 1 -- -- 2
---- ------- ------ ------- -------
Net loss............... $726 $11,727 $7,062 $54,406 $66,859
==== ======= ====== ======= =======
DECEMBER 31,
----------------- SEPTEMBER 30,
1998 1999 2000
------ -------- -------------
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents................................... $3,877 $ 42,663 $162,515
Working capital............................................. 7,730 43,985 160,792
Total assets................................................ 8,827 51,107 185,817
Long-term obligations, excluding current portion............ -- 2,834 154,288
Convertible preferred stock................................. 9,031 55,947 66,903
Stockholders' deficit....................................... (698) (12,014) (45,768)
8
16
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following selected unaudited pro forma combined financial data present
the effect of the pending merger between CIENA and Cyras as if the merger had
been completed on November 1, 1999 for results of operations purposes and on
October 31, 2000 for balance sheet purposes. The pro forma combined balance
sheet is based upon the historical consolidated balance sheet data of CIENA as
of October 31, 2000, and the historical balance sheet data of Cyras as of
September 30, 2000. The pro forma combined statement of operations includes the
historical consolidated statement of operations data of CIENA for the year ended
October 31, 2000 and the combined historical statement of operations data of
Cyras for the three months ended December 31, 1999 and the nine months ended
September 30, 2000.
The unaudited pro forma combined financial data is based on estimates and
assumptions which are preliminary and have been made solely for the purposes of
developing these unaudited pro forma combined financial data. The unaudited pro
forma combined financial data is not necessarily an indication of the results
that would have been achieved had the transaction been consummated as of the
dates indicated or results that may be achieved in the future.
These selected unaudited pro forma combined financial data should be read
in conjunction with the unaudited pro forma combined financial data, the
historical consolidated financial statements and notes thereto of CIENA, and
other financial information pertaining to CIENA including "CIENA Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Risk Factors" incorporated by reference, and the historical financial
statements and notes thereto of Cyras, and other financial information
pertaining to Cyras including "Information About Cyras -- Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Risk Factors" included herein.
9
17
CIENA AND CYRAS
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED
OCTOBER 31,
2000
--------------
SELECTED UNAUDITED PRO FORMA COMBINED
STATEMENT OF OPERATIONS DATA:
Revenue..................................................... $ 858,750
Cost of goods sold.......................................... 477,393
---------
Gross profit.............................................. 381,357
---------
Operating expenses
Research and development.................................. 202,644
Selling and marketing..................................... 120,807
General and administrative................................ 56,939
Settlement of accrued contract obligation................. (8,538)
Amortization of intangibles............................... 236,087
Amortization of deferred stock compensation............... --
Provision for doubtful accounts........................... 28,010
---------
Total operating expenses.................................... 635,949
---------
Loss from operations........................................ (254,592)
Interest and other income (expense), net.................... 16,562
Interest expense............................................ (2,078)
Interest expense -- accretion of redemption................. (2,131)
---------
Loss before income taxes.................................... (242,239)
Benefit for income taxes.................................... (2)
---------
Net loss.................................................... $(242,237)
=========
Basic net loss per common share............................. $ (0.80)
=========
Diluted net loss per common and dilutive potential common
share..................................................... $ (0.80)
=========
Weighted average basic common shares outstanding............ 303,407
=========
Weighted average basic common and dilutive potential common
shares outstanding........................................ 303,407
=========
OCTOBER 31,
2000
---------------
SELECTED UNAUDITED PRO FORMA COMBINED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 305,702
Working capital............................................. 778,704
Intangible assets........................................... 1,647,791
Total assets................................................ 2,876,497
Convertible subordinated notes and other long-term
obligations, excluding current portion.................... 159,170
Stockholders' equity........................................ 2,447,949
10
18
COMPARATIVE PER SHARE DATA
(UNAUDITED)
The following table reflects the historical net income and book value per
share of CIENA common stock and the historical net loss and book value per share
of Cyras common stock in comparison with the unaudited pro forma net loss and
book value per share after giving effect to the pending merger of CIENA and
Cyras. The information presented in the following table should be read in
conjunction with the unaudited pro forma combined financial data and the CIENA
historical consolidated financial statements and Cyras historical financial
statements incorporated by reference or included elsewhere in this prospectus
and proxy statement.
YEAR
ENDED
OCTOBER 31,
2000
-----------
CIENA HISTORICAL PER SHARE DATA:
Basic net income per common share......................... $ 0.29
Diluted net income per common and dilutive potential
common share........................................... $ 0.27
Book value per share at period end(1)..................... $ 2.83
CYRAS HISTORICAL PER SHARE DATA:
Basic net loss per common share(2)........................ $(2.85)
Diluted net loss per common and dilutive potential common
share(2)............................................... $(2.85)
Book value per share at period end(3)..................... $(0.74)
UNAUDITED PRO FORMA COMBINED CIENA:
Basic net loss per common share(4)........................ $(0.80)
Diluted net loss per common and dilutive potential common
share(4)............................................... $(0.80)
Book value per share at period end(5)..................... $ 7.85
EQUIVALENT PRO FORMA COMBINED CYRAS:(6)
Basic net loss per common share........................... $(0.10)
Diluted net loss per common and dilutive potential common
share.................................................. $(0.10)
Book value per share at period end........................ $ 1.02
---------------
(1) CIENA's book value per share is computed by dividing stockholders' equity by
the number of shares of common stock outstanding at October 31, 2000.
(2) Cyras's basic and diluted net loss per share is computed using the weighted
average number of common shares outstanding during the period from October
1, 1999 to September 30, 2000. Common equivalent shares are excluded from
the computation as their effect is antidilutive.
(3) Cyras's book value per share is computed by dividing stockholders' deficit
by the number of shares of common stock outstanding at September 30, 2000
inclusive of restricted common stock. The equivalent pro forma combined
amounts are calculated by multiplying the pro forma combined per share
amounts and book value by an estimated exchange ratio of 0.13 of a share of
CIENA common stock for each share of Cyras common stock assuming a
consummation date of December 27, 2000. The actual exchange ratio will not
be determined until the closing date of the merger.
(4) Pro forma combined per share CIENA information combines financial
information of CIENA for the year ended October 31, 2000 with the financial
information of Cyras for the period from October 1, 1999 to September 30,
2000. This information also assumes the merger occurred as of November 1,
1999 and was accounted for using the purchase method.
(5) Pro forma combined book value per share is computed by dividing pro forma
stockholders' equity at October 31, 2000 by the pro forma number of shares
of CIENA common stock which would have been outstanding had the merger been
consummated as of October 31, 2000.
(6) The equivalent pro forma combined Cyras information is calculated by
multiplying the CIENA pro forma combined per share amounts by an estimated
exchange ratio of 0.13 per share. The actual exchange ratio will not be
determined until the closing date of the merger.
11
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COMPARATIVE MARKET DATA
CIENA common stock is, and the shares of CIENA common stock offered to
Cyras stockholders are expected to be, listed on the Nasdaq National Market and
traded under the symbol "CIEN." The following table sets forth the high and low
sales price per share of CIENA common stock as reported by the Nasdaq National
Market for the periods indicated, adjusted to reflect the two-for-one stock
split of the common stock of CIENA, which became effective on September 18,
2000.
PRICE RANGE OF
COMMON STOCK
----------------
HIGH LOW
------- ------
Fiscal Year ending October 31, 1998
First Quarter............................................. $ 31.78 $23.72
Second Quarter............................................ $ 29.13 $18.63
Third Quarter............................................. $ 46.19 $23.44
Fourth Quarter............................................ $ 37.94 $ 4.06
Fiscal Year ending October 31, 1999
First Quarter............................................. $ 11.50 $ 6.22
Second Quarter............................................ $ 14.63 $ 8.31
Third Quarter............................................. $ 18.88 $11.35
Fourth Quarter............................................ $ 21.41 $14.53
Fiscal Year ending October 31, 2000
First Quarter............................................. $ 39.69 $16.75
Second Quarter............................................ $ 94.50 $30.03
Third Quarter............................................. $ 90.13 $44.94
Fourth Quarter............................................ $151.00 $64.19
Fiscal Year ending October 31, 2001
First Quarter............................................. $121.38 $59.56
Second Quarter (through February , 2001)................ $ $
On December 18, 2000, the last full trading day prior to the public
announcement of execution of the merger agreement the closing sale price for
CIENA common stock was $96.38. On , 2001, the last full trading day
for which information was available prior to the printing of this prospectus and
proxy statement, the closing sale price for CIENA common stock was $ .
The market prices of CIENA's common stock are subject to fluctuation. As a
result, you are urged to obtain current market annotations for CIENA shares.
As of February , 2001, there were holders of record of CIENA
common stock.
CYRAS. There is no established public trading market for Cyras common
stock or Cyras preferred stock. The Cyras 4 1/2% convertible subordinated notes
trade on the PORTAL market.
COMPARISON. The following table shows (1) closing prices for CIENA common
stock and (2) the estimated value of the CIENA common stock into which Cyras
common and preferred stock is to be exchanged in the merger, on an equivalent
per share basis calculated, as if the merger had occurred on the dates shown:
CYRAS
CYRAS SERIES E PREFERRED
CIENA COMMON STOCK STOCK
COMMON STOCK EQUIVALENT EQUIVALENT
DATE ACTUAL PRICE PER SHARE PER SHARE
---- ------------ ------------ ------------------
, 2000.................................. $ $ $
, 2001.................................. $ $ $
12
20
RISK FACTORS
You should carefully consider the following risk factors relating to the
merger and to ownership of CIENA common stock before you decide whether to vote
to approve and adopt the merger agreement and approve the merger.
RISKS RELATING TO THE MERGER
THE VALUE OF THE CIENA COMMON STOCK YOU MAY RECEIVE IN THE MERGER WILL DEPEND ON
ITS MARKET PRICE AT THE TIME OF THE MERGER, AND NO ADJUSTMENT WILL BE MADE IF
THAT MARKET PRICE DECLINES.
The value of the CIENA stock that you will receive in the merger depends on
the market price of CIENA common stock. The market price of CIENA common stock
is extremely volatile and has fluctuated over a wide range. From to
, the CIENA common stock traded as high as $ per share and as low
as $ per share. The market price may continue to fluctuate significantly in
response to various factors, including:
- quarterly variations in operating results or growth rates;
- changes in estimates by securities analysts;
- market conditions in the industry;
- announcements and actions by competitors;
- regulatory and judicial actions; and
- general economic conditions.
Due to these fluctuations, it is unlikely that, at the time you vote, you
will have any certainty of the value of the CIENA stock that you will receive in
the merger. In addition, the stock market has from time to time experienced
significant price and volume fluctuations unrelated to the operating performance
of particular companies. These fluctuations may continue to affect the stock
prices of technology companies, such as CIENA, in particular. The market price
of CIENA common stock may decline.
CIENA MAY NOT BE ABLE TO ACHIEVE THE BENEFITS IT SEEKS FROM THE MERGER.
We cannot be certain that we will achieve the benefits both parties
envision from the merger. These benefits, including the accretion to CIENA's
earnings which CIENA expects to achieve in the second half of fiscal 2002,
depend on the combined company's ability to successfully complete the
development of the Cyras K2 product and integrate it into CIENA's product
portfolio, achieve commercial acceptance for the Cyras product, achieve our
revenue expectations for the Cyras product and the expected synergies, and
successfully integrate and retain Cyras personnel. Cyras's product is in the
development phase and is not yet ready for commercial manufacturing or
deployment, and we cannot assure you that the substantial efforts necessary to
complete development of the product and achieve commercial acceptance will be
successful. CIENA has only limited experience in significant acquisitions and
cannot assure you that this acquisition will be successful.
WE MAY NOT BE ABLE TO SUCCESSFULLY INTEGRATE CYRAS INTO CIENA'S OPERATIONS.
The integration of Cyras into our operations following our merger with
Cyras involves a number of risks, including:
- difficulty assimilating Cyras's operations and personnel;
- diversion of management attention;
- potential disruption of ongoing business;
- inability to retain key personnel;
- inability to maintain uniform standards, controls, procedures and
policies; and
- impairment of relationships with employees, customers or vendors.
13
21
If CIENA fails to overcome these risks or encounter other problems in
connection with the merger we may not be able to achieve the benefits we seek
from the acquisition and our business may be disrupted.
SIGNIFICANT MERGER-RELATED CHARGES AGAINST EARNINGS WILL REDUCE CIENA'S EARNINGS
IN THE QUARTER IN WHICH WE CONSUMMATE THE MERGER AND DURING THE POST-MERGER
INTEGRATION PERIOD.
If and when the merger is completed, CIENA will incur a charge for
in-process research and development, which we currently estimate will be
approximately $16.4 million. The actual charge we incur could be greater than
this estimate, which could have a material adverse effect on the combined
company's results of operations and financial condition. Also, in the future we
will incur non-cash charges in connection with the merger related to goodwill
and other intangible amortization and amortization of deferred stock
compensation. Other merger-related costs will be capitalized as part of the
acquisition's purchase price and amortized in future periods. We could also
incur other additional unanticipated merger costs relating to the merger.
THE $150 MILLION IN DEBT THAT CIENA WILL INCUR IN CONNECTION WITH THE MERGER MAY
LIMIT CIENA'S FINANCING OPTIONS IN THE FUTURE AND COULD WEAKEN OUR BUSINESS.
CIENA recently issued $690 million of 3.75% convertible notes due February
1, 2008. Cyras has $150 million of 4 1/2% convertible subordinated notes
outstanding. CIENA will indirectly assume these Cyras notes at the effective
date of the merger. This additional indebtedness could adversely affect CIENA in
a number of ways, including:
- limiting CIENA's ability to obtain additional financing in the future;
- limiting CIENA's flexibility to plan for, or react to, changes in its
business;
- requiring CIENA to use a substantial portion of its cash flow from
operations or utilize a significant portion of cash on hand to repay the
debt when due in August 2005, or earlier if CIENA is required to offer to
repurchase the notes, as described below, rather than for other purposes,
such as working capital or capital expenditures;
- making CIENA more highly leveraged than some of its competitors, which
may place it at a competitive disadvantage; and
- making CIENA more vulnerable to a downturn in its business.
Additionally, in the event that the holders of the notes convert their
notes into CIENA common stock, CIENA would have to issue a significant number of
shares of additional common stock. For example, if the merger closed on December
28, 2000, when the exchange ratio was 0.13, CIENA would have to issue 1,022,411
shares of its common stock if holders of the entire $150 million of convertible
notes determined to convert.
In the event that the holders of the notes do not elect to convert them
into CIENA common stock before March 31, 2002, and if a complying equity
offering has not occurred on or before that date, CIENA will have to make an
offer to repurchase the notes at 118.942% of the principal balance of the notes
on April 30, 2002. A complying equity offering is defined as a firm commitment
underwritten public offering of the common stock of Cyras, in which Cyras raises
at least $50 million in gross proceeds.
RISKS RELATED TO AN INVESTMENT IN CIENA
PART OF OUR STRATEGY INVOLVES PURSUING STRATEGIC ACQUISITIONS THAT MAY NOT BE
SUCCESSFUL.
As part of our strategy for growth, we will consider acquiring businesses
that are intended to accelerate our product and service development processes
and add complementary products and services. We may issue equity or incur debt
to finance these acquisitions and may incur significant amortization expenses
related to goodwill and other intangible assets. Acquisitions involve a number
of operational risks, including risks that the acquired business will not be
successfully integrated, may distract management attention and may involve
unforeseen costs and liabilities.
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OUR STOCK PRICE MAY EXHIBIT VOLATILITY.
Our common stock price has experienced substantial volatility in the past,
and is likely to remain volatile in the future. Volatility can arise as a result
of the activities of short sellers and risk arbitrageurs, and may have little
relationship to our financial results or prospects. Volatility can also result
from any divergence between our actual or anticipated financial results and
published expectations of analysts, and announcements that we, our competitors,
or our customers may make.
Divergence between our actual results and our anticipated results, analyst
estimates and public announcements by us, our competitors, or by customers will
likely occur from time to time in the future, with resulting stock price
volatility, irrespective of our overall year-to-year performance or long-term
prospects. As long as we continue to depend on a limited customer base, and
particularly when a substantial majority of their purchases consist of
newly-introduced products like the MultiWave CoreStream, MultiWave CoreDirector
and MultiWave Metro, there is substantial risk that our quarterly results will
vary widely.
OUR RESULTS CAN BE UNPREDICTABLE.
Our ability to recognize revenue during a quarter from a customer depends
upon our ability to ship product and satisfy other contractual obligations of a
customer sale in that quarter. In general, revenue and operating results in any
reporting period may fluctuate due to factors including:
- loss of a customer;
- the timing and size of orders from customers;
- changes in customers' requirements, including changes to orders from
customers;
- the introduction of new products by us or our competitors;
- changes in the price or availability of components for our products;
- readiness of customer sites for installation;
- satisfaction of contractual customer acceptance criteria and related
revenue recognition issues;
- manufacturing and shipment delays and deferrals;
- increased service, warranty or repair costs;
- the timing and amount of employer payroll tax to be paid on employee
gains on stock options exercised; and
- changes in general economic conditions as well as those specific to the
telecommunications and intelligent optical networking industries.
Our intelligent optical networking products require a relatively large
investment, and our target customers are highly demanding and technically
sophisticated. There are only a limited number of potential customers in each
geographic market, and each customer has unique needs. As a result, the sales
cycles for our products are long, often more than a year between our initial
contact with the customer and its commitment to purchase.
We budget expense levels on our expectations of long-term future revenue.
These budgets reflect our substantial investment in the financial, engineering,
manufacturing and logistics support resources we think we may need for large
potential customers, even though we do not know the volume, duration or timing
of any purchases from them. In addition, we make a substantial investment in
financial, manufacturing and engineering resources for the development of new
and enhanced products. As a result, we may continue to experience high inventory
levels, operating expenses and general overhead.
We have experienced rapid expansion in all areas of our operations,
particularly in the manufacturing of our products. Our future operating results
will depend on our ability to continue to expand our manufacturing facilities in
a timely manner so that we can satisfy our delivery commitments to our
customers. Our failure to expand these facilities in a timely manner and meet
our customer delivery commitments would harm our business, financial condition
and results of operations.
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Our product development efforts will require us to incur ongoing
development and operating expenses, and any delay in the contributions from new
products, such as the MultiWave CoreDirector product line, and enhancements to
our existing optical transport products could harm our business.
CHANGES IN TECHNOLOGY OR THE DELAYS IN THE DEPLOYMENT OF NEW PRODUCTS COULD HURT
OUR NEAR TERM PROSPECTS.
The market for optical networking equipment is changing at a rapid pace.
The accelerated pace of deregulation and the adoption of new technology in the
telecommunications industry likely will intensify the competition for improved
optical networking products. Our ability to develop, introduce and manufacture
new and enhanced products will depend upon our ability to anticipate changes in
technology, industry standards and customer requirements. Our failure to
introduce new and enhanced products in a timely manner could harm our
competitive position and financial condition. Several of our new products,
including the MultiWave CoreDirector and the enhancements to the MultiWave
CoreStream products, are based on complex technology which could result in
unanticipated delays in the development, manufacture or deployment of these
products. In addition, our ability to recognize revenue from these products
could be adversely affected by the extensive testing required for these products
by our customers. The complexity of technology associated with support equipment
for these products could also result in unanticipated delays in their
deployment. These delays could harm our competitive and financial condition.
Competition from competitive products, the introduction of new products
embodying new technologies, a change in the requirements of our customers, or
the emergence of new industry standards could delay or hinder the purchase and
deployment of our products and could render our existing products obsolete,
unmarketable or uncompetitive from a pricing standpoint. The long certification
process for new telecommunications equipment used in the networks of the
regional Bell operating companies has in the past resulted in and may continue
to result in unanticipated delays which may affect the deployment of our
products for market.
WE FACE INTENSE COMPETITION WHICH COULD HURT OUR SALES AND PROFITABILITY.
The market for optical networking equipment is extremely competitive.
Competition in the optical networking installation and test services market is
based on varying combinations of price, functionality, software functionality,
manufacturing capability, installation, services, scalability and the ability of
the system solution to meet customers' immediate and future network
requirements. A small number of very large companies, including Alcatel, Cisco
Systems, Fujitsu Group, Hitachi, Lucent Technologies, NEC Corporation, Nortel
Networks, Siemens AG and Telefon AB LM Ericsson, have historically dominated the
telecommunications equipment industry. These companies have substantial
financial, marketing, manufacturing and intellectual property resources. In
addition, these companies have substantially greater resources to develop or
acquire new technologies than we do and often have existing relationships with
our potential customers. We sell systems that compete directly with product
offerings of these companies and in some cases displace or replace equipment
they have traditionally supplied for telecommunications networks. As such, we
represent a specific threat to these companies. The continued expansion of our
product offerings with the MultiWave CoreDirector product line and enhancements
to our MultiWave CoreStream product line likely will increase this perceived
threat. We expect continued aggressive tactics from many of these competitors,
including:
- price discounting;
- early announcements of competing products and other marketing efforts;
- "one-stop shopping" options;
- customer financing assistance;
- marketing and advertising assistance; and
- intellectual property disputes.
These tactics can be particularly effective in a highly concentrated
customer base such as ours. Our customers are under increasing competitive
pressure to deliver their services at the lowest possible cost. This pressure
may result in pricing for optical networking systems becoming a more important
factor in
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customer decisions, which may favor larger competitors that can spread the
effect of price discounts in their optical networking products across a larger
array of products and services and across a larger customer base than ours. If
we are unable to offset any reductions in the average sales price for our
products by a reduction in the cost of our products, our gross profit margins
will be adversely affected. Our inability to compete successfully against our
competitors and maintain our gross profit margins would harm our business,
financial condition and results of operations.
Many of our customers have indicated that they intend to establish a
relationship with at least two vendors for optical networking products. With
respect to customers for whom we are the only supplier, we do not know when or
if these customers will select a second vendor or what impact the selection
might have on purchases from us. If a second optical networking supplier is
chosen, these customers could reduce their purchases from us, which could in
turn have a material adverse effect on us.
New competitors are emerging to compete with our existing products as well
as our future products. We expect new competitors to continue to emerge as the
optical networking market continues to expand. These companies may achieve
commercial availability of their products more quickly due to the narrow and
exclusive focus of their efforts. Several of these competitors have raised
significantly more cash and they have in some cases offered stock in their
companies, positions on technical advisory boards, or have provided significant
vendor financing to attract new customers. In particular, a number of companies,
including several start-up companies and recently public companies that have
raised substantial equity capital, have announced products that compete with our
products. Our inability to compete successfully against these companies would
harm our business, financial condition and results of operations.
WE MAY NOT BE ABLE TO SUCCESSFULLY COMPLETE DEVELOPMENT AND ACHIEVE COMMERCIAL
ACCEPTANCE OF NEW PRODUCTS.
Our MultiWave CoreDirector CI product and some enhancements to the
MultiWave CoreDirector and MultiWave CoreStream product lines and LightWorks
Toolkit are in the development phase and are not yet ready for commercial
manufacturing or deployment. We expect to offer additional releases of the
MultiWave CoreDirector product over the life of the product and continue to
enhance features of our MultiWave CoreStream product, including the longer reach
and higher channel count functionality of our product line. The initial release
of MultiWave CoreDirector CI is expected in limited availability for customer
trials during the first quarter of calendar 2001. The maturing process from
laboratory prototype to customer trials, and subsequently to general
availability, involves a number of steps, including:
- completion of product development;
- the qualification and multiple sourcing of critical components, including
application-specific integrated circuits;
- validation of manufacturing methods and processes;
- extensive quality assurance and reliability testing, and staffing of
testing infrastructure;
- validation of embedded software validation;
- establishment of systems integration and systems test validation
requirements; and
- identification and qualification of component suppliers.
Each of these steps in turn presents serious risks of failure, rework or
delay, any one of which could decrease the speed and scope of product
introduction and marketplace acceptance of the product. Specialized
application-specific integrated circuits and intensive software testing and
validation, in particular, are key to the timely introduction of enhancements to
the MultiWave CoreDirector product line, and schedule delays are common in the
final validation phase, as well as in the manufacture of specialized
application-specific integrated circuits. In addition, unexpected intellectual
property disputes, failure of critical design elements, and a host of other
execution risks may delay or even prevent the introduction of these products. If
we do not develop and successfully introduce these products in a timely manner,
our business, financial condition and results of operations would be harmed.
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The markets for our MultiWave CoreDirector product line are relatively new.
We have not established commercial acceptance of these products, and we cannot
assure you that the substantial sales and marketing efforts necessary to achieve
commercial acceptance in traditionally long sales cycles will be successful. If
the markets for these products do not develop or the products are not accepted
by the market, our business, financial condition and results of operations would
suffer.
WE DEPEND ON A LIMITED NUMBER OF SUPPLIERS AND FOR SOME ITEMS WE DO NOT HAVE A
SUBSTITUTE SUPPLIER.
We depend on a limited number of suppliers for components of our products,
as well as for equipment used to manufacture and test our products. Our products
include several high-performance components for which reliable, high volume
suppliers are particularly limited. Furthermore, some key optical and electronic
components we use in our optical transport systems are currently available only
from sole sources, and in some cases, that sole source is also a competitor. A
worldwide shortage of some electrical components has caused an increase in the
price of components. Any delay in component availability for any of our products
could result in delays in deployment of these products and in our ability to
recognize revenues. These delays could harm our customer relationships.
Failures of components can affect customer confidence in our products and
could adversely affect our financial performance and the reliability and
performance of our products. On occasion, we have experienced delays in receipt
of components and have received components that do not perform according to
their specifications. Any future difficulty in obtaining sufficient and timely
delivery of components could result in delays or reductions in product shipments
which, in turn, could harm our business. A recent wave of consolidation among
suppliers of these components, such as the recent and pending purchases of E-TEK
and SDL, respectively, by JDS Uniphase, could adversely impact the availability
of components on which we depend. Delayed deliveries of key components from
these sources could adversely affect our business.
Any delays in component availability for any of our products or test
equipment could result in delays in deployment of these products and in our
ability to recognize revenue from them. These delays could also harm our
customer relationships and our results of operations.
WE RELY ON CONTRACT MANUFACTURERS FOR OUR PRODUCTS.
We rely on a small number of contract manufacturers to manufacture our
CoreDirector product line and some of the components for our other products. The
qualification of these manufacturers is an expensive and time consuming process,
and these contract manufacturers build modules for other companies, including
for our competitors. In addition, we do not have contracts in place with many of
these manufacturers. We may not be able to effectively manage our relationships
with our manufacturers and we cannot be certain that they will be able to fill
our orders in a timely manner. If we cannot effectively manage these
manufacturers or they fail to deliver components in a timely manner, it may have
an adverse effect on our business and results of operations.
SOME OF OUR SUPPLIERS ARE ALSO OUR COMPETITORS.
Some of our component suppliers are both primary sources for components and
major competitors in the market for system equipment. For example, we buy
components from:
- Alcatel;
- Lucent Technologies;
- NEC Corporation;
- Nortel Networks; and
- Siemens AG.
Each of these companies offers optical communications systems and equipment
that are competitive with our products. Also, Lucent is the sole source of two
components and is one of two suppliers of two others. Recently, Lucent has
announced that it intends to spin off a portion of its components business. Our
supply of components from Lucent may be adversely effected by this
restructuring. Alcatel and Nortel
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are suppliers of lasers used in our products, and NEC is a supplier of an
important piece of testing equipment. A decline in reliability or other adverse
change in these supply relationships could harm our business.
SALES TO EMERGING CARRIERS MAY INCREASE THE UNPREDICTABILITY OF OUR RESULTS.
As we continue to address emerging carriers, timing and volume of
purchasing from these carriers can also be more unpredictable due to factors
such as their need to build a customer base, acquire rights of way and
interconnections necessary to sell network service, and build out new capacity,
all while working within their capital budget constraints. Sales to these
carriers may increase the unpredictability of our financial results because even
these emerging carriers purchase our products in multi-million dollar
increments.
Unanticipated changes in customer purchasing plans also create
unpredictability in our results. A portion of our anticipated revenue over the
next several quarters is comprised of orders of less than $25 million each from
several customers, some of which may involve extended payment terms or other
financing assistance. Our ability to recognize revenue from financed sales to
emerging carriers will depend on the relative financial condition of the
specific customer, among other factors. Further, we will need to evaluate the
collectibility of receivables from these customers if their financial conditions
deteriorate in the future. Purchasing delays and changes in the financial
condition or the amount of purchases by any of these customers could have a
material adverse effect on us. In the past we have had to make provisions for
the accounts receivables from customers that experienced financial difficulty.
If additional customers face similar financial difficulties, our receivables
from these customers may become uncollectible, and we would have to write off
the asset or decrease the value of the asset to the extent the receivable could
not be collected. These write-downs or write-offs would adversely affect our
financial performance.
OUR ABILITY TO COMPETE COULD BE HARMED IF WE ARE UNABLE TO PROTECT AND ENFORCE
OUR INTELLECTUAL PROPERTY RIGHTS OR IF WE INFRINGE ON INTELLECTUAL PROPERTY
RIGHTS OF OTHERS.
We rely on a combination of patent, copyright, trademark and trade secret
laws and restrictions on disclosure to protect our intellectual property rights.
We also enter into non-disclosure and proprietary rights agreements with our
employees and consultants, and license agreements with our corporate partners,
and control access to and distribution of our products, 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 products is difficult
and we cannot be certain 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. If competitors
are able to use our technology, our ability to compete effectively could be
harmed. We are involved in an intellectual property dispute regarding the use of
our technology and may become involved with additional disputes in the future.
Such lawsuits can be costly and may significantly divert time and attention from
some members of our personnel.
We have received, and may receive in the future, notices from holders of
patents in the optical technology field that raise issues of possible
infringement by our products. Questions of infringement in the optical
networking equipment market often involve highly technical and subjective
analysis. We cannot assure you that any of these patent holders or others will
not in the future initiate legal proceedings against us, or that we will be
successful in defending against these actions. We are involved in an
intellectual property dispute regarding the possible infringement of our
products. In the past, we have been forced to take a license from the owner of
the infringed intellectual property, or to redesign or stop selling the product
that includes the challenged intellectual property. If we are sued for
infringement and are unsuccessful in defending the suit, we could be subject to
significant damages and our business and customer relationships could be
adversely affected.
PRODUCT PERFORMANCE PROBLEMS COULD LIMIT OUR SALES PROSPECTS.
The production of new optical networking products and systems with high
technology content involves occasional problems as the technology and
manufacturing methods mature. If significant reliability, quality
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or network monitoring problems develop, including those due to faulty
components, a number of negative effects on our business could result,
including:
- costs associated with reworking our manufacturing processes;
- high service and warranty expenses;
- high inventory obsolescence expense:
- high levels of product returns;
- delays in collecting accounts receivable;
- reduced orders from existing customers; and
- declining interest from potential customers.
Although we maintain accruals for product warranties, actual costs could
exceed these amounts. From time to time, there will be interruptions or delays
in the activation of our products at a customer's site. These interruptions or
delays may result from product performance problems or from aspects of the
installation and activation activities, some of which are outside our control.
If we experience significant interruptions or delays that we can not promptly
resolve, confidence in our products could be undermined, which could harm our
business.
OUR PROSPECTS DEPEND ON DEMAND WHICH WE CANNOT RELIABLY PREDICT OR CONTROL.
We may not anticipate changes in direction or magnitude of demand for our
products. The product offerings of our competitors could adversely affect the
demand for our products. In addition, unanticipated reductions in demand for our
products could adversely affect us.
Demand for our product depends on our customers' requirements. These
requirements may vary significantly from quarter to quarter due to factors such
as:
- the type and quantity of optical equipment needed by our customers;
- the timing of the deployment of optical equipment by our customers;
- the rate at which our current customers fund their network build-outs;
and
- the equipment configurations and network architectures our customers
want.
Customer determinations are subject to abrupt changes in response to their
own competitive pressures, capital requirements and financial performance
expectations. These changes could harm our business.
Recently we have experienced an increased level of sales activity that
could lead to an upsurge in demand that is reflected in the overall increase in
demand for optical networking and similar products in the telecommunications
industry. Our results may suffer if we are unable to address this demand
adequately by successfully scaling up our manufacturing capacity and hiring
additional qualified personnel. To date we have largely depended on our own
manufacturing and assembly facilities to meet customer expectations, but we
cannot be sure that we can satisfy our customers' expectations in all cases by
internal capabilities. In that case, we face the challenge of adequately
managing customer expectations and finding alternative means of meeting them. If
we fail to manage these expectations we could lose customers or receive smaller
orders from customers.
OUR SUCCESS LARGELY DEPENDS ON OUR ABILITY TO RETAIN KEY PERSONNEL.
Our success has always depended in large part on our ability to attract and
retain highly-skilled technical, managerial, sales and marketing personnel,
particularly those skilled and experienced with optical communications
equipment. Our key founders and employees, together with the key founders and
employees of our acquired companies have received a substantial number of our
shares and vested options that can be sold at substantial gains. In many cases,
these individuals could become financially independent through these sales
before our future products have matured into commercially deliverable products.
These circumstances may make it difficult to retain and motivate these key
personnel.
As we have grown and matured, competitors' efforts to hire our employees
have intensified, particularly among competitive start-up companies and other
early stage companies. We have agreements
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in place with most of our employees that limit their ability to work for a
competitor and prohibit them from soliciting our other employees and our
customers following termination of their employment. Our employees and our
competitors may not respect these agreements. We have in the past been required
to enforce, and are currently in the process of enforcing, some of these
agreements. We expect in the future to continue to be required to resort to
legal actions to enforce these agreements and could incur substantial costs in
doing so. We may not be successful in these legal actions, and we may not be
able to retain all of our key employees or attract new personnel to add to or
replace them. The loss of key personnel would likely harm our business.
FORWARD-LOOKING STATEMENTS
Some of the statements contained, or incorporated by reference, in this
prospectus and proxy statement discuss future expectations, contain projections
of results of operations or financial condition or state other "forward-looking"
information. Those statements are subject to known and unknown risks,
uncertainties and other factors that could cause the actual results to differ
materially from those contemplated by the statements. The "forward-looking"
information is based on various factors and was derived using numerous
assumptions. In some cases, you can identify these so-called "forward-looking
statements" by words like "may," "will," "should," "expects," "plans,"
"anticipates," "believes," "estimates," "predicts," "potential," or "continue"
or the negative of those words and other comparable words. You should be aware
that those statements only reflect our predictions. Actual events or results may
differ substantially. Important factors that could cause our actual results to
be materially different from the forward-looking statements are disclosed under
the heading "Risk Factors" and throughout this prospectus and proxy statement.
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THE SPECIAL MEETING OF CYRAS STOCKHOLDERS
GENERAL
Cyras is furnishing this document to holders of Cyras common stock and
preferred stock in connection with the solicitation of proxies by the Cyras
board of directors for use at the special meeting of Cyras stockholders to be
held on , 2001, and at any adjournment or postponement thereof. This
document also is being furnished to Cyras stockholders by CIENA as a prospectus
of CIENA in connection with the issuance by CIENA of shares of CIENA common
stock as contemplated by the merger agreement.
This document was first mailed to stockholders of Cyras on or about
, 2001.
DATE, TIME AND PLACE
The special meeting will be held on , 2001 at a.m.,
local time, at the Fremont Marriott, 46100 Landing Parkway, Fremont, California
94538.
PURPOSE OF THE SPECIAL MEETING
At the special meeting, and any adjournment or postponement thereof:
1. The holders of Cyras common stock, voting as a class, and the
holders of Cyras preferred stock, voting together as a single class, will
be asked to consider and vote on proposals:
- To approve and adopt the merger agreement by and among CIENA, CO
Acquisition Corp., a wholly-owned subsidiary of CIENA, and Cyras,
and to approve the merger of Cyras with CO Acquisition Corp.;
whereby the holders of Cyras stock will receive for each share of
Cyras stock held, a fraction of CIENA stock based on the formula
described in this prospectus and proxy statement;
- To ratify the appointment of Douglas Carlisle as the stockholder
representative under the escrow agreement referred to in the
merger agreement;
- To grant the Cyras board of directors discretionary authority to
adjourn the special meeting to solicit additional votes for
approval and adoption of the merger agreement and for approval of
the merger; and
- To transact such other business as may properly come before the
special meeting or any adjournment or postponement thereof.
2. The holders of preferred stock of Cyras, voting together as a
single class, will be asked to cause the automatic conversion of Cyras
preferred stock, other than series E preferred stock, held by them into
shares of common stock of Cyras immediately prior to the effective time of
the merger.
A copy of the merger agreement is attached to this document as Appendix A.
Cyras stockholders are encouraged to read the merger agreement in its entirety.
RECORD DATE FOR THE SPECIAL MEETING
The Cyras board of directors has fixed the close of business on January 31,
2001 as the record date for determination of Cyras stockholders entitled to
notice of and to vote at the special meeting.
VOTING OF PROXIES AT THE SPECIAL MEETING AND REVOCATION OF PROXIES
Cyras requests that all holders of Cyras common stock on the record date
complete, date and sign the accompanying proxy card for common stockholders, and
that all holders of Cyras preferred stock on the record date complete, date and
sign the accompanying proxy card for preferred stockholders, and promptly return
them in the accompanying envelope or otherwise mail them to Cyras. All properly
executed proxy cards that Cyras receives prior to the vote at the special
meeting, and that are not revoked, will be voted in accordance with the
instructions indicated on the proxy cards. If no direction is indicated on any
proxy card, it will be voted in favor of approval and adoption of the merger
agreement and approval of the merger and in favor of ratification of the
appointment of Douglas Carlisle as stockholder representative. The Cyras board
of directors does not currently intend to bring any other business before the
special
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meeting and, to the knowledge of the Cyras board of directors, no other matters
are to be brought before the special meeting. If other business properly comes
before the special meeting, the proxy holders will vote in accordance with their
own judgment.
A Cyras stockholder may revoke a proxy at any time prior to its use:
- by delivering to the Secretary of Cyras a signed notice of revocation;
- by delivering to the Secretary of Cyras a later-dated, signed proxy card;
or
- by attending the special meeting and voting in person.
Attendance at the special meeting does not in itself constitute the
revocation of a proxy.
VOTES REQUIRED FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND APPROVAL OF
THE MERGER
In order for the merger to be effective:
- the holders of a majority of the shares of Cyras common stock outstanding
as of the record date, voting as a class, and
- the holders of a majority of the shares of Cyras preferred stock
outstanding as of the record date, voting together as a single class
must vote to adopt and approve the merger agreement and approve the merger. As
of the close of business on the record date for the special meeting, 62,195,944
shares of Cyras common stock and 137,855,817 shares of Cyras preferred stock
were issued and outstanding, warrants to purchase 20,000 shares of Cyras common
stock and 3,650,896 shares of Cyras preferred stock were outstanding, and there
were approximately 432 stockholders of record. Each share of Cyras common stock
and Cyras preferred stock outstanding on the record date is entitled to one vote
at the special meeting on each matter to be voted on.
In order for the Cyras preferred stock, excluding the Cyras series E
preferred stock, to be automatically converted into shares of Cyras common
stock, the holders of two-thirds of the shares of Cyras preferred stock
outstanding as of the record date must vote for the automatic conversion of the
preferred stock into common stock. As of the close of business on the record
date for the special meeting, 137,855,817 shares of Cyras preferred stock, were
issued and outstanding, warrants to purchase 3,650,896 shares of Cyras preferred
stock were issued and outstanding and there were approximately 199 preferred
stockholders of record. Each share of Cyras preferred stock outstanding on the
record date is entitled to one vote at the special meeting.
As of the close of business on the record date for the special meeting,
Cyras's directors and executive officers (and their respective affiliates) held
approximately 36,648,543 shares of Cyras common stock and 55,616,994 shares of
Cyras preferred stock, or approximately 58.9% of the shares of Cyras common
stock and 40.3% of the shares of preferred stock entitled to vote at the special
meeting, excluding options and warrants to purchase Cyras common stock or
preferred stock which were unexercised as of the record date. All of these
directors, executive officers and stockholders of Cyras have entered into
stockholder agreements, pursuant to which they have agreed to vote their Cyras
shares in favor of adoption and approval of the merger agreement and approval of
the merger, in favor of any matter that could reasonably be expected to
facilitate the merger, against any proposal made in opposition to, or in
competition with, the merger, and against any amendment of the Cyras certificate
of incorporation or bylaws that is intended to, or that could reasonably be
expected to impede, frustrate, prevent or nullify the merger or change the
voting rights of the capital stock. As of the close of business on the record
date for the special meeting, no director or executive officer of CIENA owned
any shares of Cyras common stock, except for Judith O'Brien, a director of
CIENA, who may be deemed to beneficially have an interest in 540,000 shares of
Cyras series A preferred stock through an interest in WSGR Investment Company
98B, an investment fund affiliated with her law firm. As of the close of
business on the record date for the special meeting, no director or executive
officer of Cyras owned any shares of CIENA common stock.
QUORUM AND ABSTENTIONS
A majority of all shares of Cyras common stock and preferred stock,
outstanding as of the record date, each as a separate class, represented in
person or by proxy, constitutes a quorum for the transaction
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of business at the special meeting. Cyras has appointed its General Counsel and
Secretary to function as the inspector of elections of the special meeting. The
inspector of elections will ascertain whether a quorum is present, tabulate
votes and determine the voting results on all matters presented to Cyras
stockholders at the special meeting. If a quorum is not present, or fewer shares
of Cyras common and preferred stock are voted for the adoption and approval of
the merger agreement and the approval of the merger than a majority of the
shares eligible to vote at the special meeting in person or by proxy, the
special meeting may be postponed or adjourned for the purpose of allowing
additional time for obtaining additional proxies or votes, and at any subsequent
reconvening of the special meeting, all proxies will be voted in the same manner
as the proxies would have been voted at the original convening of the special
meeting, except for any proxies that have been effectively revoked or withdrawn
prior to the subsequent reconvening of the special meeting.
If you submit a proxy that indicates an abstention from voting in all
matters, your shares will be counted as present for the purpose of determining
the existence of a quorum at the special meeting, but they will not be voted on
any matter at the applicable special meeting. Consequently, your abstention will
have the same effect as a vote against the proposal to adopt and approve the
merger agreement and to approve the merger.
SOLICITATION OF PROXIES AND EXPENSES
Cyras will bear its own expenses in connection with the solicitation of
proxies for its special meeting of stockholders, except that CIENA will bear all
printing and filing costs and expenses, other than attorneys' and accountants'
fees and expenses of Cyras. CIENA will bear all other expenses incurred in
connection with the preparation of this document and the preparation and filing
of the registration statement of which this document forms a part.
In addition to solicitation by mail, directors, officers and employees of
Cyras may solicit proxies from stockholders by telephone, facsimile, e-mail or
in person. No additional compensation will be paid to these individuals for any
of these services. Some of these individuals may have interests in the merger
that are different from, or in addition to, the interests of Cyras stockholders
generally. See "The Merger -- Interests of Cyras Officers and Directors in the
Merger." Nominees, fiduciaries and other custodians will be requested to forward
soliciting materials to beneficial owners and will be reimbursed for their
reasonable expenses incurred in sending proxy materials to beneficial owners.
BOARD RECOMMENDATION
The Cyras board of directors has unanimously determined that the merger
agreement is advisable, and that the terms of the merger agreement and the
merger are fair to and in the best interests of Cyras and its stockholders.
Accordingly, the Cyras board of directors has unanimously approved the merger
agreement and unanimously recommends that stockholders vote "FOR" adoption and
approval of the merger agreement, approval of the merger and ratification of the
appointment of Douglas Carlisle as stockholder representative. In considering
this recommendation, Cyras stockholders should be aware that some Cyras
directors and officers have interests in the merger that are different from, or
in addition to, those of other Cyras stockholders, and that CIENA has agreed to
provide indemnification arrangements to directors and officers of Cyras. See
"The Merger -- Interests of Cyras Officers and Directors in the Merger."
THE MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING ARE OF GREAT IMPORTANCE
TO THE STOCKHOLDERS OF CYRAS. ACCORDINGLY, CYRAS STOCKHOLDERS ARE URGED TO READ
AND CAREFULLY CONSIDER THE INFORMATION PRESENTED IN THIS DOCUMENT AND TO
COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE PROXY CARD(S) IN THE ENCLOSED,
POSTAGE-PAID ENVELOPE.
CYRAS'S STOCKHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR
PROXY CARDS. A TRANSMITTAL FORM WITH INSTRUCTIONS FOR THE SURRENDER OF CYRAS
COMMON STOCK CERTIFICATES WILL BE MAILED TO CYRAS STOCKHOLDERS PROMPTLY
FOLLOWING COMPLETION OF THE MERGER. FOR MORE INFORMATION REGARDING THE
PROCEDURES FOR EXCHANGING CYRAS STOCK CERTIFICATES FOR CIENA STOCK CERTIFICATES,
SEE "TERMS OF THE MERGER AGREEMENT AND RELATED TRANSACTIONS -- EXCHANGE OF
CERTIFICATES; FRACTIONAL SHARES."
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THE MERGER
GENERAL
The boards of directors of CIENA, Cyras and CO Acquisition Corp., a
wholly-owned CIENA subsidiary, have each approved the merger agreement, which
provides for the merger of Cyras with CIENA's subsidiary, with Cyras being the
surviving corporation of the merger. Each share of Cyras common stock and Cyras
series A preferred stock, Cyras series B preferred stock, Cyras series C
preferred stock, Cyras series D preferred stock and Cyras series E preferred
stock outstanding immediately prior to the merger will be converted into the
right to receive shares of CIENA common stock. The shares of Cyras common stock
and Cyras preferred stock will be converted into a number of shares of CIENA
common stock in accordance with formulas specified in the merger agreement, as
described under "Terms of the Merger Agreement and Related
Transactions--Conversion of Cyras Preferred Stock and Common Stock; Treatment of
Options and Warrants." Fractional shares of CIENA common stock will not be
issued in connection with the merger, and Cyras stockholders otherwise entitled
to a fractional share will be paid in cash for the fractional share, in the
manner described under "Terms of the Merger Agreement and Related
Transactions--Exchange of Certificates; Fractional Shares." CIENA and Cyras
expect that the merger will be completed immediately following the Cyras
stockholder meeting.
BACKGROUND OF THE MERGER
In light of the rapid changes in the telecommunications equipment industry,
including industry consolidation and globalization, it has become a regular
practice of the CIENA board of directors to review periodically with senior
management CIENA's position relative to its peers and new entrants in the
industry, as well as the strategic alternatives available to CIENA in order for
it to remain competitive and enhance shareholder value. In connection with this
ongoing review of its long-term strategic plans, from time to time CIENA has had
contact with various parties to explore on a preliminary basis several of these
strategic alternatives.
At the August 30, 2000 National Fiber Optics Engineering Conference held in
Denver, Colorado, Emil Savov, CIENA's Senior Director of Corporate Development,
visited the Cyras exhibition booth, where he had a brief conversation with
Alnoor Shivji, at the time President and Chief Operating Officer, and presently
President and Chief Executive Officer of Cyras. Topics of discussion included
Cyras's product functionality, competitive positioning, stage of product
readiness, plans for an initial public offering, and latest financing
transactions.
In mid-September 2000, Mr. Savov contacted Mr. Shivji and organized a visit
to Cyras at its headquarters in Fremont, California, which took place on
September 26, 2000. Prior to the meeting, CIENA and Cyras signed a mutual
non-disclosure agreement. CIENA's team consisted of Larry Huang, CIENA's Senior
Vice President Corporate Development, and Mr. Savov. Cyras was represented by
Mr. Shivji and Rafat Pirzada, Vice President of Marketing and Business
Development. Cyras gave a presentation of its current business status and future
product strategy.
At the November 1-2, 2000 Next Generation Networks conference in
Washington, D.C., Messrs. Shivji and Savov discussed arranging a meeting for the
following day. On November 3, 2000, a team led by Steve Chaddick, CIENA's Senior
Vice President, Systems and Technologies, and Elizabeth Perry, CIENA's Senior
Vice President Core Switching and Network Management Systems, visited Cyras's
offices in Fremont, California to engage in in-depth technical discussions about
Cyras's product and engineering capabilities.
On November 6, 2000, Dr. Patrick Nettles, CIENA's Chairman of the Board and
Chief Executive Officer called Mr. Shivji to discuss the possibility of a
business combination.
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During November 2000, prior to the execution of the letter of intent with
CIENA, Credit Suisse First Boston Corporation, financial advisors to Cyras, in
conjunction with Cyras's management, reviewed potential business strategies for
Cyras, including potential business combination partners, and at Cyras's request
contacted one specified company. These events were reviewed with the board of
directors of Cyras by the management of Cyras.
On November 9, 2000 and November 13, 2000 a CIENA due diligence team
conducted a series of meetings with Cyras representatives in Fremont,
California. CIENA representatives at one or more of those meetings included
Joseph Chinnici, Senior Vice President, Finance and Chief Financial Officer, Mr.
Huang, Michael McCarthy III, CIENA's Senior Vice President and General Counsel,
Lynn Moore, CIENA's Vice President of Compensation & Acquisition Strategy and
Mr. Savov. Investment banking advisors from Morgan Stanley, on behalf of CIENA,
were also present. Cyras representatives, at one or more of those meetings,
included Messrs. Shivji and Pirzada, Sunil Tomar, Vice President of Engineering,
Shekhar Mandal, Chief Financial Officer, Armando Castro, General Counsel and Dan
Grassetti, Vice President of Operations, and Credit Suisse First Boston.
On November 15, Mr. Shivji met with Dr. Nettles in Dallas, Texas to discuss
the potential terms for a business combination.
On November 20, CIENA sent Cyras a proposed letter of intent outlining
terms for a possible business combination.
On November 27 and 28, Messrs. Huang and McCarthy and representatives of
Morgan Stanley met with Messrs. Shivji, Mandal, Pirzada and Castro and
representatives from Credit Suisse First Boston to finalize the letter of
intent. The letter of intent was executed by both parties on November 28, 2000
and contained mutual non-disclosure provisions and granted CIENA exclusivity
until December 22 to enter into a definitive merger agreement with Cyras. The
exclusivity provision provided that neither Cyras nor its advisors or
representatives could initiate, solicit or negotiate any proposal or offer with
respect to a business combination with any other party except CIENA. In
addition, Cyras was required to notify CIENA of any inquiry or proposal for a
business combination, the identity of the party making the inquiry or proposal
and the material terms of such inquiry or proposal. In all other respects, the
letter of intent was non-binding by its terms. The letter of intent also
contemplated that the purchase price would contain a fixed component that would
be paid at closing and a contingent component that would be paid approximately
one year after closing if Cyras met certain revenue performance targets. During
the course of negotiation of the letter of intent, Mr. Shivji updated Cyras's
board of directors regarding the progress of the negotiations and consulted with
them with respect to open issues. On November 29, Dr. Nettles and Mr. McCarthy
updated CIENA's board of directors regarding the progress of the discussions and
due diligence with Cyras and the terms of the letter of intent.
On November 30 and December 1, the parties and their financial and legal
advisors held due diligence meetings at Cyras's facility in Fremont and at the
offices of Brobeck, Phleger & Harrison in Palo Alto.
On December 1, Cyras received an unsolicited indication of interest from
another company, Company A, regarding a possible business combination.
On December 2, the board of directors of Cyras met to discuss the status of
the transaction and the unsolicited indication of interest from Company A.
Company A, a publicly-held telecommunications equipment vendor, provided a
preliminary indication of interest in pursuing a transaction with Cyras
involving a stock-for-stock transaction (structured as a pooling of interests)
with a purchase price similar to CIENA's original offer. The proposal requested
that Cyras provide exclusivity to Company A for an unstated period of time. The
board directed Mr. Shivji to notify CIENA of this event, consistent with the
terms of the letter of intent, and also directed Cyras's officers to proceed
with the business combination with CIENA as contemplated by the letter of
intent. In deciding to proceed with the business combination with CIENA, the
Cyras board considered, among other things, the likelihood of actually receiving
a formal offer from Company A that was comparable to the CIENA offer, reaching
an agreement with and
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consummating a business combination with Company A, the price indicated in the
indication of interest, relative compatibility of Company A as a partner and the
timing of any transaction with Company A, given that Company A would require
time to conduct due diligence and negotiate a definitive agreement. Cyras viewed
the unsolicited indication of interest of Company A to be less attractive than
the CIENA offer because it believed that the underlying business prospects of
CIENA were stronger than those of Company A. Further, Cyras believed that the
Cyras K2 product provided a better strategic fit with the CIENA products. The
Cyras management and the board also weighed the certainty of the CIENA offer
with the tentative nature of the unsolicited preliminary indication of interest
from Company A.
On December 4, CIENA directed its legal representatives, Hogan & Hartson
L.L.P., to send to Cyras a first draft of the definitive merger agreement. On
December 8, CIENA directed Hogan & Hartson to send to Cyras a first draft of
some of the ancillary documents.
On December 6, the CIENA due diligence team made an informal presentation
regarding the proposed transaction to the CIENA board of directors.
On December 12, Cyras caused Brobeck, Phleger & Harrison LLP, its outside
legal counsel, to send to CIENA Cyras's comments on the draft of the merger
agreement and ancillary agreements provided by CIENA.
Between December 14 and December 16, 2000, a team from Cyras was in
Baltimore for due diligence on CIENA and negotiations regarding the definitive
merger agreement and ancillary agreements. The Cyras team consisted of Messrs.
Shivji, Mandal, Pirzada, Castro, representatives from Brobeck, Phleger &
Harrison and representatives from Credit Suisse First Boston.
On December 15, the CIENA Board of Directors met to discuss the proposed
transaction with Cyras.
On December 17, the board of directors of Cyras held a meeting to discuss
the status of the transaction and an unsolicited oral indication of interest
received earlier that day from another publicly-held telecommunications
equipment vendor, Company B, regarding a possible business combination with
Cyras that may have been potentially more attractive from a financial point of
view than the CIENA proposal. After some discussion, the Cyras board of
directors determined that it could not proceed with the then existing CIENA
offer in light of an indication of interest from Company B that the Cyras board
viewed as potentially more attractive from a financial point of view. The Cyras
board instructed Mr. Shivji and Credit Suisse First Boston to communicate its
decision to CIENA. That same afternoon, Mr. Shivji and Credit Suisse First
Boston, on behalf of the Cyras board, informed CIENA and its financial advisor
about receiving Company B's unsolicited oral indication of interest in
accordance with the terms of the letter of intent and the Cyras board's
decision.
On the night of December 17, Mr. Nettles called Mr. Shivji to offer to
revise the consideration being offered by CIENA to that reflected in this
prospectus and proxy statement and eliminated the contingent portion of the
purchase price that would have been payable only if Cyras reached specified
revenue performance based targets. During the course of the night of December 17
and the morning of December 18, members of the Cyras board of directors
discussed informally the revised CIENA offer.
On December 18, the Cyras board of directors convened a meeting at 11 a.m.,
Pacific time, and discussed again the options available to Cyras, including the
revised CIENA offer and the unsolicited indications of interest from Company A
and Company B. The Cyras board considered the relative prices, including the
timing of payment of the purchase price, indicated in the other indications of
interest, including the fact that the revised CIENA offer did not contemplate
any deferred, contingent performance-based payment, the trading range of the
companies' shares on the stock exchanges on which they traded, the strategic fit
of Cyras's products with the product offerings of CIENA versus those of other
companies, the corporate culture within which Cyras would fit best, and the
timing and likelihood of receipt of acceptable alternative proposals. The board
noted that the potential alternate indications of interest were subject to
conduct of due diligence and the drafting and negotiation of definitive
agreements, and it was uncertain that formal offers would actually materialize
or that any such offers would be more favorable to Cyras stockholders, or that
any proposed combination would actually be completed. Brobeck, Phleger &
Harrison advised the Cyras board regarding its fiduciary duties and Credit
Suisse First Boston
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reviewed with the board of directors the financial aspects of the CIENA offer.
Cyras viewed the revised CIENA offer as more attractive than the unsolicited
indication of interest from Company B because it viewed the revised CIENA offer
and the indication of interest to be financially similar and it believed Cyras's
K2 product provided a better strategic fit with the CIENA products. The Cyras
board also weighed the certainty of the CIENA offer with the tentative nature of
the unsolicited preliminary oral indication of interest from Company B. After
discussion, the Cyras board formally decided to proceed with the revised CIENA
offer, subject to the review of the definitive agreements.
On December 18, the CIENA board of directors held a meeting at which it
approved the final terms of the merger, and the board of directors of CO
Acquisition Corp. approved the transaction by unanimous written consent, as did
the sole stockholder of CO Acquisition Corp.
During the course of the day on December 18, representatives of Cyras and
CIENA negotiated and finalized the merger agreement and ancillary agreements. On
the night of December 18, the Cyras board of directors met again, and Brobeck,
Phleger & Harrison advised the board regarding the current status of the terms
of the transaction and outstanding issues, including the terms of the merger
agreement permitting the Cyras board, under certain circumstances, to pursue
alternate proposals, and the ability of the stockholders, under certain
circumstances, to approve those proposals. The Cyras board of directors approved
the merger agreement. The merger agreement and related documents were executed
early in the morning of December 19.
On December 19, 2000, CIENA and Cyras issued a joint press release
announcing the transaction.
CIENA'S REASONS FOR THE MERGER
IN THE CONTEXT OF PRODUCT STRATEGY
CIENA has experienced very rapid growth during its four year operating
history. CIENA's growth was driven by the fact that CIENA was first to market
with high capacity, open architecture DWDM systems at a time when
telecommunications traffic was just starting to experience substantial and
accelerating demand for capacity over the long distance backbone of fiberoptic
networks. The long distance backbone appeared to be the first and most
significant chokepoint in the networks that resulted from the surging demand for
capacity, which was primarily the result of increasing data/Internet traffic.
CIENA, along with many other industry observers, believed that the chokepoints
of fiberoptic networks would logically next be experienced farther out toward
the edges of the network, in local exchange markets, access markets, and,
ultimately, through "the last mile" to the end user.
Apart from efforts to enhance and refine its long distance DWDM product
line, CIENA primarily focused its product development efforts through fiscal
1998 on adapting its DWDM technology beyond the long distance transport market.
CIENA has recognized that providing substantial amounts of bandwidth over
various transport distances represented only a partial solution to customer
needs. The larger need, unaddressed by DWDM transport systems alone, is to
manage that bandwidth efficiently within the network, and ultimately deliver it
cost-effectively throughout the network and to end users.
In March 1999, through the acquisition of Lightera Networks, Inc., CIENA
added the MultiWave CoreDirector(R) to its product set. MultiWave CoreDirector
is a switching system designed to manage and direct bandwidth at the core of
service provider networks. The MultiWave CoreDirector family of products are
next-generation switching systems combining the functionality of multiple
previous generation systems into a single, compact system. CIENA believes its
MultiWave CoreDirector products enables its customers to grow their networks
more cost efficiently because they enable them to purchase less equipment
thereby lowering capital costs. In addition, CoreDirector's software
intelligence is designed to enable service providers to provision services and
manage network traffic more efficiently than possible with previous generation
systems, thereby lowering carrier's operational costs.
The MultiWave CoreDirector's feature set and functionality was designed to
handle the high-bandwidth traffic at the core of a service provider's network.
As bandwidth in the core of the network grows, CIENA believes service providers
face a growing need for the bandwidth management features like those offered by
CoreDirector, in applications toward the edge of the network, Cyras's K2
product, was
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designed to address bandwidth management needs outside of the core network,
where lower speed interfaces and aggregation features are required. Like
CoreDirector, Cyras's K2 product combines the functionality of multiple previous
generation systems into a single compact system, thereby lowering service
providers' capital and operating costs. CIENA believes that the acquisition of
Cyras will enable it to address carriers' bandwidth management and traffic
aggregation requirements at the edge of the network more cost-effectively than
current solutions.
IN THE CONTEXT OF CORPORATE HISTORY AND STRATEGY
During the last year, senior management of CIENA met to address CIENA's
strategic direction and alternatives and examined in detail industry trends,
customer feedback and data, and selected competitor activities. Some of the
important conclusions they have reached include:
- Cost-effective solutions for transporting and managing the bandwidth in
customer networks are increasingly critical, particularly as data traffic
begins to dominate voice traffic;
- Solutions will not necessarily be dependent on the existing
telecommunications infrastructure that was built and optimized for voice
traffic;
- Depending on the customer, both "evolutionary" and "revolutionary"
approaches would be taken to meet the network bandwidth requirements--for
example, among traditional industry participants, movement toward
innovative data services would likely be more evolutionary, building on
the existing "CLASS V" infrastructure that is the foundation for the
existing voice network, while new, emerging carriers, such as competitive
local exchange carriers, will quickly build innovative, revolutionary new
data networks, which have cost-efficiencies and flexibility that will
serve as a catalyst to more traditional players to move their networks
toward a more data-centric model; and
- CIENA's optical networking expertise and market position should have
sustained value under either evolutionary or revolutionary scenarios, and
could shape the industry, but should be leveraged into additional product
lines at the edge of the network.
In the face of these conclusions, and the trend of the intensely
competitive telecommunications equipment provider industry toward rapid
consolidation, CIENA's senior management have discussed a number of potential
business combinations that could enable CIENA to position itself better to
compete in such an environment.
CIENA investigated a number of other target companies in August and
September of 2000, focusing on smaller companies with engineering teams and/or
products in various stages of development, that would complement and thereby
strengthen its engineering resources and existing product line.
ADDITIONAL REASONS FOR THE MERGER
The strategic fit with Cyras represents the principal rationale for the
acquisition. However, the following factors, each of which CIENA took into
account in evaluating the proposed merger, also support this rationale and
enhance the likelihood of achieving the full potential of the combination:
- CUSTOMER INTEREST. Due diligence indicated that prospective customers of
Cyras, who are also customers or target customers of CIENA, are likely to
be very interested in the products of Cyras. Further, CIENA's sales and
marketing efforts have indicated significant potential to acquire
customers interested in the more comprehensive "intelligent optical
networking" solution that would be made possible by the combination.
- ENTREPRENEURIAL VISION. CIENA and Cyras share a common heritage as
entrepreneurial startups. As such, the personnel at these companies
appear to share a common appreciation for decisive action, minimal
bureaucracy and red tape, and a willingness to take on difficult problems
from a fresh perspective. CIENA believes that this could result in fewer
integration challenges than would be expected for organizations with
dissimilar cultural values.
- WORLD CLASS ENGINEERING TEAMS. Due diligence efforts convinced CIENA's
management team that the engineering team at Cyras was world class in
quality, and would add significantly to the
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resources of CIENA and its ability to continue to innovate and rapidly
bring new products to market.
In reaching its decision to approve the acquisition of Cyras, the CIENA
board also considered, in addition to other matters, the following factors that
may be relevant to Cyras stockholders:
- The effect on CIENA stockholder value of the pending Cyras acquisition,
in light of the financial condition and prospects of CIENA and the
current economic and industry environment. In particular, the CIENA board
discussed the near-term significant earnings dilution represented by the
price being paid for the development stage company, and contrasted that
dilution with the substantial expansion of the addressable markets
enabled by the acquisition.
- The execution risks facing Cyras in bringing new products to market in an
increasingly competitive industry, and the possibility that if the
integration of the businesses and management teams of CIENA and Cyras did
not proceed as planned, the desired synergies would not be achieved, and
the execution risk would not be overcome.
- The impact of the merger on CIENA's employees, and on the employees of
Cyras. CIENA's board discussed the risks of retaining the key technical,
marketing and management personnel of Cyras in view of the price being
paid for the company, the potential acceleration of stock vesting for
some members of Cyras management, and the liquidity potentially available
to the two companies' employees, and contrasted those risks with the
efforts planned for integrating the companies.
- The business risks associated with increased competition in the
telecommunications equipment supply industry, and the likelihood of
vigorous competitive response to the merger.
- The terms and conditions of the merger agreement including the limited
conditions to closing.
RECOMMENDATION OF THE CYRAS BOARD AND REASONS FOR THE MERGER
The Cyras board of directors believes that increasing competition and
industry consolidation make it increasingly important for Cyras to grow and gain
critical mass in order to compete with larger companies with substantially
greater resources and broader, integrated product offerings. Cyras's management
has considered a number of alternatives for enhancing its competitive position,
including growing through the acquisition of smaller companies that could extend
Cyras's product offerings and enhance the distribution of Cyras's products and
services, and merging with a larger company. After preliminary discussion with
CIENA about a potential business combination, Cyras management and its financial
advisor reviewed potential business strategies for Cyras, including potential
business combination partners, and at Cyras's request, contacted one specified
company. In the industry environment referred to above, the Cyras board of
directors identified several potential benefits for the Cyras stockholders,
employees and customers that it believes would result from the merger. These
potential benefits include:
- providing Cyras stockholders with shares of CIENA common stock which are
listed on the Nasdaq National Market in a tax-free exchange transaction;
- providing the Cyras stockholders with a purchase price that would not
include any contingent performance based portion;
- the ability of the combined company to introduce and sell Cyras products
to CIENA's customers and other customers that desire to purchase products
from a larger company that offers a more complete product portfolio;
- the ability of the combined company to offer complementary product lines,
which presents the opportunity to increase the breadth of products
offered and to be a single source provider of a range of complementary
products;
- the ability of the two companies to combine their technological resources
to develop new products with increased functionality and bring them to
market faster;
- the availability to the combined company of greater resources for product
marketing and distribution; and
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- the combined company's opportunity to participate in the continuing
growth of optical networking sector.
In the course of its deliberations regarding the merger, the Cyras board
reviewed with Cyras's management and outside advisors a number of factors
relevant to the merger, including the strategic overview and prospects for Cyras
and interests of some Cyras officers and directors in the merger that differ
from those of Cyras stockholders generally. The Cyras board also considered the
following potentially positive factors, among others, in connection with its
review and analysis of the merger. The Cyras board of directors' conclusions
with respect to each of these factors supported its determination that the
merger is fair to, and in the best interests of, Cyras's stockholders:
- historical information concerning CIENA's and Cyras's respective
businesses, financial performance and condition, operations, technology,
management and competitive position;
- current stock market conditions and historical market prices, volatility
and trading information with respect to CIENA common stock, which
supported a favorable view of CIENA's stock market presence and positive
reputation with investors;
- the purchase price offered by CIENA and that no portion of the purchase
price was payable contingent upon Cyras reaching any specified revenue
performance-based targets;
- the belief that the terms of the merger agreement, including the parties'
representations, warranties and covenants, and the conditions to the
parties' respective obligations, are reasonable;
- the available alternatives and the history of contacts with other
parties, the contingent nature of and the lack of specifics, including
with respect to the purchase price, regarding alternate indications of
interest, including the uncertainty as to whether Cyras would receive any
actual offers if it decided to proceed with any alternate indication of
interest and the prospect that a business combination with CIENA may no
longer be an available alternative if Cyras delayed or stopped the
combination with CIENA, the time required to enter into and complete any
alternative proposed transaction, including for the conduct of due
diligence and drafting, negotiation and finalization of the related
definitive agreements;
- the financial analysis and opinion of Credit Suisse First Boston, dated
December 18, 2000, to the Cyras board of directors to the effect that, as
of that date and based on and subject to the matters described in its
opinion, the common stock exchange ratio was fair, from a financial point
of view, to the holders of Cyras common stock, other than affiliates of
Cyras;
- the impact of the merger on Cyras's customers and employees; and
- reports and views from management, legal advisors and financial advisors
as to the results of their due diligence investigation of CIENA.
The Cyras board of directors also considered a number of potentially
negative factors in its deliberations concerning the merger. The potentially
negative factors considered by the Cyras board of directors included:
- the risk that because the exchange ratio will not be adjusted for changes
in the market price of CIENA common stock, the per share value of the
consideration to be received by Cyras stockholders might be less than the
price per share implied by the exchange ratio immediately before the
announcement of the merger due to fluctuations in the market value of
CIENA common stock;
- the risk that the merger might not be completed in a timely manner or at
all;
- the challenges relating to the integration of the two companies;
- the possibility of management and employee disruption associated with the
proposed merger and integrating the operations of the companies, and the
risk that, despite the efforts of the combined company, key management,
marketing, technical and administrative personnel of Cyras might not
continue with the combined company;
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- the risks relating to CIENA's business and how they would affect the
operations of the combined company.
In addition, the Cyras board reviewed in detail the terms and conditions of
the merger agreement and ancillary agreements, including the provisions of the
merger agreement and the voting and option agreements relating to third-party
merger offers. In this regard, the Cyras board considered, among other things:
- the inability of Cyras under the terms of the letter of intent to pursue
indications of interest received from third parties, and the limitations
on Cyras's ability to pursue indications of interest and merger proposals
from third parties under the merger agreement with CIENA;
- the execution of the stockholder agreements by executive officers and
directors of Cyras might reduce the likelihood that a third party would
make a bid for Cyras;
- the terms of Cyras's "fiduciary out," which allows the Cyras board to
furnish information and to engage in discussions and negotiations with a
third party making an unsolicited offer that the Cyras board determines
is more favorable than the merger, to change its recommendation with
respect to the merger in the event of a superior proposal, and to
terminate the merger agreement;
- the potential ability of stockholders not subject to the stockholder
agreements to vote successfully for an alternate proposal if some holders
of Cyras preferred stock elect to convert their shares into shares of
Cyras common stock, or some holders of exercisable options to purchase
Cyras common stock exercise their options, between the date of the merger
agreement and the record date for the special meeting, in numbers
sufficient to reduce the percentage of Cyras common stock covered by the
stockholder agreements to less than 50%;
- the terms of the termination fee payable by Cyras to CIENA in certain
circumstances;
- the strategic and financial benefits of CIENA's proposal, the advanced
stage of discussions with CIENA, and the significant risks and
uncertainties associated with the preliminary unsolicited indications of
interest by Company A and Company B; and
- the other risks described above under "Risk Factors."
Recommendation of Cyras's Board of Directors
This discussion of information and factors considered by the Cyras board of
directors is not intended to be exhaustive but includes all material factors
considered by the Cyras board of directors. In view of the wide variety of
factors considered by the Cyras board of directors, the Cyras board of directors
did not find it practicable to quantify or otherwise assign relative weight to
the specific factors considered. In addition, the Cyras board did not reach any
specific conclusion on each factor considered, or any aspect of any particular
factor, but conducted an overall analysis of these factors. Individual members
of the Cyras board may have given different weight to different factors. The
Cyras board believed that certain of these risks and negative factors were
unlikely to occur or unlikely to have a material impact on the combined
companies; that others could be avoided or mitigated; and that, overall, the
benefits and positive factors associated with the merger outweighed the risks
and negative factors. Accordingly, after taking into account all of the factors
set forth above, the Cyras board of directors unanimously agreed that the merger
is fair to, and in the best interests of, Cyras's stockholders and that Cyras
should proceed with the merger.
FOR THE REASONS DISCUSSED ABOVE, CYRAS'S BOARD OF DIRECTORS HAS UNANIMOUSLY
APPROVED THE MERGER AGREEMENT AND THE MERGER AND HAS UNANIMOUSLY DETERMINED THAT
THE MERGER IS FAIR TO, AND IN THE BEST INTERESTS OF, CYRAS AND ITS STOCKHOLDERS
AND UNANIMOUSLY RECOMMENDS THAT CYRAS STOCKHOLDERS VOTE FOR ADOPTION OF THE
MERGER AGREEMENT AND VOTE FOR APPROVAL OF THE MERGER.
In considering the recommendation of Cyras's board with respect to the
merger agreement, Cyras stockholders should be aware that some directors and
officers of Cyras have interests in the merger that are different from, or are
in addition to, the interests of Cyras's stockholders generally. Please see "The
Merger -- Interests of Cyras Officers and Directors in the Merger."
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OPINION OF CYRAS'S FINANCIAL ADVISOR
Credit Suisse First Boston has acted as Cyras's financial advisor in
connection with the merger. Cyras selected Credit Suisse First Boston based on
Credit Suisse First Boston's experience, expertise and reputation. Credit Suisse
First Boston is an internationally recognized investment banking firm and is
regularly engaged in the valuation of businesses and securities in connection
with mergers and acquisitions, leveraged buyouts, negotiated underwritings,
competitive biddings, secondary distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes.
In connection with Credit Suisse First Boston's engagement, Cyras requested
that Credit Suisse First Boston evaluate the fairness, from a financial point of
view, to the holders of Cyras common stock, other than affiliates of Cyras, of
the common stock exchange ratio provided for in the merger. Credit Suisse First
Boston delivered to the Cyras board of directors a written opinion, dated
December 18, 2000, to the effect that, as of that date and based on and subject
to the matters described in its opinion, the common stock exchange ratio
provided for in the merger was fair, from a financial point of view, to the
holders of Cyras common stock, other than affiliates of Cyras.
The full text of Credit Suisse First Boston's written opinion, dated
December 18, 2000, to the Cyras board of directors, which sets forth, among
other things, the procedures followed, assumptions made, matters considered and
limitations on the review undertaken, is attached as Appendix E and is
incorporated into this document by reference. Holders of Cyras common stock are
urged to, and should, read this opinion carefully in its entirety. Credit Suisse
First Boston's opinion is addressed to the Cyras board of directors and relates
only to the fairness of the common stock exchange ratio from a financial point
of view, does not address any other aspect of the merger or any related
transaction and does not constitute a recommendation to any stockholder as to
any matters relating to the merger. The summary of Credit Suisse First Boston's
opinion in this document is qualified in its entirety by reference to the full
text of the opinion.
In arriving at its opinion, Credit Suisse First Boston reviewed the merger
agreement, as well as publicly available business and financial information
relating to CIENA and business and financial information relating to Cyras.
Credit Suisse First Boston also reviewed other information relating to Cyras and
CIENA, including financial forecasts for Cyras and publicly available financial
forecasts for CIENA, that Cyras and CIENA provided to or discussed with Credit
Suisse First Boston.
Credit Suisse First Boston also met with the managements of Cyras and CIENA
to discuss the businesses and prospects of Cyras and CIENA. Credit Suisse First
Boston considered financial and stock market data of CIENA and financial and
other data of Cyras, and compared those data with similar data for publicly held
companies in businesses similar to those of Cyras and CIENA. Credit Suisse First
Boston considered, to the extent publicly available, the financial terms of
other business combinations and other transactions which have recently been
effected. Credit Suisse First Boston also considered other information,
financial studies, analyses and investigations and financial, economic and
market criteria which it deemed relevant.
In connection with its review, Credit Suisse First Boston did not assume
any responsibility for independent verification of any of the foregoing
information and relied on that information being complete and accurate in all
material respects. With respect to the financial forecasts for Cyras, Credit
Suisse First Boston was advised, and assumed, that the forecasts were reasonably
prepared on bases reflecting the best currently available estimates and
judgments of Cyras's management as to the future financial performance of Cyras.
With respect to the financial forecasts relating to CIENA, Credit Suisse First
Boston reviewed and discussed with the management of CIENA publicly available
financial forecasts relating to CIENA and was advised by the management of
CIENA, and assumed that the forecasts represent reasonable estimates and
judgments as to the future financial performance of CIENA. In addition, Credit
Suisse First Boston relied on, without independent verification, the assessment
of the managements of Cyras and CIENA as to the existing and future technology
and products of Cyras and CIENA and the risks associated with the future
technology and products, Cyras's and CIENA's ability to integrate the businesses
of Cyras and CIENA, and Cyras's and CIENA's ability to retain key employees of
Cyras and CIENA. Credit Suisse First Boston also assumed, with the consent of
the Cyras board of directors, that
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the merger would be treated as a tax-free reorganization for federal income tax
purposes. In addition, Credit Suisse First Boston was not requested to make, and
did not make, an independent evaluation or appraisal of the assets or
liabilities, contingent or otherwise, of Cyras or CIENA, nor was Credit Suisse
First Boston furnished with any evaluations or appraisals.
Credit Suisse First Boston's opinion is necessarily based upon information
available to it, and financial, economic, market and other conditions as they
existed and could be evaluated, on the date of the Credit Suisse First Boston
opinion. Credit Suisse First Boston did not express any opinion as to what the
value of the CIENA common stock actually would be when issued in the merger or
the prices at which the CIENA common stock would trade after to the merger. In
connection with its engagement, Credit Suisse First Boston was requested prior
to the commencement of negotiations with respect to the merger to contact, and
Credit Suisse First Boston held discussions with, selected third parties
regarding a possible business combination or similar transaction with Cyras, but
Credit Suisse First Boston was not requested to, and it did not, solicit
generally third party indications of interest in the possible acquisition of all
or part of Cyras. During the negotiations with respect to the merger, Cyras
received preliminary unsolicited indications of interest in the purchase of the
outstanding capital stock of Cyras from two third parties (one orally and one in
writing) which the board of directors of Cyras determined not to pursue for
various reasons, including, among other things, the enhanced CIENA offer. Credit
Suisse First Boston's opinion does not address the relative merits of the merger
as compared to other business strategies that might be available to Cyras,
including the preliminary unsolicited indications of interest referred to above,
nor does it address the underlying business decision of Cyras to proceed with
the merger.
Although Credit Suisse First Boston evaluated the common stock exchange
ratio from a financial point of view, Credit Suisse First Boston was not
requested to, and did not, recommend the specific consideration payable in the
merger, which consideration was determined between Cyras and CIENA. The Cyras
board of directors imposed no other limitations on Credit Suisse First Boston
with respect to the investigations made or procedures followed in rendering its
opinion.
In preparing its opinion to the Cyras board, Credit Suisse First Boston
performed a variety of financial and comparative analyses, including those
described below. The summary of Credit Suisse First Boston's analyses described
below is not a complete description of the analyses underlying Credit Suisse
First Boston's opinion. The preparation of a fairness opinion is a complex
analytical process involving various determinations as to the most appropriate
and relevant methods of financial analyses and the application of those methods
to the particular circumstances and, therefore, a fairness opinion is not
readily susceptible to summary description. In arriving at its opinion, Credit
Suisse First Boston made qualitative judgments as to the significance and
relevance of each analysis and factor that it considered. Accordingly, Credit
Suisse First Boston believes that its analyses must be considered as a whole and
that selecting portions of its analyses and factors or focusing on information
presented in tabular format, without considering all analyses and factors or the
narrative description of the analyses, could create a misleading or incomplete
view of the processes underlying its analyses and opinion.
In its analyses, Credit Suisse First Boston considered industry
performance, regulatory, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of Cyras and
CIENA. No company, transaction or business used in Credit Suisse First Boston's
analyses as a comparison is identical to Cyras and CIENA or the proposed merger,
and an evaluation of the results of those analyses is not entirely mathematical.
Rather, the analyses involve complex considerations and judgments concerning
financial and operating characteristics and other factors that could affect the
acquisition, public trading or other values of the companies, business segments
or transactions being analyzed. The estimates contained in Credit Suisse First
Boston's analyses and the ranges of valuations resulting from any particular
analysis are not necessarily indicative of actual values or predictive of future
results or values, which may be significantly more or less favorable than those
suggested by the analyses. In addition, analyses relating to the value of
businesses or securities do not purport to be appraisals or to reflect the
prices at which businesses or securities actually may be sold. Accordingly,
Credit Suisse First Boston's analyses and estimates are inherently subject to
substantial uncertainty.
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Credit Suisse First Boston's opinion and financial analyses were only one
of many factors considered by the Cyras board in its evaluation of the merger
and should not be viewed as determinative of the views of the Cyras board or
management with respect to the merger or the common stock exchange ratio.
The following is a summary of the material financial analyses performed by
Credit Suisse First Boston in connection with the preparation of its opinion
dated December 18, 2000. THE FINANCIAL ANALYSES SUMMARIZED BELOW INCLUDE
INFORMATION PRESENTED IN TABULAR FORMAT. IN ORDER TO FULLY UNDERSTAND CREDIT
SUISSE FIRST BOSTON'S FINANCIAL ANALYSES, THE TABLES MUST BE READ TOGETHER WITH
THE TEXT OF EACH SUMMARY. THE TABLES ALONE DO NOT CONSTITUTE A COMPLETE
DESCRIPTION OF THE FINANCIAL ANALYSES. CONSIDERING THE DATA SET FORTH IN THE
TABLES BELOW WITHOUT CONSIDERING THE FULL NARRATIVE DESCRIPTION OF THE FINANCIAL
ANALYSES, INCLUDING THE METHODOLOGIES AND ASSUMPTIONS UNDERLYING THE ANALYSES,
COULD CREATE A MISLEADING OR INCOMPLETE VIEW OF CREDIT SUISSE FIRST BOSTON'S
FINANCIAL ANALYSES.
COMPARABLE COMPANIES ANALYSIS. Credit Suisse First Boston compared
financial, operating and stock market data of CIENA to corresponding data of the
following 30 publicly traded companies in the communications industry:
COMMUNICATIONS COMPANIES
------------------------------------------------------------------------------------
OPTICAL COMMUNICATIONS NEXT GENERATION COMMUNICATIONS
EQUIPMENT VENDORS EQUIPMENT VENDORS
---------------------- ------------------------------
- CIENA Corporation - Juniper Networks, Inc.
- Sycamore Networks, Inc. - Brocade Communications Systems, Inc.
- Redback Networks Inc. - Extreme Networks, Inc.
- Corvis Corporation - Sonus Networks, Inc.
- ONI Systems Corp. - Foundry Networks, Inc.
- Avici Systems Inc.
BROADLINE COMMUNICATIONS
OPTICAL COMPONENTS VENDORS EQUIPMENT VENDORS
-------------------------- ------------------------
- JDS Uniphase Corporation - Cisco Systems, Inc.
- Corning Incorporated - Nortel Networks Corporation
- SDL, Inc. - Ericsson LM Tel. Co. Ad.
- Alcatel Optronics - Alcatel
- Avanex Corporation - Lucent Technologies Inc.
- Oplink Communications, Inc. - Motorola, Inc.
- New Focus, Inc. - Marconi plc
- Bookham Technology plc - Tellabs, Inc.
- Optical Communication Products, Inc.
- Luminent, Inc.
- Alliance Fiber Optic Products, Inc.
Credit Suisse First Boston compared stock prices as a multiple of estimated
calendar years 2000 and 2001 earnings per share and aggregate values, calculated
as fully diluted equity market value, plus debt, less cash, as a multiple of
estimated calendar years 2000 and 2001 revenues. All multiples were based on
closing stock prices on December 15, 2000, the date one trading day prior to
public announcement of the merger. Estimated financial data for CIENA and the
selected companies were based on published research
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analysts' estimates. This analysis indicated the following median implied
multiples for the groups of companies, as compared to the implied multiples for
CIENA:
AGGREGATE
PRICE/EARNINGS VALUE/REVENUE
-------------- -------------
ESTIMATED ESTIMATED ESTIMATED ESTIMATED
2000 2001 2000 2001
--------- --------- --------- ---------
CIENA Corporation.............................. 251.6x 138.7x 31.5x 18.9x
Optical Communications Equipment Vendors....... 298.3x 164.0x 52.6x 21.2x
Next Generation Communications Equipment
Vendors...................................... 286.5x 154.4x 83.5x 23.9x
Optical Components Vendors..................... 104.6x 71.1x 23.7x 12.0x
Broadline Communications Equipment Vendors..... 44.5x 33.8x 3.4x 2.8x
PRECEDENT TRANSACTIONS ANALYSIS. Credit Suisse First Boston analyzed the
publicly available financial terms of the following nine publicly announced
transactions involving public acquirors and private target companies in the
optical equipment industry:
ACQUIROR TARGET
-------- ------
- Sycamore Networks, Inc. Sirocco Systems, Inc.
- Lucent Technologies Inc. Chromatis Networks ,Inc.
- Nortel Networks Corporation Xros, Inc.
- Nortel Networks Corporation Qtera Corporation
- Redback Networks Inc. Siara Systems, Inc.
- Cisco Systems, Inc. Cerent Corporation
- CIENA Corporation Lightera Networks Incorporated
- CIENA Corporation Omnia Communications, Inc.
- Nortel Networks Corporation Cambrian Systems Corporation
Credit Suisse First Boston compared the aggregate values of the selected
transactions on the date of announcement with the aggregate values of those
transactions as of December 15, 2000. Aggregate values were based upon publicly
available information. All selected transactions were stock-for-stock exchanges,
except the Nortel Networks Corporation/Cambrian Systems Incorporated
transaction, which was an all-cash transaction. This analysis indicated the
following:
AGGREGATE VALUE ($MM)
---------------------
ANNOUNCEMENT DATE ANNOUNCEMENT DATE DECEMBER 15, 2000
----------------- ----------------- -----------------
Sycamore Networks, Inc./Sirocco
Systems, Inc..................... 06/06/00 $2,882 $1,545
Lucent Technologies Inc./Chromatis
Networks, Inc.................... 05/31/00 $5,031 $1,542
Nortel Networks Corporation/Xros,
Inc.............................. 03/14/00 $3,250 $2,093
Nortel Networks Corporation/Qtera
Corporation...................... 12/15/99 $3,250 $2,893
Redback Networks Inc./Siara
Systems, Inc..................... 11/29/99 $4,272 $5,196
Cisco Systems, Inc./Cerent
Corporation...................... 08/26/99 $7,480 $10,505
CIENA Corporation/Lightera Networks
Incorporated..................... 03/15/99 $552 $4,151
CIENA Corporation/Omnia
Communications, Inc.............. 03/15/99 $424 $3,219
Nortel Networks
Corporation/Cambrian Systems
Incorporated..................... 12/09/98 $300 $300
Credit Suisse First Boston also reviewed aggregate values as a multiple of
next 12 months revenue for the calendar years 1998, 1999 and 2000 and as of
December 15, 2000 and stock prices as a multiple of
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next 12 months earnings for the calendar years 1998, 1999 and 2000 and as of
December 15, 2000 of the optical communications equipment vendors, as set forth
under the heading "Comparable Companies Analysis;" the following selected
optical component vendors: JDS Uniphase Corporation, Corning Incorporated, SDL,
Inc., Avanex Corporation, New Focus, Inc. and Bookham Technology plc; and the
broadline communications equipment vendors, as set forth under the heading
"Comparable Companies Analysis," excluding Nortel Networks Corporation.
Estimated financial data for the groups of companies were based on published
research analysts' estimates. The results of this analysis are as follows:
AGGREGATE VALUE AS MULTIPLE OF
NEXT 12 MONTHS REVENUE
-------------------------------------
CY 1998 CY 1999 CY 2000 CURRENT
------- ------- ------- -------
Optical Communications Equipment Vendors........... 7.2x 33.0x 100.4x 53.8x
Optical Component Vendors.......................... 4.4x 11.5x 53.3x 20.9x
Broadline Communications Equipment Vendors......... 3.7x 5.7x 6.8x 4.6x
STOCK PRICE AS MULTIPLE OF
NEXT 12 MONTHS EARNINGS
-------------------------------------
CY 1998 CY 1999 CY 2000 CURRENT
------- ------- ------- -------
Optical Communications Equipment Vendors........... 42.5x 136.0x 217.3x 203.9x
Optical Component Vendors.......................... 29.2x 72.1x 161.3x 105.7x
Broadline Communications Equipment Vendors......... 34.2x 45.5x 56.0x 44.9x
CONTRIBUTION ANALYSIS. Credit Suisse First Boston analyzed the relative
contributions of Cyras and CIENA to the net revenue and earnings of the combined
company for the calendar year 2001 based on published research analysts'
estimates for CIENA and four scenarios for Cyras. Scenario one assumes $75.0
million in revenue and a net income of ($68.9) million for calendar year 2001.
Scenario two assumes $125.0 million in revenue and a net income of ($53.6)
million for calendar year 2001. Scenario three assumes $200.0 million in revenue
and a net income of ($30.5) million for calendar year 2001. Scenario four
assumed $400.0 million in revenue and a net income of $31.0 million for calendar
year 2001. This analysis indicated the following:
IMPLIED CYRAS OWNERSHIP
------------------------------------------------------------
SCENARIO ONE SCENARIO TWO SCENARIO THREE SCENARIO FOUR
------------ ------------ -------------- -------------
Revenue, CY 2001................... 4.5% 7.2% 11.0% 19.8%
Earnings, CY 2001.................. x x x 12.0%
"x" indicates negative earnings contribution.
Credit Suisse First Boston noted that, as of December 15, 2000, the pro
forma fully diluted ownership of Cyras's stockholders in the combined company
implied by the exchange ratio was 8.1%.
POTENTIAL TRADING VALUES ANALYSIS. Credit Suisse First Boston estimated
the present value of Cyras's fully-distributed equity value, assuming an initial
public offering in July 2001, under two scenarios. Scenario one assumes $200.0
million in revenue for calendar year 2002. Scenario two assumes $250.0 million
in revenue for calendar year 2002. Cyras's fully-distributed equity value was
estimated by applying a selected range of revenue multiples based on the
publicly traded companies in the optical communications equipment industry, as
set forth under the heading "Comparable Companies Analysis," which Credit Suisse
First Boston deemed to be relevant, to estimated calendar year 2002 revenues for
Cyras. Credit Suisse First Boston then discounted the fully-distributed equity
values under scenarios one and two using discount rates ranging from 0% to 150%.
Estimated financial data for the selected companies was based on published
research analysts' estimates, and estimated financial data for Cyras was based
upon Cyras management estimates.
PRO FORMA IMPACT ANALYSIS. Credit Suisse First Boston analyzed the
potential pro forma effect of the merger on CIENA's estimated revenue per share
and estimated earnings per share for the estimated calendar year 2001, excluding
goodwill, based on published research analysts' estimates for CIENA and the four
scenarios for Cyras described above under the heading "Contribution Analysis."
Based on Cyras's
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fully diluted pro forma implied ownership of 8.1% of the combined company, as of
December 15, 2000, this analysis indicated the following accretion/(dilution) to
CIENA's estimated revenue per share and estimated earnings per share:
CALENDAR YEAR 2001
-------------------------------------------
CIENA REVENUE CIENA EARNINGS
PER SHARE PER SHARE
ACCRETION/(DILUTION) ACCRETION/(DILUTION)
-------------------- --------------------
Scenario One...................................... (3.7)% (35.8)%
Scenario Two...................................... (0.8)% (29.6)%
Scenario Three.................................... 3.5% (20.3)%
Scenario Four..................................... 14.9% 4.6%
HISTORICAL STOCK PRICE ANALYSIS. Credit Suisse First Boston analyzed the
prices at which CIENA common stock traded since CIENA's initial public offering
on February 7, 1997 through December 15, 2000. Credit Suisse First Boston noted
that CIENA's December 15, 2000 closing price was $100.73, its 2000 year to date
average closing price was $77.08 and its average closing price was $23.11 for
1997, $21.31 for 1998 and $16.27 for 1999.
OTHER FACTORS. In the course of preparing its opinion, Credit Suisse First
Boston also reviewed and considered other information and data, including:
- the historical stock prices and trading characteristics of CIENA common
stock from December 1, 1999 through December 15, 2000;
- selected published research analysts' reports for CIENA, including
earnings per share estimates by those analysts for the four quarters of
fiscal year 2001 and the fiscal years ended 2001 and 2002;
- reported revenue, net income and EPS for the last five fiscal quarters
for CIENA compared to published research analysts' estimates for the
respective quarters;
- the recent stock price performance of CIENA compared to the Nasdaq
composite index over the period form November 15, 2000 through December
15, 2000; and
- publicly available financial information relating to recent initial
public offerings of selected communication systems companies.
MISCELLANEOUS. Cyras has agreed to pay Credit Suisse First Boston for its
financial advisory services in connection with the merger customary fees based
on the aggregate value of the merger, which is currently estimated to be
approximately $27 million. In addition, Cyras has agreed to reimburse Credit
Suisse First Boston for out-of-pocket expenses incurred by Credit Suisse First
Boston in performing its services, including the fees and expenses of legal
counsel and any other advisor retained by Credit Suisse First Boston, and to
indemnify Credit Suisse First Boston and related persons against liabilities,
including liabilities under the federal securities laws, arising out of its
engagement.
Credit Suisse First Boston and its affiliates have in the past provided
investment banking services to Cyras unrelated to the proposed merger, for which
services Credit Suisse First Boston has received compensation. In the ordinary
course of business, Credit Suisse First Boston and its affiliates may actively
trade the securities of CIENA and the debt securities of Cyras for their own
accounts and for the accounts of customers and, accordingly, may at any time
hold a long or short position in those securities.
INTERESTS OF CYRAS OFFICERS AND DIRECTORS IN THE MERGER
In considering the recommendation of the Cyras board of directors with
respect to the adoption and approval of the merger, Cyras stockholders should be
aware that some members of the management of Cyras and the Cyras board of
directors may have interests in the merger that are different from, or in
addition to, the interests of Cyras stockholders generally. The Cyras board of
directors was aware of these potential interests and considered the following
matters, among others, in approving the merger agreement and the merger.
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As of January 31, 2001, directors and executive officers of Cyras and their
affiliates collectively beneficially owned an aggregate of approximately
36,648,543 shares of Cyras common stock, excluding unexercised options to
purchase Cyras common stock and approximately 55,616,994 shares of Cyras
preferred stock. Upon completion of the merger, it is anticipated that the
former directors and executive officers of Cyras and their affiliates
collectively will beneficially own an aggregate of approximately
shares of CIENA common stock, or % of the then outstanding shares of CIENA
common stock.
The executive officers of Cyras, Alnoor Shivji, Rafat Pirzada, Sunil Tomar,
Shekhar Mandal, Daniel Grassetti and Armando Castro, have signed employment
agreements with CIENA, effective only upon the completion of the merger, that
include compensation and proposed options to purchase shares of CIENA common
stock. Under previously existing employment agreements with Cyras, these
executive officers were entitled, in some instances, to severance benefits or
payments and acceleration of stock or stock option vesting following the merger.
Under the CIENA agreements, the executive officers agreed to waive the severance
and acceleration benefits held pursuant to their prior employment agreements
with Cyras and will receive 12 months of severance pay, continued health
coverage and full vesting of the shares of CIENA common stock they receive in
the merger upon a termination without cause or a resignation for good reason. As
of the record date for the special meeting, Messrs. Shivji, Pirzada, Tomar,
Mandal, Grassetti and Castro held 31,928,543 shares of common stock, of which
16,458,051 were subject to repurchase by Cyras. Upon a termination without cause
or a resignation for good reason, these individuals will receive 12 months of
severance pay.
The executive officers of Cyras, at the effective time of the merger, must
enter into non-competition agreements with CIENA under which they will agree not
to engage in some activities or make specified investments for a period ending
on the later of two years following the completion of the merger or one year
following termination from employment, but no later than three years following
the completion of the merger.
Diosdado Banatao, a director of Cyras, holds 4,320,000 shares of Cyras
common stock, which vest monthly over the four year period beginning August 15,
1998. Accordingly, as of January 31, 2001, a total of 2,610,000 shares were
vested. Pursuant to an agreement executed between Mr. Banatao and Cyras prior to
the merger, his remaining unvested shares will vest in full upon the closing of
the merger. Assuming the merger had occurred on February , 2001, when the
CIENA common stock price for the purpose of the exchange ratio was $
and based on that price, the unvested portion of Mr. Banatao's shares which will
vest in full and be converted into shares of CIENA common stock upon the closing
of the merger would be valued at approximately $ .
CIENA has agreed to fulfill and honor the indemnification agreements Cyras
has previously entered into with its officers and directors and to fulfill and
honor any indemnification provisions of Cyras's charter documents. The merger
agreement provides that all rights to indemnification for present and former
officers and directors of Cyras will survive the merger and continue in full
force and effect for a period of not less than six years from the date of the
completion of the merger in the case of certain omissions, and four years from
the date of the merger in the case of all other acts or omissions.
The acceleration of vesting and payment of severance benefits could have
triggered a parachute payment, taxable under Internal Revenue Code Section 280G.
In such event the individual receiving the parachute payment would have incurred
a 20% excise tax on the parachute payment attributable to the severance benefits
and/or accelerated vesting and CIENA would not have been entitled to any income
tax deduction it may have otherwise been eligible for with respect to the
parachute payment. However, those
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adverse tax consequences will be avoided because the benefits described above
have, in accordance with the requirements of Internal Revenue Code Section 280G
and the applicable regulations thereunder, been approved by Cyras stockholders
holding more than 75% of the total voting power of all of Cyras's outstanding
voting shares, excluding shares held by Messrs. Shivji, Pirzada, Tomar, Mandal,
Grassetti, Castro, and Banatao.
Cyras stockholders should consider whether these interests may have
influenced these directors and officers to support or recommend the merger.
ACCOUNTING TREATMENT
The merger is expected to be accounted for using the purchase method of
accounting. CIENA will be deemed the acquiror for financial reporting purposes.
Under the purchase method of accounting, the purchase price in the merger is
allocated among the Cyras assets acquired, including identifiable intangibles,
and the Cyras liabilities assumed to the extent of their fair market value, with
any excess purchase price being allocated to goodwill.
LISTING ON THE NASDAQ NATIONAL MARKET
CIENA has agreed to cause the shares of CIENA common stock issued in the
merger to be approved for listing on the Nasdaq National Market.
GOVERNMENTAL AND REGULATORY APPROVALS
The Hart-Scott-Rodino Antitrust Improvements Act of 1976 and its related
rules and regulations prohibit CIENA and Cyras from completing the merger until
CIENA and Cyras make a filing with the Antitrust Division of the Department of
Justice and the Federal Trade Commission, and the Hart-Scott-Rodino Antitrust
Improvements Act waiting period requirements have been satisfied. Even after the
waiting period expires or terminates, the Antitrust Division or the Federal
Trade Commission may later challenge the merger on antitrust grounds. CIENA and
Cyras made the filing with the Department of Justice and the Federal Trade
Commission on January 2, 2001, and the waiting period expired on February 2,
2001.
FEDERAL INCOME TAX CONSEQUENCES
The following describes the material federal income tax consequences of the
exchange of shares of Cyras capital stock for CIENA common stock pursuant to the
merger that are generally applicable to holders of Cyras capital stock. This
discussion is based on currently existing provisions of the Internal Revenue
Code of 1986, as amended (the "Code"), existing and proposed Treasury
regulations thereunder and current administrative rulings and court decisions,
all of which are subject to change. Any such change, which may or may not be
retroactive, could alter the tax consequences to Cyras stockholders as described
herein.
Cyras stockholders should be aware that this discussion does not address
all federal income tax considerations that may be relevant to particular Cyras
stockholders in light of their particular circumstances, such as stockholders
who are dealers in securities, who are subject to the alternative minimum tax
provisions of the Code, who are foreign persons, insurance companies, tax-exempt
organizations, financial institutions, or broker-dealers, who hold their shares
as part of a hedge, straddle, conversion or other risk-reduction transaction,
who do not hold their Cyras capital stock as capital assets, or who acquired
their shares in connection with stock option or stock purchase plans or in other
compensatory transactions. In addition, the following discussion does not
address the tax consequences of the merger under foreign, state or local tax
laws, the tax consequences of the assumption by CIENA of the Cyras employee
options, the tax consequences of any receipt of rights to acquire CIENA common
stock or, other than the merger of the surviving corporation with and into a
limited liability company wholly-owned by CIENA and disregarded for federal
income tax purposes, the tax consequences of transactions effectuated prior or
subsequent to, or concurrently with, the merger, whether or not any such
transactions are undertaken in connection with the merger, including without
limitation any transaction in which shares of Cyras capital stock are acquired
or shares of CIENA common stock are disposed of.
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ACCORDINGLY, CYRAS STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS
AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE
APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES.
In the opinion of Brobeck, Phleger & Harrison LLP, counsel to Cyras, and
Hogan & Hartson, L.L.P., counsel to CIENA, the merger, whether viewed separate
from or together with the merger of the surviving corporation with and into a
limited liability company wholly owned by CIENA, and disregarded for federal
income tax purposes, will constitute a reorganization within the meaning of the
Code and, subject to the limitations and qualifications referred to herein, the
merger will generally result in the following federal income tax consequences to
Cyras stockholders:
- No gain or loss will be recognized by holders of Cyras capital stock
solely upon their receipt of CIENA common stock in exchange for Cyras
capital stock in the merger.
- The aggregate tax basis of the CIENA common stock received by Cyras
stockholders in the merger, including any fractional share interest in
CIENA common stock, will be the same as the aggregate tax basis of the
Cyras capital stock surrendered in exchange therefor.
- The holding period of the CIENA common stock received by Cyras
stockholders in the merger will include the period for which the Cyras
capital stock surrendered in exchange therefor was considered to be held,
provided that the Cyras capital stock so surrendered is held as a capital
asset at the time of the merger.
- Any cash payment received by a holder of Cyras capital stock in lieu of a
fractional share of CIENA common stock will be treated as if such
fractional share had been issued in the merger and then redeemed by
CIENA. A Cyras stockholder receiving such cash will recognize gain or
loss, upon such payment, measured by the difference, if any, between the
amount of cash received and the basis in such fractional share.
Consummation of the merger is conditioned upon the receipt by Cyras of a
confirming opinion from its counsel, Brobeck, Phleger & Harrison LLP, which will
be dated the date on which the merger is consummated, that the merger will
constitute a "reorganization" within the meaning of Section 368(a) of the
Internal Revenue Code. Consummation of the merger is also conditioned upon the
receipt by CIENA of a confirming opinion from Hogan & Hartson L.L.P., counsel to
CIENA, which will be dated the date on which the merger is consummated, that the
merger will not result in taxation to CIENA or CO Acquisition Corp. These
opinions of counsel, as well as the opinions of counsel set forth in this
section, are based on representations as to factual matters made by, among
others, Cyras, CO Acquisition Corp. and CIENA. These representations include
that any payment of cash to all stockholders exercising appraisal rights will be
paid out of an escrow account to be established by Cyras prior to closing with
its own funds. These representations, if incorrect, could jeopardize the
conclusions reached in the opinions. Neither Cyras nor CIENA is currently aware
of any facts or circumstances which would cause any representations made to
counsel to be untrue or incorrect in any material respect. The parties have not
and will not request a ruling from the Internal Revenue Service as to the tax
consequences of the merger.
The opinions of counsel are not binding upon the Internal Revenue Service
or the courts, and there is no assurance that the Internal Revenue Service will
not successfully assert a contrary position. A successful Internal Revenue
Service challenge to the reorganization status of the merger would result in
Cyras stockholders recognizing taxable gain or loss with respect to each share
of Cyras capital stock surrendered equal to the difference between the
stockholder's basis in such share and the fair market value, as of the effective
time of the merger, of the CIENA common stock received in exchange therefor. In
such event, a stockholder's aggregate basis in the CIENA common stock so
received would equal its fair market value, and the stockholder's holding period
for such stock would begin the day after the merger. In addition, if immediately
following the merger, the surviving corporation in the merger is merged with and
into a limited liability company wholly owned by CIENA and disregarded for
federal income tax purposes, the two mergers will likely be viewed as a single
transaction and treated as an acquisition of all of the assets and liabilities
of Cyras by CIENA solely in exchange for CIENA common stock, followed by
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the liquidation of Cyras. A successful Internal Revenue Service challenge to the
reorganization status of the merger, taking into account the subsequent merger
of the surviving corporation into a disregarded entity wholly owned by CIENA,
would result in Cyras recognizing taxable gain or loss on the deemed sale of all
of its assets and liabilities to CIENA in exchange for CIENA common stock. In
such case, CIENA would ultimately be liable for the Cyras tax liability
resulting from the two mergers.
APPRAISAL RIGHTS OF DISSENTING STOCKHOLDERS OF CYRAS
If the merger is consummated, a holder of record of Cyras stock on the date
of making a demand for appraisal, as described below, will be entitled to have
those shares appraised by the Delaware Court of Chancery under Section 262 of
the Delaware corporation statute and to receive payment for the "fair value" of
those shares instead of the consideration provided for in the merger agreement.
In order to be eligible to receive this payment, however, a Cyras stockholder
must (1) continue to hold his or her shares through the time of the merger; (2)
strictly comply with the procedures discussed under Section 262; and (3) not
vote in favor of the merger. This prospectus and proxy statement is being sent
to all holders of record of Cyras stock on the record date for the Cyras special
meeting and constitutes notice of the appraisal rights available to those
holders under Section 262.
CIENA's obligation to complete the merger is specifically conditioned on
appraisal rights not being demanded or exercised by holders of more than 2% of
Cyras's outstanding stock.
THE STATUTORY RIGHT OF APPRAISAL GRANTED BY SECTION 262 REQUIRES STRICT
COMPLIANCE WITH THE PROCEDURES IN SECTION 262. FAILURE TO FOLLOW ANY OF THESE
PROCEDURES MAY RESULT IN A TERMINATION OR WAIVER OF DISSENTERS' RIGHTS UNDER
SECTION 262. THE FOLLOWING IS A SUMMARY OF THE PRINCIPAL PROVISIONS OF SECTION
262.
The following summary is not a complete statement of Section 262 of the
Delaware corporation statute, and is qualified in its entirety by reference to
Section 262 which is incorporated herein by reference, together with any
amendments to the laws that may be adopted after the date of this prospectus and
proxy statement. A copy of Section 262 is attached as Appendix B to this
prospectus and proxy statement.
A holder of Cyras stock who elects to exercise appraisal rights under
Section 262 must deliver a written demand for appraisal of its shares of Cyras
prior to the vote on the merger. The written demand must identify the
stockholder of record and state the stockholder's intention to demand appraisal
of his or her shares. All demands should be delivered to Cyras, Attention:
Armando Castro, General Counsel, 47100 Bayside Parkway, Fremont, California
94538, telephone (510) 623-6600.
Only a holder of shares of Cyras stock on the date of making a written
demand for appraisal who continuously holds those shares through the time of the
merger is entitled to seek appraisal. Demand for appraisal must be executed by
or for the holder of record, fully and correctly, as that holder's name appears
on the holder's stock certificates representing shares of Cyras stock. If Cyras
stock is owned of record in a fiduciary capacity by a trustee, guardian or
custodian, the demand should be made in that capacity. If Cyras stock is owned
of record by more than one person, as in a joint tenancy or tenancy in common,
the demand should be made by or for all owners of record. An authorized agent,
including one or more joint owners, may execute the demand for appraisal for a
holder of record; that agent, however, must identify the record owner or owners
and expressly disclose in the demand that the agent is acting as agent for the
record owner or owners of the shares.
A record holder such as a broker who holds shares of Cyras stock as a
nominee for beneficial owners, some of whom desire to demand appraisal, must
exercise appraisal rights on behalf of those beneficial owners with respect to
the shares of Cyras stock, held for those beneficial owners. In that case, the
written demand for appraisal should state the number of shares of Cyras stock
covered by it. Unless a demand for appraisal specifies a number of shares, the
demand will be presumed to cover all shares of Cyras stock held in the name of
the record owner.
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BENEFICIAL OWNERS WHO ARE NOT RECORD OWNERS AND WHO INTEND TO EXERCISE
APPRAISAL RIGHTS SHOULD INSTRUCT THE RECORD OWNER TO COMPLY WITH THE STATUTORY
REQUIREMENTS WITH RESPECT TO THE EXERCISE OF APPRAISAL RIGHTS BEFORE THE DATE OF
THE CYRAS SPECIAL MEETING.
Within 10 days after the merger, the surviving or resulting corporation is
required to send notice of the effectiveness of the merger to each stockholder
who prior to the time of the merger complies with the requirements of Section
262.
Within 120 days after the merger, the surviving corporation or any
stockholder who has complied with the requirement of Section 262 may file a
petition in the Delaware Court of Chancery demanding a determination of the fair
value of the shares of Cyras stock held by all stockholders seeking appraisal. A
dissenting stockholder must serve a copy of the petition on the surviving
corporation. If no petition is filed by either the surviving corporation or any
dissenting shareholder within the 120-day period, the rights of all dissenting
stockholders to appraisal will cease. Stockholders seeking to exercise appraisal
rights should not assume that the surviving corporation will file a petition
with respect to the appraisal of the fair value of their shares or that the
surviving corporation will initiate any negotiations with respect to the fair
value of those shares. The surviving corporation is under no obligation to and
has no present intention to take any action in this regard. Accordingly,
stockholders who wish to seek appraisal of their shares should initiate all
necessary action with respect to the perfection of their appraisal rights within
the time periods and in the manner prescribed in Section 262. FAILURE TO FILE
THE PETITION ON A TIMELY BASIS WILL CAUSE THE STOCKHOLDER'S RIGHT TO AN
APPRAISAL TO CEASE.
Within 120 days after the time of the merger, any stockholder who has
complied with subsections (a) and (d) of Section 262 is entitled, upon written
request, to receive from the surviving corporation a statement setting forth the
total number of shares of Cyras stock not voted in favor of the merger with
respect to which demands for appraisal have been received by Cyras and the
number of holders of those shares. The statement must be mailed within 10 days
after Cyras has received the written request or within 10 days after the time
for delivery of demands for appraisal under subsection (d) of Section 262 has
expired, whichever is later.
If a petition for an appraisal is filed in a timely manner, at the hearing
on the petition, the Delaware Court of Chancery will determine which
shareholders are entitled to appraisal rights and will appraise the shares of
Cyras stock owned by those stockholders. The court will determine the fair value
of those shares, exclusive of any element of value arising from the
accomplishment or expectation of the merger, together with a fair rate of
interest, to be paid, if any, upon the fair value.
Stockholders who consider seeking appraisal should consider that the fair
value of their shares under Section 262 could be more than, the same as, or less
than, the value of the consideration provided for in the merger agreement
without the exercise of appraisal rights. The Court of Chancery may determine
the cost of the appraisal proceeding and assess it against the parties as the
Court deems equitable. Upon application of a dissenting stockholder, the Court
may order that all or a portion of the expenses incurred by any dissenting
stockholder in connection with the appraisal proceeding (including, without
limitation, reasonable attorney's fees and the fees and expenses of experts) be
charged pro rata against the value of all shares of Cyras stock entitled to
appraisal. In the absence of a court determination or assessment, each party
bears its own expenses.
Any stockholder who has demanded appraisal in compliance with Section 262
will not, after the merger, be entitled to vote such stock for any purpose or
receive payment of dividends or other distributions, if any, on the Cyras stock,
except of dividends or distributions, if any, payable to stockholders of record
at a date prior to the merger.
A stockholder may withdraw a demand for appraisal and accept the CIENA
common stock at any time within 60 days after the merger. If an appraisal
proceeding is properly instituted, it may not be dismissed as to any stockholder
without the approval of the Delaware Court of Chancery, and any such approval
may be conditioned on the Court of Chancery's deeming the terms to be just. If,
after the merger, a holder of Cyras stock who had demanded appraisal for his
shares fails to perfect or loses his
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right to appraisal, those shares will be treated under the merger agreement as
if they were converted into CIENA common stock at the time of the merger.
IN VIEW OF THE COMPLEXITY OF THESE PROVISIONS OF THE DELAWARE CORPORATE
LAW, ANY CYRAS STOCKHOLDER WHO IS CONSIDERING EXERCISING APPRAISAL RIGHTS SHOULD
CONSULT A LEGAL ADVISOR.
CYRAS 4 1/2% CONVERTIBLE SUBORDINATED NOTES DUE AUGUST 15, 2005
CIENA intends to execute a supplemental indenture effective at the closing
date of the merger that provides that effective at closing the $150,000,000
aggregate principal amount 4 1/2% convertible subordinated notes of Cyras will
be convertible into CIENA common stock at a conversion price calculated as if
each note was convertible effective at closing into Cyras common stock at $18.47
per share, and the resulting approximately 54 shares of Cyras common stock per
$1,000 principal amount of notes were thereafter convertible into CIENA common
stock at the relevant common stock exchange ratio.
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TERMS OF THE MERGER AGREEMENT AND RELATED TRANSACTIONS
The following summary of the material terms and provisions of the merger
agreement is qualified in its entirety by reference to the merger agreement. The
merger agreement is attached as Appendix A to this prospectus and proxy
statement and is considered a part of this document. All stockholders are urged
to read the merger agreement carefully.
GENERAL
The merger agreement provides that a wholly-owned subsidiary of CIENA, CO
Acquisition Corp., will be merged with and into Cyras at the effective time of
the merger. CO Acquisition Corp. will then cease to exist and Cyras will survive
this merger and continue as a wholly-owned subsidiary of CIENA. At the effective
time of the merger, each outstanding share of Cyras preferred stock and common
stock held by persons not exercising appraisal rights will be converted into
CIENA common stock, all as more fully described below. This section of the
prospectus and proxy statement describes aspects of the merger, including the
material provisions of the merger agreement.
STRUCTURE OF THE MERGER
Subject to the terms and conditions of the merger agreement and in
accordance with the Delaware General Corporation Law, the DGCL, at the effective
time of the merger, CIENA's wholly-owned subsidiary, CO Acquisition Corp., a
Delaware corporation will merge with and into Cyras. CO Acquisition Corp. will
then cease to exist, and Cyras will continue as CIENA's wholly-owned subsidiary.
The certificate of incorporation of Cyras will become the certificate of
incorporation of the surviving corporation of the merger. The bylaws of CO
Acquisition Corp. will become the bylaws of the surviving corporation of the
merger.
To facilitate internal tax planning, immediately after the merger, CIENA
intends to merge Cyras with and into a limited liability company wholly owned by
CIENA and disregarded for federal income tax purposes, but under the terms of
the merger agreement, CIENA can only undertake that action if it will not affect
the qualification of the merger as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code. Entities that are disregarded for
federal income tax purposes, such as single member limited liability companies,
are not recognized as entities separate from their owners.
MANAGEMENT AFTER THE MERGER
All of the officers and directors of CIENA before the merger will remain
the officers and directors of CIENA after the merger. Pursuant to employment
agreements with CIENA that become effective at the effective time of the merger,
certain officers of Cyras will remain officers of the surviving company. All
current directors of Cyras will be replaced with nominees appointed by CIENA at
the effective time of the merger.
CONVERSION OF CYRAS PREFERRED STOCK AND COMMON STOCK
At the effective time of the merger, each issued and outstanding share of
Cyras preferred stock and common stock, other than shares held in the treasury
of Cyras, held by CIENA or held by any direct or indirect wholly owned
subsidiary of CIENA or Cyras, will be converted into shares of CIENA common
stock in accordance with the formulas described below. Cyras stockholders will
also receive cash, without interest, for any fractional shares of CIENA common
stock that they would otherwise receive in the merger.
For purposes of the information in this prospectus and proxy statement, we
have assumed that the holders of Cyras series A, B, C and D preferred stock will
vote in favor of automatic conversion of their shares into Cyras common stock
immediately prior to the effectiveness of the merger, but that holders of Cyras
series E preferred stock will not elect convert their shares based on the
applicable preferences that would otherwise apply under the Cyras certificate of
incorporation. Because the liquidation preference of
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the Cyras series E preferred stock is $18.467, the holders of the series E
preferred stock will receive more shares of CIENA common stock by electing not
to convert their shares into Cyras common stock unless the closing price for
CIENA common stock used to determine the per share consideration at closing
exceeds approximately $147 per share. By contrast, a holder of Cyras series D
preferred stock, which has a liquidation preference of $2.695 per share, will
receive more shares of CIENA common stock by electing to convert its shares into
Cyras common stock unless the closing price for CIENA common stock used to
determine the per share consideration at closing is less than approximately
$21.40 per share. The liquidation preferences of the Cyras series A, B and C
preferred stock are less than that of the series D preferred stock.
The Cyras certificate of incorporation provides that all shares of
outstanding Cyras preferred stock will automatically convert into common stock
as a result of the merger if approved by the holders of more than 66 2/3% of the
outstanding preferred stock. However, a separate vote of the holders of the
series E preferred stock is required to approve the conversion of the series E
preferred stock if the proceeds to Cyras stockholders on a per share basis is
less than the series E conversion price, which currently is $18.467. Conversion
of the Cyras preferred stock into Cyras common stock is not a condition to the
closing of the merger. In the unlikely event that the holders of Cyras preferred
stock (other than the series E preferred stock) do not vote in favor of
conversion of their shares and do not elect to convert their shares prior to the
effective time of the merger, the aggregate number of shares of CIENA common
stock issued in the merger will not be reduced, but the exchange ratio
applicable to the Cyras common stock will be increased, resulting in the Cyras
common stock holders receiving proportionately more of the merger consideration.
At the effective time of the merger, the Cyras stockholders will be
entitled to receive:
- in the case of each share of Cyras series E preferred stock, a fraction
of a share of CIENA common stock equal to:
(i) the liquidation price of $18.467, divided by
(ii) the lower of (i) the average closing price of a share of CIENA
common stock as reported on the Nasdaq National Market for the
twenty most recent days that CIENA common stock has traded ending
on the third trading day prior to the date the merger becomes
effective or (ii) the closing price of a share of CIENA common
stock as reported on the Nasdaq National Market on the last full
trading day prior to the date the merger becomes effective.
- in the case of each share of Cyras common stock, a fraction of a share of
CIENA common stock equal to the quotient of:
(A) the sum of:
- 27,000,000, plus
- the quotient of (a) the aggregate amount receivable from holders of
Cyras options and warrants upon the exercise of all Cyras options
and warrants, assuming they were exercised for cash, divided by (b)
the lower of (1) the average closing price of a share of CIENA
common stock as reported on the Nasdaq National Market for the
twenty most recent days that CIENA common stock has traded, ending
on the third trading day prior to the date the merger becomes
effective, or (2) the closing price of a share of CIENA common stock
as reported on the Nasdaq National Market on the last full trading
day prior to the date the merger becomes effective, minus
- the total number of shares of CIENA common stock allocated to the
holders of Cyras's preferred stock at the time the merger becomes
effective,
divided by
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(B) the total number of shares of Cyras common stock plus the number of
shares of Cyras common stock issuable upon exercise of all Cyras
stock options and warrants, in each case immediately prior to the
effectiveness of the merger, excluding those options and warrants
that expire as a result of the merger or by their terms will expire
following the effectiveness of the merger without becoming
exercisable due to vesting provisions.
If, prior to the effective time of the merger, the outstanding shares of
CIENA common stock are changed into or exchanged for a different number of
shares or a different class as a result of any stock split, combination,
reclassification or dividend, the nature of the consideration to be received by
the holders of Cyras capital stock and the exchange ratios will be appropriately
and proportionately adjusted.
OPTIONS GRANTED OUTSIDE THE CONVERSION FORMULA
As of the date of the merger agreement, there were 15,361,242 options to
purchase Cyras common stock issued and outstanding. From the date of the merger
agreement until the closing of the merger, Cyras may grant additional options up
to an amount equal to the product of (a) the number of days between the date of
the merger agreement and the closing date and (b) 25,000, but in any event, no
more than 3,000,000 stock options to new employees consistent with its current
new hire option grant policy, and these options will not be included in the
formula to determine the common stock exchange ratio.
PREFERRED STOCK PURCHASE RIGHTS
In addition, each share of CIENA common stock issued in the merger will
include a corresponding right to purchase shares of CIENA junior preferred
stock, par value $0.01 per share, pursuant to the Rights Agreement dated as of
December 29, 1997 between CIENA and BankBoston, N.A. as Rights Agent.
TREATMENT OF OPTIONS AND WARRANTS
CIENA will assume each option or warrant to acquire Cyras common stock or
preferred stock granted under Cyras's 1998 Stock Plan or otherwise issued by
Cyras and that is outstanding and unexercised immediately prior to the effective
time of the merger, and at the effective time of the merger CIENA will replace
them with an option or warrant, respectively, to purchase CIENA common stock. In
each case, the number of shares of CIENA common stock subject to the new CIENA
option or warrant will be equal to the number of shares of Cyras common stock
subject to the Cyras stock option or warrant, assuming full vesting, multiplied
by the common stock exchange ratio and rounding any fractional share up to the
nearest whole share and the exercise price per share of CIENA common stock will
be equal to the aggregate exercise price for the shares of Cyras common stock
subject to the Cyras stock option or warrant divided by the number of shares of
CIENA common stock subject to the new CIENA option or warrant. The duration and
other terms of each such CIENA option or warrant, including the vesting
schedule, will be the same as the prior Cyras stock option or warrant.
EXCHANGE OF CERTIFICATES; FRACTIONAL SHARES
For the benefit of the holders of issued and outstanding shares of Cyras
preferred stock and Cyras common stock, CIENA has agreed to deposit with a bank
or trust company designated as exchange agent by CIENA and reasonably acceptable
to the stockholders' representative certificates representing the shares of
CIENA common stock to be issued pursuant to the merger agreement, less the
number of shares of CIENA common stock to be deposited in escrow as described in
"Terms of the Merger Agreement and Related Transactions -- Indemnification." In
addition, CIENA will deposit with the exchange agent cash in an amount
sufficient to permit payment of cash for fractional shares as provided in the
merger agreement.
At the earliest practicable date after the effective time of the merger,
the exchange agent will mail a letter of transmittal to each holder of Cyras
preferred and common stock. The letter of transmittal will contain instructions
with respect to the surrender of stock certificates to the exchange agent.
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YOU SHOULD NOT RETURN YOUR STOCK CERTIFICATES WITH THE ENCLOSED PROXY NOR
SHOULD YOU FORWARD THEM TO THE EXCHANGE AGENT UNLESS AND UNTIL YOU RECEIVE THE
LETTER OF TRANSMITTAL, AT WHICH TIME YOU SHOULD FORWARD THEM ONLY IN ACCORDANCE
WITH THE INSTRUCTIONS SPECIFIED IN THE LETTER OF TRANSMITTAL.
Until the holders of certificates representing Cyras common stock to be
converted into CIENA common stock in the merger surrender them for exchange at
or after the effective time of the merger, they will accrue but will not receive
dividends or other distributions declared after the effective time of the merger
with respect to CIENA common stock into which their Cyras stock has been
converted. When they surrender these certificates, any unpaid dividends or other
distributions will be paid, without interest. All stock certificates presented
after the effective time of the merger will be canceled and exchanged for a
certificate representing the applicable number of shares of CIENA common stock.
CIENA will not issue any fractional shares. Instead, each Cyras stockholder
who would otherwise have been entitled to receive a fractional share of CIENA
common stock will receive cash, without interest, in an amount rounded to the
nearest whole cent, determined by multiplying (1) the per share closing price on
the Nasdaq National Market of CIENA common stock on the closing date or, if the
CIENA common stock is not trading on the Nasdaq National Market on that date,
the first day of trading in CIENA common stock on the Nasdaq National Market
thereafter by (2) the fraction of a share of CIENA common stock to which the
holder would otherwise be entitled.
Any shares of CIENA common stock and cash that the exchange agent has not
distributed six months after the effective time of the merger will be delivered
to CIENA upon demand. Certificates representing Cyras preferred or common stock
must thereafter be surrendered for exchange to CIENA. Neither CIENA, Cyras, nor
the exchange agent will be liable for any shares of CIENA common stock,
dividends or distributions with respect thereto, or cash delivered to a public
official pursuant to any abandoned property, escheat or similar laws.
If a certificate representing Cyras preferred stock or Cyras common stock
is lost, stolen or destroyed, the exchange agent will issue the CIENA common
stock in exchange for the certificate only upon the making of an affidavit of
loss, theft or destruction by the claimant, and, if required by CIENA, the
posting of a bond as indemnity against any claim that may be made against CIENA
or the exchange agent with respect to the certificate.
For a description of the CIENA common stock and a description of the
differences between the rights of the holders of Cyras common stock and holders
of CIENA common stock, see "CIENA Capital Stock and Comparison of Stockholder
Rights."
EFFECTIVE TIME
The merger will occur after all of the conditions set forth in Article VI
of the merger agreement have been satisfied or waived. On the second business
day after the satisfaction or waiver of the conditions in Article VI of the
merger agreement, the parties will hold a scheduled closing. On the day the
merger occurs, CIENA will file a certificate of merger with the Secretary of
State of the State of Delaware. The effective time of the merger will be the
date and time of that filing. Cyras and CIENA each anticipate that, if the
merger is approved at the special meeting, it will be consummated during the
first calendar quarter of 2001.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains various representations of Cyras and CIENA.
Cyras has made customary representations and warranties relating to, among other
things:
- the corporate organization and existence of Cyras, including that it is
duly organized, validly existing and in good standing with the corporate
power and authority to own, operate and lease its properties and to carry
on its business as currently conducted;
- the certificate of incorporation and bylaws of Cyras;
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- the capitalization of Cyras, including the number of shares of capital
stock authorized, the number of shares and rights to acquire shares
outstanding and the number of shares reserved for issuance;
- the corporate power and authority of Cyras to execute and deliver the
merger agreement and related documents and to consummate the transactions
contemplated by these documents;
- the compliance of the merger agreement and related documents with Cyras's
certificate of incorporation and bylaws, applicable laws, and material
agreements of Cyras, including the absence of events of default or
acceleration under these agreements;
- the required governmental and third-party consents;
- Cyras's financial statements, including that the information in the
financial statements is a fair presentation of the financial condition
and results of operations of Cyras and is in compliance with GAAP;
- the absence of material undisclosed liabilities;
- the material contracts to which Cyras is a party;
- the absence of specified changes in Cyras's business since December 31,
1999;
- the absence of material legal proceedings, injunctions and disputes;
- the validity of and absence of defaults under, specified debt
instruments, leases and other agreements of Cyras;
- compliance with laws, including laws relating to Cyras's assets, business
and employees;
- Cyras's employee benefit plans and related matters, including that the
plans have been operated and administered in accordance with applicable
law;
- the filing and accuracy of Cyras's tax returns;
- the absence of certain business practices of Cyras;
- insurance;
- the absence of certain potential conflicts of interest with employees,
directors, officers and significant stockholders of Cyras;
- the ownership and condition of the assets owned by Cyras;
- complete and correct books and records;
- the intellectual property of Cyras, including the absence of intellectual
property infringement or contests;
- the adoption by the Cyras board of a resolution approving the merger
agreement and the merger and recommending adoption of the merger
agreement and approval of the merger by the stockholders of Cyras;
- the vote required to approve the merger;
- compliance with environmental laws and the absence of environmental
liabilities; and
- true and complete copies of all documents referred to in the schedules to
the merger agreement.
Cyras's representations and warranties will survive until the end of the
first year after the effective time of the merger. After the effective time of
the merger, the maximum liability of Cyras's stockholders for any breach of the
representations, warranties, covenants or agreements will be limited to 10% of
the shares issued in the merger transaction. CIENA and certain other indemnified
persons may make a claim for indemnification for breach of any of the foregoing
representations and warranties until the end of the
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first year after the effective time of the merger. See "Terms of the Merger
Agreement and Related Transactions -- Indemnification."
The merger agreement also contains customary representations and warranties
of CIENA and CO Acquisition Corp., as to, among other things:
- the corporate organization and existence of CIENA and CO Acquisition
Corp., including that they are duly organized, validly existing and in
good standing with the corporate power and authority to own, operate and
lease their properties and to carry on their business as currently
conducted;
- the corporate power and authority of CIENA to execute and deliver the
merger agreement and related documents and to consummate the transactions
contemplated by these documents;
- the certificate of incorporation and bylaws of CIENA and CO Acquisition
Corp.;
- the compliance of the merger agreement and related documents with CIENA's
certificate of incorporation and bylaws and the certificate of
incorporation and bylaws of CO Acquisition Corp., applicable laws, and
certain material agreements of CIENA;
- the required governmental and third-party consents;
- CIENA's filings with the SEC;
- the valid issuance of the shares of CIENA common stock to be issued in
the merger;
- the capitalization of CIENA;
- the qualification of the merger as a tax-free reorganization under
Section 368(a) of the Code; and
- the absence of specified changes in CIENA's business since October 31,
2000.
BUSINESS OF CYRAS PENDING THE MERGER; OTHER AGREEMENTS
Pursuant to the merger agreement, Cyras has agreed to maintain its business
in the ordinary course consistent with past practice. From the date of signing
of the merger agreement until closing, Cyras will:
- maintain its existence in good standing;
- maintain the general character of its business and properties and conduct
its business in the ordinary and usual manner consistent with past
practices, except as expressly permitted by the merger agreement;
- maintain business and accounting records consistent with past practices;
- use its best efforts (1) to preserve its business intact, (2) to keep
available to Cyras the services of its present officers and employees,
and (3) to preserve for Cyras the goodwill of its suppliers, customers
and others having business relations with Cyras; and
- afford access to the books, records and properties of Cyras to CIENA.
Unless CIENA otherwise approves, Cyras may not:
- amend or otherwise change its certificate of incorporation or bylaws;
- issue or sell any stock or grant any options other than in the ordinary
course, including under its option program;
- declare, set aside, make or pay any dividend or other distribution,
payable in cash, stock, property or otherwise with respect to any of its
capital stock;
- reclassify, combine, split, subdivide or redeem, purchase or otherwise
acquire, directly or indirectly, any of its capital stock;
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- incur any indebtedness for borrowed money or issue any debt securities or
assume, guarantee or endorse, or otherwise become responsible for, the
obligations of any person, or make any loans or advances, with some
exceptions, or modify, amend or waive the terms of its 4 1/2% convertible
subordinated notes due August 15, 2005;
- acquire any corporation, partnership, other business organization or any
division of a business or any material amount of assets;
- enter into any contract or agreement other than in the ordinary course of
business, consistent with past practices;
- authorize any capital commitment or capital lease in excess of $500,000
or capital expenditures which are, in the aggregate, in excess of
$500,000;
- mortgage, pledge or subject to encumbrance any of its assets or
properties or agree to do so;
- assume, guarantee or otherwise become responsible for the obligations of
any other person or agree to so do;
- enter into or agree to enter into any employment agreement, other than
those entered into in the ordinary course of business;
- increase the compensation of its officers or employees, or grant any
severance or termination pay to, or enter into any severance agreement
with any director, officer or other employee of Cyras, or establish,
adopt, enter into or amend specified arrangements for the benefit of any
director, officer or employee except for reasonable salary increases in
connection with customary officer and employee performance review process
and customary bonuses consistent with past practices;
- change in any respect its accounting policies or procedures;
- make any tax election or settle or compromise any federal, state, local
or foreign material income tax liability in excess of $50,000;
- settle or compromise any pending or threatened suit, action or claim;
- pay, discharge or satisfy any claim, liability or obligation, other than
the payment, discharge or satisfaction, in the ordinary course of
business and consistent with past practices, of liabilities reflected or
reserved against in the latest balance sheet included in the last audited
financial statement provided to CIENA or subsequently incurred in the
ordinary course of business and consistent with past practices, in
amounts not in excess of $100,000;
- sell, assign, transfer, license or sublicense, other than in the ordinary
course of business and consistent with past practices, pledge or
otherwise encumber any of the intellectual property rights; or
- announce an intention, commit or agree to do any of the foregoing.
However, Cyras will be permitted to amend its stock option plan to provide
for acceleration of vesting of 25% of the then unvested shares held by a holder
of options or restricted stock in the event of a change in control, excluding
the merger, similar to the manner described in CIENA's 1999 Non-Officer Stock
Option Plan.
NO SOLICITATION BY CYRAS
Pursuant to the merger agreement, Cyras may not, nor may it authorize or
permit any of its affiliates or any officer, director, employee, investment
banker, attorney or other adviser or representative of Cyras or any of its
affiliates to:
- solicit, initiate, or encourage the submission of, any acquisition
proposal;
- enter into any agreement with respect to any acquisition proposal; or
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- participate in any discussions or negotiations regarding, or furnish to
any person any information for the purpose of facilitating the making of,
or take any other action to facilitate any inquiries or the making of any
proposal that constitutes, or may reasonably be expected to lead to, any
acquisition proposal.
Cyras must promptly notify CIENA of any acquisition proposal and inquiries
with respect to any acquisition proposal. Acquisition proposal means any
proposal for a merger or other business combination involving Cyras or any
proposal or offer to acquire in any manner, directly or indirectly, an equity
interest, voting securities, or assets of Cyras totaling at least 5%, or at
least 30% for purposes of the termination provisions of the merger agreement
described below, of Cyras's equity, voting securities or assets, except in
connection with employee stock option grants or warrant exercises.
The merger agreement does not preclude Cyras from, prior to receipt of the
requisite stockholder approval, providing information to, subject to appropriate
confidentiality protections, or entering into negotiations with, a person who
has delivered an unsolicited written bona fide acquisition proposal, so long as
in each case:
- the board of directors of Cyras determines in good faith, after reviewing
the advice of its financial advisor and outside legal counsel, that the
acquisition proposal, if accepted, is likely to be consummated;
- the board of directors of Cyras determines in good faith, after reviewing
the advice of its financial advisor, that the acquisition proposal would,
if consummated, result in a transaction that is more favorable to the
Cyras stockholders with respect to financial terms and, if applicable,
strategic benefit, taking into account the long-term value to
stockholders of the CIENA shares being issued and the strategic nature of
the merger; and
- the board of directors of Cyras determines in good faith, after receiving
advice of its outside legal counsel, that taking such action is required
or necessary in the exercise of its fiduciary duties under applicable
law.
In addition to these "no solicitation" provisions, the merger agreement
provides that Cyras will promptly advise CIENA of any acquisition proposal,
including its terms and the identity of the person making the acquisition
proposal, and inquiries with respect to any discussion regarding an acquisition
proposal.
The merger agreement provides that the Cyras board of directors may not
withdraw, amend, modify or qualify in a manner adverse to CIENA its
recommendation of the merger to its stockholders, unless:
- Cyras provides CIENA with three business days' prior notice;
- Cyras has otherwise complied in all respects with its obligations under
the merger agreement; and
- after receiving the advice of its outside legal counsel, the Cyras board
of directors determines in good faith that the merger is not in the best
interests of its stockholders and that, therefore, it is required to
withdraw or change its recommendation in order to satisfy its fiduciary
duties to Cyras's stockholders under applicable law.
ADDITIONAL AGREEMENTS OF CIENA AND CYRAS
Pursuant to the merger agreement, Cyras and CIENA have also agreed to use
their reasonable best efforts to take all necessary, proper or appropriate
actions to consummate the transactions contemplated by the merger agreement.
In accordance with its certificate of incorporation and bylaws, Cyras will
take all action necessary to either:
- convene a meeting of the holders of Cyras stock, to be held as promptly
as practicable after the S-4 registration statement is declared
effective; or
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- solicit written consents from its stockholders, in either case to
consider and vote upon the approval of the merger and the automatic
conversion of the series A, B, C and D preferred stock.
Cyras must also cause to be delivered to CIENA a "comfort" letter of
Deloitte & Touche LLP, Cyras's independent public accountants, dated as of the
effective date of the S-4 registration statement, and addressed to CIENA and
Cyras, in form and substance reasonably satisfactory to CIENA and reasonably
customary in scope and substance for letters delivered by independent public
accountants in connection with similar transactions.
INDEMNIFICATION AND ESCROW ARRANGEMENT
Under the merger agreement, CIENA and its officers, directors and
affiliates are indemnified by the Cyras stockholders, other than those
dissenting stockholders exercising rights of appraisal under Section 262 of the
DGCL who do not receive CIENA common stock in the merger, against all claims,
losses, and liabilities, incurred as a result of:
- any inaccuracy or breach of a representation or warranty of Cyras
contained in the merger agreement or a certificate of any officer of
Cyras delivered pursuant to the merger agreement; or
- any failure by Cyras to perform or comply with any covenant contained in
the merger agreement.
The aggregate amount available to indemnify the indemnified parties may not
exceed the amount deposited in the escrow fund, referred to below, and no
stockholder is required to indemnify the indemnified parties for an amount that
would exceed such stockholder's pro rata share of the CIENA stock deposited in
the escrow fund. In addition, there will be no indemnification liability, except
as provided in the merger agreement, unless the aggregate amount of losses
incurred exceeds $1,000,000 in which event the entire amount of losses will be
indemnifiable. The stockholders will have no right of contribution from Cyras
with respect to any loss claimed by CIENA after the closing date. Nothing in the
merger agreement limits the liability of Cyras for any breach of any
representation, warranty or covenant if the merger is not consummated.
ESCROW FUND. The merger agreement provides that 10% of the shares of CIENA
common stock to be issued to the Cyras stockholders in the merger will be placed
in escrow with an escrow agent as soon as practicable after the merger is
completed. The escrow fund will be the sole and exclusive source available to
compensate CIENA for the indemnification obligations of each Cyras stockholder
under the merger agreement. The merger agreement does not, however, limit any
remedies against the parties to the merger agreement in the event of fraud. The
deposit with the escrow agent constitutes an escrow fund to be governed by the
terms set forth in the escrow agreement. The portion of the escrow amount
contributed on behalf of each stockholder must be proportional to the aggregate
CIENA common stock to which such holder would otherwise be entitled. Any
stockholder may elect to cause the shares beneficially owned by that stockholder
to be sold following the closing of the merger and cause the excess proceeds, if
any, over the assumed value of the shares at closing to be delivered to him. The
form of escrow agreement is attached to this prospectus and proxy statement as
Appendix C.
The vote being taken at the upcoming special meeting includes a vote to
ratify the appointment of Douglas Carlisle as stockholder representative under
the escrow agreement. Mr. Carlisle is a member of the board of directors of
Cyras and a general partner of Menlo Ventures VII, L.P., which owns 31,999,998
shares of series B preferred stock of Cyras, 10,982,862 shares of series C
preferred stock of Cyras and 396,336 shares of series D preferred stock of
Cyras. Menlo Entrepreneurs Fund VII, L.P., an affiliate of Menlo Ventures VII,
L.P., owns 1,344,000 shares of series B preferred stock of Cyras, 461,280 shares
of series C preferred stock of Cyras and 16,650 shares of series D preferred
stock of Cyras.
DIRECTORS' AND OFFICERS' INSURANCE AND INDEMNIFICATION
CIENA has agreed to fulfill and honor in all respects the indemnification
agreements Cyras has previously entered into with its officers and directors and
to fulfill and honor any indemnification provisions of Cyras's charter
documents. The merger agreement provides that all rights to indemnification for
present
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and former officers and directors of Cyras will survive the merger and continue
in full force and effect for a period of not less than six years from the date
of the completion of the merger in the case of certain omissions, and four years
from the date of the merger in the case of all other acts or omissions.
CONDITIONS PRECEDENT TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER
The following conditions must be satisfied before the merger can become
effective:
- CIENA and Cyras must obtain or make all authorizations, consents, orders,
declarations or approvals of, or filings with, or terminations or
expirations of waiting periods imposed by any governmental or regulatory
authority, domestic or foreign, including expiration of any Hart-Scott-
Rodino Act waiting period, which the failure to obtain, make or occur
would have the effect of making the merger or any of the transactions
contemplated by it illegal or would have a material adverse effect on
CIENA or on Cyras, assuming the merger had taken place;
- No temporary restraining order, preliminary or permanent injunction or
other order from any court of competent jurisdiction or other
governmental or regulatory authority may prohibit or prevent the
consummation of the merger or any of the transactions contemplated by the
merger agreement;
- No stop order or threat of proceedings shall have been initiated by the
SEC to suspend the effectiveness of the S-4 registration statement;
- Holders of Cyras capital stock must approve the merger, as required by
Cyras's certificate of incorporation; and
- The CIENA common stock to be issued in the merger must be approved for
listing on the Nasdaq National Market.
CONDITIONS PRECEDENT TO OBLIGATIONS OF CIENA
CIENA's obligations to effect the merger are subject to the fulfillment or
satisfaction, prior to or on the closing date, of each of the following
conditions:
- Cyras must have performed and complied in all material respects with all
agreements and conditions to be performed prior to or on the closing date
and each of Cyras's representations and warranties contained in the
merger agreement must be true and correct in all material respects;
- There shall have been no event, change or effect that has or is
reasonably likely to have a material adverse effect on the business,
condition or results of operations of Cyras;
- Holders of no more than 2.0% of the issued and outstanding Cyras capital
stock immediately prior to the closing date shall have demanded or
exercised appraisal rights under Section 262 of the DGCL;
- Cyras must have received specified third party consents or waivers, in
form and substance satisfactory to CIENA, from the other parties to
specified contracts, leases or agreements to which Cyras is a party;
- Specified individuals shall have entered into non-competition agreements
with CIENA, as described above;
- CIENA must have received the opinion of Hogan & Hartson L.L.P., counsel
to CIENA, dated the closing date, to the effect that the merger will not
result in taxation to CIENA or CO Acquisition Corp. under the Internal
Revenue Code; and
- The agreement providing rights of first refusal and co-sale rights among
Cyras and some of its stockholders, as well as certain registration
rights agreements, shall have been terminated.
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CONDITIONS PRECEDENT TO CYRAS'S OBLIGATIONS
Cyras's obligations to effect the merger are subject to the satisfaction of
the following conditions prior to the closing date:
- CIENA must have performed and complied in all material respects with all
agreements and conditions of the merger agreement prior to or at the
closing and each of CIENA's representations and warranties in the merger
agreement must be true and correct in all material respects;
- Cyras must have received the favorable written opinion of Hogan & Hartson
L.L.P., counsel to CIENA, as to the legal validity of the shares of CIENA
common stock to be issued in the merger;
- Cyras must have received the opinion of Brobeck, Phleger & Harrison LLP,
counsel to Cyras, to the effect that the merger will constitute a
reorganization within the meaning of Section 368(a) of the Internal
Revenue Code; and
- The execution and delivery by CIENA and the escrow agent of the escrow
agreement.
TERMINATION OF THE MERGER AGREEMENT
The merger agreement may be terminated, and the merger may be abandoned at
any time prior to the closing date:
- by the mutual agreement of the boards of directors of Cyras and CIENA;
- by CIENA or Cyras if:
* the closing has not occurred by June 30, 2001, or the approval of
Cyras's stockholders as required by the merger agreement has not
been obtained at a meeting convened for that purpose, except that
this right to terminate the merger agreement is not available to any
party who has caused the delay in the closing date by failing to
fulfill its obligations under the merger agreement; or
* any order permanently restraining, enjoining or otherwise
prohibiting the merger shall be in place.
- by Cyras if:
* prior to receipt of stockholder approval of the merger, Cyras's
board of directors authorizes Cyras, subject to complying with the
merger agreement, to enter into a binding written agreement
concerning a superior proposal, except that this right to terminate
will not be available to Cyras if it is in material breach of the
merger agreement; or
* CIENA breaches any material representation, warranty, covenant or
agreement in the merger agreement, and fails to cure the breach
thirty days after receiving written notice of it.
- by CIENA if:
* Cyras's board of directors has withdrawn, modified or amended its
recommendation in favor of the merger or approved, recommended or
entered into an agreement with respect to, or consummated, or taken
specified steps toward the approval or consummation of any
acquisition proposal from a person other than CIENA or any of its
affiliates; or
* Cyras breaches any material representation, warranty, covenant or
agreement in the merger agreement, and fails to cure the breach
thirty days after receiving written notice of it.
If Cyras seeks to terminate the merger agreement in order to accept a superior
proposal under the first bullet point under the heading "by Cyras if", prior to
effecting that termination the Cyras board of directors must provide CIENA with
at least five business days' prior written notice of its intent to terminate the
agreement, and in the event that CIENA has made a counterproposal during that
five-day period, the Cyras board of directors must determine in good faith,
after consultation with its outside legal
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counsel and its financial advisors, that the CIENA counterproposal is not at
least as favorable as the superior proposal, taking into account the long-term
value to stockholders of the revised merger consideration and the strategic
nature of the proposed merger with CIENA.
In the event of termination of the merger agreement by Cyras under the
circumstances described in the first bullet point under the heading "by Cyras
if", or by CIENA under the circumstances described in the first bullet point
under the heading "by CIENA if", Cyras must pay CIENA a termination fee of $80
million, as well as reimbursement of up to $1.5 million for expenses incurred by
CIENA in the merger negotiation. However, except as described in the next
sentence, Cyras will have no obligation to pay a termination fee or to reimburse
CIENA's expenses if the merger agreement is terminated by CIENA as a result of a
modification, withdrawal or amendment in a manner adverse to CIENA of Cyras's
board of director's recommendation to its stockholders and the principal reason
for the change is a development or combination of developments relating to CIENA
that, individually or in the aggregate, has had or is reasonably likely to
result in a material adverse effect on CIENA. Cyras will also be required to pay
the $80 million termination fee and to reimburse CIENA's out-of-pocket expenses
if the merger agreement is terminated by either party as a result of the failure
to obtain stockholder consent or by CIENA in the event of a change in the Cyras
board recommendation for reasons relating to a material adverse effect on CIENA,
if:
- at the time of Cyras's stockholders meeting to vote on the merger or the
change in the board recommendation, as applicable, any person shall have
made an acquisition proposal to Cyras or any of its stockholders or shall
have publicly announced an intention to make an acquisition proposal with
respect to Cyras; and
- Cyras enters into an agreement concerning a transaction that constitutes
an acquisition proposal within 12 months of termination of the merger
agreement.
WAIVER AND AMENDMENT OF THE MERGER AGREEMENT
At any time prior to the effective time of the merger, the parties to the
merger agreement may agree to:
- extend the time for the performance of any obligation or other act
required to be performed under the merger agreement;
- waive any inaccuracies in the representations and warranties contained in
the merger agreement or in any document delivered pursuant to the merger
agreement;
- waive compliance with any of the agreements or conditions contained in
the merger agreement; or
- amend the merger agreement.
In the event that any condition to closing, such as receipt of tax
opinions, is waived or amended with an effect that would be material to a Cyras
stockholder's investment decision, it is the intention of Cyras's board of
directors to resolicit the vote of Cyras stockholders on approval of the merger
under those circumstances.
EXPENSES
Cyras and CIENA will pay their own expenses incidental to the preparation
of the merger agreement, the carrying out of the provisions of the merger
agreement and the consummation of the transactions contemplated by the merger
agreement.
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STOCKHOLDER AGREEMENTS
VOTING
The directors and officers of Cyras and their affiliates, owning in the
aggregate 58.9% of the common stock and 40.3% of the preferred stock, each as of
the date of the merger agreement, have signed stockholder agreements in which
they have agreed to do the following:
- vote in favor of adopting and approving the terms of the merger
agreement;
- vote in favor of the automatic conversion of the preferred stock, as
provided in Cyras's certificate of incorporation, if the stockholder
holds preferred stock; and
- vote against any alternative acquisition proposal and any amendment of
Cyras's certificate of incorporation or bylaws, which amendment would in
any manner impede, frustrate, prevent or nullify the merger or the merger
agreement or change in any manner the voting rights of any class of
capital stock of Cyras.
These stockholders have also agreed not to:
- sell, transfer, pledge, assign or otherwise dispose of, or enter into any
contract, option or other arrangement (including any profit-sharing
arrangement) with respect to the transfer of their Cyras shares to any
person;
- enter into any voting arrangement, whether by proxy, voting agreement or
otherwise, in relation to their Cyras shares; or
- permit any affiliate, director, officer, employee, investment banker,
attorney or other advisor or representative of the stockholder to, (1)
directly or indirectly solicit, initiate or knowingly encourage the
submission of, any alternative acquisition proposal or (2) directly or
indirectly participate in any discussions or negotiations regarding, or
furnish to any person any information with respect to, or facilitate any
inquiries or the making of any proposal that constitutes or may lead to,
any alternative acquisition proposal.
The form of this stockholder agreement is attached as Appendix D to this
prospectus and proxy statement.
GRANT OF OPTION
The individuals who have entered into the stockholder agreements have also
granted to CIENA an irrevocable option to purchase the shares of Cyras stock
that are owned beneficially or of record by them pursuant to the stockholder
agreement.
CIENA may exercise the option if, on or after the date of the merger
agreement:
- Cyras stockholders do not approve the merger agreement;
- the Cyras board of directors withdraws, or modifies in a manner adverse
to CIENA, its recommendation of the merger agreement and the merger or
recommends another acquisition proposal;
- any other event occurs which would require Cyras to pay CIENA the
termination fee provided for in the merger agreement, but without the
necessity of CIENA having terminated the merger agreement; or
- the person who granted CIENA the option commits a material breach of its
obligations described under "Terms of the Merger Agreement and Related
Transactions -- Stockholder Agreements."
The option price is payable in cash or in stock, at the discretion of
CIENA, at an exercise price equal to the product of the common stock exchange
ratio, calculated as described above, as if the merger
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became effective on the date CIENA exercised its option, and the average closing
price of CIENA common stock for the twenty trading days preceding the date the
notice of exercise of the option is given.
CIENA may exercise the option in whole or in part, at its discretion.
However, if it elects to exercise the option only in part, CIENA must purchase
the total number of shares it is seeking on a pro rata basis from the Cyras
stockholders who have granted the options to CIENA.
If CIENA exercises the option and pays in stock, it must promptly prepare
and file a registration statement on Form S-3 under the Securities Act
registering the resale of the CIENA common stock issued to the stockholders upon
exercise of the option. CIENA must then use its reasonable efforts to cause the
registration statement to be declared effective and to keep that registration
effective until all the shares can be sold pursuant to Rule 144 under the
Securities Act without regard to the volume restrictions under Rule 144(e).
Prior to the termination of the option, the stockholder may not, without
the consent of CIENA, sell, transfer, pledge, assign or otherwise dispose of any
of the shares of Cyras stock that are subject to the option or take any other
action that would prevent the stockholder from fulfilling its obligations in
connection with the grant of the option.
The option will terminate upon the earliest of:
- the effective time of the merger;
- the termination of the merger agreement other than as described
immediately below; or
- twelve months following the termination of the merger agreement if the
merger agreement is terminated:
- by either CIENA or Cyras because the Cyras stockholders do not
approve the merger agreement; or
- by CIENA because the Cyras board of directors withdraws, or modifies
in a manner adverse to CIENA, its recommendation of the merger
agreement and the merger or recommends another takeover proposal.
CIENA required that the stockholders deliver the option as a condition to
CIENA's willingness to enter into the merger agreement. By agreeing to grant the
option, the stockholders were able to provide reasonable certainty to CIENA that
the merger would be completed as contemplated in the merger agreement. Although
the number of shares subject to the option is insufficient to ensure approval of
the merger, if the option is exercised under the circumstances described above,
depending on the number of shares of Cyras common stock outstanding at that
time, CIENA may be able to prevent or delay the consummation of an alternative
proposal, and would also profit from an alternative proposal that is completed
at a price higher than the option price. The options however do not affect the
directors' fiduciary duties to stockholders or their ability under the merger
agreement to pursue a superior proposal.
RESTRICTIONS ON RESALES BY AFFILIATES
AFFILIATES OF CYRAS. The shares of CIENA stock to be issued to Cyras
stockholders in the merger have been registered under the Securities Act. These
shares may be traded freely and without restriction by those stockholders not
deemed to be "affiliates" of Cyras as that term is defined under the Securities
Act. An affiliate of a corporation, as defined by the rules promulgated under
the Securities Act, is a person who directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control with,
that corporation. Any transfer by an affiliate of Cyras must be one permitted by
the resale provisions of Rule 145 promulgated under the Securities Act. This
restriction is expected to apply to the executive officers and directors of
Cyras. If a Cyras affiliate becomes an affiliate of CIENA, any transfer must be
permitted by the resale provisions of Rule 144 promulgated under the Securities
Act or otherwise permitted under the Securities Act. CIENA has agreed in the
merger agreement to file a resale registration statement on Form S-3 following
closing of the merger, to permit resales by former Cyras affiliates without
regard to the resale provisions of Rule 145.
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UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following unaudited pro forma combined financial data present the
effect of the pending merger between CIENA and Cyras to be accounted for as a
purchase. The unaudited pro forma combined balance sheet presents the combined
financial position of CIENA and Cyras as of October 31, 2000 assuming that the
proposed merger had occurred as of that date. Such pro forma information is
based upon the historical consolidated balance sheet data of CIENA as of October
31, 2000, and the historical balance sheet data of Cyras as of September 30,
2000. The unaudited pro forma combined statement of operations gives effect to
the pending merger of CIENA and Cyras for the year ended October 31, 2000, as if
such acquisition had occurred on November 1, 1999. This includes Cyras's
combined historical results for the three months ended December 31, 1999 and the
nine months ended September 30, 2000 with CIENA's historical consolidated
results for the year ended October 31, 2000.
The unaudited pro forma combined financial data are based on the estimates
and assumptions set forth in the notes to such statements, which are preliminary
and have been made solely for purposes of developing such pro forma information.
The unaudited pro forma combined financial data are not necessarily an
indication of the results that would have been achieved had the transaction been
consummated as of the dates indicated or that may be achieved in the future.
These selected unaudited pro forma combined financial data should be read
in conjunction with the unaudited pro forma combined financial data, the
historical consolidated financial statements and notes thereto of CIENA, and
other financial information pertaining to CIENA including "CIENA Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Risk Factors" incorporated by reference, and the historical financial
statements and notes thereto of Cyras, and other financial information
pertaining to Cyras including "Cyras Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Risk Factors" included
herein.
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UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF OCTOBER 31, 2000
(IN THOUSANDS)
HISTORICAL PRO FORMA
------------------------ ----------
CIENA CYRAS ADJUSTMENTS COMBINED
---------- -------- ----------- ----------
ASSETS
Current assets:
Cash and cash equivalents............... $ 143,187 $162,515 $ -- $ 305,702
Marketable debt securities.............. 95,131 6,374 -- 101,505
Accounts receivable, net................ 248,950 -- -- 248,950
Inventories, net........................ 141,279 -- -- 141,279
Deferred income taxes................... 143,029 -- 24,737A 167,766
Prepaid expenses and other.............. 41,438 2,297 -- 43,735
---------- -------- ---------- ----------
Total current assets................. 813,014 171,186 24,737 1,008,937
Equipment, furniture and fixtures, net.... 189,231 6,244 -- 195,475
Goodwill and other intangible assets,
net..................................... 9,049 -- 1,638,742A 1,647,791
Deferred debt issuance costs.............. -- 8,167 -- 8,167
Other assets.............................. 15,907 220 -- 16,127
---------- -------- ---------- ----------
Total assets............................ $1,027,201 $185,817 $1,663,479 $2,876,497
========== ======== ========== ==========
LIABILITIES, CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable........................ $ 70,250 $ 5,833 $ -- $ 76,083
Accrued liabilities..................... 84,163 2,807 46,500A 133,470
Income taxes payable.................... 7,483 -- -- 7,483
Deferred revenue........................ 10,731 -- -- 10,731
Other current obligations............... 712 1,754 -- 2,466
---------- -------- ---------- ----------
Total current liabilities............ 173,339 10,394 46,500 230,233
Convertible subordinated notes.......... -- 152,131 -- 152,131
Deferred income taxes................... 39,145 -- -- 39,145
Other long-term obligations............. 4,882 2,157 -- 7,039
---------- -------- ---------- ----------
Total liabilities.................... 217,366 164,682 46,500 428,548
---------- -------- ---------- ----------
Commitments and contingencies.............
Convertible Preferred stock............... -- 66,903 (66,903)A --
Stockholders' equity:
Common stock............................ 2,865 125,908 (125,656)A 3,117
Additional paid-in capital.............. 557,257 -- 1,914,323A 2,471,580
Deferred stock compensation............. -- (99,804) (155,244)A,C (255,048)
Notes receivable from stockholders...... (30) (5,013) -- (5,043)
Accumulated other comprehensive
income............................... (903) -- -- (903)
Retained earnings....................... 250,646 (66,859) 66,859A 234,246
(16,400)A,B
---------- -------- ---------- ----------
Total stockholders' equity
(deficit).......................... 809,835 (45,768) 1,683,882 2,447,949
---------- -------- ---------- ----------
Total liabilities, convertible
preferred stock and stockholders'
equity (deficit)................... $1,027,201 $185,817 $1,663,479 $2,876,497
========== ======== ========== ==========
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UNAUDITED PRO FORMA COMBINED
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 2000
(IN THOUSANDS, EXCEPT PER SHARE DATA)
HISTORICAL
----------------------
CIENA CYRAS ADJUSTMENTS COMBINED
-------- -------- ----------- ---------
Revenue...................................... $858,750 $ -- $ -- $ 858,750
Cost of goods sold........................... 477,393 -- -- 477,393
-------- -------- --------- ---------
Gross profit............................... 381,357 -- -- 381,357
-------- -------- --------- ---------
Operating expenses
Research and development................... 129,069 31,662 41,913C 202,644
Selling and marketing...................... 90,922 4,599 25,286C 120,807
General and administrative................. 34,000 5,122 17,817C 56,939
Settlement of accrued contact obligation... (8,538) -- -- (8,538)
Amortization of intangibles................ -- -- 236,087B 236,087
Amortization of deferred stock
compensation............................ -- 17,360 (17,360)C --
Provision for doubtful accounts............ 28,010 -- -- 28,010
-------- -------- --------- ---------
Total operating expenses..................... 273,463 58,743 303,743 635,949
-------- -------- --------- ---------
Income (loss) from operations................ 107,894 (58,743) (303,743) (254,592)
Interest and other income (expense), net..... 13,020 3,542 -- 16,562
Interest expense............................. (340) (1,738) -- (2,078)
Interest expense -- accretion of
redemption................................. -- (2,131) -- (2,131)
-------- -------- --------- ---------
Income (loss) before income taxes............ 120,574 (59,070) (303,743) (242,239)
Provision (benefit) for income taxes......... 39,187 1 (39,190)D (2)
-------- -------- --------- ---------
Net income (loss)............................ $ 81,387 $(59,071) $(264,553) $(242,237)
======== ======== ========= =========
Basic net income (loss) per common share..... $ 0.29 $ (2.85) $ (0.80)
======== ======== =========
Diluted net income (loss) per common and
dilutive potential common share............ $ 0.27 $ (2.85) $ (0.80)
======== ======== =========
Weighted average basic common shares
outstanding................................ 281,621 20,719 1,067A 303,407
======== ======== ========= =========
Weighted average basic common and dilutive
potential common shares outstanding........ 299,662 20,719 (16,974)A 303,407
======== ======== ========= =========
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NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL DATA
NOTE 1 -- BASIS OF PRESENTATION
On December 18, 2000, CIENA Corporation ("CIENA") entered into an agreement
to merge with Cyras Systems, Inc. ("Cyras") in a transaction to be accounted for
as a purchase. Cyras's stockholders, option holders and warrant holders will
receive an aggregate total of 27,564,527 shares of CIENA common stock and shares
subject to options or warrants, as applicable, in the merger. Assuming the
acquisition was consummated on December 27, 2000, the stockholders of Cyras
would have received approximately 25,167,016 shares of CIENA common stock of
which an estimated 3,380,534 are restricted and subject to repurchase.
Additionally, CIENA would have converted approximately 19,047,138 Cyras options
and warrants into approximately 2,397,511 options and warrants to purchase CIENA
common stock. Assuming the acquisition was consummated on December 27, 2000, the
purchase price of the Cyras acquisition would have been approximately $1.9
billion including the estimated value of the CIENA shares and the estimated
value of restricted common stock, vested and unvested options and warrants
issuable upon consummation of the acquisition and estimated transaction costs of
$46.5 million. These estimates are preliminary and the actual number of shares,
stock options and warrants to purchase shares will depend on the actual number
outstanding as of the date of consummation of the merger.
The estimated value of the CIENA common stock is approximately $78.80 per
share based on the average closing price of CIENA's common stock for the
five-day period including the date of the announcement of the signing of the
merger agreement and the two days preceding and succeeding such date.
The purchase consideration is estimated as follows (in millions):
Common stock................................................ $1,717.0
Assumption of Cyras options less intrinsic value of unvested
options and restricted common stock....................... 151.0
Estimated transaction expenses.............................. 46.5
--------
$1,914.5
========
The preliminary allocation of the purchase price using balances as of
October 31, 2000 is summarized below (in thousands):
Tangible assets............................................. $ 190,830
Deferred tax asset.......................................... 24,737
Developed technology........................................ 168,600
In-process research and development......................... 16,400
Workforce................................................... 10,400
Goodwill.................................................... 1,459,742
Deferred stock compensation................................. 255,048
Acquisition costs........................................... (46,500)
Other assumed liabilities................................... (12,551)
Convertible subordinated notes.............................. (152,131)
----------
Total purchase price.............................. $1,914,575
==========
The actual purchase price allocation is also dependent upon the fair values
of the acquired assets and assumed liabilities as of the acquisition date and
the finalization of the preliminary valuation report. For pro forma purposes the
convertible subordinated notes have been reflected at Cyras's September 30, 2000
carrying value, pending a determination of their estimated fair value. The $16.4
million amount allocated to in-process research and development represents the
purchased in-process technology for projects that, as of the date of the
acquisition, had not yet reached technological feasibility and had no
alternative future
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NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL DATA -- (CONTINUED)
use. Based on preliminary assessments, the value of these projects was
determined by estimating the resulting net cash flows from the sale of the
products resulting from the completion of the projects, reduced by the portion
of the revenue attributable to developed technology and the percentage of
completion of the project. The resulting cash flows were then discounted back to
their present value at appropriate discount rates.
The nature of the efforts to develop the purchased in-process research and
development into commercially viable products principally relates to the
completion of all planning, designing, prototyping and testing activities that
are necessary to establish that the product can be produced to meet its design
specification including function, features and technical performance
requirements. The resulting net cash flows from such products are based on
estimates of revenue, cost of revenue, research and development costs, sales and
marketing costs, and income taxes from such projects.
The amounts allocated to in-process research and development will be
charged to the statements of operations in the period the acquisition is
consummated.
NOTE 2 -- PRO FORMA ADJUSTMENTS:
A To reflect acquisition of Cyras based on the preliminary purchase
price allocation described in Note 1.
B To reflect amortization of developed technology, goodwill and
workforce over their estimated useful lives of seven, seven and three
years respectively, as if the acquisition occurred on November 1,
1999. The $16.4 million amount allocated to in-process research and
development has not been included in the unaudited pro forma combined
statement of operations as it is nonrecurring, but is included in the
unaudited pro forma combined balance sheet. This amount will be
expensed in the period the acquisition is consummated.
C To eliminate historical deferred stock compensation and related
amortization charges for Cyras stock option grants and record
deferred stock compensation in accordance with FIN 44, "Accounting
for Certain Transactions Involving Stock Compensation -- an
interpretation of APB 25," related to Cyras unvested stock options
and restricted common stock assuming a consummation date of December
27, 2000.
D To record the tax effect effects to pro forma adjustments at a tax
rate of 35% and the recognition of the tax benefits arising from
Cyras's net operating loss carryforwards as it is more probable than
not that CIENA will be able to utilize Cyras's net operating loss
carryforwards in future periods.
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INFORMATION ABOUT CIENA
GENERAL
CIENA is a leader in the rapidly growing intelligent optical networking
equipment market. We offer a comprehensive portfolio of products for
communications service providers worldwide. Our customers include long-distance
carriers, competitive and incumbent local exchange carriers, Internet service
providers, wireless and wholesale carriers. CIENA offers optical transport and
intelligent optical switching systems that enable service providers to
provision, manage and deliver high-bandwidth services to their customers. We
have pursued a strategy to develop and leverage the power of disruptive
technologies to change the fundamental economics of building carrier-class tele-
and data-communications networks, thereby providing our customers with a
competitive advantage. CIENA's intelligent optical networking products are
designed to enable carriers to deliver any time, any size, any priority
bandwidth to their customers.
CIENA's LightWorks is an optical networking architecture designed to change
the fundamental economics of building service provider networks. LightWorks
focuses on the three critical areas of optical networking: long-distance optical
transport, short-distance optical transport and intelligent core switching. The
products in CIENA's LightWorks combine the functionality of several current
network elements into a single network element, thereby lowering the capital
equipment requirements of a service provider and simplifying the network, in
order to reduce a carrier's network operating costs.
The products of CIENA's LightWorks architecture can be sold together as a
complete network solution or separately as best-of-breed solutions. Products
include four generations of long distance optical transport systems: MultiWave
1600, MultiWave Sentry 1600, MultiWave Sentry 4000, and MultiWave CoreStream.
CIENA's LightWorks architecture also includes CIENA's short distance optical
transport products: MultiWave Firefly, MultiWave Metro, and MultiWave Metro One.
CIENA's LightWorks architecture also includes its MultiWave CoreDirector family
of optical core switching products. The recently introduced MultiWave
CoreDirector is an intelligent optical core switch that allows carriers to
deliver a full range of transport services, without costly SONET/SDH
(synchronous optical networks/synchronous digital hierarchy) multiplexers and
with more flexibility than "wavelength only" devices.
ADDITIONAL INFORMATION
A detailed description of CIENA's business and various benefit plans,
including stock option plans, financial statements and other matters related to
CIENA is incorporated by reference in this prospectus and proxy statement or set
forth in CIENA's Annual Report on Form 10-K for the year ended October 31, 2000.
Stockholders desiring copies of such documents may contact CIENA at its address
or telephone number indicated under the caption "Where You Can Find More
Information."
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INFORMATION ABOUT CYRAS
BUSINESS
The following description of the business of Cyras does not give effect to
the merger or any changes in Cyras's business that CIENA may effect following
closing. The information set forth in this section was prepared by Cyras and any
reference to "we" and "our" in this section refers to Cyras only.
Overview
Cyras designs, develops and markets next generation optical networking
solutions for telecommunications carriers. Carriers are seeking transmission
solutions that address their rapidly increasing capacity, reliability and
functionality requirements in a cost effective manner. Cyras's solution will
enable carriers to fundamentally change the manner in which they architect,
operate and manage their metropolitan area networks, or MANs. The K2 product is
designed to deliver the functionality of multiple pieces of equipment in a
single platform, the network optimization and efficiency required in today's
increasingly data-oriented environment and the cost-effectiveness and
scalability that carriers demand. By deploying our products in the SONET
network, carriers can optimize their use of existing capacity, transport data in
native form without undergoing wasteful processing and more precisely allocate
bandwidth to the parameters of the traffic being transported. The K2 product is
designed to provide carriers with a solution that can be rapidly implemented
with substantially less expensive initial capital investment and anticipated
lower lifecycle costs, as compared to traditional transport systems.
Industry Background
Dramatic Increase in the Volume of Communications Traffic
Over the past decade, the volume of data communications traffic across the
public network has grown dramatically, driven primarily by the demand for
bandwidth-intensive applications and services, such as electronic mail,
electronic commerce, streaming video, web and application hosting and remote
access to corporate networks, much of which is transmitted via the Internet. The
dramatic increase in data traffic and the deployment of these
bandwidth-intensive applications and services have placed significant
constraints on the traditional communications infrastructure, resulting in,
among other things, network congestion, decreases in reliability and an
inability to scale effectively with an ever-increasing volume of traffic. To
meet these network demands, carriers are seeking ways to upgrade their
communications networks by deploying new equipment designed, built and optimized
for both data and voice traffic, while substantially preserving the existing
SONET network infrastructure.
The Communications Network Topology
The communications network actually consists of many interlinked networks,
including the Internet, the public switched telephone network and virtual
private corporate networks. This network consists of a vast conglomeration of
equipment, typically owned by carriers and which cannot be changed easily
without an interruption of service.
Bottleneck in the Metropolitan Area Network
The metropolitan area network, or MAN, currently consists primarily of
traditional circuit-based equipment, such as add-drop multiplexers, or ADMs, and
digital cross-connects, or DCSs, as well as next generation equipment for
packet-based traffic, or data traffic which has been optimized for efficient
transport. In addition, a limited amount of dense wave division multiplexers, or
DWDMs, have been deployed in the MAN. ADMs aggregate lower speed traffic into
higher speed traffic and vice versa. DCSs combine, consolidate and segregate
circuit-based, or point-to-point traffic. DWDMs enhance the traffic-carrying
capacity of optical fiber cable by transmitting several frequencies of light
over a single strand. Current equipment in the optical transport network
utilizes standard fiber-optic transmission signals called synchronous optical
network, or SONET, or its international variant, synchronous digital hierarchy,
or
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SDH. SONET/SDH is a standard protocol for the electronics and network
architecture that enables transmission of traffic across optical fiber. SONET
architecture provided several key benefits to carriers relative to prior
technologies including reliability, rapid restoration time, scalability and a
multitude of services that can be delivered. During the last decade, SONET/SDH
has proliferated throughout the network environment, and is expected to remain
the dominant means of transmission in the MAN, making up the vast majority of
the total communications infrastructure investment in the North American
metropolitan market.
While SONET provides many benefits, the existing transmission equipment
deployed in the MAN was not designed to support the massive increases in complex
mixed traffic in today's networks, thereby limiting carriers' abilities to
quickly and easily respond to the demands of their customers. The lack of a
flexible and scalable alternative has required carriers to invest in ever
increasing quantities of equipment, resulting in networks that are complex,
extremely costly, very inefficient and difficult and time-consuming to upgrade.
Limitations of Existing SONET Equipment
Cost of Ownership. The initial and ongoing maintenance costs associated
with the different types of equipment each carrier must deploy to support
multiple protocols have been a significant limitation for traditional SONET
networks. Furthermore, the process of expanding the capacity of a SONET network
with traditional equipment is time-consuming and requires a major capital
investment by the carrier. Changes or upgrades to existing equipment are
expensive and require significant time and effort to implement and increase the
risk of network downtime. An equipment upgrade can take days to implement,
necessitating carriers to incur the expense of building a second, fully
redundant network to ensure uninterrupted service during network upgrades.
Alternatives, such as building an all optical network, at least in the
near-term, are too expensive and would require abandoning the substantial
existing SONET infrastructure.
Designed for Circuit-Based Traffic. Some of the problems associated with
existing SONET equipment are:
- Traditional SONET equipment only supports strictly defined, fixed
transfer rates which are characteristic of circuit-based traffic. Traffic
is slotted into a specific bandwidth whether or not the bandwidth is
completely utilized and irrespective of traffic type. Circuit-based
equipment was designed for voice transmission, which has predictable
bandwidth requirements. Traditional SONET equipment is circuit-based and
accommodates data traffic by using more bandwidth than the traffic
warrants, resulting in wasted bandwidth.
- Traditional SONET equipment treats data-oriented protocols such as ATM
and native Ethernet as if they were simple circuit-based traffic. As a
result, bandwidth is wasted because traffic cannot be managed in a way
that efficiently utilizes the available capacity. If a carrier has
greater ability to manage how the traffic moves through its network, it
can offer subscriptions to end users requiring, in the aggregate, more
bandwidth than the network actually has. It can do this because not all
end users utilize all of the bandwidth for which they subscribe all the
time. Bandwidth is only assigned in the network when data is sent or
received, known as the statistical multiplexing of traffic.
Large Footprint/Excessive Power Consumption. Traditional SONET equipment
was designed with micro-electronic technology that was developed several years
ago. It uses discrete components that are expensive and take up a considerable
amount of equipment space. With the advent of technologies like application
specific integrated circuits, or ASICs, the functionality that formerly required
several discrete components can now be accomplished with a single ASIC, thereby
reducing size and cost considerably. However, separate equipment must still be
dedicated to each service type because traditional equipment is unable to
aggregate multiple protocols at multiple rates. In addition, most applications
require several pieces of equipment to effectively aggregate and transport
different types of traffic. At the same time, available rack space has become
scarce due to regulatory developments which require carriers to provide
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space for competitors' equipment. Further, carriers have a limited power budget
in each of their central offices, constraining the amount of traditional
equipment they can add to their networks.
Supports Only Simple Topologies. Traditionally, SONET equipment has been
deployed in ring configurations that closely adhere to the physical topology of
the actual fiberoptic cable installation. Ring topologies lend themselves well
to circuit-based point-to-point traffic because there is no significant
processing required on the channel through which this traffic must travel.
However, the protection mechanism used for standard ring topologies, one-to-one,
causes as much as half the available bandwidth to be wasted. More complex
topologies such as mesh permit significantly less than half of the available
bandwidth to be allocated solely for protection. However, traditional SONET
equipment was not designed to support these more complex topologies.
THE OPPORTUNITY
Carriers are seeking to deploy next generation optical networking equipment
that is capable of overcoming the limitations associated with existing SONET
equipment.
While traditional SONET equipment is widely deployed in both long-haul
networks and in MANs, new service requirements across the metropolitan area have
created demand for data-optimized, multi-service optical equipment. This
equipment is expected to provide seamless integration with traditional SONET
networks, while enabling carriers to reduce costs and network congestion,
support new services and offer "carrier class" reliability.
OUR OPTICAL SOLUTION
Cyras has designed an optical platform known as the K2 product and its
element management system, COMPASS. The K2 product is designed to enable the
cost-effective migration from circuit-based networks to data-optimized networks,
significantly enhancing telecommunications carriers' competitive position. Our
solution has a switching capacity of 80 Gbps and a backplane that can support up
to 480 Gbps. With a single optical switching platform that addresses the metro
access, transport and core markets, or trans-metro market, the entire SONET
network hierarchy between the customer premises, central office and major switch
sites/IXCs' POPs can be streamlined. The K2 product is designed to integrate
seamlessly into existing SONET network infrastructures and help maximize the
value of equipment investments within the MAN, while transcending the metro
gridlock that has impeded migration to data-optimized networks.
Cyras believes its optical solution offers carriers broad, cost-effective,
scalable functionality by providing the following benefits:
Multiple Protocols, Single SONET Platform
Traditional SONET transport system architectures have been optimized for
circuit-based services. The K2 product is a data-optimized SONET platform that
enables carriers to substantially reduce the complexity of their equipment needs
by enabling them to reduce the number of pieces of equipment they are now
required to purchase. Cyras's platform is designed to aggregate most widely used
traffic types operating at multiple rates, and efficiently deliver this traffic
for transmission over an optical network.
Highly Scalable Platform
The K2 product is designed to scale to provide up to 80 Gbps of aggregate
switching capacity in response to unpredictable network growth, usage and demand
for new services, enabling our prospective customers to quickly take advantage
of future revenue opportunities. For data transport applications the K2 product
will offer scalable interfaces from 10 Mbps Ethernet, to the highest speed
commonly offered ATM service, OC-12 (622 Mbps). Circuit-based services will be
supported at line rates from DS-1 (1.544 Mbps) which is the lowest commonly used
service speed, to multiple OC-192s (10 billion bits per
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second), which is the highest commonly used service speed. In addition, the K2
product is expected to have a higher port density per shelf than other
commercially available SONET ADMs.
Optimizing SONET for Data
The following functions of the K2 product will enable carriers to optimize
SONET for data traffic:
- Statistical Multiplexing -- Allows carriers to offer more subscriptions
to end users by utilizing previously wasted bandwidth.
- Native Protocol Support -- Eliminates the need to convert and reconvert
data traffic into transitionary protocols, thereby increasing the amount
of usable bandwidth.
- Arbitrary Concatenation -- Customizes the bandwidth in the network based
on the volume of traffic with greater precision than would otherwise be
possible with other equipment, thereby increasing network efficiency.
Provisioning Flexibility and Network Management Interoperability
Designed as a carrier-class platform, COMPASS is the network management
system for the K2 product. It is designed to provide easy, integrated management
for both circuit-based services and data-oriented services. COMPASS will allow
carriers to quickly provision and deliver these services, minimize downtime by
enabling in-service changes and upgrades for both hardware and software, and
enable carriers to effectively manage their offerings and service level
agreements. As carriers increase the capacity of their networks, they can
reconfigure the K2 product using COMPASS without the need to replace interface
cards or ports. The same flexibility exists for shifting a port from a Frame
Relay to ATM service or vice versa through a software change. The actual
provisioning of services is easily accomplished within seconds using a
Java-based graphical user interface which presents a graphical version of each
K2 product and the entire network to enable easy initiation of service and
maintenance. Furthermore, the K2 product and COMPASS are designed to easily
integrate with existing network management systems, providing high quality
carrier-class, multi-service management. Cyras is in the process of obtaining
certification under the Operations Systems Modifications for the Integration of
Network Elements, or OSMINE, standard and we actively participate in developing
industry-wide standards, such as Multi Protocol Lambda Switching, or MPLS, to
continue to facilitate end-to-end interoperability.
Supports Multiple Topologies
The K2 product is designed to support both advanced mesh network topologies
that will be deployed as carriers migrate to a more data-optimized optical
network architecture and topologies in the current SONET networks. This
flexibility provides a migration path for carriers allowing them to leverage
their existing infrastructure as end user requirements and technologies evolve.
Increased Network Flexibility
The multiple switching fabrics within the K2 product will allow it to
support protocols that span circuit, ATM and native Ethernet thereby providing a
high level of network flexibility with respect to protocols, protection schemes,
data rates and topologies currently used in the industry. The K2 product
interface cards ranging from DS-1 or E-1 to an OC-48 or STM-16 can be plugged
into any of the twelve available interface slots.
Cost-Effective Deployment and Lower Lifecycle Costs
Cyras's platform is intended to provide carriers with a solution that can
be rapidly implemented with a substantially less expensive initial capital
investment and anticipated lower lifecycle costs, as compared to traditional
transport systems. The K2 product is designed to enable carriers to more easily
deploy new services, eliminating the need to make modifications to the hardware
elements of the network by, among other things, using fewer types of interface
cards. The multi-service capabilities of COMPASS are
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designed to enable rapid deployment of new services and/or upgrades. COMPASS has
a graphical user interface that works on a low cost PC platform. The software is
capable of guiding operators through tasks and has sophisticated problem
isolation capabilities, reducing the need for live operators.
Substantially Smaller Footprint and Lower Power Consumption
The K2 product is designed to integrate the functions of multiple platforms
including DCS, ADM and DWDM in one shelf, while at the same time supporting
fractional DS-1 to OC-192 transmission rates. The platform's small footprint
ensures optimal rack space. Up to three K2 products can be mounted on a single
19-inch by 7-foot rack, providing the functionality comparable to several racks
of traditional equipment. Power usage is significantly less than an equivalent
number of discrete pieces of equipment performing the same functions.
Carrier-Class Reliability
The K2 product is designed to offer carrier class reliability for
mission-critical or lifeline services, such as 911. As such, all parts of the
system containing electrical components can be configured to be redundant.
Further, our platform has been certified for compliance with the stringent
Bellcore network equipment building specifications, or NEBS. The system is
conditioned for a wide variety of environments certified to the NEBS Level 3
certification which requires it to be subjected to severe environmental testing,
including temperature tests. The K2 product is designed to perform reliably in a
wide variety of physical locations within the optical transport network,
including central offices, major switch/IXC POPs and multi-tenant office
building.
PRODUCTS
K2 Product Trans-Metro Optical Platform
The K2 product is designed for carriers facing the ever-increasing need for
usable, cost-effective bandwidth. The K2 product is a next generation optical
transport platform with a circuit switching capacity of 80 Gbps, a packet
processing of 5 Gbps and a backplane capable of supporting up to 480 Gbps
designed to dramatically lower the cost and increase the efficiency of bandwidth
delivery within the entire MAN.
TECHNOLOGY
The K2 product incorporates the following technologies:
Flexible Slot Architecture. The K2 product interface cards ranging from a
DS-1 to an OC-192 can be plugged into the available interface slots. Further, a
plug-and-play architecture for the interface cards allows the K2 product to
seamlessly manage circuit-based and data-oriented protocols, such as circuit,
ATM and native Ethernet.
ASIC/Backplane Integration. Cyras has developed two proprietary ASICs,
both of which are included in the K2 product. These ASICs have significant
component integration with up to 1.5 million gate counts per ASIC. Cyras is also
working on several additional next generation ASICs to increase scalability and
reduce costs. We have developed a proprietary purely passive backplane that can
support speeds up to 480 Gbps. Our ASIC technology and backplane enable support
for ADM and DCS functionality.
Flexible Optical Card. Cyras has developed a multi-port optical card that
can instantaneously provision any port to be configured as OC-3 or OC-12 through
software. This card can permit any of the ports to be configured to handle ATM,
Frame Relay, DSL, IP and native Ethernet traffic.
Integrated DCS. The backplane gives each interface slot full access to the
central circuit switch. This switch can groom traffic in STS-1 granularity, up
to an aggregate capacity of STS-768 to and from any port on any card. Using
redundant circuit switch slots, the K2 product can also be configured as a fully
protected broadband DCS.
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Integrated Statistical Multiplexing. Using a packet/cell switching fabric
that can plug into any interface slot, the K2 product allows data traffic from
all ports to be statistically multiplexed to optimize the bandwidth for data
traffic. Each individual packet/cell switching fabric can scale up to 10 Gbps
and multiple switching fabrics can be deployed to increase the overall
statistical multiplexing capability.
CUSTOMERS
Cyras's target customers include large telecommunications carriers with
whom it believes it can develop long-term strategic relationships, including
RBOCs, large IXCs, large CLECs and foreign carriers. Cyras is in customer trials
with several companies.
RESEARCH AND PRODUCT DEVELOPMENT
Our future success depends on our continued ability to develop and
introduce new products, product enhancements and technology that can support a
broad array of network protocols and access methods. Our success in meeting
these objectives is dependent on the efforts of our research and development
team. To this end, we have assembled a team of highly-skilled engineers with
extensive experience in a variety of network system architecture disciplines
that work in parallel on several projects. These individuals have been drawn
from leading computer data networking and telecommunications companies.
We have invested, and intend to continue to invest, significant time and
resources in our research and development activities. We intend to continue to
build our research and development efforts, cross-leveraging our intellectual
property and technical expertise. At present, our engineers are focused on
improving our existing product offering, the K2 product and COMPASS, developing
next generation hardware and software products and designing ASICs that will
better enable domestic and international telecommunications carriers to meet the
demands of their end customers. As of December 31, 2000, we employed 171 people
in our research and development group.
SALES AND MARKETING
As an independent company, we plan to sell and market our products
primarily through our direct sales organization. Cyras's direct sales
organization establishes and maintains direct relationships with our prospective
customers. In addition, Cyras has a team of consulting engineers who will
provide our prospective customers with guidance and assistance with the
deployment of our product. These consulting engineers also help define the
features that are required for our product to be successful in specific
applications. Cyras's selling efforts have focused on establishing relationships
with key individuals at various levels in our prospective customers'
organizations. Cyras has centered its marketing efforts around building brand
awareness with a targeted customer base.
Cyras has focused its sales efforts on large carriers with whom we believe
we can develop long-term strategic relationships. However, initial sales are
more likely to be to emerging IXCs, CLECs and independent carriers while we are
in trials with the major carriers. Additionally, Cyras has designed its product
to permit deployment in the international marketplace and we intend to pursue
international carriers. As of December 31, 2000, Cyras employed 36 people in the
sales and marketing organizations.
CUSTOMER SERVICE AND SUPPORT
Cyras is committed to providing its customers with high levels of service
and support. Our service and support organization will provide support through a
variety of mechanisms. Telephonic support will be available on a 24 hours a day,
seven days a week basis. Our customers will be able to obtain repair and
replacement of equipment in a timely manner. In addition, Cyras expects to offer
a variety of training courses either at its facilities or on-site at our
customers' facilities.
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COMPETITION
We compete in a rapidly evolving and highly competitive market. The
telecommunications networking market is primarily dominated by products from
Fujitsu, Lucent and Nortel. In addition, a number of large companies, including
Cisco, and emerging companies, including ONI, Redback and Sycamore, offer or are
developing products and technologies which are likely to compete with ours. We
believe that the principal competitive factors in this market include, or are
likely to include, price, product performance, initial and lifecycle cost,
interoperability, flexibility, scalability, service and support with a broad
range of network systems.
In order to compete effectively, we believe we must deliver products that:
- provide a cost-effective optical transport solution to our customers both
initially and throughout the entire system lifecycle;
- support multiple access technologies and network protocols;
- scale easily and efficiently without disruption of carrier service to
evolve with our prospective customers;
- perform reliably in a wide variety of physical locations and
environments; and
- are flexible and interoperate with existing network designs and
equipment.
PATENTS AND INTELLECTUAL PROPERTY RIGHTS
Our success and ability to compete are substantially dependent upon our
internally developed technology and know-how. Cyras has filed 18 patent
applications and are currently preparing a number of patent applications seeking
protection for our technology. We use a combination of patent, copyright and
trademark laws, trade secrets, confidentiality procedures and contractual
provisions to protect our proprietary rights with respect to the K2 product and
related technologies. Additionally, Cyras seeks to protect software,
documentation and other written materials under trade secret, patent and
copyright laws, which may afford only limited protection.
While we will use patent, copyright, trade secret and trademark law to
protect our technology, we also believe that factors such as the technological
and creative skills of our personnel, new product developments, frequent product
enhancements and reliable product maintenance are essential to establishing and
maintaining a technology leadership position.
Our patent strategy is designed to protect corporate technology assets, to
create access to additional technology through cross-licensing opportunities,
and to create opportunities for additional revenue through technology licensing.
To accomplish this, we have filed and will continue to file patent applications
that cover different aspects of our intellectual property. We may seek
additional patents in related technology areas that would enable cross-licensing
with others in the telecommunications industry, or that would offer revenue
opportunities through technology licensing. Where useful or necessary, we have
and will continue to license technologies from third parties.
MANUFACTURING
Cyras currently outsources its entire manufacturing and assembly operation
to a subcontractor. The subcontractor is a third-party manufacturer of
telecommunications and data networking equipment, which has a high capacity ISO
9002-registered facility and specializes in the manufacture of high-end telecom
and data networking equipment. The subcontractor provides full turnkey
production and is required to ship the finished products, at our direction, to
us or directly to our prospective customers upon submission of purchase orders.
Cyras designs, specifies and monitors all of the tests that are required to meet
functional requirements. Our agreement with the subcontractor may be terminated
at any time with three months notice.
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Several key components for our platform including our transponders and our
ASICs are acquired from single or limited sources.
EMPLOYEES
As of December 31, 2000, we had 269 full-time employees, 171 of whom were
engaged in research and development, 36 in sales and marketing and 62 in finance
and administration. None of our employees is represented by a labor union. We
have not experienced any work stoppages and we consider our relations with our
employees to be good.
FACILITIES
We lease approximately 61,500 square feet of office space in Fremont,
California pursuant to a lease that expires in December 2006. We also lease
sales offices in Richardson, Texas, Denver, Colorado and Reston, Virginia. On
October 16, 2000 we entered into an agreement to lease an additional
approximately 53,000 square feet of office space in Fremont, California, from
the period beginning March 1, 2001 through March 1, 2013.
LEGAL PROCEEDINGS
We are currently not a party to any material legal proceedings.
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CYRAS SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion contains forward-looking statements. The
forward-looking statements reflect Cyras's current views with respect to future
events and financial performance and are subject to risks, uncertainties and
assumptions. The following discussion does not give effect to the merger or any
changes in Cyras's business that CIENA may effect following closing. The
information set forth in this section was prepared by Cyras and any reference to
"we" and "our" in this section refers to Cyras only.
Overview
We design, develop and market next generation optical networking solutions
for telecommunications carriers. We were incorporated on July 24, 1998 in the
state of California, and have been a development stage company since that time.
We reincorporated in Delaware on November 28, 2000. Our operating activities
have consisted primarily of research and development, product design,
manufacturing and testing. We have not yet sold any products. Our success will
depend on our ability to sell the K2 product to a limited number of prospective
customers. We have recruited and trained our marketing, financial,
administrative and customer support organizations and are in the process of
building our direct sales force.
We are focusing our sales efforts on large carriers with whom we believe we
can develop long-term relationships. We believe it is important to take a
targeted approach to the implementation of our sales strategy and have specific
account managers focused on the largest carriers, including RBOCs, large IXCs,
large CLECs and foreign carriers. These carriers have very stringent performance
standards and require extensive testing and certification. Accordingly, our
sales cycle to these carriers will be long and will likely result in our initial
revenue being generated from emerging IXCs, CLECs and independent carriers while
we are in trials with the major carriers. From inception through September 30,
2000, we have incurred net losses of approximately $66.9 million. We expect to
continue to incur substantial and increasing operating losses and experience
substantial negative cash flow as we expand our business.
Results Of Operations
Comparison of Nine Months Ended September 30, 1999 and 2000
Research and Development Expenses. Research and development expenses were
$27.9 million for the nine-month period ended September 30, 2000, an increase of
$22.3 million over the comparable period of 1999. The increase in research and
development expenses was due primarily to significant increases in headcount to
support the Company's product development efforts. Additionally, product
development expenses, such as prototype expenses and non-recurring engineering
costs, were higher in 2000 as compared to 1999. As of September 30, 2000 and
1999, we had 151 and 51 research and development employees, respectively.
Sales and Marketing Expenses. Sales and marketing expenses were $4.4
million for the nine-month period ended September 30, 2000, an increase of $4.1
million over the comparable period of 1999. The increase in sales and marketing
expense reflects the increase in personnel. As of September 30, 2000 and 1999,
we had 31 and 2 sales and marketing personnel, respectively.
General and Administrative Expenses. General and administrative expenses
were $4.1 million for the nine-month period ended September 30, 2000, an
increase of $2.9 million over the comparable period in 1999. The increase in
general and administrative expenses was due primarily to increases in headcount
to support increasing levels of business activity. As of September 30, 2000 and
1999, we had 48 and 7 general and administrative personnel, respectively.
Interest Income. Interest income includes income on cash equivalents and
short-term investments. Interest income was $3.1 million in the nine months
ended September 30, 2000. This compares with interest income of $0.4 million in
the nine months ended September 30, 1999. The significant increase in
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interest income was the result of increased cash and short-term investment
balances, resulting from the Company's debt and equity offerings during 1999 and
2000.
Interest Expense. Interest expense includes expense related to the
Company's term loans and capital leases, as well as accrued interest and
amortization of debt issuance costs in connection with the issuance of $150
million 4 1/2% convertible subordinated notes on August 15, 2000. Interest
expense was $1.6 million in the nine months ended September 30, 2000. This
compares with interest expense of $0.3 million in the nine months ended
September 30, 1999. The increase in interest expense was primarily the result of
the issuance of $150 million 4 1/2% convertible subordinated notes.
Interest Expense -- Accretion of redemption premium. In August 2000, the
Company issued $150 million 4 1/2% convertible subordinated notes due August 15,
2005. The notes will be convertible to common stock upon certain qualifying
events, including an initial public offering (IPO) of our common stock. The
indenture provides that if an IPO has not occurred on or before March 31, 2002,
the Company is obligated to make an offer to repurchase the notes at 118.9% of
the principal balance thereof on April 30, 2002. The Company is accreting the
value of the put premium over the period prior to the put option exercise date,
such that the carrying value of the notes equals the put price at the date the
put is exercisable. Accretion of the put premium was $2.1 million during the
nine months ended September 30, 2000.
Comparison of Year Ended December 31, 1998 and 1999
We were incorporated on July 24, 1998 and incurred a net loss of
approximately $726,000 during the period ended December 31, 1998. Operations
during this period reflect formation costs, fundraising, initial product design
and market research.
Research and Development Expenses. Research and development expenses were
$9.3 million in 1999, an increase of $8.8 million from $526,000 in 1998.
Research and development represented 77% and 66% of total operating expenses in
1999 and 1998, respectively. The increase in expenses was primarily related to
growth in personnel and in expenditures related to design, development,
prototype, manufacture and testing of the K2, as well as 1999 representing a
full year of operations. At December 31, 1999, there were 82 research and
development employees, an increase of 65 from 17 at December 31, 1998.
Sales and Marketing Expenses. Sales and marketing expenses were $493,000
in 1999, an increase of $415,000 from $78,000 in 1998. Sales and marketing
expenses represented 4% and 10% of total operating expenses in 1999 and 1998,
respectively. The increase in expenses was primarily related to the increase in
personnel, including the establishment of a direct sales force and customer
service and support team, as well as costs associated with tradeshows,
promotional activities and public relations. In addition, 1999 represented a
full year of operations. There were two sales and marketing employees at
December 31, 1999, compared with one at December 31, 1998.
General and Administrative Expenses. General and administrative expenses
were $2.3 million in 1999, an increase of $2.1 million from $190,000 in 1998.
General and administrative expenses represented 19% and 24% of total operating
expenses in 1999 and 1998, respectively. The increase in expenses was primarily
related to increased staffing in finance, administrative and human resources and
an increase in legal and professional services associated with our growing
business activities, as well as 1999 representing a full year of operations.
There were six and one general and administrative employees at December 31, 1999
and 1998, respectively.
Interest Income, Net. Interest income, net, was $436,000 in 1999, an
increase of $367,000 from $69,000 in 1998. The increase was primarily due to the
interest income earned on proceeds from sales of preferred stock in 1999.
LIQUIDITY AND CAPITAL RESOURCES
From inception through September 30, 2000, we financed our operations
primarily from private sales of common stock and convertible preferred stock for
net proceeds of approximately $70.4 million, from the
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issuance of convertible subordinated notes of $141.6 million, from term loans of
$3.0 million and from capital leases of $3.0 million.
We used $29.3 million of cash in operating activities for the nine months
ended September 30, 2000 and we used $5.5 million of cash in operating
activities for the nine months ended September 30, 1999. Net cash used in
operating activities for the nine months ended September 30, 2000 was primarily
the result of our net loss of $54.4 million and an increase in prepaid expenses
and other current assets, partially offset by certain non-cash charges of $21.1
million and increases in accounts payable and accrued expenses. Net cash used in
operating activities for the nine months ended September 30, 1999 was primarily
the result of our net loss of $7.0 million and an increase in prepaid expenses
and other current assets, partially offset by certain non-cash charges of
$596,000 and increases in accounts payable and accrued expenses.
We used $5.6 million of cash in investing activities for the nine months
ended September 30, 2000 and we used $32.9 million of cash in investing
activities for the nine months ended September 30, 1999. Net cash used in
investing activities for the nine months ended September 30, 2000 was primarily
the result of the purchase of property and equipment and the purchase of
short-term investments. Net cash used in investing activities for the nine
months ended September 30, 1999 was the result of the purchase of short-term
investments.
We generated $154.7 million in cash from financing activities for the nine
months ended September 30, 2000 and we generated $35.0 million in cash from
financing activities for the nine months ended September 30, 1999. Net cash
provided by financing activities for the nine months ended September 30, 2000
was due primarily to the proceeds from the private offering of 4 1/2%
convertible subordinated notes of approximately $141.6 million, as well as
proceeds from the issuance of series D and series E convertible preferred stock
and common stock. Net cash provided by financing activities for the nine months
ended September 30, 1999 was due primarily to the proceeds from the issuance of
series C convertible preferred stock and common stock, and the proceeds from
term loans.
We expect to devote substantial capital resources to continue our research
and development activities, expand our sales, marketing and customer service and
support organizations, support our information systems requirements and for
other general corporate activities. We have authorized for issuance under our
articles of incorporation an aggregate of 1,500,000 shares of our series E
preferred stock and have issued 270,756 shares. We believe that our current cash
balances will be sufficient to fund our operations, including interest payments
on our convertible subordinated notes, for at least the next 12 months. However,
if we do not complete the merger with CIENA we will need to raise substantial
additional capital to achieve our long-term business plans. To the extent we
raise additional capital through the sale of equity or securities convertible
into equity, the issuance of such securities could result in dilution to the
holders of our common stock and holders of securities convertible into common
stock.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency Fluctuations. We do not have any foreign currency
denominated assets or liabilities or purchase commitments and have not entered
into any foreign currency contracts. Accordingly, we are not exposed to
fluctuations in foreign currency exchange rates.
Interest Rate Sensitivity. We maintain investment portfolio holdings of
various issuers, types, and maturity dates with various banks and investment
banking institutions. The market value of these investments on any given day
during the investment term may vary as a result of market interest rate
fluctuations. This exposure is not hedged because a hypothetical 10% movement in
interest rates during the investment term would not likely have a material
impact on investment income. The actual impact on investment income in the
future may differ materially from this analysis, depending on actual balances
and changes in the timing and the amount of interest rate movements. Short-term
investments are classified as "available-for-sale" securities and the cost of
securities sold is based on the specific identification method. At September 30,
2000, short-term investments consisted of corporate and municipal bonds. At
September 30, 2000, there were no significant differences between the fair
market value and the underlying
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cost of such investments. Our convertible subordinated notes bear interest at a
fixed rate. Accordingly, a hypothetical 10% movement in interest rates would not
have an impact on our interest expense or cash flows.
CHANGE IN INDEPENDENT AUDITORS
In July 2000, Cyras's board of directors retained Deloitte & Touche LLP as
its independent auditors and replaced its former auditors, KPMG LLP. The
decision to change independent auditors was approved by resolution of the board.
The former independent auditors' report on Cyras's financial statements as of
and for the years ended December 31, 1999 and 1998 did not contain an adverse
opinion, a disclaimer of opinion or any qualifications or modifications related
to uncertainty, limitation of audit scope or application of accounting
principles. There were no disagreements with the former independent auditors on
any matter of accounting principles or practices, financial statement disclosure
or auditing scope or procedure with respect to Cyras's financial statements up
through the time of replacement that, if not resolved to the former independent
auditors' satisfaction, would have caused them to make reference to the subject
matter of the disagreement in connection with their report. Prior to retaining
Deloitte & Touche, Cyras had not consulted with Deloitte & Touche regarding
accounting principles.
CYRAS'S CHIEF EXECUTIVE OFFICER
ALNOOR SHIVJI, 44, a co-founder of Cyras, has served as President, Chief
Executive Officer and a Director of Cyras since July 2000. Prior to co-founding
Cyras, Mr. Shivji co-founded Fiberlane Communications (Cerent) in November 1996,
where he served as President until April 1998. From September 1995 to October
1996, Mr. Shivji served as Program Manager at MPR Teltech. Mr. Shivji holds a
B.S. in computer sciences from the University of British Columbia.
EXECUTIVE COMPENSATION
The following table sets forth the total compensation received in the
fiscal year ended December 31, 2000 by Cyras's Chief Executive Officer.
SUMMARY COMPENSATION TABLE
ALL OTHER COMPENSATION
ANNUAL --------------------------
COMPENSATION SECURITIES OTHER
---------------- UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS (#) ($)
--------------------------- ---- -------- ----- ----------- ------------
Alnoor Shivji
President, Chief Executive Officer and
Director................................... 2000 $228,313 $0 1,665,000 --
OPTION GRANTS IN FISCAL YEAR 2000
The following table sets forth information with respect to stock options
granted to the Chief Executive Officer of Cyras, including the potential
realizable value over the term of the options, based on assumed rates of stock
appreciation of 5% and 10%, compounded annually. No stock appreciation rights
were granted during 2000.
INDIVIDUAL GRANTS
------------------------------------------------------- POTENTIAL REALIZABLE VALUE AT
NUMBER OF PERCENT OF TOTAL ASSUMED ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION ------------------------------
NAME GRANTED FISCAL 2000 PRICE DATE 5% 10%
---- ---------- ---------------- -------- ---------- ----------- -------------
Alnoor Shivji........ 300,000(1) 0.8% $ 0.275 2/1/10 $ 51,883 $ 131,483
1,365,000(1) 3.7% $ 0.667 7/5/10 $572,580 $1,451,031
---------------
(1) Options are subject to a right of repurchase of Cyras which lapses as to
1/48th of the option shares each month after the date of grant.
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In 2000, Cyras granted options to purchase up to an aggregate of 37,351,700
shares to employees, directors and consultants under its 1998 Stock Plan at
exercise prices equal to the fair market value of Cyras common stock on the date
of grant, as determined in good faith by Cyras's board of directors. Options
granted are immediately exercisable in full, but any shares purchased under
these options that are not vested are subject to Cyras's right to repurchase the
shares at the option exercise price. In general, this repurchase right lapses as
to these shares as the options would have vested, in equal monthly installments
over an additional three-year period.
The potential realizable value is calculated assuming the aggregate
exercise price on the date of grant appreciates at the indicated rate for the
entire term of the option and that the option is exercised and sold on the last
day of its term at the appreciated price. Stock price appreciation of 5% and 10%
is assumed pursuant to the rules of the Securities and Exchange Commission. We
can give no assurance that the actual stock price will appreciate over the term
of the options at the assumed 5% and 10% levels or at any other defined level.
Actual gains, if any, on stock option exercises will be dependent on the future
performance of Cyras common stock. Unless the market price of the common stock
appreciates over the option term, no value will be realized from the option
grants made to the named executive officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES
The following table sets forth information concerning option exercises and
option holdings during 2000 with respect to the Chief Executive Officer of
Cyras. No options or stock appreciation rights were exercised during 2000. The
value of unexercised in-the-money options at December 31, 2000 is calculated
based on the fair market value of the option shares on December 31, 2000, which
was $9.50 per share, as determined by the board, less the aggregate exercise
price of the options.
NUMBER OF SHARES VALUE
NAME ACQUIRED ON EXERCISE REALIZED
---- -------------------- --------
Alnoor Shivji(1)............................................ 300,000 $ 82,500
1,365,000 $910,000
---------------
(1) Options are subject to a right of repurchase of Cyras which lapses as to
1/48th of the option shares each month after the date of grant.
CERTAIN TRANSACTIONS
Since July 1998, Cyras has been a party to the following transactions with
its Chief Executive Officer, Alnoor Shivji, in which the amount involved
exceeded $60,000 and in which he had a direct or indirect material interest:
Since its inception in July 1998, Cyras has issued and sold 52,302 shares
of series C preferred stock and 13,008 shares of series D preferred stock to
persons or entities affiliated with Mr. Shivji. The purchase prices for the
series C preferred stock and series D preferred stock was $0.61 and $2.70,
respectively.
In addition, Mr. Shivji exercised options to purchase 1,365,000 shares of
common stock for $0.67 per share in July 2000 and 300,000 shares of common stock
for an exercise price of $0.28 per share in March 2000.
Since inception, Mr. Shivji has purchased an aggregate of 7,485,600 shares
of Cyras common stock for aggregate consideration of $1,019,740. Of this
consideration, $972,500 was paid by Mr. Shivji in the form of promissory notes
at 7% interest payable five years after the date of the notes. The notes are
full recourse and are secured by the stock purchased in consideration for the
notes.
STOCK OWNERSHIP OF MANAGEMENT, DIRECTORS AND MORE THAN FIVE PERCENT
STOCKHOLDERS OF CIENA
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth certain information as of October 31, 2000,
unless otherwise specified, with respect to the beneficial ownership of CIENA's
common stock by each person who is known to CIENA to have beneficial ownership
of more than 5% of the outstanding shares of common stock, each
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director, each named executive officer (as defined below), and all directors and
executive officers of CIENA as a group.
AMOUNT AND NATURE OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) PERCENT OF CLASS
------------------------ ----------------------- ----------------
Patrick H. Nettles, Ph.D.(2)(3)............................ 6,905,967 2.40%
Gary B. Smith(2)........................................... 389,195 *
Joseph R. Chinnici(2)...................................... 355,200 *
Steve W. Chaddick(2)....................................... 933,625 *
Mark Cummings(2)........................................... 235,167 *
Stephen P. Bradley, Ph.D.(2)............................... 100,000 *
Harvey B. Cash(2)(4)....................................... 485,410 *
John R. Dillon(2).......................................... 20,200 *
Gerald H. Taylor(2)........................................ 0 *
Judith M. O'Brien.......................................... 8,166 *
Lawton W. Fitt(5).......................................... 0 *
All officers and directors as a group (20 persons)(2)...... 10,451,497 3.60%
---------------
* Represents less than 1%.
(1) The persons named in this table have sole voting and investment power with
respect to all shares of common stock shown as beneficially owned by them,
subject to community property laws where applicable and except as indicated
in the other footnotes to this table. Beneficial ownership is determined in
accordance with the rules of the SEC. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of common stock subject to options or warrants held by that person
that are currently exercisable or exercisable within 60 days after October
31, 2000 are deemed outstanding. Such shares, however, are not deemed
outstanding for the purpose of computing the percentage ownership of any
other person.
(2) Includes shares issuable upon exercise of stock options granted under the
Amended and Restated 1994 Stock Option Plan (the "1994 Plan") or the 1996
Outside Directors Stock Option Plan. Options granted under the 1994 Plan
that are reflected in the beneficial ownership table are generally
exercisable immediately but may be subject to a right of repurchase based on
a scheduled vesting period. Generally, shares underlying options vest over
four years and options must be exercised within ten years. Initial grants of
options under the Directors Plan vest over a period of three years, annual
grants vest in full on the first anniversary date of the grant and options
must be exercised within ten years of the date of grant.
(3) Does not include 350,000 shares held by the Patrick H. and Marion S. Nettles
Charitable Trust and 350,000 shares held by The Patrick and Selma Nettles
Charitable Remainder Unitary Trust FBO Caltech. Dr. Nettles disclaims
beneficial ownership of the shares held by each of these trusts.
(4) Includes 441,486 shares of Common Stock owned by InterWest Partners VI,
L.P., which Mr. Cash may be deemed to beneficially own by virtue of his
status as a Managing Director of InterWest Management Partners VI, LLC,
which is the general partner of InterWest Partners VI, L.P., and 13,924
shares owned by InterWest Investors VI, L.P., which Mr. Cash may be deemed
to beneficially own by virtue of his status as a Managing Director of
InterWest Management Partners VI, LLC, which is the general partner of
InterWest Investors VI, L.P. Mr. Cash disclaims beneficial ownership of the
shares held by such entities except to the extent of his proportionate
partnership interest therein. Mr. Cash has direct ownership of 172,500
shares of Common Stock, including 145,000 shares owned by the Harvey B. Cash
self-directed IRA and 2,572 shares owned by InterWest Management Profit
Sharing Retirement Plan FBO Harvey B. Cash.
(5) Ms. Fitt joined the board on November 2, 2000. She received a grant of
30,000 options upon joining the board.
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SECURITY OWNERSHIP OF DIRECTORS, EXECUTIVE OFFICERS AND MORE
THAN FIVE PERCENT STOCKHOLDERS OF CYRAS
The following table sets forth, as of January 31, 2001, the security
ownership of the directors, executive officers and principal stockholders of
Cyras. Unless otherwise indicated, each person's address is in care of Cyras,
47100 Bayside Parkway, Fremont, California 94538. To the knowledge of Cyras, the
persons named in the table have sole voting and investment power with respect to
all shares of Cyras stock shown as beneficially owned by them, subject to the
information contained in the footnotes to the table. Beneficial ownership is
determined in accordance with the rules of the SEC. Shares of Cyras common stock
subject to options currently exercisable or exercisable within sixty days from
the date of this table are deemed outstanding when determining the number of
shares and percentage ownership by the person holding such options.
BENEFICIAL OWNERSHIP OF CAPITAL STOCK
------------------------------------------------
COMMON PREFERRED
BENEFICIAL OWNER STOCK STOCK(1) TOTAL SHARES PERCENT
---------------- ---------- ---------- ------------ -------
Entities affiliated with Menlo Ventures(2)....... -- 45,201,126 45,201,126 22.6%
Entities affiliated with New Enterprise
Associates(3).................................. -- 19,469,286 19,469,286 9.7
Entities affiliated with Draper Fisher
Jurvetson(4)................................... -- 15,080,808 15,080,808 7.5
Entities affiliated with Worldview Ventures(5)... -- 11,549,520 11,549,520 5.8
Entities affiliated with El Dorado Ventures(6)... -- 11,373,648 11,373,648 5.7
Stephen Pearse(7)................................ 6,868,749 31,104 6,899,853 3.5
Alnoor Shivji(8)................................. 7,485,600 13,296 7,498,896 3.8
Rafat Pirzada(9)................................. 7,396,134 20,724 7,416,858 3.7
Shekhar Mandal(10)............................... 7,485,600 164,484 7,650,084 3.8
Sunil Tomar(11).................................. 7,460,609 258,342 7,718,951 3.9
Diosdado Banatao(12)............................. 4,320,000 9,933,726 14,253,726 7.1
Douglas Carlisle(2).............................. -- 45,201,126 45,201,126 22.6
All directors and executive officers as a group
(9 people)..................................... 36,648,543 55,616,994 92,265,537 46.1
---------------
Unless otherwise noted, each person or group identified possesses sole
voting and investment power with respect to such shares, subject to community
property laws where applicable. Shares not outstanding but deemed beneficially
owned by virtue of the right of a person or member of a group to acquire them
within 60 days are treated as outstanding only when determining the amount and
percent owned by such person or group. Each shareholder's percentage of
ownership in the following table is based on 200,051,761 shares of stock
outstanding as of January 31, 2001, assuming the conversion of all of our
outstanding shares of preferred stock into one share of common stock. Unless
otherwise indicated, the principal address of each of the shareholders below is
c/o Cyras Systems, Inc., 47100 Bayview, Fremont, California 94538.
(1) Cyras has issued shares of series A, series B, series C, series D and
series E preferred stock.
(2) Principal address is 3000 Sand Hill Road, Suite 100, Building 4, Menlo
Park, California 94025. Includes 31,999,998 shares of series B preferred
stock, 10,982,862 shares of series C preferred stock and 396,336 shares of
series D preferred stock held by Menlo Ventures VII, L.P.; and 1,344,000
shares of series B preferred stock, 461,280 shares of series C preferred
stock and 16,650 shares of series D preferred stock held by Menlo
Entrepreneurs Fund VII, L.P. Mr. Carlisle, a director of Cyras, is a
general partner of Menlo Ventures VII, L.P. and as such, he may be deemed
to share voting and investment power with respect to such shares. However,
Mr. Carlisle disclaims beneficial ownership of all such shares.
(3) Principal address is 2490 Sand Hill Road, Menlo Park, California 94025.
Includes 19,119,900 shares of series C preferred stock and 177,732 shares
of series D preferred Stock held by New Enterprise Associates VIII L.P.;
163,482 shares of series C preferred stock held by NEA Presidents Fund,
L.P.; and 8,172 shares of series C preferred stock held by NEA Ventures
1999 L.P.
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(4) Principal address is 400 Seaport Court, Suite 250, Redwood City,
California, 94063. Includes 11,100,000 shares of series B preferred stock,
2,722,068 shares of series C preferred stock and 127,674 shares of series D
preferred stock held by Draper Fisher Jurvetson Fund V, L.P.; and 900,000
shares of series B preferred stock, 220,710 shares of series C preferred
stock and 10,356 shares of series D preferred stock held by Draper Fisher
Jurvetson Partners V, LLC.
(5) Principal address is 435 Tasso Street, Suite 120, Palo Alto, California
94301. Includes 8,486,124 shares of series C preferred stock and 78,138
shares of series D preferred stock held by Worldview Technology Partners
II, L.P.; 2,597,790 shares of series C preferred stock and 23,922 shares of
series D preferred stock held by Worldview Technology International II,
L.P.; and 360,228 shares of series C preferred stock and 3,318 shares of
series D preferred stock held by Worldview Strategic Partners II, L.P.
(6) Principal address is 2400 Sand Hill Road, Suite 100, Menlo Park, California
94025. Includes 7,431,312 shares of series B preferred stock, 3,017,874
shares of series C preferred stock and 96,096 shares of series D preferred
stock held by El Dorado Ventures IV, L.P.; and 568,686 shares of series B
preferred stock, 251,880 shares of series C preferred stock and 7,800
shares of series D preferred stock held by El Dorado Technology '98, L.P.
(7) Until September 1, 2000, Mr. Pearse served as Cyras's Chief Executive
Officer. Includes 1,800,000 shares of common stock held in trusts for the
benefit of Mr. Pearse and his wife, of which Mr. Pearse or his wife are
trustees; and 3,270 shares of series C preferred stock and 27,834 shares of
series D preferred stock held by Mr. Pearse.
(8) Includes 520,000 shares of common stock held in trust for the benefit of
Mr. Shivji and his wife; 303,333 shares of common stock and 8,172 shares of
series C preferred stock held for the benefit of Mr. Shivji's minor
children; and 3,270 shares of series C preferred stock held by Mr. Shivji's
wife. The unvested shares are subject to repurchase by Cyras at the
original purchase price upon Mr. Shivji's termination of service until such
shares are vested.
(9) Includes 3,270 shares of series C preferred stock and 9,282 shares of
series D preferred stock held by Mr. Pirzada; and 620,000 shares of common
stock held in trust for the benefit of, and 8,172 shares of series C
preferred stock held by Mr. Pirzada's wife. The unvested shares are subject
to repurchase by Cyras at the original purchase price upon Mr. Pirzada's
termination of service until such shares are vested.
(10) Includes 200,000 shares of common stock held in trust for the benefit of
Mr. Mandal and his wife; 306,666 shares of common stock and 16,344 shares
of series C preferred stock held in trusts for the benefit of Mr. Mandal's
children; and 120,000 shares of series A preferred stock, 11,442 shares of
series C preferred stock and 16,698 shares of series D preferred stock held
by Mr. Mandal's wife. The unvested shares are subject to repurchase by
Cyras at the original purchase price upon Mr. Mandal's termination of
service until such shares are vested.
(11) Includes 200,000 shares of common stock held in trust for the benefit of
Mr. Tomar and his wife; 240,000 shares of series A preferred stock, 10,992
shares of series C preferred stock and 7,350 shares of series D preferred
stock held by Mr. Tomar; and 311,108 shares of common stock held in trust
for the benefit of Mr. Tomar's minor children. The unvested shares are
subject to repurchase by Cyras at the original purchase price upon Mr.
Tomar's termination of service until such shares are vested.
(12) Represents 4,320,000 shares of common stock and 1,200,000 shares of series
A preferred stock held by Mr. Banatao; 4,204,002 shares of series B
preferred stock, 326,976 shares of series C preferred stock and 49,164
shares of series D preferred stock held in trusts for the benefit of Mr.
Banatao and his wife; and 3,795,996 shares of series B preferred stock,
326,976 shares of series C preferred stock and 30,612 shares of series D
preferred stock held by Tallwood Partners, L.P., of which Mr. Banatao is a
general partner.
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COMPARISON OF STOCKHOLDER RIGHTS
GENERAL
Both Cyras and CIENA are corporations organized under the laws of the State
of Delaware and are therefore subject to the Delaware corporation statute.
However, there are some differences in the charters and bylaws of Cyras and
CIENA that affect the rights of their respective stockholders.
CAPITALIZATION
CIENA. CIENA is authorized to issue 460,000,000 shares of common stock and
20,000,000 shares of preferred stock. On , 2001, shares of
CIENA common stock were outstanding and no shares of CIENA preferred stock were
outstanding. shares of Junior Participating Series A Preferred Stock
were authorized but not outstanding pursuant to CIENA's Rights Agreement with
BankBoston. CIENA's board has the authority, without stockholder approval, to
issue shares of preferred stock from time to time in one or more series and to
fix the rights and preferences, including voting rights, of each such series of
preferred stock, which rights and preferences may be superior to that of CIENA's
common stock.
CYRAS. Cyras is authorized to issue 847,300,000 shares of common stock,
7,200,000 shares of series A preferred stock, 73,800,000 shares of series B
preferred stock, 57,000,000 shares of series C preferred stock, 13,200,000
shares of series D preferred stock, and 1,500,000 shares of series E preferred
stock. As of January 31, 2001, Cyras had issued and outstanding 62,195,944
shares of common stock, 7,200,000 shares of series A preferred stock, 70,143,996
shares of series B preferred stock, 52,646,118 shares of series C preferred
stock, 7,594,947 shares of series D preferred stock, and 270,756 shares of
series E preferred stock.
As of the record date, there were outstanding warrants to purchase
3,600,000 shares of series B preferred stock, 50,896 shares of series E
preferred stock and 20,000 shares of common stock. Cyras has reserved 3,650,896
shares of preferred stock and 20,000 shares of common stock for issuance upon
the exercise of these warrants. In addition, options to purchase 14,415,942
shares of common stock were outstanding under Cyras's 1998 Stock Plan. There are
an additional 10,388,114 common stock purchase options available for future
grant under the Plan.
VOTING RIGHTS
CIENA. Each holder of CIENA common stock is entitled to one vote for each
share and may not cumulate votes for the election of directors.
CYRAS. Subject to the voting rights of the holders of the preferred stock,
the holders of common stock vote as a class with the holders of the preferred
stock and are entitled to one vote for each share held of record upon such
matters and in such manner as may be provided by law.
The preferred stock votes together with the common stock and not as a
separate class, except as specifically required by law or by the articles of
incorporation which exceptions are set forth below. Each share of preferred
stock has the number of votes equal to the number of shares of common stock then
issuable upon conversion of such share of preferred stock.
Board of Directors. Pursuant to a voting agreement between some holders of
Cyras preferred stock and common stock, until the closing of an underwritten
public offering of Cyras common stock with aggregate proceeds to the company of
not less than $20 million:
- Menlo Ventures Representative. Menlo Ventures, a holder of Cyras's
series B, series C and series D preferred stock, is entitled to designate
one member and to remove the member and fill any vacancy caused by the
resignation, death or removal of the member. Douglas Carlisle currently
serves as the Menlo Ventures representative.
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- Common Stock Representatives. Holders of Cyras common stock are entitled
to designate two members and to remove these members and fill any vacancy
caused by resignation, death or removal of these members.
- Preferred Stock Representative. Holders of outstanding Cyras preferred
stock acting together are entitled to designate one member and to remove
the member and fill any vacancy caused by resignation, death or removal
of the member.
- At Large Representatives. Holders of Cyras outstanding common stock and
preferred stock acting together are entitled to designate two at large
members, one of which must be acceptable to New Enterprise Associates, a
holder of Cyras's series C and series D preferred stock, and to remove
these members and fill any vacancy caused by resignation, death or
removal of these members.
Protective Provisions. For so long as any Cyras preferred stock remains
outstanding, the consent of the holders of a majority of the preferred stock,
voting together as a single class, is necessary to take any of the following
actions:
- amend or repeal any provision of Cyras's articles of incorporation in any
manner that would materially and adversely change any of the rights,
preferences, privileges, powers or restrictions of the preferred stock;
- authorize or issue any securities having any preference or priority as to
dividends or assets superior to or on a parity with any such preference
or priority of Cyras preferred stock;
- reclassify any common stock or other securities other than preferred
stock into shares having a preference or priority as to dividends or
assets superior to or on a parity with any such preference or priority of
the preferred stock; or
- reduce the authorized number of members of Cyras's board of directors
below five members.
NUMBER AND CLASSIFICATION OF DIRECTORS
CIENA. CIENA's charter provides that its board of directors will be
comprised of three classes of two or more directors each, with each class
elected for a term of three years, so that a different class of directors stands
for election each year. CIENA's bylaws provide that the number of directors may
be set by the board of directors.
CYRAS. Cyras's charter provides that the affirmative vote of the holders
of a majority of its preferred stock is required in order to reduce the
authorized number of directors to fewer than five. Cyras's bylaws provide that
the number of directors may not be less than four nor more than seven. Cyras's
bylaws provide for a single class of directors who are elected at the annual
meeting of stockholders and hold office until their successors are elected and
qualified.
REMOVAL OF DIRECTORS
CIENA. CIENA's charter provides that a director may only be removed from
office by the affirmative vote of a majority of the shares of capital stock of
CIENA outstanding and entitled to vote on the election of directors. CIENA's
bylaws provide that a director may only be removed from office by the
stockholders at a special meeting called for that purpose.
CYRAS. Cyras's charter and voting agreement provide that the holder of a
majority of the shares entitled to elect a director may remove that director.
Cyras's charter and bylaws provide that a director may be removed from office,
with or without cause, by the affirmative vote of a majority of the shares of
capital stock of Cyras outstanding and entitled to vote at an election of
directors for such director.
FILLING VACANCIES ON THE BOARD OF DIRECTORS
CIENA. CIENA's charter provides that, subject to the rights of any
then-existing series of preferred stock, if a vacancy occurs on the CIENA board,
other than a vacancy resulting from the removal of a
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director by the stockholders but including a vacancy resulting from an increase
in the size of the board, the vacancy may be filled only by a majority vote of
the directors then in office, even if they constitute less than a quorum.
However, if a vacancy results from the removal of a director by the stockholders
at a meeting called for that purpose, then the stockholders may fill the vacancy
at that meeting.
CYRAS. Cyras's charter provides that any vacancy on the board of directors
may be filled by a majority of the shares entitled to elect a director to the
vacant seat. Cyras's bylaws provide that vacancies may be filled by a majority
of the directors then in office, though less than a quorum, or by a sole
remaining director. The directors so chosen serve until the next annual election
and until their successors are duly elected and qualify, unless sooner replaced
in accordance with the charter.
CHARTER AMENDMENTS
CIENA. CIENA's charter provides that the affirmative vote of the holders
of at least 66 2/3% of the voting power of all outstanding shares of the capital
stock of CIENA entitled to vote on the election of directors is required to
amend certain provisions of CIENA's charter relating to the board of directors,
stockholder action, amendment of the charter and indemnification of officers and
directors of CIENA. Otherwise, the charter may be amended by the holders of a
majority of the voting power of all outstanding shares of CIENA stock.
CYRAS. Cyras's charter may be amended in any manner provided for by law,
except that it can not, without the vote of at least a majority of the preferred
stock, be amended or appealed in any manner which would materially and adversely
alter the rights, preferences, privileges or powers of the preferred stock.
Delaware law provides that the charter may be amended with the affirmative vote
of at least a majority of the voting power of all outstanding shares of the
capital stock of Cyras entitled to vote on the election of directors.
AMENDMENTS TO BYLAWS
CIENA. CIENA's charter provides that the affirmative vote of the holders
of at least 66 2/3% of the voting power of all outstanding shares of the capital
stock of CIENA entitled to vote on the election of directors is required to
amend CIENA's bylaws.
CYRAS. Cyras's bylaws provide that they may be amended by the board of
directors or the holders of a majority of the outstanding voting shares at any
regular meeting of the stockholders or of the board of directors or at any
special meeting of the stockholders or the board of directors if notice of such
amendment be contained in the notice of such special meeting.
ACTION BY WRITTEN CONSENT
CIENA. CIENA's charter provides that any action by the stockholders may
only be taken at an annual or special meeting and may not be taken by written
consent.
CYRAS. Cyras's bylaws provide that any action that must or may be required
to be taken by stockholders may be taken by written consent.
NOTICE OF STOCKHOLDER ACTIONS
CIENA. Neither CIENA's charter nor its bylaws require advance notice of
stockholder nominations of directors or any other business to be brought by
stockholders before any meeting of stockholders.
CYRAS. Cyras's bylaws require advance notice of business to be brought by
stockholders before any special meeting of stockholders.
RIGHT TO CALL SPECIAL MEETING OF SHAREHOLDERS
CIENA. CIENA's bylaws provide that a special meeting of stockholders may
be called at any time by the board of directors or the president and must be
called by the president or the secretary at the
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request of the holders of at least 25% of the number of shares of stock
outstanding and entitled to vote at such meeting.
CYRAS. Cyras's bylaws provide that a special meeting of stockholders may
be called at any time by the board of directors or the president at the request
in writing of a majority of the board of directors or holders of a majority of
the total voting power of all outstanding shares of stock then entitled to vote.
DIVIDENDS
CIENA. CIENA's bylaws provide that, from time to time, CIENA's board may
declare and pay dividends upon shares of CIENA stock, but only out of funds
available for the payment of dividends as provided by law.
CYRAS. The holders of the series A preferred stock, series B preferred
stock, series C preferred stock, series D preferred stock and series E preferred
stock are entitled to receive on a pari passu basis, noncumulative dividends in
preference to any dividend on the common stock at the rate of 8% of $0.042,
$0.125, $0.612, $2.695 and $18.467, respectively, the original purchase price
for each share of such series, per year, when, as and if declared by the board
of directors. If, after such preferential dividends have been paid, the board of
directors declares additional dividends out of available funds in the calendar
year, then the additional dividends will be paid pro rata to all holders of
common stock.
LIQUIDATION RIGHTS
CIENA. CIENA's charter provides that, in the event of a liquidation of
CIENA, the holders of CIENA common stock shall receive all remaining assets of
CIENA ratably in proportion to the number of shares of common stock held by
them.
CYRAS. If Cyras liquidates, dissolves or winds up, after payment of the
liabilities the holders of the series A preferred stock, series B preferred
stock, series C preferred stock, the series D preferred stock and series E
preferred stock shall be entitled to receive in preference to the holders of the
common stock, a per share amount equal to the original purchase prices plus any
declared but unpaid dividends. If the assets are insufficient to pay such
amounts the assets shall be distributed to such holders ratably. Following
distributions of these preferential amounts to the holders of the preferred
stock, the remaining assets shall be distributed ratably to the holders of the
common stock then outstanding. Any of the following events will be deemed a
liquidation, dissolution or winding up:
- Cyras's consolidation or merger with or into any other corporation, or a
merger of any other corporation into us, unless its shareholders
immediately following such transaction, own greater than 50% of the
surviving corporation's voting power, or
- a sale of all or substantially all of the assets of Cyras.
CONVERSION AND REDEMPTION
CIENA. Holders of CIENA common stock have no right to convert their shares
into any other shares of the capital stock of CIENA or any other securities.
CYRAS. Holders of Cyras preferred stock have the right at any time to
convert one share of preferred stock into one share of common stock, although
that conversion rate is subject to adjustment as described below. The Cyras
preferred stock will automatically convert into common stock, at the then
effective applicable conversion rate, upon the earliest to occur of the closing
of a firm commitment underwritten public offering of Cyras common stock of not
less than $20 million, before deduction of underwriters' commissions and
offering expenses, or the election of the holders of more than 66.7% of the
outstanding shares of preferred stock, voting together as a single class.
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Each share of Cyras preferred stock is initially convertible into one share
of common stock. The number of shares of common stock into which such preferred
stock is convertible will be subject to adjustment in the following
circumstances:
- any subdivision, combination or consolidation of the outstanding shares
of common stock;
- any distribution by us of a dividend or other distribution payable in
securities other than shares of common stock;
- any adjustment of the common stock issuable upon the conversion of the
preferred stock, whether by reorganization, reclassification or
otherwise; or
- any capital reorganization, other than an acquisition or asset transfer,
of the common stock.
In addition, in the event that Cyras issues additional equity securities,
other than shares to its officers, directors, employees and consultants, shares
of common stock issued upon conversion of the preferred stock, shares issued
pursuant to the exercise of options, warrants or convertible securities, shares
issued pursuant to an equipment lease or other financing transaction for other
than primarily equity capital raising, shares issued as a dividend or
distribution on the series B, series C, series D or series E preferred stock and
other customary exceptions, for a purchase price less than the respective
conversion rate for a series of preferred stock, excluding the series A
preferred stock, initially set at $0.125, $0.612, $2.695 and $18.467 per share
for series B preferred stock, series C preferred stock, series D preferred stock
and series E preferred stock, respectively, the conversion rate of each series
of preferred stock is subject to broad-based weighted average adjustment, based
on all outstanding shares of common stock, preferred stock and convertible
and/or exercisable securities.
Further, in the event of a public offering of Cyras's common stock of not
less than $20 million, before deduction of underwriters' commissions and
offering expenses, is consummated, the initial series E conversion price shall
be the lesser of $18.467 or 90% of the price for which each share of common
stock is offered and sold in such public offering.
REGISTRATION RIGHTS
CIENA. The common stock of CIENA is, and the shares to be issued in the
merger will be, registered under the Securities Act of 1933.
CYRAS. Set forth below is a summary of the registration rights of certain
holders of common stock and the holders of the preferred stock pursuant to
Cyras's Fourth Amended and Restated Registration Rights Agreement entered into
among Cyras and many of its stockholders, including all holders of preferred
stock. As a condition to the merger, this agreement must be terminated at the
effective time of the merger. The term "registrable securities," as used below,
means Cyras common stock issued or issuable upon conversion of the preferred
stock and upon exercise of outstanding warrants to purchase preferred stock and
common stock held by Cyras's founders. Registrable securities does not include
any securities sold by a person in a transaction in which the registration
rights are not assigned, sold to the public or sold pursuant to Rule 144 under
the Securities Act.
Demand Registration Rights. If holders of at least 50% of the registrable
securities, not including shares of common stock held by Cyras's founders,
request in writing that it file a registration statement under the Securities
Act covering at least 10% of the registrable securities, or a lesser percentage
if the anticipated aggregate offering price exceeds $10 million, Cyras is
obligated to use its best efforts to cause the requested shares to be
registered. However, it is not obligated to effect any registration:
- prior to the earlier of six months after the effective date of its
initial public offering and March 31, 2002;
- after effecting two demand registrations; or
- if such registration is not proposed to be part of a firm commitment
public offering.
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Cyras has the right to delay such registration for a period not in excess
of 120 days once in any 12-month period if it furnishes a certificate signed by
the President or Chief Executive Officer stating that, in the good faith
judgement of the board of directors, it would be seriously detrimental to Cyras
and its stockholders for such registration to be filed and that it is therefore
essential to defer the filing.
Piggyback Registration Rights. The holders of registrable securities are
also entitled to "piggyback" registration rights on all Cyras registrations,
excluding its initial public offering, registrations relating to any employee
benefit plan or corporate reorganization or a registration in which the only
security being registered is common stock issuable upon conversion of
convertible debt securities which are also being registered. If the registration
is an underwritten offering, then the holder's participation shall be
conditioned upon the party agreeing to participate in the underwriting by
executing the underwriting agreement. If the underwriter of the registration
determines that marketing factors require a limitation on the aggregate amount
of securities sold on the market, the underwriter may cut back the parties other
than Cyras on a pro rata basis. No cut-back can reduce the amount of securities
of the selling parties, other than Cyras, included in the registration to below
25% of the total amount of securities included in the registration, unless the
registration is with respect to Cyras's initial public offering from which all
registrable securities may be excluded. The holders of these rights have waived
all registration rights in connection with any registration statement covering
the re-sale of the common stock issuable upon conversion of the notes.
Form S-3 Registration Rights. Holders of at least 10% of the outstanding
registrable securities may also demand up to two registrations on Form S-3
provided Form S-3 is available for such offering and the aggregate proceeds are
not less than $3,000,000. Cyras may delay such registration for a period not in
excess of 120 days once in any 12-month period if it furnishes a certificate
signed by its President or Chief Executive Officer stating that, in the good
faith judgment of the board of directors, it would be seriously detrimental to
Cyras and its stockholders for such registration to be filed and that it is
therefore essential to defer the filing.
Indemnification. To the extent permitted by law, Cyras will indemnify the
other parties to the agreement and certain related parties against any losses,
claims, damages or liabilities, joint or several, to which they may become
subject based on any untrue statement or alleged untrue statement of material
fact contained in, or material fact omitted from, a registration statement
covering registrable securities, or any other violation or alleged violation of
any state or federal securities laws by us.
To the extent permitted by law, each investor holding registrable
securities included in a registration that Cyras effected must indemnify Cyras,
its officers, directors, legal counsel, control persons and underwriters and any
other parties and certain related parties selling securities in such
registration against any losses, claims, damages or liabilities, joint or
several, to which they may become subject based on any of the violations
enumerated above to the extent such violation occurs in reliance upon written
information supplied by such investor for use in such registration.
Transferability. The aforementioned registration rights may be transferred
to:
- any general partner, limited partner, affiliate, member or former member
of a holder;
- any family member or trust for the benefit of any holder; or
- any transferee who acquires at least 500,000 shares of registrable
securities issued to the original holder, provided such transfer is in
accordance with the securities laws.
Expenses. Cyras is obligated to bear registration expenses, exclusive of
underwriting discounts and commissions, of all of the above-described demand,
piggy-back and S-3 registrations, including the expense of one special counsel
of all of the selling stockholders.
Market Standoff. Each holder of registrable securities has agreed that it
will not, upon the request of Cyras or its underwriter, sell, transfer or
otherwise dispose of any common stock or other securities of Cyras, held by the
holder, other than those included in the registration, for a period of up to 180
days following the effective date of a registration statement filed under the
Securities Act relating to Cyras's
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initial public offering, provided all of its officers and directors who hold
stock or options to purchase or common stock are similarly bound.
Termination. The above registration rights terminate five years after the
closing date of Cyras's initial public offering or, with respect to any holder,
if such holder holds less than 1% of Cyras's outstanding capital stock and is
able to sell all of such shares during any three-month period pursuant to Rule
144 of the Securities Act.
Amendment. Registration rights may be amended or waived solely with
Cyras's consent and the consent of holders holding a majority of the registrable
securities then outstanding.
ADDITIONAL RIGHTS OF CYRAS STOCKHOLDERS
In connection with the merger, Cyras must terminate, effective upon the
consummation of the merger, agreements providing the following rights:
Preemptive Rights. Holders of an aggregate of at least 500,000 shares of
Cyras preferred stock, excluding shares of series A preferred stock, have the
right in the event that Cyras proposes to offer securities to any person to
purchase on a pro rata basis, on a fully diluted basis, all or any portion of
such securities. These preemptive right do not apply to:
- any shares of Cyras common stock or options therefor, issued to Cyras
employees, officers, directors or consultants pursuant to stock or option
plans or other arrangements approved by the board of directors, including
at least one designee of the preferred stock;
- any securities issuable upon conversion of or with respect to any then
outstanding shares of Cyras preferred stock;
- shares of Cyras common stock or preferred stock issued in connection with
any stock split, stock dividend or other recapitalization;
- securities offered by Cyras to the public pursuant to a registration
statement filed under the Securities Act;
- securities issued in connection with equipment, bank, strategic or lease
financing transactions at a per share price of at least $18.467 as
approved by the board of directors;
- securities issued for non-cash consideration pursuant to the acquisition
of another business by merger, purchase of assets, or other
reorganization approved by the board of directors;
- shares of common stock or preferred stock issued in connection with an
underwritten public offering;
- the issuance and sale of Cyras's 4 1/2% convertible subordinated notes
due August 15, 2005; or
- the issuance and sale of Cyras series E preferred stock.
Rights of First Refusal and Co-Sale Rights. Holders of Cyras preferred
stock, excluding series A preferred stock, have the right to purchase their pro
rata portion of shares of common stock proposed to be sold by any of Cyras's
founders to a third party. Any preferred stockholder choosing not to exercise
this right of first refusal may sell to the third party purchaser, its pro rata
portion of the shares proposed to be sold by the founder. These rights of first
refusal and co-sale rights will expire on the earlier to occur of Cyras's first
underwritten initial public offering or October 16, 2004. These rights will
terminate upon the closing date of the merger.
87
95
Inspection and Information Rights. Each holder of Cyras preferred stock is
entitled to the delivery of:
- annual financial statements within 90 days following the end of each
fiscal year; and
- quarterly financial statements within 45 days following the end of each
of the first three quarters of the year.
In addition, each holder of at least 1,500,000 shares of Cyras preferred
stock is entitled to delivery of:
- monthly balance sheets and statements of income within 30 days following
the end of each calendar month, except the last month of the fiscal year;
and
- a summary of the financial plan and budget for the next fiscal year
within 60 days of commencement of the fiscal year.
Each qualified stockholder is entitled to visit and inspect Cyras's
properties, to examine its books of account and records and to discuss its
affairs, all at such reasonable times as may be requested by the stockholder.
A representative of SGC Partners I LLC and a representative of New
Enterprise Associates are entitled to attend all meetings of the board of
directors in a non-voting, observer capacity and to receive notice of board of
directors meetings and a copy of all materials provided to directors. However,
Cyras has the right to withhold any information and to exclude the observer from
any meeting or portion thereof if Cyras reasonably believes that access to the
information or attendance at the meeting would involve the disclosure of highly
confidential information or for similar reasons, as determined in good faith by
the board of directors. Additionally, Cyras must meet with New Enterprise
Associates regularly to consult with them on significant business issues.
The information, inspection and observer rights terminate upon the closing
of the initial public offering of Cyras common stock or such time that Cyras is
required to file reports under Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Exchange Act. The observer rights terminate upon the merger or
consolidation with another business entity unless Cyras voting securities
continue to represent a majority of the voting power of the combined entity
after the merger or consolidation.
STOCKHOLDER RIGHTS PLAN.
In December 1997, CIENA's board of directors adopted a Stockholders Rights
Plan. This plan is designed to deter any potential coercive or unfair takeover
tactics in the event of an unsolicited takeover attempt. It is not intended to
prevent a takeover of CIENA on terms that are favorable and fair to all
shareholders and will not interfere with a merger approved by the board of
directors. Each right entitles shareholders to buy one one-thousandth of a share
of junior preferred stock of CIENA for each share of CIENA common stock held by
them. The rights will be exercisable only if a person or a group acquires or
announces a tender or exchange offer to acquire 15% or more of CIENA's common
stock or if CIENA enters into certain other business combination transactions
not approved by the board of directors. In the event the rights become
exercisable, the rights plan allows for CIENA shareholders to acquire stock of
CIENA or the surviving corporation, whether or not CIENA is the surviving
corporation, having a value twice that of the exercise price of the rights. The
rights were distributed to shareholders of record in January 1998. The rights
will expire December 2007 and are redeemable for $.001 per right at the approval
of CIENA's board of directors. All of the CIENA shares to be issued to Cyras
stockholders will be issued with rights attached.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the CIENA common stock is EquiServe.
88
96
OTHER MATTERS
LEGAL MATTERS
The validity of the CIENA common stock offered hereby and certain federal
income tax consequences in connection with the merger will be passed upon by
Hogan & Hartson L.L.P., outside legal counsel to CIENA.
The federal income tax consequences described in this prospectus and proxy
statement are the subject of opinions issued by Hogan & Hartson L.L.P., outside
legal counsel to CIENA, and Brobeck, Phleger & Harrison LLP, counsel to Cyras.
Brobeck, Phleger & Harrison and certain of its partners and associates own in
the aggregate 205,290 shares of Cyras capital stock. Under the terms of an
engagement letter between Brobeck, Phleger & Harrison and Cyras, Brobeck,
Phleger and Harrison is charging Cyras a fixed fee of $1,100,000 for its
services in connection with the merger, $550,000 of which is contingent upon
completion of the merger.
EXPERTS
The consolidated financial statements of CIENA Corporation as of October
31, 2000 and 1999 and for each of the three years in the period ended October
31, 2000 incorporated in this prospectus and proxy statement by reference to
CIENA's Annual Report on Form 10-K for the year ended October 31, 2000, have
been so incorporated in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The financial statements of Cyras as of December 31, 1998 and 1999 and for
the period from July 24, 1998 (inception) to December 31, 1998 and for the year
ended December 31, 1999, included in this prospectus and proxy statement have
been audited by Deloitte & Touche LLP, independent auditors, as stated in their
report appearing herein, and have been so included in reliance upon the report
of such firm given upon their authority as experts in accounting and auditing.
OTHER MATTERS
As of the date of this prospectus and proxy statement, the Cyras board
knows of no matter that will be presented for consideration at the special
meeting other than as described in this prospectus and proxy statement. If any
other matters come before the special meeting or any adjournments or
postponements thereof and are voted upon, the enclosed proxies will confer
discretionary authority on the individuals named as proxies therein to vote the
shares represented by such proxies as to any such matters. The individuals named
as proxies intend to vote or not to vote in accordance with the recommendation
of the management of Cyras.
WHERE YOU CAN FIND MORE INFORMATION
CIENA has filed the Registration Statement of which this prospectus and
proxy statement is a part. The Registration Statement registers the distribution
to Cyras stockholders of the shares of CIENA common stock to be issued in
connection with the merger. The Registration Statement, including the attached
exhibits and schedules, contain additional relevant information about CIENA
common stock. The rules and regulations of the SEC allow us to omit certain
information included in the Registration Statement from this prospectus and
proxy statement.
89
97
In addition, CIENA files reports, proxy statements and other information
with the SEC under the Exchange Act. You may read and copy any of this
information at the following locations of the SEC:
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 500 West Madison Street
Washington, D.C. 20549 New York, New York 10048 Suite 1400
Chicago, Illinois 60661-2511
You may obtain information on the operation of the SEC's Public Reference
Room by calling the SEC at 1-800-SEC-0330.
The SEC also maintains an Internet web site that contains reports, proxy
statements and other information regarding issuers, like CIENA, that file
electronically with the SEC. The address of that site is http://www.sec.gov. The
SEC file number for our documents filed under the Exchange Act is 0-21969.
The SEC allows CIENA to "incorporate by reference" information into this
prospectus and proxy statement. This means that CIENA can disclose important
information to you by referring you to another document filed separately with
the SEC. The information incorporated by reference is considered to be a part of
this prospectus and proxy statement, except for any information that is
superseded by information that is included directly in this document.
This prospectus and proxy statement incorporates by reference the documents
listed below that CIENA has previously filed or will file with the SEC. They
contain important information about CIENA and its financial condition.
- CIENA's Annual Report on Form 10-K for its fiscal year ended October 31,
2000, filed on December 7, 2000, as amended January 18, 2001;
- CIENA's Form 8-K filed on January 18, 2001;
- All documents filed with the SEC by CIENA pursuant to Sections 13(a),
13(c), 14 and 15(d) of the Exchange Act after the date of this prospectus
and proxy statement and prior to the date of the special meeting are
incorporated by reference into this prospectus and proxy statement,
effective the date such documents are filed; and
- The description of CIENA common stock set forth in the CIENA Registration
Statement filed under Section 12 of the Exchange Act on Form 8-A on
January 13, 1997, including any amendment or report filed with the SEC
for the purpose of updating such description.
In the event of conflicting information in these documents, the information
in the latest filed document should be considered correct.
You can obtain any of the documents incorporated by reference in this
document through CIENA or from the SEC through the SEC's web site at the address
described above. Documents incorporated by reference are available from CIENA
without charge, excluding any exhibits to those documents unless the exhibit is
specifically incorporated by reference as an exhibit in this prospectus and
proxy statement. You can obtain documents incorporated by reference in this
prospectus and proxy statement by requesting them in writing or by telephone
from CIENA at the following address:
CIENA Corporation
1201 Winterson Road
Linthicum, Maryland 21090
Attn: General Counsel
Telephone (410) 865-8500
You can also contact us at our website, www.ciena.com. If you would like to
request documents, please do so by , 2001 to receive them before the
special meeting. If you request any incorporated documents from CIENA, CIENA
will mail them to you by first class mail, or another equally prompt means,
within two business days after CIENA receives your request.
90
98
This document constitutes the prospectus of CIENA and the proxy statement
of Cyras. CIENA has supplied all information contained or incorporated by
reference in this prospectus and proxy statement relating to CIENA and Cyras has
supplied all such information relating to Cyras.
Neither CIENA nor Cyras has authorized anyone to give any information or
make any representation about the merger or CIENA or Cyras that is different
from, or in addition to, that contained in this prospectus and proxy statement
or in any of the materials that CIENA has incorporated into this document.
Therefore, if anyone does give you information of this sort, you should not rely
on it. The information contained in this document speaks only as of the date of
this document unless the information specifically indicates that another date
applies.
91
99
CYRAS SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Independent Auditors' Report................................ F-2
Balance Sheets.............................................. F-3
Statements of Operations.................................... F-4
Statements of Stockholders' Deficit......................... F-5
Statements of Cash Flows.................................... F-6
Notes to Financial Statements............................... F-7
F-1
100
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Cyras Systems, Inc.:
We have audited the accompanying balance sheets of Cyras Systems, Inc. (the
Company), a development stage company, as of December 31, 1998 and 1999, and the
related statements of operations, stockholders' deficit, and cash flows for the
period from July 24, 1998 (inception) to December 31, 1998 and for the year
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of December
31, 1998 and 1999, and the results of its operations and its cash flows for the
period from July 24, 1998 (inception) to December 31, 1998 and for the year
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States of America.
DELOITTE & TOUCHE LLP
San Jose, California
August 2, 2000 (December 18, 2000 as to Note 12)
F-2
101
CYRAS SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
DECEMBER 31,
------------------- SEPTEMBER 30,
1998 1999 2000
-------- -------- -------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents................................. $3,877 $ 42,663 $162,515
Short-term investments.................................... 3,976 5,003 6,374
Prepaid expenses and other current assets................. 371 659 2,297
------ -------- --------
Total current assets............................... 8,224 48,325 171,186
Property and equipment, net................................. 603 2,667 6,244
Deferred debt issuance costs................................ -- -- 8,167
Other assets................................................ -- 115 220
------ -------- --------
Total assets....................................... $8,827 $ 51,107 $185,817
====== ======== ========
LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable.......................................... $ 411 $ 2,410 $ 5,833
Accrued expenses.......................................... 83 443 2,807
Current portion of capital lease obligation............... -- 677 857
Current portion of term loan.............................. -- 810 897
------ -------- --------
Total current liabilities.......................... 494 4,340 10,394
Convertible subordinated notes.............................. -- -- 152,131
Capital lease obligation, less current portion.............. -- 1,238 1,245
Term loan, less current portion............................. -- 1,596 912
------ -------- --------
Total liabilities.................................. 494 7,174 164,682
------ -------- --------
Commitments (Note 8)
Convertible preferred stock:
Series A, no par value; 7,200,000 shares authorized,
issued and outstanding as of December 31, 1998 and 1999,
and September 30, 2000; aggregate liquidation preference
of $300................................................. 300 300 300
Series B, no par value; 73,800,000 shares authorized;
70,143,996 shares issued and outstanding as of December
31, 1998 and 1999, and September 30, 2000; aggregate
liquidation preference of $8,768........................ 8,731 9,011 9,011
Series C, no par value; 57,000,000 shares authorized;
52,646,118 shares issued and outstanding as of December
31, 1999 and September 30, 2000; aggregate liquidation
preference of $32,202................................... -- 32,169 32,169
Series D, no par value; 13,200,000 shares authorized;
5,381,436 and 7,594,947 shares issued and outstanding as
of December 31, 1999 and September 30, 2000,
respectively; aggregate liquidation preference of
$14,503 and $20,443 as of December 31, 1999 and
September 30, 2000, respectively........................ -- 14,467 20,433
Series E, no par value; 1,500,000 shares authorized;
270,756 shares issued and outstanding as of September
30, 2000; aggregate liquidation preference of $5,000 as
of September 30, 2000................................... -- -- 4,990
------ -------- --------
Total convertible preferred stock.................. 9,031 55,947 66,903
------ -------- --------
Stockholders' deficit:
Common stock, $0.0001 par value, 847,300,000 shares
authorized; 21,600,000, 44,535,168 and 61,691,745 shares
issued and outstanding as of December 31, 1998 and 1999,
and September 30, 2000, respectively.................... 47 1,487 125,908
Deferred compensation..................................... -- (949) (99,804)
Notes receivable from stockholders........................ (19) (99) (5,013)
Deficit accumulated during the development stage.......... (726) (12,453) (66,859)
------ -------- --------
Total stockholders' deficit........................ (698) (12,014) (45,768)
------ -------- --------
Total liabilities, convertible preferred stock and
stockholders' deficit............................ $8,827 $ 51,107 $185,817
====== ======== ========
See accompanying notes to financial statements.
F-3
102
CYRAS SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
PERIOD FROM NINE MONTHS PERIOD FROM
JULY 24, 1998 ENDED JULY 24, 1998
(INCEPTION) TO YEAR ENDED SEPTEMBER 30, (INCEPTION) TO
DECEMBER 31, DECEMBER 31, ---------------- SEPTEMBER 30,
1998 1999 1999 2000 2000
-------------- ------------ ------ ------- --------------
(UNAUDITED) (UNAUDITED)
Operating expenses:
Research and development (exclusive
of non-cash compensation
expense)........................... $526 $ 9,345 $5,602 $27,919 $37,790
Sales and marketing (exclusive of
non-cash compensation expense)..... 78 493 315 4,421 4,992
General and administrative (exclusive
of non-cash compensation
expense)........................... 190 2,265 1,267 4,124 6,579
Amortization of deferred stock
compensation*...................... -- 59 -- 17,301 17,360
---- ------- ------ ------- -------
Total operating expenses........ 794 12,162 7,184 53,765 66,721
Interest income........................... (69) (899) (418) (3,061) (4,029)
Interest expense.......................... -- 463 296 1,571 2,034
Interest expense -- accretion of
redemption premium (Note 6)............. -- -- -- 2,131 2,131
---- ------- ------ ------- -------
Loss before income tax expense............ 725 11,726 7,062 54,406 66,857
Income tax expense........................ 1 1 -- -- 2
---- ------- ------ ------- -------
Net loss........................ $726 $11,727 $7,062 $54,406 $66,859
==== ======= ====== ======= =======
*Amortization of deferred stock
compensation:
Research and development............. $ -- $ 50 $ -- $ 8,525 $ 8,575
Sales and marketing.................. -- 2 -- 5,149 5,151
General and administrative........... -- 7 -- 3,627 3,634
---- ------- ------ ------- -------
$ -- $ 59 $ -- $17,301 $17,360
==== ======= ====== ======= =======
See accompanying notes to financial statements.
F-4
103
CYRAS SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' DEFICIT
PERIOD FROM JULY 24, 1998 (INCEPTION) TO SEPTEMBER 30, 2000
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
NOTES
COMMON STOCK RECEIVABLE TOTAL
--------------------- DEFERRED FROM ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT COMPENSATION STOCKHOLDERS DEFICIT DEFICIT
---------- -------- ------------ ------------ ----------- -------------
Issuance of restricted common
stock to founders on inception
of the Company................ 22,320,000 $ 48 $ -- $ (19) $ -- $ 29
Repurchase of common stock...... (720,000) (1) -- -- -- (1)
Net loss........................ -- -- -- -- (726) (726)
---------- -------- --------- ------- -------- --------
Balances as of December 31,
1998.......................... 21,600,000 47 -- (19) (726) (698)
Issuance of common stock
pursuant to exercise of stock
options....................... 24,717,048 456 -- (80) -- 376
Repurchase of common stock...... (1,781,880) (24) -- -- -- (24)
Deferred stock compensation..... -- 1,008 (1,008) -- -- --
Amortization of deferred
compensation.................. -- -- 59 -- -- 59
Net loss........................ -- -- -- -- (11,727) (11,727)
---------- -------- --------- ------- -------- --------
Balances as of December 31,
1999.......................... 44,535,168 1,487 (949) (99) (12,453) (12,014)
Issuance of common stock
pursuant to exercise of stock
options (unaudited)........... 23,606,058 9,011 -- (5,639) -- 3,372
Repurchase of common stock
(unaudited)................... (6,449,481) (746) -- 725 -- (21)
Deferred stock compensation
(unaudited)................... -- 116,156 (116,156) -- -- --
Amortization of deferred
compensation (unaudited)...... -- -- 17,301 -- -- 17,301
Net loss (unaudited)............ -- -- -- -- (54,406) (54,406)
---------- -------- --------- ------- -------- --------
Balances as of September 30,
2000 (unaudited).............. 61,691,745 $125,908 $ (99,804) $(5,013) $(66,859) $(45,768)
========== ======== ========= ======= ======== ========
See accompanying notes to financial statements.
F-5
104
CYRAS SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
PERIOD FROM PERIOD FROM
JULY 24, 1998 NINE MONTHS ENDED JULY 24, 1998
(INCEPTION) TO YEAR ENDED SEPTEMBER 30, (INCEPTION) TO
DECEMBER 31, DECEMBER 31, ------------------- SEPTEMBER 30,
1998 1999 1999 2000 2000
-------------- ------------ -------- -------- --------------
(UNAUDITED) (UNAUDITED)
Cash flows from operating activities:
Net loss.................................... $ (726) $(11,727) $ (7,062) $(54,406) $(66,859)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization............. 23 683 526 1,379 2,085
Loss on disposal of property and
equipment............................... -- 48 -- -- 48
Amortization of deferred stock
compensation............................ -- 59 -- 17,301 17,360
Amortization of deferred debt issuance
costs................................... -- -- -- 208 208
Accretion of redemption premium (Note
6)...................................... -- -- -- 2,131 2,131
Amortization of discounts on term loans... -- 47 35 35 82
Amortization of discounts on capital
leases.................................. -- 47 35 35 82
Changes in operating assets and
liabilities:
Prepaid expenses and other current
assets............................... (371) (288) (132) (1,638) (2,297)
Other assets............................ -- (115) -- (105) (220)
Accounts payable........................ 411 1,999 791 3,423 5,833
Accrued expenses........................ 83 360 319 2,364 2,807
------- -------- -------- -------- --------
Net cash used in operating
activities......................... (580) (8,887) (5,488) (29,273) (38,740)
------- -------- -------- -------- --------
Cash flows from investing activities:
Purchase of property and equipment.......... (626) (578) -- (4,229) (5,433)
Proceeds from disposal of property and
equipment................................. -- 56 -- -- 56
Purchase of short-term investments.......... (3,976) (1,027) (32,920) (1,371) (6,374)
------- -------- -------- -------- --------
Net cash used in investing
activities......................... (4,602) (1,549) (32,920) (5,600) (11,751)
------- -------- -------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of preferred stock
Series A.................................. 300 -- -- -- 300
Proceeds from issuance of preferred stock
Series B.................................. 8,731 -- -- -- 8,731
Proceeds from issuance of preferred stock
Series C.................................. -- 32,169 31,969 -- 32,169
Proceeds from issuance of preferred stock
Series D.................................. -- 14,467 -- 5,966 20,433
Proceeds from issuance of preferred stock
Series E.................................. -- -- -- 4,990 4,990
Issuance of common stock.................... 29 376 297 3,372 3,777
Repurchase of common stock.................. (1) (24) -- (21) (46)
Proceeds from convertible subordinated
notes..................................... -- -- -- 141,625 141,625
Proceeds from term loans.................... -- 3,000 3,000 -- 3,000
Repayment of term loans..................... -- (501) (244) (632) (1,133)
Principal payments of capital leases........ -- (265) (81) (575) (840)
------- -------- -------- -------- --------
Net cash provided by financing
activities......................... 9,059 49,222 34,941 154,725 213,006
------- -------- -------- -------- --------
Net increase (decrease) in cash and cash
equivalents................................. 3,877 38,786 (3,467) 119,852 162,515
Cash and cash equivalents at beginning of
year/period................................. -- 3,877 3,877 42,663 --
------- -------- -------- -------- --------
Cash and cash equivalents at end of
year/period................................. $ 3,877 $ 42,663 $ 410 $162,515 $162,515
======= ======== ======== ======== ========
Supplemental disclosures of cash flow
information:
Cash paid during the year/period:
Interest.................................. $ -- $ 417 $ 224 $ 449 $ 866
======= ======== ======== ======== ========
Income taxes.............................. $ 1 $ 1 $ -- $ -- $ 2
======= ======== ======== ======== ========
Noncash investing and financing activities:
Equipment purchases under capital lease... $ -- $ 2,273 $ 1,735 $ 727 $ 3,000
======= ======== ======== ======== ========
Deferred stock compensation............... $ -- $ 1,008 $ -- $116,156 $117,164
======= ======== ======== ======== ========
Convertible preferred stock warrant
issuance................................ $ -- $ 280 $ 280 $ -- $ 280
======= ======== ======== ======== ========
Issuance of common stock for stockholder
notes receivable........................ $ 19 $ 80 $ 80 $ 5,639 $ 5,738
======= ======== ======== ======== ========
See accompanying notes to financial statements.
F-6
105
CYRAS SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1999
(INFORMATION AS OF SEPTEMBER 30, 2000 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(1) THE COMPANY
The Company designs, develops and markets next generation optical
networking solutions for telecommunications carriers. The Company was
incorporated on July 24, 1998, under the laws of the state of California and
commenced operations on that date. From July 24, 1998 through September 30,
2000, the Company was considered to be in the development stage, principally
engaged in research and development, raising capital and building its management
team.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company considers all highly liquid investments with a purchased
maturity of 90 days or less to be cash equivalents.
The Company has adopted Statement of Financial Accounting Standards (SFAS)
No. 115, Accounting for Certain Investments in Debt and Equity Securities. SFAS
No. 115 requires entities to classify investments in debt and equity securities
with readily determined fair values as "held-to-maturity," "available-for-sale,"
or "trading" and establishes accounting and reporting requirements for each
classification. The Company has classified its investment securities as
available-for-sale. Available-for-sale securities are carried at fair value,
which approximates amortized cost for debt securities. Gains and losses on the
sale of short-term investments are determined using the specific identification
method.
(b) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is calculated using the straight-line method over the
estimated useful lives of the equipment, generally three years. Equipment
recorded under capital leases and leasehold improvements are amortized using the
straight-line method over the shorter of the respective lease term or the
estimated useful life of the asset, generally one and a half years to three
years.
(c) LONG-LIVED ASSETS
The Company evaluates its long-lived assets for impairment whenever events
or changes in circumstances indicate that the carrying amount of such assets may
not be recoverable. Recoverability of assets to be held and used is measured by
a comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured as the amount by which the
carrying amount of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
costs to sell.
(d) INCOME TAXES
The Company uses the asset and liability method of accounting for income
taxes. Deferred tax assets and liabilities are recognized for the estimated
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. A
F-7
106
CYRAS SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1998 AND 1999
(INFORMATION AS OF SEPTEMBER 30, 2000 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
valuation allowance is recorded to reduce deferred tax assets to an amount whose
realization is more likely than not. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in the statement of
operations in the period that includes the enactment date.
(e) STOCK-BASED COMPENSATION
The Company uses the intrinsic value-based method in accordance with
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees, to account for employee stock-based compensation. Accordingly,
compensation cost is recorded on the date of grant to the extent the fair value
of the underlying share of common stock exceeds the exercise price for a stock
option or the purchase price for a share of common stock. The compensation cost
is being amortized on an accelerated basis over the vesting period of the
individual award consistent with the method described in Financial Accounting
Standards Board (FASB) Interpretation No. 28. Pursuant to SFAS No. 123, the
Company discloses the pro forma effect of using the fair value method of
accounting for employee stock-based compensation arrangements.
Stock based awards granted to nonemployees are accounted for pursuant to
the fair value method in SFAS No. 123 and EITF No. 96-18. The associated expense
is recognized by the Company over the period the services are performed by the
nonemployee.
(f) STOCK SPLIT
In February 2000, the Company's stockholders approved a two-for-one common
and convertible preferred stock split effective March 16, 2000. All share
amounts in these financial statements have been adjusted to give effect to the
stock split.
(g) RESEARCH AND DEVELOPMENT COSTS
Development costs incurred in the research and development of new products
and enhancements to existing products are expensed as incurred until the product
has been completed, tested, and is ready for commercial manufacturing. Hardware
development projects are generally completed concurrent with the establishment
of commercial manufacturing and, accordingly, to date no costs have been
capitalized. Software development projects are generally completed concurrent
with the establishment of technological feasibility in the form of a working
model and, accordingly, to date no costs have been capitalized.
(h) FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
The carrying value of the Company's financial instruments, consisting of
cash and cash equivalents, short-term investments and long-term debt
approximates fair market value. Financial instruments that potentially subject
the Company to a concentration of credit risk consist of cash and cash
equivalents and short-term investments. The Company maintains the management of
the majority of its cash and cash equivalents and short-term investments with
three financial institutions. Investment of the funds by these institutions is
governed by the Company's corporate investment policy, which aims to reduce
credit risk by restricting investment to readily convertible high-grade U.S.
dollar denominated investments and spreading it amongst a number of
institutions.
F-8
107
CYRAS SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1998 AND 1999
(INFORMATION AS OF SEPTEMBER 30, 2000 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
(i) CONCENTRATION OF COMPONENTS
Certain key components used in the Company's products, including
transponders and application specific integrated circuits, are purchased from
single or limited sources. This concentration exposes the Company to risk of
manufacturing delays and the possibility of lost sales.
(j) COMPREHENSIVE LOSS
The Company has no significant components of other comprehensive loss, and,
accordingly, comprehensive loss is the same as the net loss for the periods
presented.
(k) UNAUDITED FINANCIAL INFORMATION
The unaudited interim financial information as of September 30, 2000 and
for the nine months ended September 30, 1999 and 2000, and for the period from
July 24, 1998 (inception) to September 30, 2000 have been prepared in accordance
with accounting principles generally accepted in the United States of America.
In the opinion of management, such information contains all adjustments,
consisting of only normal recurring adjustments, considered necessary for a fair
presentation. The operating results for any interim period are not necessarily
indicative of the results for the entire year or for any future periods.
(l) USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make certain estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported results of
operations during the reporting period. Actual results could differ from those
estimates.
(m) RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133
established accounting and reporting standards for derivative instruments,
including derivative instruments embedded in other contracts, and for hedging
activities. SFAS No. 133, as amended by SFAS No. 137, Deferral of the Effective
Date of FASB Statement No. 133, is effective for all fiscal quarters of fiscal
years beginning after June 15, 2000. The adoption of this statement is not
expected to have a material effect on the Company's financial position or
results of operations.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 101, Revenue Recognition, which outlines the basic
criteria that must be met to recognize revenue and provides guidance for
presentation of revenue and for disclosure related to revenue recognition
policies in financial statements filed with the SEC. The adoption of SAB No. 101
did not have a material impact on the Company's financial position and results
of operations as the Company has not had any revenue to date.
F-9
108
CYRAS SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1998 AND 1999
(INFORMATION AS OF SEPTEMBER 30, 2000 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
In March 2000, the FASB issued Interpretation No. 44 (FIN No. 44),
Accounting for Certain Transactions Involving Stock Compensation -- an
Interpretation of APB 25. FIN No. 44 clarifies (i) the definition of employee
for purposes of applying APB Opinion No. 25, (ii) the criteria for determining
whether a plan qualifies as a noncompensatory plan, (iii) the accounting
consequences of various modifications to the terms of a previously fixed stock
option or award, and (iv) the accounting for an exchange of stock compensation
awards in a business combination. FIN No. 44 is effective July 1, 2000, but
certain conclusions in this interpretation cover specific events that occur
after either December 15, 1998, or January 12, 2000. The adoption of certain of
the conclusions of FIN No. 44 covering events occurring during the period after
December 15, 1998 or January 12, 2000 did not have a material effect on the
Company's financial position and results of operations. The adoption of this
statement is not expected to have a material effect on the Company's financial
position or results of operations.
(n) Reclassifications
Pursuant to recent guidance from the staff of the Securities and Exchange
Commission, the Company has reclassified its convertible preferred stock to a
separate classification outside of stockholders' deficit.
(3) SHORT-TERM INVESTMENTS
The following is a summary of available-for-sale securities:
DECEMBER 31,
------------------- SEPTEMBER 30,
1998 1999 2000
-------- -------- -------------
Money market funds............................. $3,925 $37,586 $159,355
Commercial paper............................... -- 4,985 4,362
Municipal obligations.......................... -- 3,000 3,000
Corporate bonds................................ -- 2,003 2,999
Government bonds............................... 3,975 -- --
------ ------- --------
7,900 47,574 169,716
Less amounts classified as cash
equivalents............................... 3,924 42,571 163,342
------ ------- --------
Securities available-for-sale............. $3,976 $ 5,003 $ 6,374
====== ======= ========
As of December 31, 1998 and 1999, and September 30, 2000, the aggregate
amortized cost of all available-for-sale debt securities approximates the
estimated fair value.
The contractual maturities of available-for-sale debt securities included
in short-term investments is as follows:
DECEMBER 31,
--------------- SEPTEMBER 30,
1998 1999 2000
------ ------ -------------
Due within one year............................. $3,976 $3,003 $3,374
Due in 2020 through 2033........................ -- 2,000 3,000
------ ------ ------
$3,976 $5,003 $6,374
====== ====== ======
F-10
109
CYRAS SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1998 AND 1999
(INFORMATION AS OF SEPTEMBER 30, 2000 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(4) PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
DECEMBER 31,
------------- SEPTEMBER 30,
1998 1999 2000
---- ------ -------------
Computer equipment............................... $229 $1,523 $4,313
Software......................................... 378 1,413 3,038
Furniture and fixtures........................... 9 298 633
Leasehold improvements........................... 10 22 228
---- ------ ------
626 3,256 8,212
Less accumulated depreciation and amortization... 23 589 1,968
---- ------ ------
$603 $2,667 $6,244
==== ====== ======
Certain property and equipment are recorded under capital leases that
aggregated $1,745 as of December 31, 1999, net of accumulated amortization of
$528.
(5) INCOME TAXES
The differences between the income tax expense computed at the federal
statutory rate and the Company's tax provision for all periods presented
primarily related to net operating losses for which no benefit has been taken.
Income tax expense for the period from July 24, 1998 (inception) to December 31,
1998 and for the year ended December 31, 1999, relates to state taxes. The types
of temporary differences that give rise to significant portions of the Company's
deferred tax assets and liabilities are as follows:
DECEMBER 31,
---------------
1998 1999
----- -------
Deferred tax assets:
Accruals and reserves not deductible for tax purposes.... $ 10 $ 143
Property and equipment................................... -- 14
Capitalized startup expenditures......................... 98 1,234
Net operating loss carryforward.......................... 205 3,936
Research and development credit carryforward............. 39 535
----- -------
352 5,862
Valuation allowance...................................... (349) (5,862)
----- -------
3 --
Deferred tax liabilities -- property and equipment......... (3) --
----- -------
$ -- $ --
===== =======
In light of the Company's history of operating losses, the Company has
provided a valuation allowance for all of its deferred tax assets as it is
presently unable to conclude that it is more likely than not that the deferred
tax assets will be realized.
F-11
110
CYRAS SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1998 AND 1999
(INFORMATION AS OF SEPTEMBER 30, 2000 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(5) INCOME TAXES -- CONTINUED
The Company has net operating loss carryforwards for federal and state
income tax purposes of approximately $479 and $9,200 as of December 31, 1998 and
1999, respectively. In addition, the Company had federal and state research and
development credit carryforwards as of December 31, 1999 of approximately $291
and $244, respectively. The Company's federal net operating loss and research
and development credit carryforwards will expire in the years 2018 and 2019,
respectively, if not utilized. The Company's state net operating loss
carryforwards will expire in the year 2006. The state research and development
credit can be carried forward indefinitely.
Federal and state tax laws impose substantial restrictions on the
utilization of net operating loss and tax credit carryforwards in the event of
an "ownership change" as defined in Internal Revenue Code Section 382. If the
Company has an ownership change, the Company's ability to utilize the above
mentioned carryforwards could be significantly reduced. The Company has not yet
determined whether an ownership change has occurred.
(6) SUBORDINATED CONVERTIBLE NOTES
In August 2000, the Company issued $150 million of 4 1/2% convertible
subordinated notes due August 15, 2005. Interest is payable on February 15 and
August 15 of each year, beginning February 15, 2001. The notes will be
convertible to common stock upon certain qualifying events, including the
initial public offering (IPO) of our common stock. In the event of an IPO, the
notes are convertible to common stock at a premium to the IPO price. If an IPO
has not occurred on or before March 31, 2002, the Company will be obligated to
make an offer to repurchase the notes at 118.9% of the principal balance thereof
on April 30, 2002. The Company is accreting the redemption premium over the
period to April 30, 2002, such that the carrying value of the notes equals the
redemption price at the date of the redemption obligation. Accretion of the
redemption premium was $2.1 million during the nine months ended September 30,
2000.
(7) LONG-TERM DEBT
On January 11, 1999, the Company entered into a loan facility agreement
with a financial institution. The agreement allows for term loans in the
aggregate principal amount of $3,000 and equipment loans in the aggregate
principal amount of $3,000. Borrowings under the agreement are repayable in 36
equal installments of principal plus interest commencing on the individual loan
inception dates, and each month thereafter, with a final balloon payment. The
loan facilities bear interest at an effective rate of approximately 14% per
annum, with the term loans secured by the assets of the Company and the
equipment loans secured by the equipment leased. As of December 31, 1999 and
September 30, 2000, the balances of the term loans are $2,499 and $1,868,
respectively. As of December 31, 1999, principal payments due under the term
loans in 2000, 2001, and 2002, are $856, $976 and $667, respectively.
In conjunction with the loan facility agreement, the Company issued
warrants to purchase 3,600,000 shares of Series B convertible preferred stock at
a price of $0.13 per share. As of September 30, 2000, the lender had not
exercised the warrants. The fair value of the warrants was estimated on the date
of grant using the Black-Scholes option pricing model with the following
assumptions: no dividends; risk-free rate of 4.65%; volatility of 65% and
contractual life of seven years. The fair value of the warrants at the date of
grant was $280 and has been recorded as a discount on the term loans and capital
leases. The
F-12
111
CYRAS SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1998 AND 1999
(INFORMATION AS OF SEPTEMBER 30, 2000 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(7) LONG-TERM DEBT -- CONTINUED
discount is being amortized as interest expense over the life of the loans and
capital leases. As of December 31, 1999, the current and long-term portion of
the unamortized discount on term loans was $47 and $47, respectively.
(8) COMMITMENTS
The Company leases certain equipment and its facilities under various
noncancelable operating leases. In addition, the Company has certain capital
leases for computers and equipment per the loan facility agreement referred to
in Note 7. The leases expire between 2000 and 2006. As of December 31, 1999,
future minimum lease payments required under capital and operating leases are as
follows:
CAPITAL OPERATING
YEAR ENDING DECEMBER 31, LEASES LEASES
------------------------ ------- ---------
2000....................................................... $ 859 $ 850
2001....................................................... 859 1,033
2002....................................................... 694 1,139
2003....................................................... -- 1,195
2004....................................................... -- 1,255
Thereafter................................................. -- 2,702
------ ------
Total future minimum lease payments........................ 2,412 $8,174
======
Less amounts representing interest......................... 404
Less discount on capital leases due to warrants............ 93
------
1,915
Less current portion of capital lease obligations.......... 677
------
Capital lease obligation, less current portion............. $1,238
======
Rent expense was $12, $307, $221 and $1,046 for the period from July 24,
1998 (inception) to December 31, 1998, the year ended December 31, 1999, and the
nine months ended September 30, 1999 and 2000, respectively.
(9) CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
(a) COMMON STOCK
In connection with the formation of the Company in July 1998, the Company
issued 18,000,000 shares of restricted common stock to the four founders of the
Company at $0.002 per share. In August 1998, the Company repurchased 720,000
shares of common stock at the original purchase price. The founders purchased
the shares in part by issuing 10-year promissory notes to the Company amounting
to $19 which bear interest at 7% per annum. The notes are due and payable at the
earlier of August 2009 or upon leaving the Company, and are secured by the
common stock. In August 1998, the Company issued an additional 4,320,000 shares
of common stock to a director at $0.004 per share. The shares vest in 48 equal
monthly installments commencing on April 15, 1998 (predated prior to inception),
or on the occurrence of a change of control event. Upon termination of
employment, the Company may repurchase
F-13
112
CYRAS SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1998 AND 1999
(INFORMATION AS OF SEPTEMBER 30, 2000 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(9) CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT -- CONTINUED
all unvested shares at $0.002 and $0.004 per share, respectively. As of December
31, 1999 and September 30, 2000, 12,600,000 and 8,550,000 shares were subject to
repurchase, respectively.
The Company maintains a right of first refusal with respect to restricted
common stock. A restricted common stockholder must notify the Company prior to
selling these restricted shares to a third party. Upon notification, the Company
may purchase the restricted shares from the restricted common stockholder at the
price offered by the third party.
During the year ended December 31, 1999 and the nine months ended September
30, 2000, the Company received $80 and $5,639, respectively, in promissory notes
from certain officers and employees in exchange for common stock. The notes are
repayable over a period of five years and bear interest at 7% per annum. The
notes are full recourse and are secured by the underlying common stock.
(b) CONVERTIBLE PREFERRED STOCK
In September 1998, the Company issued 7,200,000 shares of Series A
convertible preferred stock at a price of $0.04 per share for cash proceeds of
$300.
In October 1998, the Company issued 70,143,996 shares of Series B
convertible preferred stock at a price of $0.13 per share for cash proceeds of
$8,731, net of issuance costs of $37.
In August and October 1999, the Company issued 52,646,118 shares of Series
C convertible preferred stock at a price of $0.61 per share for cash proceeds of
$32,169, net of issuance costs of $33.
In December 1999, the Company issued 5,381,436 shares of Series D
convertible preferred stock at a price of $2.70 for cash proceeds of $14,467,
net of issuance costs of $35.
In January, March and April 2000, the Company issued 2,213,511 shares of
Series D Convertible Preferred Stock at a price of $2.70 for cash proceeds of
$5,966, net of issuance costs of $35.
The rights, preferences, and privileges of the holders of Series A, B, C
and D convertible preferred stock are as follows:
- Each share of preferred stock is convertible into one share of common
stock, subject to certain antidilutive adjustments.
- Shares of preferred stock automatically convert to common stock on the
earlier of consummation of an underwritten initial public offering in
which the aggregate proceeds are at least $20,000, or the date specified
by written consent or agreement of at least two-thirds of the respective
series shareholders.
- Holders of preferred stock are entitled to dividends in preference to
common shareholders at a rate of 8% of the original issue price per share
per annum, if and when declared by the Company's Board of Directors.
- Preferred stock votes equally with the shares of common stock on an
"as-if-converted" basis, but also has class voting rights as provided by
law and in the Articles of Incorporation.
F-14
113
CYRAS SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1998 AND 1999
(INFORMATION AS OF SEPTEMBER 30, 2000 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(9) CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT -- CONTINUED
- Holders of preferred stock have a liquidation preference of the original
purchase price per share, plus all declared but unpaid dividends.
(c) STOCK OPTION PLAN
The 1998 Stock Plan permits the Company to grant employees, outside
directors, and consultants qualified stock options, nonstatutory stock options
or stock purchase rights to purchase shares of the Company's common stock.
Options generally vest 25% with respect to the number granted upon the first
anniversary date of the option grant and the remainder vest in equal monthly
installments over the 36 months thereafter. Options are exercisable immediately.
Shares issued upon exercise of non-vested stock options are subject to the
Company's right to repurchase at the original exercise price. The Company's
repurchase right lapses in accordance with the vesting schedule for the stock
options. As of December 31, 1999 and September 30, 2000, 19,969,005 and
28,566,330 shares were subject to repurchase at a weighted-average exercise
price of $0.02 and $0.28, respectively. Subsequent to December 31, 1999, the
Company increased the authorized shares of common stock for issuance under the
1998 Stock Plan to 65,400,000. As of December 31, 1999 and September 30, 2000,
20,407,578 and 10,748,214 shares were available for future option grants.
A summary of the activity under the Company's option plan is as follows:
JULY 24, 1998
(INCEPTION) THROUGH YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1998 DECEMBER 31, 1999 SEPTEMBER 30, 2000
---------------------------- ------------------------------- ------------------------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE WEIGHTED-AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
--------- ---------------- ------------ ---------------- ----------- ----------------
Outstanding at beginning
of period.............. -- $ -- 5,845,002 $0.01 7,057,254 $0.05
Granted.................. 5,845,002 0.01 26,955,300 0.03 34,110,700 1.13
Exercised................ -- -- (24,717,048) 0.02 (23,606,058) 0.40
Forfeited................ -- -- (1,026,000) 0.02 (3,001,855) 0.37
--------- ------------ -----------
Outstanding at end of
period................. 5,845,002 $0.01 7,057,254 $0.05 14,560,041 $1.96
========= ============ ===========
Weighted-average fair
value of options
granted during the
period with exercise
prices equal to fair
value at date of
grant.................. 5,845,002 0.01 22,455,300 0.01
Weighted-average fair
value of options
granted during the
period with exercise
prices less than fair
value at date of
grant.................. -- -- 4,500,000 0.17
F-15
114
CYRAS SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1998 AND 1999
(INFORMATION AS OF SEPTEMBER 30, 2000 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(9) CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT -- CONTINUED
The following table summarizes information about such stock options
outstanding as of December 31, 1999:
OPTIONS OUTSTANDING
------------------------------
WEIGHTED-AVERAGE
REMAINING
NUMBER CONTRACTUAL LIFE
EXERCISE PRICE OUTSTANDING (YEARS)
-------------- ----------- ----------------
$0.01..................................................... 1,585,500 8.07
0.07..................................................... 5,471,754 9.64
--------- -----
7,057,254 9.23
========= =====
The Company uses the intrinsic-value method in accounting for its
stock-based compensation arrangements for employees, whereby compensation cost
is recognized to the extent the fair value of the underlying common stock
exceeds the exercise price of the stock options at the date of grant. Deferred
stock compensation of $515 and $101,780 has been recorded during the year ended
December 31, 1999 and the nine months ended September 30, 2000, respectively,
for the excess of the fair value of the common stock underlying the options at
the grant date over the exercise price of the options. These amounts are being
amortized on an accelerated basis over the vesting period, generally four years,
consistent with the method described in FASB Interpretation No. 28. Amortization
of deferred compensation related to employee grants was $20 and $12,892 during
the year ended December 31, 1999 and the nine months ended September 30, 2000,
respectively.
Had compensation cost been determined in accordance with SFAS No. 123 for
all of the Company's stock-based compensation plans, net loss would have been
changed to the amounts indicated below for the period from July 24, 1998
(inception) to December 31, 1998 and for the year ended December 31, 1999:
1998 1999
----- --------
Net loss:
As reported............................................... $(726) $(11,727)
Pro forma................................................. $(728) $(11,785)
The fair value of options granted to employees are estimated on the date of
grant using the minimum value method with the following weighted-average
assumptions: no dividend yield; risk-free interest rate of 4.82%, 5.69% and
6.31% in 1998, 1999 and 2000, respectively; and an expected life of three years.
Under the 1998 Stock Plan, the Company issued 445,002, 136,800 and 240,201
stock options to nonemployees in 1998, 1999 and 2000, respectively, in exchange
for consulting services rendered. These stock options were fully vested at the
date of grant. The aggregate estimated fair value of these shares and the
resulting expense based on the Black-Scholes option pricing model was not
material in 1998 and 1999, and $1,666 in 2000. In addition, the Company granted
960,000 and 517,500 options in 1999 and 2000, respectively, to nonemployees,
which vest ratably over 24 months as services are performed. Deferred stock
compensation of $493 and $12,709 has been recorded in 1999 and 2000,
respectively, for the fair value of these options. Amortization of deferred
stock compensation related to these nonemployee grants was $39 in 1999 and
$2,743 in 2000. The fair value of the options granted to nonemployees are
estimated using the Black-Scholes option pricing model with the following
weighted-average assumptions: no dividend yield;
F-16
115
CYRAS SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1998 AND 1999
(INFORMATION AS OF SEPTEMBER 30, 2000 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(9) CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT -- CONTINUED
volatility of 65%; risk-free interest rate of 5.69% and 6.31% in 1999 and 2000,
respectively; and a contractual life of 10 years. The fair value of the unvested
portion of these options is subject to adjustment based upon the future value of
the Company's common stock.
(d) WARRANTS
In addition to the warrants issued in connection with a borrowing
arrangement discussed in Note 7, the Company issued to a third party, in
consideration for product promotion, evaluation and feedback services to be
performed, warrants to purchase 60,000 shares of common stock at an exercise
price equal to the fair market value on the effective date. The Company expects
that the warrants will become vested on or before December 31, 2000 and the fair
value of the warrants will be charged to sales and marketing expense.
(10) EMPLOYEE BENEFIT PLAN
During the year ended December 31, 1999, the Company adopted a 401(k) Plan.
The 401(k) Plan allows eligible employees to contribute up to 15% of their
compensation, subject to a statutory prescribed annual limit. Employee
contributions and earnings thereon vest immediately. Although the Company may
make discretionary contributions to the 401(k) Plan, none have been made as of
December 31, 1999.
(11) SEGMENT INFORMATION
SFAS No. 131, "Disclosure About Segments of an Enterprise and Related
Information," establishes standards for the manner in which public companies
report information about operating segments, products and services, geographic
areas and major customers in annual and interim financial statements. The method
of determining what information to report is based on the way that management
organizes the operating segments within the enterprise for making operating
decisions and assessing financial performance.
The Company's chief operating decision maker is considered to be the
Company's Chief Executive Officer (CEO). From inception of the Company through
September 30, 2000, the Company has had one product line. The CEO reviews
financial information on an entity level basis for purposes of making operating
decisions and assessing financial performance. The entity level financial
information is the same as the information presented in the accompanying
statements of operations. Accordingly, the Company has determined that it is
engaged in a single operating segment.
(12) SUBSEQUENT EVENTS
On December 18, 2000, the Company entered into an agreement to merge with
CIENA Corporation (CIENA) in a transaction to be accounted for as a purchase by
CIENA, as the acquiror. If approved, the Company's stockholders, option holders
and warrant holders will receive an aggregate total of approximately 27,565,000
shares of CIENA common stock and shares subject to options or warrants, as
applicable, in the merger.
In November 2000, the Company reincorporated in the State of Delaware. In
connection with the reincorporation the Company split its common and convertible
preferred stock three-for-one. Accordingly,
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CYRAS SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1998 AND 1999
(INFORMATION AS OF SEPTEMBER 30, 2000 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(12) SUBSEQUENT EVENTS -- CONTINUED
the accompanying financial statements have been adjusted to give effect to the
reincorporation and the November 2000 stock split.
In September 2000, the Company issued 270,756 shares of Series E
convertible preferred stock at a price of $18.47 for cash proceeds of $4,990,
net of issuance costs of $10. The rights, preferences, and privileges of the
holders of Series E convertible preferred stock are similar to the rights of the
other series of convertible preferred stocks except that Series E is convertible
at the lower of the issue price or 90% of a qualifying future initial public
offering price.
In October 2000, the Company entered into a 12-year lease for a new
commercial building, commencing on March 1, 2001. The base rent is $159 per
month and will be increased by 4% each year over the 12-year term. In connection
with the lease agreement, the Company issued warrants to purchase 25,000 shares
of Series E convertible preferred stock at an exercise price of $18.47 per
share. The fair value of the warrants at the date of grant was $200 and will be
recorded as rent expense over the term of the lease. Additionally, the Company
issued warrants to purchase 25,896 shares of common stock as consideration for
the first three monthly lease payments. The fair value of the warrants at the
date of grant was $367 and has been recorded as prepaid rent.
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APPENDIX A
AGREEMENT AND PLAN OF MERGER
AMONG
CIENA CORPORATION
CYRAS SYSTEMS, INC.
AND
CO ACQUISITION CORP.
DATED AS OF DECEMBER 18, 2000
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TABLE OF CONTENTS
PAGE
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ARTICLE I THE MERGER........................................................ 1
SECTION 1.1. General..................................................... 2
SECTION 1.2. Certificate of Incorporation................................ 2
SECTION 1.3. The By-Laws................................................. 2
SECTION 1.4. Board of Directors and Officers............................. 2
SECTION 1.5. Conversion of Securities.................................... 2
SECTION 1.6. Adjustment of the Exchange Ratio............................ 4
SECTION 1.7. Dissenting Shares........................................... 4
SECTION 1.8. Exchange Procedures; Distributions with Respect to
Unexchanged Shares; Stock Transfer Books.................... 5
SECTION 1.9. No Fractional Shares........................................ 6
SECTION 1.10. Return of Exchange Fund..................................... 6
SECTION 1.11. No Further Ownership Rights in Company Capital Stock........ 7
SECTION 1.12. Further Assurances.......................................... 7
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................... 7
SECTION 2.1. Organization and Qualification.............................. 7
SECTION 2.2. Certificate of Incorporation and Bylaws..................... 7
SECTION 2.3. Capitalization.............................................. 7
SECTION 2.4. Authority................................................... 8
SECTION 2.5. No Conflict; Required Filings and Consents.................. 8
SECTION 2.6. Financial Statements........................................ 8
SECTION 2.7. Absence of Certain Changes or Events........................ 9
SECTION 2.8. Ownership and Condition of the Assets....................... 9
SECTION 2.9. Leases...................................................... 10
SECTION 2.10. Other Agreements............................................ 10
SECTION 2.11. Real Property............................................... 11
SECTION 2.12. Environmental Matters....................................... 11
SECTION 2.13. Litigation.................................................. 12
SECTION 2.14. Compliance with Laws........................................ 12
SECTION 2.15. Intellectual Property....................................... 12
SECTION 2.16. Taxes and Assessments....................................... 13
SECTION 2.17. Employment and Benefit Matters.............................. 13
SECTION 2.18. Transactions with Related Parties........................... 15
SECTION 2.19. Insurance and List of Claims................................ 15
SECTION 2.20. Brokers..................................................... 15
SECTION 2.21. Disclosure.................................................. 15
SECTION 2.22. Absence of Violation........................................ 15
SECTION 2.23. Customers and Suppliers..................................... 16
ARTICLE III REPRESENTATIONS AND WARRANTIES OF CIENA......................... 16
SECTION 3.1. Organization and Qualification.............................. 16
SECTION 3.2. Certificate of Incorporation and Bylaws..................... 16
SECTION 3.3. Authority................................................... 16
SECTION 3.4. No Conflict; Required Filings and Consents.................. 16
SECTION 3.5. Brokers..................................................... 17
SECTION 3.6. Issuance of CIENA Stock..................................... 17
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SECTION 3.7. SEC Filings................................................. 17
SECTION 3.8. Litigation.................................................. 17
SECTION 3.9. Capitalization.............................................. 17
SECTION 3.10. Reorganization under Section 368(a) of the Code............. 18
SECTION 3.11. Absence of Certain Changes or Events........................ 18
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF MERGER SUB..................... 18
SECTION 4.1. Organization and Qualification.............................. 18
SECTION 4.2. Authority................................................... 18
SECTION 4.3. No Conflict; Required Filings and Consents.................. 18
ARTICLE V CONDUCT PENDING CLOSING........................................... 19
SECTION 5.1. Conduct of Business Pending Closing......................... 19
SECTION 5.2. Prohibited Actions Pending Closing.......................... 19
SECTION 5.3. Access; Documents; Supplemental Information................. 21
SECTION 5.4. No Solicitation............................................. 21
SECTION 5.5. Information Supplied........................................ 22
SECTION 5.6. Stockholder Meeting......................................... 22
SECTION 5.7. Filings; Other Actions; Notification........................ 23
SECTION 5.8. Comfort Letters............................................. 23
SECTION 5.9. Nasdaq Listing.............................................. 23
SECTION 5.10. Company Stock Options; Company Warrants..................... 23
SECTION 5.11. Notification of Certain Matters............................. 24
SECTION 5.12. Reorganization.............................................. 25
SECTION 5.13. Indemnification............................................. 25
SECTION 5.14. Actions by the Parties...................................... 25
ARTICLE VI CONDITIONS PRECEDENT............................................. 25
SECTION 6.1. Conditions Precedent to Each Party's Obligation to Effect
the Merger.................................................. 25
SECTION 6.2. Conditions Precedent to Obligations of CIENA................ 26
SECTION 6.3. Conditions Precedent to the Company's Obligations........... 26
ARTICLE VII SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION..... 27
SECTION 7.1. Survival of Representations and Warranties.................. 27
SECTION 7.2. Indemnification; Escrow Agreements.......................... 27
SECTION 7.3. Stockholder's Representative................................ 28
SECTION 7.4. Defense of Third Party Claims............................... 30
SECTION 7.5. Maximum Payments; Remedy.................................... 31
ARTICLE VIII MISCELLANEOUS AND GENERAL...................................... 31
SECTION 8.1. Expenses.................................................... 31
SECTION 8.2. Press Releases.............................................. 31
SECTION 8.3. Contents of Agreement; Parties in Interest; Etc. ........... 31
SECTION 8.4. Assignment and Binding Effect............................... 31
SECTION 8.5. Termination................................................. 32
SECTION 8.6. Joint Integration Team...................................... 34
SECTION 8.7. Definitions................................................. 34
SECTION 8.8. Notices..................................................... 36
SECTION 8.9. Amendment................................................... 37
SECTION 8.10. Governing Law............................................... 37
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SECTION 8.11. No Benefit to Others........................................ 37
SECTION 8.12. Severability................................................ 37
SECTION 8.13. Section Headings............................................ 38
SECTION 8.14. Schedules and Exhibits...................................... 38
SECTION 8.15. Extensions.................................................. 38
SECTION 8.16. Counterparts................................................ 38
EXHIBIT INDEX
Exhibit A Form of Stockholder Agreement
Exhibit B Form of Escrow Agreement
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement") dated as of December 18,
2000, by and among CIENA CORPORATION, a Delaware corporation ("CIENA"), CYRAS
SYSTEMS, INC., a Delaware corporation (the "Company"), and CO ACQUISITION CORP.,
a Delaware corporation ("Merger Sub").
RECITALS
WHEREAS, the Boards of Directors of each of CIENA, Merger Sub and the
Company have determined that the merger of Merger Sub with and into the Company
(the "Merger") in accordance with the provisions of the Delaware General
Corporation Law, as amended (the "DGCL"), and subject to the terms and
conditions of this Agreement, is advisable and in the best interests of CIENA,
Merger Sub and the Company and their respective stockholders;
WHEREAS, the Company is a Delaware corporation and has authorized
847,300,000 shares of common stock, par value $0.0001 per share ("Company Common
Stock"), and 152,700,000 shares of preferred stock, $0.0001 par value per share
("Company Preferred Stock"), of which 7,200,000 shares have been designated
Series A Preferred Stock ("Series A Preferred Stock"), 73,800,000 shares have
been designated Series B Preferred Stock ("Series B Preferred Stock"),
57,000,000 shares have been designated Series C Preferred Stock ("Series C
Preferred Stock"), 13,200,000 shares have been designated Series D Preferred
Stock ("Series D Preferred Stock") and 1,500,000 shares have been designated
Series E Preferred Stock (the "Series E Preferred Stock") (the Series A
Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock, the
Series D Preferred Stock and the Series E Preferred Stock are referred to as the
"Company Preferred Stock," and the Company Preferred Stock and the Company
Common Stock are referred to as the "Company Capital Stock");
WHEREAS, in order to induce CIENA and Merger Sub to enter into this
Agreement, concurrently herewith each stockholder of the Company who also is a
director or officer of the Company and persons affiliated with such persons, are
entering into stockholder agreements with CIENA in the form attached hereto as
EXHIBIT A, pursuant to which, among other things, each such stockholder agrees
to vote in favor of adoption of this Agreement and the Merger, and grants an
option to CIENA to purchase such stockholder's Company Capital Stock upon the
occurrence of certain events;
WHEREAS, in order to induce CIENA and the Company to enter into this
Agreement, CIENA and each of the officers of the Company who were parties to
employment agreements with the Company immediately prior to the date hereof have
entered into employment agreements, to be effective upon the closing of the
transactions contemplated hereby; and
WHEREAS, the parties intend that, for federal income tax purposes, the
Merger shall qualify as a reorganization within the meaning of Section 368(a) of
the Code.
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements contained herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto intending to be legally bound do hereby agree
as follows:
ARTICLE I
THE MERGER
SECTION 1.1. General.
(a) Subject to the terms and conditions of this Agreement and in accordance
with the DGCL, at the Effective Time (i) Merger Sub shall be merged with and
into the Company, (ii) the separate corporate
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existence of Merger Sub shall cease and (iii) the Company shall be the surviving
company (the "Surviving Company") and shall continue its legal existence under
the laws of the State of Delaware.
(b) The Merger shall become effective at the time of filing of a
Certificate of Merger with the Secretary of State of the State of Delaware in
accordance with the provisions of Section 251 of the DGCL, or at such later time
as may be stated in the Certificate of Merger (the "Effective Time"). The
closing of the Merger (the "Closing") shall take place at the offices of Hogan &
Hartson, LLP, 111 South Calvert Street, Baltimore, Maryland 21202 at 10:00 A.M.,
two Business Days after the date on which the last of the conditions set forth
in ARTICLE VI shall have been satisfied or waived, or on such other date, time
and place as the Company and CIENA may mutually agree (the "Closing Date").
(c) At the Effective Time, the effect of the Merger shall be as provided in
the applicable provisions of the DGCL. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, all the property, rights,
privileges, powers and franchises of the Company and Merger Sub shall vest in
the Surviving Company, and all debts, liabilities, obligations, and duties of
the Company and Merger Sub shall become the debts, liabilities, obligations,
restrictions, disabilities and duties of the Surviving Company.
SECTION 1.2. Certificate of Incorporation.
The Certificate of Incorporation of the Company, as in effect immediately
prior to the Effective Time (the "Company Certificate"), shall be the
Certificate of Incorporation of the Surviving Company, until thereafter amended
as provided therein and by law.
SECTION 1.3. The By-Laws.
The By-laws of the Merger Sub, as in effect immediately prior to the
Effective Time, shall be adopted at the Effective Time as the By-laws of the
Surviving Company, until thereafter amended as provided therein and by law.
SECTION 1.4. Board of Directors and Officers.
From and after the Effective Time, the Board of Directors and Officers of
Merger Sub at the Effective Time shall be the Board of Directors and Officers of
the Surviving Company, each to hold office until his or her respective
successors are duly elected or appointed and qualified.
SECTION 1.5. Conversion of Securities.
At the Effective Time, by virtue of the Merger and without any action on
the part of the Company or the holders of the Company's Capital Stock (the
"Stockholders"):
(a) Each share of common stock of Merger Sub issued and outstanding
immediately prior to the Effective Time shall be converted into one share
of common stock of the Surviving Company;
(b) Each share of Company Capital Stock held in the treasury of the
Company and each share of Company Capital Stock owned by CIENA shall be
canceled without any conversion thereof and no payment or distribution
shall be made with respect thereto; and
(c) At the Effective Time, the then issued and outstanding shares of
Company Capital Stock shall be converted into an aggregate of 27,000,000
shares (the "Aggregate Share Consideration") of CIENA common stock, par
value $0.01 per share ("CIENA Common Stock" or "CIENA Stock"), to be
distributed in accordance with this SECTION 1.5(c). Subject to the
provisions of SECTIONS 1.6 and 1.9, each share of Company Capital Stock
issued and outstanding immediately prior to the Effective Time (other than
(i) shares canceled in accordance with SECTION 1.5(b) and (ii) Dissenting
Shares) shall be converted into a fraction of a share of CIENA Common Stock
including the corresponding fraction of a right ("Right") to purchase
shares of series A junior participating preferred stock, par
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value $0.01 per share, pursuant to the Rights Agreement dated as of
December 29, 1997 between CIENA and BankBoston, N.A. as Rights Agent,
determined as follows:
(i) at the Effective Time, the Aggregate Share Consideration shall
be multiplied by a dollar value equal to the Assumed Value (as defined
below) (such total amount being referred to herein as the "Aggregate
Value");
(ii) each share of a particular series of Company Preferred Stock
outstanding, if any, at the Effective Time shall be converted into a
portion of a share of CIENA Common Stock (the "Preferred Stock Exchange
Ratio") equal to:
Preferred Liquidation Value
---------------------------
Assumed Value
(iii) each share of Company Common Stock outstanding at the
Effective Time shall be converted into a portion of a share of CIENA
Common Stock (the "Common Stock Exchange Ratio") equal to:
Aggregate Share Consideration + Option Consideration - Preferred Share
-------------------- Consideration
Assumed Value
--------------------------------------------------------------------------------
Company Outstanding Shares + Stock Option Equivalents
For purposes hereof, the following definitions apply:
"Assumed Value" = the lower of (i) the average closing price of a
share of CIENA Common Stock as reported on the
NASDAQ National Market ("NASDAQ") for the
twenty most recent days that CIENA Common Stock
has traded ending on the third trading day
prior to the Effective Time, and (ii) the
closing price of a share of CIENA Common Stock
as reported on NASDAQ on the last full trading
day prior to the Effective Time.
"Company Outstanding Shares" = the total number of shares of Company Common
Stock outstanding at the Effective Time.
"Preferred Liquidation
Value" = the portion of the Aggregate Value allocated to
each of the outstanding shares of a particular
series of Company Preferred Stock pursuant to
Article IV.B., Section 2 of the Amended and
Restated Certificate of Incorporation of the
Company, treating the Merger as a Liquidation
for purposes thereof.
"Preferred Share
Consideration" = the total number of shares of CIENA Common
Stock allocated at the Effective Time to
holders of Company Preferred Stock.
"Option Consideration" = the aggregate amount receivable from holders of
Company Stock Options and Company Warrants upon
the exercise of all Company Stock Options and
Company Warrants (assuming they were exercised
for cash).
"Stock Option Equivalents" = the number of shares of Company Common Stock
issuable upon exercise of all Company Stock
Options and Company Warrants outstanding at the
Effective Time (except for those which expire
at the Effective Time or by their terms will
expire following the Effective Time without
becoming exercisable due to vesting
provisions).
As of the date of this Agreement, there are 15,361,242 Company Stock
Options issued and outstanding. Notwithstanding the foregoing calculations, the
Company may grant additional Company Stock Options after the date of this
Agreement and prior to the Closing Date to new hires consistent with
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the Company's current new hire option grant policy, at the fair market value of
the Company at such time (taking into account this Agreement and the proposed
consideration provided for hereunder), in an amount not to exceed twenty-five
thousand (25,000) multiplied by the number of days between the date of this
Agreement and the Closing Date, provided that such amount shall not exceed
3,000,000 shares, and such Company Stock Options shall not be included in the
calculations of the Common Stock Exchange Ratio.
All references in this Agreement to CIENA Common Stock to be received in
accordance with the Merger shall be deemed, from and after the Effective Time,
to include the Rights. After the Effective Time, except for shares of Company
Common Stock exchanged for shares of Merger Sub all such shares of Company
Capital Stock shall no longer be outstanding and shall automatically be canceled
and retired, and each holder of a certificate representing any such shares shall
cease to have any rights with respect thereto other than (i) the right to
receive shares of CIENA Common Stock to be issued in consideration therefor upon
the surrender of such certificate, (ii) any dividends and other distributions in
accordance with SECTION 1.8(c) and (iii) any cash, without interest, to be paid
in lieu of any fractional share of CIENA Common Stock in accordance with SECTION
1.9.
SECTION 1.6. Adjustment of the Exchange Ratio.
In the event that, prior to the Effective Date, any stock split,
combination, reclassification or stock dividend with respect to the CIENA Common
Stock, any change or conversion of CIENA Common Stock into other securities or
any other dividend or distribution with respect to the CIENA Common Stock should
occur or, if a record date with respect to any of the foregoing should occur,
appropriate and proportionate adjustments shall be made to the Aggregate Share
Consideration and Exchange Ratios, and thereafter all references to the
Aggregate Share Consideration and Exchange Ratios shall be deemed to be to such
Aggregate Share Consideration and Exchange Ratios as so adjusted.
SECTION 1.7. Dissenting Shares.
(a) Notwithstanding any provision of this Agreement to the contrary, shares
of Company Capital Stock that are outstanding immediately prior to the Effective
Time and which are held by stockholders who shall not have voted in favor of the
Merger or consented thereto in writing and who shall have demanded properly in
writing appraisal for such shares in accordance with Section 262 of the DGCL
(collectively, the "Dissenting Shares") shall not be converted into or represent
the right to receive the consideration set forth in SECTION 1.5. Such
stockholders shall be entitled to receive such consideration as is determined to
be due with respect to such Dissenting Shares in accordance with the provisions
of Section 262, except that all Dissenting Shares held by stockholders who shall
have failed to perfect or who effectively shall have withdrawn or lost their
rights to appraisal of such shares under Section 262 shall thereupon be deemed
to have been converted into and to have become exchangeable for, as of the
Effective Time, the right to receive the shares of CIENA Common Stock specified
in SECTION 1.5, without any interest thereon, upon surrender, in the manner
provided in SECTION 1.8, of the certificate or certificates that formerly
evidenced by such Dissenting Shares less the number of shares of CIENA Common
Stock allocable to such stockholder that have been deposited in the Escrow Fund
in respect of Company Capital Stock pursuant to SECTIONS 1.8(b) and 7.2.
(b) The Company shall give CIENA (i) prompt notice of any demands for
appraisal received by the Company, withdrawals of such demands, and any other
instruments served pursuant to the DGCL and received by the Company and (ii) the
opportunity to direct all negotiations and proceedings with respect to demands
for appraisal under the DGCL. The Company shall not, except with the prior
written consent of CIENA, make any payment with respect to any demands for
appraisal or offer to settle or settle any such demands.
(c) Notwithstanding the foregoing, as provided in ARTICLE VI, it is a
condition to CIENA's obligations pursuant to this Agreement that holders of
shares of Company Capital Stock representing in excess of 2.0% of the issued and
outstanding Company Capital Stock immediately prior to the Effective Time shall
not have demanded or exercised appraisal rights under Section 262 of the DGCL.
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SECTION 1.8. Exchange Procedures; Distributions with Respect to Unexchanged
Shares; Stock Transfer Books.
(a) As of the Effective Time, CIENA shall deposit with the Exchange Agent
for the benefit of the holders of shares of Company Capital Stock, certificates
representing shares of the CIENA Common Stock to be issued as the Closing
Payment pursuant to SECTION 1.5(c) in exchange for the shares of Company Capital
Stock less the number of shares of CIENA Common Stock to be deposited in the
Escrow Fund pursuant to SECTION 7.2, together with cash in an amount sufficient
to permit the payment of cash in lieu of fractional shares pursuant to SECTION
1.9. (Such shares of CIENA Common Stock, together with any dividends or
distributions with respect thereto pursuant to SECTIONS 1.8(c) and 1.9, are
referred to herein as the "Exchange Fund").
(b) As soon as practicable after the Effective Time, CIENA shall cause the
Exchange Agent to send to each Person who was, at the Effective Time, a holder
of record of certificates which represented outstanding Company Capital Stock
(the "Certificates") which shares were converted into the right to receive CIENA
Common Stock pursuant to SECTION 1.5, a letter of transmittal which (i) shall
specify that delivery shall be effected and risk of loss and title to such
Certificates shall pass, only upon actual delivery thereof to the Exchange Agent
and (ii) shall contain instructions for use in effecting the surrender of the
Certificates. Upon surrender to the Exchange Agent of Certificates for
cancellation, together with such letter of transmittal duly executed, such
holder shall be entitled to receive in exchange therefor (A) a certificate
representing the number of whole shares of CIENA Common Stock into which the
Company Capital Stock represented by the surrendered Certificate shall have been
converted at the Effective Time (less such holder's pro rata portion of the
number of shares of CIENA Common Stock to be deposited in the Escrow Fund on
such holder's behalf pursuant to SECTION 7.2), (B) cash in lieu of any
fractional share of CIENA Common Stock in accordance with SECTION 1.9 and (C)
certain dividends and distributions in accordance with SECTION 1.8(c), and the
Certificates so surrendered shall then be canceled. Subject to SECTION 1.8(c)
and SECTION 1.9, until surrendered as contemplated by this SECTION 1.8(b), each
Certificate, from and after the Effective Time, shall be deemed to represent
only the right to receive, upon such surrender, the number of shares of CIENA
Common Stock into which such Company Capital Stock shall have been converted. As
soon as practicable after the Effective Time, and subject to and in accordance
with the provisions of SECTION 7.2, CIENA shall cause to be distributed to the
Escrow Agent certificates representing 10% of the Closing Payment (the "Escrow
Amount") which shall be registered in the name of the Escrow Agent as nominee
for the holders of Certificates canceled pursuant to this SECTION 1.8. Such
shares shall be beneficially owned by such holders, shall be held in escrow and
shall be available to settle certain contingencies as provided in the Escrow
Agreement. To the extent not used for such purpose, such shares shall be
released, as provided in the Escrow Agreement.
(c) No dividends or other distribution declared or made after the Effective
Time with respect to the CIENA Common Stock with a record date after the
Effective Time shall be paid to any holder entitled by reason of the Merger to
receive certificates representing CIENA Common Stock and no cash payment in lieu
of a fractional share of CIENA Common Stock shall be paid to any such holder
pursuant to SECTION 1.9 until such holder shall have surrendered its
Certificates pursuant to this SECTION 1.8. Subject to applicable law, following
surrender of any such Certificate, such holder shall be paid, in each case,
without interest, (i) the amount of any dividends or other distributions
theretofore paid with respect to the shares of CIENA Common Stock represented by
the certificate received by such holder and having a record date on or after the
Effective Time and a payment date prior to such surrender and (ii) at the
appropriate payment date or as promptly as practicable thereafter, the amount of
any dividends or other distributions payable with respect to such shares of
CIENA Common Stock and having a record date on or after the Effective Time but
prior to such surrender and a payment date on or after such surrender.
(d) If any certificate representing shares of CIENA Common Stock or any
cash is to be issued or paid to any Person other than the registered holder of
the Certificate surrendered in exchange therefor, it shall be a condition to
such exchange that such surrendered Certificate shall be properly endorsed and
otherwise in proper form for transfer and such Person either (i) shall pay to
the Exchange Agent any transfer or other taxes required as a result of the
issuance of such certificates of CIENA Common Stock
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and the distribution of such cash payment to such Person or (ii) shall establish
to the reasonable satisfaction of the Exchange Agent that such tax has been paid
or is not applicable. CIENA or the Exchange Agent shall be entitled to deduct
and withhold from the consideration otherwise payable pursuant to this Agreement
to any holder of shares of Company Capital Stock such amounts as CIENA or the
Exchange Agent is required to deduct and withhold with respect to the making of
such payment under the Code, or any provision of state, local or foreign tax
law. To the extent that amounts are so withheld by CIENA or the Exchange Agent,
such withheld amounts shall be treated for all purposes of this Agreement as
having been paid to the holder of the shares of Company Capital Stock in respect
of which such deduction and withholding was made by CIENA or the Exchange Agent.
All amounts in respect of taxes received or withheld by CIENA shall be disposed
of by CIENA in accordance with the Code or such state, local or foreign tax law,
as applicable.
(e) If any Certificate shall have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the Person claiming such Certificate to
be lost, stolen or destroyed and subject to such other conditions as the Board
of Directors of the Surviving Company may impose, the Surviving Company shall
issue in exchange for such lost, stolen or destroyed Certificate the shares of
CIENA Common Stock as determined under SECTION 1.5(c) and pay any cash,
dividends and distributions as determined in accordance with SECTION 1.8(c) and
SECTION 1.9 in respect of such Certificate. When authorizing such issue of
shares of CIENA Common Stock (and payment of any such cash, dividends and
distribution) in exchange for such Certificate, the Board of Directors of the
Surviving Company (or any authorized officer thereof) may, in its reasonable
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed Certificate to give the Surviving
Company a bond in such sum as the Board of Directors may direct as indemnity
against any claim that may be made against the Surviving Company with respect to
the Certificate alleged to have been lost, stolen or destroyed.
(f) At the close of business on the day on which the Effective Time occurs,
the stock transfer books of the Company shall be closed and thereafter there
shall be no further registration of transfers of shares of Company Capital Stock
on the records of the Company. From and after the Effective Time, the holders of
shares of Company Capital Stock outstanding immediately prior to the Effective
Time shall cease to have any rights with respect to such shares except as
otherwise provided herein or by applicable law.
SECTION 1.9. No Fractional Shares.
No certificates or scrip representing fractional shares of CIENA Common
Stock shall be issued upon the surrender for exchange of Certificates and such a
fractional share shall not entitle the record or beneficial owner thereof to
vote or to any other rights as a stockholder of CIENA. In lieu of receiving any
such fractional share, each holder of Company Capital Stock who would otherwise
have been entitled thereto upon the surrender of Certificates for exchange will
receive cash (without interest) in an amount rounded to the nearest whole cent,
determined by multiplying (i) the per share closing price on NASDAQ of CIENA
Common Stock on the date on which the Effective Time shall occur (or, if the
CIENA Common Stock shall not trade on NASDAQ on such date, the first day of
trading in CIENA Common Stock on NASDAQ thereafter) by (ii) the fractional share
to which such holder would otherwise be entitled. CIENA shall make available to
the Exchange Agent the cash necessary for this purpose.
SECTION 1.10. Return of Exchange Fund.
Any portion of the Exchange Fund which remains undistributed to the former
holders of Company Capital Stock for six months after the Effective Date shall
be delivered to CIENA, upon its request, and any such former holders who have
not theretofore surrendered to the Exchange Agent their Certificates in
compliance herewith shall thereafter look only to CIENA for payment of their
claim for shares of CIENA Common Stock, any cash in lieu of fractional shares of
CIENA Common Stock and any dividends or distributions with respect to such
shares of CIENA Common Stock. Neither CIENA nor the Company shall be liable to
any former holder of Company Capital Stock for any such shares of CIENA Common
Stock held in the Exchange Fund (and any cash, dividends and distributions
payable in respect thereof) which is delivered to a public official pursuant to
an official request under any applicable abandoned property, escheat or similar
law.
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SECTION 1.11. No Further Ownership Rights in Company Capital Stock.
All shares of CIENA Common Stock delivered upon the surrender for exchange
of any Certificate in accordance with the terms hereof (including any cash paid
pursuant to SECTION 1.8 or SECTION 1.10) shall be deemed to have been delivered
(and paid) in full satisfaction of all rights pertaining to the Company Stock
previously represented by such Certificate.
SECTION 1.12. Further Assurances.
If at any time after the Effective Time the Surviving Company shall
consider or be advised that any deeds, bills of sale, assignments or assurances
or any other acts or things are necessary, desirable or proper (a) to vest,
perfect or confirm, of record or otherwise, in the Surviving Company, its right,
title or interest in, to or under any of the rights, privileges, powers,
franchises, properties or Assets of either the Company or Merger Sub or (b)
otherwise to carry out the purposes of this Agreement, the Surviving Company and
its proper officers and directors or their designees shall be authorized to
execute and deliver, in the name and on behalf of the Company, Merger Sub, all
such deeds, bills of sale, assignments and assurances and do, in the name and on
behalf of the Company or Merger Sub, all such other acts and things necessary,
desirable or proper to vest, perfect or confirm its right, title or interest in,
to or under any of the rights, privileges, powers, franchises, properties or
Assets of the Company or Merger Sub, as applicable, and otherwise to carry out
the purposes of this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to CIENA and Merger Sub as
follows:
SECTION 2.1. Organization and Qualification.
The Company is a corporation duly organized, validly existing and in good
standing under the laws of Delaware. The Company has the requisite power and
authority to carry on its business as now being conducted and to perform the
terms of this Agreement and the transactions contemplated hereby. The Company is
duly qualified to conduct its business, and is in good standing, in each
jurisdiction in which the ownership or leasing of its Assets or the nature of
its activities in connection with the conduct of its business makes such
qualification necessary or in which the failure to be so qualified and in good
standing would have a Company Material Adverse Effect. The Company has no
subsidiaries or any equity interest in any Person.
SECTION 2.2. Certificate of Incorporation and Bylaws.
The Company has heretofore delivered to CIENA a complete and correct copy
of the Company Certificate and the bylaws of the Company, each as amended to
date. Such Company Certificate and bylaws are in full force and effect. The
Company is not in violation of any of the provisions of the Company Certificate
or its bylaws.
SECTION 2.3. Capitalization.
The authorized capital stock of the Company consists of 847,300,000 shares
of common stock, $0.0001 par value per share, of which, 61,858,144 shares are
issued and outstanding, and 152,700,000 shares of preferred stock, par value
$0.0001 per share, of which 7,200,000 shares are designated as Series A
Preferred Stock, all of which are issued and outstanding, 73,800,000 shares are
designated as Series B Preferred Stock, 70,143,996 of which are issued and
outstanding, 57,000,000 shares are designated as Series C Preferred Stock,
52,646,118 of which are issued and outstanding, 13,200,000 shares are designated
as Series D Preferred Stock, 7,594,947 of which are issued and outstanding, and
1,500,000 shares are designated as Series E Preferred Stock, 270,756 of which
are issued and outstanding. All of the issued and outstanding shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series E Preferred Stock and Common Stock of the Company are
owned of record by the Stockholders of the Company shown on SCHEDULE 2.3 hereto.
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Except as set forth on SCHEDULE 2.3, the Company has not granted any options,
warrants or other rights, or entered into any agreements, arrangements or
commitments of any character relating to the issued or unissued capital stock of
the Company, or obligating the Company to issue or sell any shares of capital
stock of, or other equity interests in the Company, including any securities
directly or indirectly convertible into or exercisable or exchangeable for any
capital stock or other equity securities of the Company. Except as set forth on
SCHEDULE 2.3, the Company does not have outstanding any bonds, debentures, notes
or other obligations the holders of which have the right to vote (or convertible
into or exercisable for securities having the right to vote) with the
Stockholders of the Company on any matter. Except as set forth on SCHEDULE 2.3,
there are no outstanding obligations of the Company to repurchase, redeem or
otherwise acquire any shares of its capital stock or make any investment (in the
form of a loan, capital contribution or otherwise) in any other Person except
for outstanding rights of the Company to repurchase unvested shares of Company
Common Stock, at the original purchase price paid per share, upon the holder's
termination of service or employment with the Company. All of the issued and
outstanding shares of the Company Capital Stock, have been duly authorized and
validly issued in accordance with applicable laws and are fully paid and
non-assessable and not subject to preemptive rights. Except as set forth on
SCHEDULE 2.3, no shares of capital stock of the Company have been reserved for
any purpose.
SECTION 2.4. Authority.
(a) The execution and delivery of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate action and no other
corporate proceedings on the part of the Company are necessary to authorize this
Agreement or to consummate the transactions contemplated hereby, except approval
by holders of a majority of the shares of the Company Common Stock and the
holders of a majority of the Company Preferred Stock, each voting as a separate
class (the "Company Requisite Vote"). The Company Preferred Stock is not
otherwise entitled to any vote on the Merger. Assuming due authorization,
execution and delivery by CIENA, this Agreement constitutes a legal, valid and
binding obligation of the Company, enforceable in accordance with its terms,
except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws of general applicability
relating to or affecting creditors' rights generally and by the application of
general principles of equity.
(b) The Board of Directors of the Company has duly and unanimously approved
this Agreement and the Merger and the other transactions contemplated hereby, to
which the Company is a party, and has recommended adoption thereof by the
Stockholders.
SECTION 2.5. No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by the Company does not,
and the performance by the Company of its obligations under this Agreement will
not, (i) conflict with or violate the Company Certificate or the bylaws of the
Company, (ii) conflict with or violate any Law applicable to the Company, or
(iii) except as set forth in SCHEDULE 2.5(a), result in any breach of or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which it is subject.
(b) Except as set forth in SCHEDULE 2.5(b), the execution and delivery of
this Agreement by the Company does not, and the performance of this Agreement by
the Company will not, require any consent, approval, authorization or permit of,
or filing with or notification to, any Government Entity by the Company, except
for the filing of a Certificate of Merger under the DGCL and filings under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"Hart-Scott-Rodino Act").
SECTION 2.6. Financial Statements.
Attached hereto as SCHEDULE 2.6 are (a) the audited balance sheets of the
Company as of December 31, 1998 and 1999 and the audited statements of
operations and cash flows for the period from July 24, 1998 (inception) to
December 31, 1998 and for the fiscal year ended December 31, 1999 and (b) the
unaudited balance sheet of the Company as of November 30, 2000, and the
unaudited statement
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of operations and cash flows for the eleven months then ended (collectively, the
"Financial Statements"). The audited financial statements referred to in this
SECTION 2.6 present fairly, in all material respects, the financial condition of
the Company as of the respective dates and the results of operations and cash
flows for the respective periods indicated and have been prepared in accordance
with United States generally accepted accounting principles ("GAAP") applied on
a consistent basis. Except as set forth on SCHEDULE 2.6, the unaudited financial
statements referred to in this SECTION 2.6 present fairly, in all material
respects, the financial condition of the Company as of the respective dates and
the results of operations and cash flows for the respective periods indicated
and have been prepared in all material respects in accordance with GAAP applied
on a consistent basis except for the absence of required footnotes. All audited
financial statements included in the Financial Statements are accompanied by
unqualified audit reports of Deloitte & Touche LLP, who are independent for
purposes of federal securities laws. Except as set forth on SCHEDULE 2.6 or as
reflected in the unaudited balance sheet of the Company as of November 30, 2000
(the "Balance Sheet Date"), the Company has incurred no liabilities, contingent
or absolute, matured or unmatured, known or unknown, and knows of no basis for
such liabilities, except for liabilities (a) not required under GAAP applied on
a consistent basis with that of the preceding accounting periods to be reported
on such Financial Statements, and (b) incurred in the Ordinary Course of
Business.
SECTION 2.7. Absence of Certain Changes or Events.
Since the Balance Sheet Date, there has been no event or set of
circumstances that resulted in or is reasonably likely to result in a Company
Material Adverse Effect. Except as set forth on SCHEDULE 2.7, since the Balance
Sheet Date, the Company has conducted its business in the Ordinary Course of
Business, and has not (a) paid any dividend or distribution in respect of, or
redeemed or repurchased any of, its capital stock other than the Company's
repurchase of unvested shares, at the original purchase price paid per share,
from terminating employees or consultants; (b) incurred loss of, or significant
injury to, any of the material Assets, whether as the result of any natural
disaster, labor trouble, accident, other casualty, or otherwise; (c) incurred,
or become subject to, any material liability (absolute or contingent, matured or
unmatured, known or unknown), and knows of no basis for such liabilities, except
current liabilities incurred in the Ordinary Course of Business; (d) mortgaged,
pledged or subjected to any Encumbrance any of the Assets; (e) sold, exchanged,
transferred or otherwise disposed of any of the Assets except in the Ordinary
Course of Business, or canceled any debts or claims; (f) written down the value
of any Assets or written off as uncollectible any accounts receivable, except
write downs and write-offs in the Ordinary Course of Business, none of which,
individually or in the aggregate, are material; (g) entered into any
transactions other than in the Ordinary Course of Business; (h) made any change
in any method of accounting or accounting practice; or (i) made any agreement to
do any of the foregoing, other than negotiations with CIENA and its
representatives regarding the transactions contemplated by this Agreement. Since
December 31, 1999, except as set forth on SCHEDULE 2.7, there has not been: (a)
any damage, destruction or loss (whether or not covered by insurance) or any
other event affecting the business or Assets of the Company; (b) any forgiveness
or cancellation of debts or claims owed to the Company; (c) any increase in the
compensation or benefits payable or to become payable by the Company to any of
the directors, officers, consultants or employees of the Company, other than
salary increases in connection with customary performance reviews and customary
bonuses consistent with past practices; (d) any discharge or satisfaction of any
Lien or payment of any liability or obligation by the Company other than current
liabilities in the Ordinary Course of Business; or (e) any agreement to do any
of the foregoing, other than negotiations with CIENA and its representatives
regarding the transactions contemplated by this Agreement.
SECTION 2.8. Ownership and Condition of the Assets.
Except as set forth on SCHEDULE 2.8, the Company is the sole and exclusive
legal and equitable owner of and has good and marketable title to the Assets it
purports to own and such Assets are free and clear of all Encumbrances other
than Permitted Encumbrances. No person or Government Entity has an option to
purchase, right of first refusal or other similar right with respect to all or
any part of such Assets other than in the Ordinary Course of Business. All of
the personal property of the Company is in good working
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order and repair, ordinary wear and tear excepted, and is suitable and adequate
for the uses for which it is intended or is being used.
SECTION 2.9. Leases.
SCHEDULE 2.9 lists all leases and other agreements under which the Company
is lessee or lessor of any Asset, or holds, manages or operates any Asset owned
by any third party, or under which any Asset owned by the Company is held,
operated or managed by a third party. The Company is the holder of all the
leasehold estates purported to be granted to such entity by the leases listed in
SCHEDULE 2.9 and is the owner of all equipment, machinery and other Assets
purported to be owned by the Company thereon, free and clear of all
Encumbrances. Each such lease and other agreement is in full force and effect
and constitutes a legal, valid and binding obligation of, and is legally
enforceable against, the respective parties thereto (except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws of general applicability relating to or
affecting creditors' rights generally and by the application of general
principles of equity) and grants the leasehold estate it purports to grant free
and clear of all Encumbrances. All necessary governmental approvals required to
be obtained by the Company with respect thereto have been obtained, all
necessary filings or registrations therefor have been made, and to the Company's
Knowledge, there have been no threatened cancellations thereof and are no
outstanding disputes thereunder. The Company has performed in all material
respects all obligations thereunder required to be performed by such entity to
date. The Company is not in default in any material respect under any of the
foregoing and to the Company's Knowledge, no other party is in default in any
material respect under any of the foregoing, and there has not occurred any
event which (whether with or without notice, lapse of time or the happening or
occurrence of any other event) would, constitute a default on the part of the
Company, or to the Company's Knowledge, a party other than the Company.
SECTION 2.10. Other Agreements.
(a) SCHEDULE 2.10 is an accurate list of all material contracts and
agreements to which the Company is a party, or which it or any of its property
is bound, (including, without limitation, joint venture agreements, employment
contracts, loan agreements, bonds, mortgages, liens, pledges or other security
agreements) used in connection with, or relating to the conduct of the business
of the Company (the "Contracts"). Such agreements include each agreement and
contract to which the Company is a party that limits the right of the Company to
engage in, or to compete with any person in, any business, including each
contract or agreement containing exclusivity provisions restricting the
geographical area in which, or the method by which, any business may be
conducted by the Company prior to the Effective Time.
(b) Except as set forth on SCHEDULE 2.10, with respect to the conduct of
the business of the Company and ownership of the Assets, the Company is not:
(1) a party to any contract, purchase or sales orders, or commitment
that involves a dollar amount in excess of $50,000 or extends for a period
of twelve months or more;
(2) a party to any employment contracts with employees, agents or
consultants;
(3) a party to any contract with sales or other agents, brokers,
franchisees, distributors or dealers;
(4) a party to any partnership or joint venture agreement;
(5) a party to any lease or other occupancy or use agreements, oral or
written, nor has the Company granted any options, rights of first refusal
or security or other interests other than Permitted Encumbrances in or
relating to the Assets or the business of the Company;
(6) a party to any agreements giving any party the right to
renegotiate or require a reduction in price or refund of payments
previously made in connection with the business of the Company;
(7) a party to any agreements for the borrowing or lending of money
with respect to the business of the Company and is not a party to any
guaranty agreement;
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(8) a party to any agreements that contain any provisions requiring
the Company to indemnify any other party thereto;
(9) a party to any agreement for the sale of goods or services to any
Governmental Entity;
(10) a party to any agreement granting any Person a Lien on any of the
Assets other than Permitted Encumbrances;
(11) a party to any bonus, executive or deferred compensation, profit
sharing, pension or retirement, stock option or stock purchase,
hospitalization, insurance, medical reimbursement or other plan, agreement
or arrangement or practice providing employee or executive benefits to any
officer or employee or former officer or former employee; and
(12) a party to or bound by any non-competition, secrecy or
confidentiality agreement relating to the business of the Company or the
Assets or any other contract restricting its right to conduct the business
the Company at any time, in any manner or at any place in the world, or the
expansion thereof to other geographical areas, customers, suppliers or
lines of business.
(c) A true and correct copy of each Contract has been made available to
CIENA prior to the date hereof. Each Contract is now valid, in full force and
effect and enforceable in accordance with its terms (except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws of general applicability relating to or
affecting creditors' rights generally and by the application of general
principles of equity). The Company has not breached or improperly terminated any
such Contract, the effect of which could have a Company Material Adverse Effect,
and neither the Company nor, to the Knowledge of the Company, any third party is
in default under any such Contract, the effect of which would have a Company
Material Adverse Effect. There exists no condition or event which, after notice
or lapse of time or both, would constitute any such breach, termination or
default. Except as set forth on SCHEDULE 2.10, the Company does not know of a
bid or contract proposal made by the Company that, if accepted and entered into,
is likely to result in a loss to the Company.
SECTION 2.11. Real Property.
SCHEDULE 2.11 contains a list of all leasehold interests in real estate,
easements, rights to access, rights-of-way and other real property interests
which are owned, or are leased, used or held for use by the Company
(collectively, the "Real Property"). The Real Property listed in SCHEDULE 2.11
constitutes all real property interests necessary to conduct the business and
operations of the Company as now conducted. The Company is not aware of any
easement or other real property interest, other than those listed in SCHEDULE
2.11, that is required, or that has been asserted by a Government Entity to be
required, to conduct the business and operations of the Company. The Company has
made available to CIENA true and complete copies of all deeds, leases,
easements, rights-of-way and other instruments pertaining to the Real Property
(including any and all amendments and other modifications of such instruments).
All Real Property (including the improvements thereon) (i) is in good condition
and repair other than conditions that do not adversely affect its use by the
Company and consistent with its present use, (ii) is available to the Company
for immediate use in the conduct of its business and operations, and (iii) to
the Knowledge of the Company complies in all material respects with all
applicable building or zoning codes and in the regulations of any Government
Entity having jurisdiction.
SECTION 2.12. Environmental Matters.
(a) The Company has complied in all material respects with all
Environmental Laws. There are no pending or, to the Knowledge of the Company,
threatened actions, suits, claims, legal proceedings or other proceedings
against the Company based on any Environmental Laws, and the Company has not
received any notice of any complaint, order, directive, citation, notice of
responsibility, notice of potential responsibility, or information request from
any Government Entity or any other person arising out of or attributable to: (i)
the current or past presence at any part of the Real Property of Hazardous
Materials (as defined below) or any substances that pose a hazard to human
health or an impediment to working conditions; (ii) the current or past release
or threatened release into the environment from the Real
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Property (including, without limitation, into any storm drain, sewer, septic
system or publicly owned treatment works) of any Hazardous Materials or any
substances that pose a hazard to human health or an impediment to working
conditions; (iii) the off-site disposal of Hazardous Materials originating on or
from the Real Property; (iv) any facility operations or procedures of the
Company which do not conform to requirements of the Environmental Laws; or (v)
any violation of Environmental Laws at any part of the Real Property or
otherwise arising from the Company's activities involving Hazardous Materials.
(b) The Company has been duly issued, and currently has all material
permits, licenses, certificates and approvals required to be maintained by the
Company under any Environmental Law with respect to the use of the Real Property
by the Company. A true and complete list of such permits, licenses, certificates
and approvals, all of which are valid and in full force and effect, is set out
in SCHEDULE 2.12. Except in accordance with such permits, licenses, certificates
and approvals, there has been no discharge of any Hazardous Materials or any
other material regulated by such permits, licenses, certificates or approvals.
(c) None of the Real Property contains any underground storage tanks, or
underground piping associated with such tanks, used currently or in the past for
Hazardous Materials.
SECTION 2.13. Litigation.
Except as set forth on SCHEDULE 2.13, the Company is not directly involved
in any pending action, suit, investigation, claim, arbitration or litigation
and, to the Knowledge of the Company, no such matter is threatened against or
involving the Company, or the Assets, at law or in equity, or before or by any
court, arbitrator or Government Entity. The Company is not operating under, and
is not subject to, any judgment, writ, order, injunction, award or decree of any
court, judge, justice or magistrate, including any bankruptcy court or judge, or
any order of or by any Government Entity. No property or Assets of the Company
has been taken or expropriated by any federal, state, provincial, municipal or
other Government Entity nor has any notice or proceeding with respect to thereof
been given or commenced, nor is the Company aware of any intent or proposal by
any Governmental Entity to give any such notice or commence any such proceeding.
SECTION 2.14. Compliance with Laws.
The Company is in compliance in all material respects with all Laws
applicable to the Assets and its business and operations, including all Laws
applicable to the Company's relationship with its employees.
SECTION 2.15. Intellectual Property.
(a) The Company has all right, title, interest and license rights necessary
to use all intellectual property used in the business of the Company as
presently conducted and, to the Company's Knowledge, has the right, title,
interest and license rights to use all intellectual property that is currently
anticipated by the Company to be required to carry out, the Company's product
development and marketing plans through at least the next 18 months (the
"Intellectual Property Rights"). There are no claims or demands against the
Company by any other Person pertaining to any of such Intellectual Property
Rights and no proceedings have been instituted, or are pending or to the
Knowledge of the Company, threatened, which challenge the rights of the Company
in respect thereof. The Company has the right to use, without infringing the
rights of others, all customer lists, designs, manufacturing or other processes,
computer software, systems, data compilations, research results and other
information required for or incident to its products or its business as
presently conducted.
(b) SCHEDULE 2.15(b) lists all patents, patent applications, registered
trademarks, trademark applications and registrations and registered copyrights
owned or licensed by or registered in the name of the Company or used by the
Company in its business as presently conducted, and generally describes any
other Intellectual Property Rights material to the business or operations of the
Company. All of such patents, patent applications, registered trademarks,
trademark applications and registrations and registered copyrights, if any, have
been duly registered in, filed in or issued by the United States Patent and
Trademark Office, the United States Register of Copyrights, or the corresponding
offices of other
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jurisdictions as identified on SCHEDULE 2.15(b), and have been properly
maintained and renewed in accordance with all applicable provisions of law and
administrative regulations in the United States and each such jurisdiction
except as set forth on SCHEDULE 2.15(b).
(c) All licenses or other agreements under which the Company is granted
rights in Intellectual Property Rights are listed on SCHEDULE 2.15(c). All such
licenses or other Agreements are in full force and effect, there is no material
default by the Company or, to the Company's Knowledge, any party thereto. To the
Knowledge of the Company, the licensors under such licenses and other agreements
have and had all requisite power and authority to grant the rights purported to
be conferred thereby. True and complete copies of all such licenses or other
Agreements, and any amendments thereto, have been furnished to CIENA.
(d) All licenses or other agreements under which the Company has granted
rights to others in Intellectual Property Rights owned or licensed by the
Company are listed on SCHEDULE 2.15(d). All of such licenses or other agreements
are in full force and effect, there is no material default by the Company, or to
the Company's Knowledge, by any party thereto. True and complete copies of all
such licenses or other agreements, and any amendments thereto, have been
furnished to CIENA.
(e) The Company has taken all reasonable steps it believes to be required
in accordance with sound business practice to establish and preserve its
ownership of all material copyright, trade secret and other proprietary rights
with respect to its products and technology. The Company has required all
professional and technical employees and independent contractors having access
to valuable non-public information of the Company to execute agreements under
which such persons are required to maintain the confidentiality of such
information and appropriately restricting the use thereof. The Company does not
have Knowledge of any infringement by others of any Intellectual Property Rights
of the Company.
(f) To the Knowledge of the Company, except as set forth on Schedule
2.15(f), the present business, activities and products of the Company do not
infringe any Intellectual Property Rights of any other Person. No proceeding
charging the Company with infringement of any Intellectual Property Rights has
been filed or, to the Knowledge of the Company, is threatened or likely to be
filed. To the Knowledge of the Company, there exists no unexpired patent or
patent application that includes claims that would be infringed by the products,
activities or business of the Company. To the Knowledge of the Company, the
Company is not making any unauthorized use of any confidential information or
trade secrets of any Person, including without limitation, any customer of the
Company, or any past or present employee of the Company. Except for customer
contracts in the Ordinary Course of Business and confidentiality agreements by
Employees with former employers, neither the Company nor, to the Knowledge of
the Company, any of its employees have any agreements or arrangements with any
Persons other than the Company related to confidential information or trade
secrets of such Persons or restricting any such employee's engagement in
business activities of any nature. The activities of its employees on behalf of
the Company do not violate any such agreements or arrangements known to the
Company.
SECTION 2.16. Taxes and Assessments.
The Company has (i) duly and timely paid all Taxes which have become due
and payable by it, and there are no agreements, waivers or other arrangements
providing for an extension of time with respect to the filing of any Tax Return
or the payment of any Tax; (ii) received no written notice of, nor does the
Company have any Knowledge of, any notice of deficiency or assessment or
proposed deficiency or assessment from any taxing Government Entity; (iii) no
Knowledge of any audits pending and there are no outstanding agreements or
waivers by the Company that extend the statutory period of limitations
applicable to any federal, state, local, or foreign tax returns or Taxes; and
(iv) not entered into any discussions with any federal, state, local, or foreign
authority with respect to any Tax asserted by such authority. Since inception of
the Company, the Tax Returns of the Company have never been audited by federal,
state, local, or foreign authorities. There are no Liens on any property of the
Company that arose in connection with any failure (or alleged failure) to pay
any material Tax when due. The Company has withheld from each payment made to
any of its past or present employees, officers or directors, and to any
non-residents, the amount of Taxes and other deductions required to be withheld
therefrom and has paid
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the same (or set aside for timely payment) to the proper Tax or other receiving
officers within the time required under applicable Laws. The provision for Taxes
of the Company, if any, as shown in the Financial Statements is adequate for
Taxes due or accrued as of the date thereof.
SECTION 2.17. Employment and Benefit Matters.
(a) Pension and Benefit Plans and Other Arrangements. SCHEDULE 2.17(a)
lists each employee benefit plan, program, arrangement and contract (including,
without limitation, any "employee benefit plan" as defined by Section 3(3) of
ERISA), applicable to employees of the Company to which it has contributed or
under which it has any material liability (collectively, the "Company Benefit
Plans"). The Company has made available to CIENA, to the extent they exist, a
true and correct copy of (i) the most recent annual report (Form 5500 series)
filed with the Internal Revenue Service (the "IRS") with respect to each Company
Benefit Plan or similar report of the jurisdiction in which such employee
benefit plan is located, (ii) each such Company Benefit Plan document, (iii)
each trust agreement or other funding vehicle relating to each such Company
Benefit Plan, (iv) the most recent summary plan description for each Company
Benefit Plan for which a summary plan description is required, and (v) the most
recent determination letter issued by the IRS with respect to any Company
Benefit Plan qualified under Section 401(a) of the Code or similar report of the
jurisdiction in which such employee benefit plan is located.
(b) Compliance. The Company has complied, in all material respects, with
all applicable provisions of the Company Benefit Plans and the Code, ERISA, the
National Labor Relations Act, Title VII of the Civil Rights Act of 1964, the Age
Discrimination in Employment Act, the Fair Labor Standards Act, the Securities
Act of 1933, as amended (the "Securities Act"), and all other Laws pertaining to
the Company Benefit Plans or the Company's relations with its employees, and
other employee or employment related benefits, and all premiums and assessments
relating to all Company Benefit Plans. The Company has no liability for any
delinquent contributions within the meaning of Section 515 of ERISA (including,
without limitation, related attorneys' fees, costs, liquidated damages and
interest) or for any arrearages of wages. The Company has no pending unfair
labor practice charges, contract grievances under any collective bargaining
agreement, other administrative charges, claims, grievances or lawsuits before
any court, governmental agency, regulatory body, or arbiter arising under any
Law governing any Plan, and, to the Knowledge of the Company, there exist no
facts that could reasonably be expected to give rise to such a claim.
(c) Collective Bargaining Agreements. There are no collective bargaining
agreements applicable to the Company's employees and the Company has no duty to
bargain with any labor organization with respect to any such persons. There is
not pending any demand for recognition or any other request or demand from a
labor organization for representative status with respect to any persons
employed by the Company.
(d) Employee Information. The Company has made available to CIENA a list
of the names, positions and rates of compensation of all officers, directors,
employees and consultants of the Company, as of the date hereof, showing each
such person's name, positions, and annual remuneration, bonuses and fringe
benefits for the current fiscal year and the most recently completed fiscal
year. With respect to any persons employed by the Company, the Company is in
material compliance with all Laws respecting employment conditions and
practices, has withheld all amounts required by any applicable Laws to be
withheld from wages or any Taxes or penalties for failure to comply with any of
the foregoing.
(e) Employment Practices. With respect to any persons employed by the
Company, (i) the Company has not engaged in any unfair labor practice within the
meaning of the National Labor Relations Act and has not violated any legal
requirement prohibiting discrimination on the basis of race, color, national
origin, sex, religion, age, marital status, or handicap in its employment
conditions or practices; and (ii) there are no pending or, to the Knowledge of
the Company, threatened unfair labor practice charges or discrimination
complaints relating to race, color, national origin, sex, religion, age, marital
status, or handicap against the Company before any Government Entity nor, to the
Knowledge of the Company, does any basis therefor exist.
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(f) Contributions to the Company Benefit Plans. All contributions to, and
payments from, each Company Benefit Plan which may have been required to be made
in accordance with the terms of such plan, and, where applicable, the laws of
the jurisdiction which govern such plan, have been made in a timely manner, and
all material reports, returns and similar documents (including applications for
approval of contributions) with respect to any Company Benefit Plan required to
be filed with any Government Entity or distributed to any participant of such
plan have been duly filed on a timely basis or distributed. The Assets of each
Company Benefit Plan subject to Tile IV of ERISA are at least equal to the
liabilities of such plan based on the actuarial assumptions utilized in the most
recent valuation performed by an actuary for such plan.
(g) Immigration Laws. The Company has complied, in all material respects,
with all Laws governing the employment of personnel by U.S. companies and the
employment of non-U.S. nationals in the United States, including, but not
limited to, the Immigration and Nationality Act 8 U.S.C. Sections 1101 et seq.
and its implementing regulations.
SECTION 2.18. Transactions with Related Parties.
Except as set forth on SCHEDULE 2.18, neither any present or former
officer, director, stockholder of the Company or person known by the Company to
be an Affiliate of any of them, is currently a party to any transaction or
agreement with the Company, including, without limitation, any agreement
providing for the employment of, furnishing of services by, rental of Assets
from or to, or otherwise requiring payments to, any such officer, director,
stockholder or Affiliate.
SECTION 2.19. Insurance and List of Claims.
SCHEDULE 2.19 contains a list of all policies of title, property, fire,
casualty, liability, life, workmen's compensation, libel and slander, and other
forms of insurance of any kind relating to the business and operations of the
Company in each case which are in full force and effect as of the date hereof.
The Company has made available to CIENA true and correct copies of all such
policies. All such policies: (a) are sufficient for compliance by the Company
with all requirements of applicable Law and of all licenses, franchises and
other agreements to which the Company is a party; and (b) are valid,
outstanding, and enforceable policies. All premiums due and payable on all such
policies have been paid. A true and complete list of all claims made since July
24, 1998 under any of the policies (or their predecessors) listed on SCHEDULE
2.19 is included on SCHEDULE 2.19.
SECTION 2.20. Brokers.
No broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
any of the Company, except for a fee to be paid by the Company to Credit Suisse
First Boston upon consummation of the Merger, the terms of which are set forth
on SCHEDULE 2.20.
SECTION 2.21. Disclosure.
True and complete copies of all documents listed in the Schedules have been
made available or provided to CIENA. The books of account, stock record books
and other financial and corporate records of the Company, all of which have been
made available to CIENA, are materially complete and correct and have been
maintained in accordance with good business practices, including the maintenance
of an adequate system of internal accounting controls, and such book and records
are accurately reflected in the Financial Statements. The minute books of the
Company contain accurate and complete records of all meetings held of, and
corporate action by, the stockholders and the board of directors (and committees
thereof) of the Company, and no meeting of any such stockholders or board of
directors (or committees thereof) has been held for which minutes have not been
prepared and are not contained in such minute books.
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SECTION 2.22. Absence of Violation.
To the Knowledge of the Company, none of the Company, nor any of its
officers, directors, employees or agents (or stockholders, distributors,
representatives or other persons acting on the express, implied or apparent
authority of any of the Company) have paid, given or received or have offered or
promised to pay, give or receive, any bribe or other unlawful payment of money
or other thing of value, any extraordinary discount, or any other unlawful
inducement, to or from any person, business association or governmental official
or entity in the United States or elsewhere in connection with or in furtherance
of the business of the Company (including, without limitation, any unlawful
offer, payment or promise to pay money or other thing of value (i) to any
foreign official or political party (or official thereof) for the purposes of
influencing any act, decision or omission in order to assist the Company in
obtaining business for or with, or directing business to, any person, or (ii) to
any person, while knowing that all or a portion of such money or other thing of
value will be offered, given or promised to any such official or party for such
purposes). To the Knowledge of the Company, the business of the Company is not
in any manner dependent upon the making or receipt of such unlawful payments,
discounts or other inducements.
SECTION 2.23. Customers and Suppliers.
Except as set forth on SCHEDULE 2.23, the Company does not have Knowledge
of (i) any termination or cancellation of (or any intent to terminate or cancel)
the business relationship of the Company with (y) any single customer or any
group of affiliated customers who represented five percent (5%) or more of the
revenues or potential revenues of the business of the Company during the fiscal
year ended December 31, 1999, or (z) any single supplier or any group of
affiliated suppliers who provided five percent (5%) or more of the requirements
of the business of the Company during the fiscal year ended December 31, 1999,
or (ii) any existing condition, state of facts or circumstances that in the
reasonable judgment of the Company will cause the Company or any of its
customers to terminate their relationships or refuse to consider a prospective
relationship. To the Knowledge of the Company, none of the business or
prospective business of the Company is in any manner dependent upon the making
or receipt of any payments, discounts or other inducements to any officers,
directors, employees, representatives or agents of any customer.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF CIENA
CIENA represents and warrants to the Company as follows:
SECTION 3.1. Organization and Qualification.
CIENA is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. CIENA has the requisite power
and authority to own, lease and operate its Assets and properties, to carry on
its business as now being conducted and to perform the terms of this Agreement
and the transactions contemplated hereby. CIENA is duly qualified to conduct its
business, and is in good standing, in each jurisdiction where the ownership or
leasing of its properties or the nature of its activities in connection with the
conduct of its business makes such qualification necessary.
SECTION 3.2. Certificate of Incorporation and Bylaws.
CIENA has previously made available to Company complete and correct copies
of its Certificate of Incorporation and Bylaws, as amended to date (together,
the "CIENA Charter Documents"). Such CIENA Charter Documents and equivalent
organizational documents of each of its subsidiaries are in full force and
effect.
SECTION 3.3. Authority.
The execution and delivery of this Agreement by CIENA and the consummation
by CIENA of the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action and no other corporate proceedings
on the part of CIENA are necessary to authorize this Agreement or to
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consummate the transactions contemplated hereby. This Agreement has been duly
executed and delivered by CIENA and, assuming the due authorization, execution
and delivery by the Company, constitutes a legal, valid and binding obligation
of CIENA, enforceable in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws of general applicability relating to or
affecting creditors' rights generally and by the application of general
principles of equity.
SECTION 3.4. No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by CIENA does not, and the
performance by CIENA of its obligations under this Agreement will not, (i)
conflict with or violate the certificate of incorporation or bylaws of CIENA,
(ii) conflict with or violate any Law applicable to CIENA or its Assets and
properties, or (iii) result in any breach of or constitute a default (or an
event which with the notice or lapse of time or both would become a default)
under any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which CIENA is a party or
by which CIENA is bound, or by which any of its properties or Assets is subject.
(b) The execution and delivery of this Agreement by CIENA does not, and the
performance of this Agreement by CIENA will not, require any consent, approval,
authorization or permit of, or filing with or notification to, any Government
Entity other than required filings with the Securities and Exchange Commission
and filings under the Hart-Scott-Rodino Act.
SECTION 3.5. Brokers.
No broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
CIENA, except for the fee to be paid by CIENA to Morgan, Stanley & Co.
Incorporated.
SECTION 3.6. Issuance of CIENA Stock.
Upon consummation of the Merger, and as of the Effective Time, the shares
of CIENA Stock to be issued in the Merger will be duly and validly issued, fully
paid and non-assessable, free and clear of all Encumbrances imposed by CIENA,
except as contemplated hereby.
SECTION 3.7. SEC Filings.
CIENA has filed all reports required to be filed by it with the Securities
and Exchange Commission (the "SEC") during the last twelve months. The reports
filed with the SEC (i) were prepared in accordance of the requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and (ii) did
not, at the time they were filed, contain any untrue statements of a material
fact or omit to state a material fact required to be stated therein or necessary
in order to make the statements made therein, in light of the circumstances
under which they were made, not misleading. Since the date of CIENA's last
periodic report filed with the SEC, as of the date of this Agreement CIENA has
incurred no liabilities, contingent or absolute, matured or unmatured, known or
unknown that would reasonably be expected to result in a CIENA Material Adverse
Effect, and there has been no event that has resulted in, or development that
would reasonably be expected to result in, a CIENA Material Adverse Effect.
SECTION 3.8. Litigation.
Except as disclosed in CIENA's SEC reports filed prior to the date hereof,
there is no action, suit, investigation, claim, arbitration or litigation
pending or, to the Knowledge of CIENA, threatened against or involving CIENA or
its Assets or the business and operations of any of CIENA, at law or in equity,
or before or by any court, arbitrator or Government Entity that would reasonably
be expected to result in a CIENA Material Adverse Effect. Except under
proceedings that have been disclosed in CIENA's SEC reports filed prior to the
date hereof, CIENA is not operating under nor is it subject to any judgment,
writ, order, injunction, award or decree of any court, judge, justice or
magistrate, including any bankruptcy court or judge, or any order of or by any
Government Entity. No property or Assets of CIENA has been taken
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or expropriated by any federal, state, provincial, municipal or other Government
Entity nor has any notice or proceeding with respect to thereof been given or
commenced nor is CIENA aware of any intent or proposal to give any such notice
or commence any such proceeding.
SECTION 3.9. Capitalization.
The authorized capital stock of CIENA consists of 460,000,000 shares of
common stock, $0.01 par value per share, of which 286,530,631 shares are issued
and outstanding as of October 31, 2000 and 20,000,000 shares of Preferred Stock,
par value $0.01 per share, none of which are issued and outstanding. Except for
shares issuable in this Agreement, and for 30,720,965 shares issuable under
outstanding stock options and 3,688,776 shares issuable under stock purchase
plans and the shares issuable under the terms of the Rights Agreement, there are
no options, warrants or other agreements obligating CIENA to issue or sell any
shares of capital stock of, or other equity interests in CIENA. Except as
disclosed in the Company's SEC reports, there are no outstanding obligations of
CIENA to repurchase, redeem or otherwise acquire any shares of its capital
stock. All of the issued and outstanding shares of CIENA capital stock have been
duly authorized and validly issued in accordance with applicable laws and are
fully paid and non-assessable and not subject to preemptive rights.
SECTION 3.10. Reorganization under Section 368(a) of the Code.
CIENA has not taken any actions which would prevent the Merger from
qualifying as a reorganization under Section 368(a) of the Code.
SECTION 3.11. Absence of Certain Changes or Events.
Since October 31, 2000, there has not been: (i) any Material Adverse Effect
on CIENA, (ii) any declaration, setting aside or payment of any dividend on, or
other distribution (whether in cash, stock or property) in respect of any of
CIENA's capital stock, or any purchase, redemption or other acquisition by CIENA
of any of CIENA's capital stock or any other securities of CIENA or any options,
warrants, calls or rights to acquire any such shares or other securities except
for repurchases from employees following their termination pursuant to the terms
of their pre-existing stock option or purchase agreements, (iii) any split,
combination or reclassification of any of CIENA's capital stock, or (iv) any
material change by CIENA in its accounting methods, principles or practices,
except as required by concurrent changes in GAAP and related interpretations.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF MERGER SUB
CIENA and Merger Sub jointly and severally represent and warrant to the
Company as follows:
SECTION 4.1. Organization and Qualification.
Merger Sub is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. Merger Sub has the requisite
power and authority to own, lease and operate its Assets and properties, to
carry on its business as now being conducted and to perform the terms of this
Agreement and the transactions contemplated hereby. Merger Sub is duly qualified
to conduct its business, and is in good standing, in each jurisdiction where the
ownership or leasing of its properties or the nature of its activities in
connection with the conduct of its business makes such qualification necessary.
SECTION 4.2. Authority.
The execution and delivery of this Agreement by Merger Sub and the
consummation by Merger Sub of the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate action and no other
corporate proceedings on the part of Merger Sub are necessary to authorize this
Agreement or to consummate the transactions contemplated hereby. This Agreement
has been duly executed and delivered by Merger Sub and, assuming the due
authorization, execution and delivery by the Company, constitutes a legal, valid
and binding obligation of Merger Sub, enforceable in accordance with
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its terms, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium and other similar laws of general
applicability relating to or affecting creditors' rights generally and by the
application of general principles of equity.
SECTION 4.3. No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by Merger Sub does not,
and the performance by Merger Sub of its obligations under this Agreement will
not, (i) conflict with or violate the certificate of incorporation or bylaws of
Merger Sub, (ii) conflict with or violate any Law applicable to Merger Sub or
its Assets and properties, or (iii) result in any breach of or constitute a
default under any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which Merger Sub
is a party or by which Merger Sub is bound, or by which any of its properties or
Assets is subject.
(b) The execution and delivery of this Agreement by Merger Sub does not,
and the performance of this Agreement by Merger Sub will not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any Government Entity, except for the filing of the Certificate of Merger
under the DGCL.
ARTICLE V
CONDUCT PENDING CLOSING
SECTION 5.1. Conduct of Business Pending Closing.
(a) From the date hereof until the Closing, the Company shall:
(i) maintain its existence in good standing;
(ii) maintain the character of its business and properties and conduct
its business in the ordinary and usual manner consistent with past
practices, except as expressly permitted by this Agreement;
(iii) maintain business and accounting records consistent with past
practices; and
(iv) use its best efforts (a) to preserve its business intact, (b) to
keep available to the Company the services of its present officers and
employees, and (c) to preserve for the Company the goodwill of its
suppliers, customers and others having business relations with the Company.
(b) During the period from the date hereof and continuing until the earlier
of the termination of this Agreement pursuant to its terms or the Closing, CIENA
shall not do any of the following and shall not permit its subsidiaries to do
any of the following:
(i) Declare, set aside, or pay any dividends or make any other
distributions (whether in cash, stock, equity securities or property) in
respect to CIENA's capital stock, except where (A) an adjustment is made to
the exchange ratio in accordance with SECTION 1.6 or (B) the holders of
Company Capital Stock will otherwise receive an equivalent, proportional
dividend or distribution (based on the Exchange Ratio, as adjusted pursuant
to SECTION 1.6) in connection with the Merger as if they had been holders
of CIENA Common Stock on the record date for such dividend or distribution;
or
(ii) Agree in writing or otherwise take any of the actions described
in SECTION 5.1(b)(i) above.
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SECTION 5.2. Prohibited Actions Pending Closing.
Unless otherwise provided for herein or otherwise necessary in order to
comply with the Company's obligations hereunder or approved by CIENA in writing,
from the date hereof until the Closing, the Company shall not:
(a) amend or otherwise change the Company Certificate or the bylaws of
the Company;
(b) issue or sell or authorize for issuance or sale (other than any
issuance of Company Capital Stock upon the exercise of any outstanding
option or warrant to purchase Company Capital Stock which option or warrant
was issued prior to the date hereof in accordance with the terms of the
relevant stock option or warrant agreement and the terms of which are
disclosed on SCHEDULE 2.3 or which are subsequently issued in accordance
with the succeeding limitations of this SECTION 5.2(b)), or grant any
options or make other agreements with respect to, any shares of its capital
stock or any other of its securities, except for (i) stock options to
purchase Company Common Stock which may be granted under the Company's 1998
Stock Plan in accordance with past practices (including promotion and new
hire grants), provided the exercise price per share of each such option is
not less than the fair market value per share of Company Common Stock on
the grant date, and (ii) those provisions of the agreement with the
Exchange Agent which provisions are in furtherance of this Agreement;
(c) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise with respect to
any of its capital stock;
(d) reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock except
for repurchases of unvested shares in connection with the termination of
any employee pursuant to stock option or purchase agreements;
(e) incur any indebtedness for borrowed money or issue any debt
securities or assume, guarantee or endorse, or otherwise as an
accommodation become responsible for, the obligations of any Person, or
make any loans or advances, except in the Ordinary Course of Business,
consistent with past practice, or modify, amend or waive in any respect the
terms and conditions of the Company's 4 1/2% Convertible Subordinated Notes
Due August 15, 2005 or the Indenture related thereto;
(f) (i) acquire (including, without limitation, by merger,
consolidation, or acquisition of stock or Assets) any corporation,
partnership, other business organization or any division thereof or any
material amount of Assets;
(ii) enter into any contract or agreement other than in the
Ordinary Course of Business, consistent with past practice; or
(iii) authorize any capital commitment or capital lease which is
in excess of $500,000 or capital expenditures which are, in the aggregate,
in excess of $500,000;
(g) mortgage, pledge or subject to Encumbrance, any of its Assets or
properties or agree to do so;
(h) assume, guarantee or otherwise become responsible for the
obligations of any other Person or agree to so do;
(i) enter into or agree to enter into any employment agreement (other
than offer letters and letter agreements entered into in the Ordinary
Course of Business);
(j) increase the compensation payable or to become payable to its
officers or employees, or grant any severance or termination pay to, or
enter into any severance agreement with any director, officer or other
employee of the Company, or establish, adopt, enter into or amend any
collective bargaining, bonus, profit sharing, thrift, compensation, stock
option, restricted stock, pension, retirement, deferred compensation,
employment, termination, severance or other plan, agreement, trust, fund,
policy or arrangement for the benefit of any such director, officer or
employee, except that (i) the Company
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may make reasonable salary increases in connection with the customary
officer and employee performance review process and pay customary bonuses
consistent with past practices and (ii) the Company may make any amendments
to existing employee benefit plans to the extent necessary to maintain
their compliance with applicable Laws;
(k) take any action to change in any respect its accounting policies
or procedures (including, without limitation, procedures with respect to
the payment of accounts payable and collection of accounts receivables);
(l) make any Tax election or settle or compromise any federal, state,
local or foreign income material Tax liability in excess of $50,000;
(m) settle or compromise any pending or threatened suit, action or
claim;
(n) pay, discharge or satisfy any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction, in the Ordinary Course of
Business and consistent with past practice, of liabilities reflected or
reserved against in the latest balance sheet included in the Financial
Statements provided to CIENA or subsequently incurred in the Ordinary
Course of Business and consistent with past practice in amounts not in
excess of $100,000;
(o) sell, assign, transfer, license or sublicense (other than in the
Ordinary Course of Business and consistent with past practice), pledge or
otherwise encumber any of the Intellectual Property Rights; or
(p) announce an intention, commit or agree to do any of the foregoing.
Notwithstanding the foregoing, the Company may amend its 1998 Stock Plan to
provide for acceleration of vesting of twenty-five percent (25%) of the then
unvested shares held by each holder of options or stock issued thereunder upon
the occurrence of a change in control event (excluding the transactions
contemplated by this Agreement), similar to the manner and event described in
CIENA's 1999 Non-Officer Stock Option Plan.
SECTION 5.3. Access; Documents; Supplemental Information.
(a) From and after the date hereof until the Closing, the Company shall
afford, and, with respect to clause (ii) below, shall use its reasonable best
efforts to cause the independent certified public accountants for the Company to
afford, (i) to the officers, independent certified public accountants, counsel
and other representatives of CIENA and Merger Sub, upon reasonable notice, free
and full access at all reasonable times to the properties, books and records
including tax returns filed and those in preparation of the Company and the
right to consult with the officers, employees, accountants, counsel and other
representatives of the Company in order that CIENA and Merger Sub may have full
opportunity to make such investigations as it shall deem necessary of the
operations, properties, business, financial condition and prospects of the
Company, (ii) to the independent certified public accountants of CIENA and
Merger Sub, free and full access at all reasonable times to the work papers and
other records of the accountants relating to the Company, and (iii) to CIENA and
Merger Sub and their respective representatives, such additional financial and
operating data and other information as to the properties, operations, business,
financial condition and prospects of the Company as CIENA and Merger Sub shall
from time to time require.
(b) From the date of this Agreement through and including the Closing, the
Company will furnish to CIENA copies of any notices, documents, requests, court
papers, or other materials received from any governmental agency or any other
third party with respect to the transactions contemplated by this Agreement.
SECTION 5.4. No Solicitation.
The Company shall not, nor shall it authorize or permit any of its
Affiliates or any officer, director, employee, investment banker, attorney or
other adviser or representative of the Company or any of its
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Affiliates to (a) solicit, initiate, or encourage the submission of, any
Acquisition Proposal (as hereinafter defined), (b) enter into any agreement with
respect to any Acquisition Proposal or (c) participate in any discussions or
negotiations regarding, or furnish to any Person any information for the purpose
of facilitating the making of, or take any other action to facilitate any
inquiries or the making of, any proposal that constitutes, or may reasonably be
expected to lead to, any Acquisition Proposal other than the transactions
contemplated hereby; provided, however, that nothing contained in this Agreement
shall prevent the Company or its Board of Directors at any time prior to the
time the Merger has been approved by the Company's stockholders from: (a)
providing information in response to a request therefor by a Person who has
delivered to the Board of Directors of the Company an unsolicited bona fide
written Acquisition Proposal if the Board of Directors of Company receives from
the Person so requesting such information an executed confidentiality agreement
the terms of which are (without regard to the terms of the Acquisition Proposal)
(i) no less favorable to the Company and (ii) no less restrictive on the Person
requesting such information than those contained in the Confidentiality
Agreement; or (b) engaging in negotiations or discussions with a Person who has
delivered to the Board of Directors of the Company an unsolicited bona fide
written Acquisition Proposal; if, and only to the extent that, in each such case
referred to in clause (a) or (b) above, (x) the Board of Directors of the
Company determines in good faith (after reviewing the advice of its financial
advisor and outside legal counsel) that the Acquisition Proposal, if accepted,
is likely to be consummated, (y) the Board of Directors of the Company
determines in good faith (after reviewing the advice of its financial adviser)
that the Acquisition Proposal would, if consummated, result in a transaction
that is more favorable to the Company's stockholders (with respect to financial
terms and, if applicable, strategic benefit, taking into account the long-term
value to stockholders of the Aggregate Share Consideration and the strategic
nature of the proposed Merger) than the Merger (any Acquisition Proposal as to
which such determinations are made being referred to in this Agreement as a
"Superior Proposal") and (z) the Board of Directors determines in good faith
(after receiving advice of outside legal counsel) that taking such action is
required or necessary in the exercise of its fiduciary duties under applicable
law. Without limiting the foregoing, it is understood that any violation, of
which the Company or any of its Affiliates had Knowledge at the time of such
violation, of the restrictions set forth in the immediately preceding sentence
by any officer, director, employee, investment banker, attorney, employee, or
other adviser or representative of the Company or any of its Affiliates, whether
or not such Person is purporting to act on behalf of the Company or any of its
Affiliates or otherwise, shall be deemed to be a breach of this SECTION 5.4 by
the Company and its Affiliates. Nothing in this SECTION 5.4 shall permit the
Company to enter into any agreement, orally or in writing, with respect to an
Acquisition Proposal during the term of this Agreement (other than a
confidentiality agreement as described above). The Company promptly shall advise
CIENA of any Acquisition Proposal (including the terms thereof and the identity
of the person making the Acquisition Proposal) and inquiries with respect to any
Acquisition Proposal and shall keep CIENA informed on a current basis of the
status of any discussions regarding a n Acquisition Proposal. "Acquisition
Proposal" means any proposal for a merger or other business combination
involving the Company or any proposal or offer to acquire in any manner,
directly or indirectly, 5% or more (for purposes of this SECTION 5.4) or 30% or
more (for purposes of SECTION 8.5) of the equity securities, voting securities
or Assets of the Company (except in connection with employee stock option grants
or warrant exercises). The Company will, and except as otherwise provided in
this Agreement, will cause its Affiliates to, immediately cease and cause to be
terminated any activities, discussions or negotiations existing as of the date
of this Agreement with any Persons (other than CIENA and its representatives)
conducted heretofore with respect to any Acquisition Proposal, and will not
pursue, directly or indirectly, any Acquisition Proposal received on or prior to
the date of this Agreement from any Person (other than CIENA and its
representatives). The Company shall not release any third party from, or waive
any provisions of, any confidentiality or standstill agreement relating to an
Acquisition Proposal to which such party is a party.
SECTION 5.5. Information Supplied.
Each of the Company and CIENA agree that none of the information supplied
or to be supplied by it or them for inclusion or incorporation by reference in
(a) the Registration Statement on Form S-4 to be filed with the SEC by CIENA in
connection with the issuance of shares of CIENA Common Stock in the
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Merger (including the proxy statement and prospectus (the "Proxy
Statement/Prospectus") constituting a part thereof) (the "S-4 Registration
Statement") will, at the time the S-4 Registration Statement becomes effective
under the Securities Act, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, not misleading, and (b) the Proxy
Statement/Prospectus and any amendment or supplement thereto will, at the date
of mailing to the Company's stockholders and at the times of the meeting of the
Company's stockholders to be held in connection with the Merger, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
SECTION 5.6. Stockholder Meeting.
Whether or not the Board of Directors of the Company shall take any action
permitted by the third sentence of this SECTION 5.6, the Company shall cause a
meeting of its stockholders (the "Stockholders' Meeting") to be duly called and
held as soon as practicable after the date of this Agreement for the purpose of
voting on the adoption of this Agreement and for the purpose of soliciting
holders of Company Preferred Stock to vote in favor of an automatic conversion
of the Company Preferred Stock immediately prior to the Closing in accordance
with Article IV.B. Section 3(b)(iii) of the Company Certificate, or, at the
request of and in the sole discretion of CIENA, shall solicit written consents
of stockholders for such purpose. The Board of Directors of the Company shall
(i) include in the Proxy Statement/Prospectus prepared therefor its
recommendation in favor of adoption of the Merger Agreement (the "Board
Recommendation") and (ii) use its best efforts to obtain the necessary vote in
favor of the adoption of this Agreement by its stockholders. The Board of
Directors of the Company shall not withdraw, amend, modify or qualify in a
manner adverse to CIENA the Board Recommendation (or announce its intention to
do so), except that, prior to the receipt of the Company Requisite Vote, the
Board of Directors of the Company shall be permitted to withdraw, amend, modify
or materially qualify in a manner adverse to CIENA the Board Recommendation,
following three Business Days' prior notice to CIENA, but only if (A) the
Company has complied in all respects with this Agreement, including SECTION 5.4,
and (B) after receiving advice of its outside legal counsel, the Board of
Directors determines in good faith that the Merger is not in the best interests
of the stockholders of the Company and that, therefore, it is required to
withdraw, amend or modify the Board Recommendation in order to satisfy its
fiduciary duties to the stockholders of the Company under applicable law.
SECTION 5.7. Filings; Other Actions; Notification.
(a) CIENA shall prepare and file with the SEC the S-4 Registration
Statement as promptly as practicable. CIENA shall use its reasonable best
efforts to have the S-4 Registration Statement declared effective under the
Securities Act as promptly as practicable after such filing, and promptly
thereafter mail the Prospectus to the stockholders of the Company. CIENA shall
also use its reasonable best efforts to obtain prior to the effective date of
the S-4 Registration Statement all necessary state securities law or "blue sky"
permits and approvals required in connection with the Merger and to consummate
the other transactions contemplated by this Agreement. CIENA further agrees to
file following the Effective Time a post-effective amendment to the S-4
Registration Statement to convert it to a Form S-3 shelf registration covering
resales of CIENA Common Stock by affiliates of the Company.
(b) The Company and CIENA each shall from the date hereof until the
Effective Time cooperate with the other and use its reasonable best efforts to
cause to be done all things necessary, proper or advisable on its part under
this Agreement and applicable Laws to consummate and make effective the Merger
and the other transactions contemplated by this Agreement as soon as
practicable, including preparing and filing as promptly as practicable all
documentation to effect all necessary notices, reports and other filings and to
obtain as promptly as practicable all consents, registrations, approvals,
permits and authorizations necessary or advisable to be obtained from any third
party and/or any Governmental Entity, including filings under the
Hart-Scott-Rodino Act, in order to consummate the Merger or any of the other
transactions contemplated by this Agreement.
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(c) The Company and CIENA each shall, upon request by the other, furnish
the other with all information concerning itself, its Subsidiaries, directors,
executive officers and stockholders and such other matters as may be reasonably
necessary or advisable in connection with the Prospectus, the S-4 Registration
Statement or any other statement, filing, notice or application made by or on
behalf of CIENA, the Company or any of their respective Subsidiaries to any
third party and/or any Governmental Entity in connection with the Merger and the
transactions contemplated by this Agreement.
(d) The Company and CIENA each shall keep the other apprised of the status
of matters relating to completion of the transactions contemplated hereby.
(e) Prior to the Closing Date, the Company shall take all steps necessary
to address the items set forth on Schedule 5.7(e) to CIENA's reasonable
satisfaction.
SECTION 5.8. Comfort Letters.
The Company shall cause to be delivered to CIENA a "comfort" letter of
Deloitte & Touche LLP, the Company's independent public accountants, dated as of
the Effective Date of the S-4 Registration Statement, and addressed to CIENA and
the Company, in form and substance reasonably satisfactory to CIENA and
reasonably customary in scope and substance for letters delivered by independent
public accounts in connection with transactions such as those contemplated by
this Agreement.
SECTION 5.9. NASDAQ Listing.
As soon as practicable after the date hereof and in any event prior to the
Effective Time, CIENA shall list on NASDAQ the shares of CIENA Common Stock to
be issued in connection with the Merger and upon exercise of Substitute Options
and Warrants.
SECTION 5.10. Company Stock Options; Company Warrants.
(a) Concurrent with the Effective Time, each stock option to purchase
Company Common Stock (the "Company Stock Options") which is outstanding
immediately prior to the Effective Time pursuant to the Company's 1998 Stock
Plan in effect on the date hereof (the "Stock Plan") shall together with each
such Stock Plan, be assumed by CIENA and shall thereby be converted into an
option (an "Assumed Option") to purchase the number of shares of CIENA Common
Stock (decreased to the nearest full share) determined by multiplying (i) the
number of shares of Company Common Stock subject to such Company Stock Option
immediately prior to the Effective Time by (ii) the Common Stock Exchange Ratio,
at an exercise price per share of CIENA Common Stock (increased to the nearest
whole cent) equal to the exercise price per share of Company Common Stock in
effect under such Company Stock Options immediately prior to the Effective Time
divided by the Common Stock Exchange Ratio. Except for the foregoing adjustments
and the Rights, all the terms and conditions in effect for each Assumed Option
immediately prior to the Effective Time shall continue in effect following the
assumption of such option in accordance with this Agreement. The Company agrees
that it will not grant any stock appreciation rights or limited stock
appreciation rights and will not permit cash payments to holders of Company
Stock Options in lieu of the substitution therefor of Assumed Options. The
Company shall take all actions necessary to assure that no acceleration of
vesting of Assumed Options shall occur solely as a result of the Merger.
(b) It is the intention of the parties that the Company Stock Options so
assumed by CIENA shall qualify, immediately after the Effective Time, as
"Incentive Stock Options" under Section 422 of the Code to the same extent those
options qualified as such Incentive Stock Options immediately prior to the
Effective Time. Accordingly, the adjustments provided herein with respect to any
"Company Stock Options" that are Incentive Stock Options shall be and are
intended to be effected in a manner which is consistent with Section 424(a) of
the Code.
(c) CIENA shall take all corporate action necessary to reserve for issuance
a sufficient number of shares of CIENA Common Stock for delivery upon the
exercise of the Assumed Options and the Company Warrants. As soon as practicable
after the Effective Time, CIENA shall deliver to the holders of Company Stock
Options appropriate notices setting forth such holders' rights pursuant to
CIENA's
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stock option plans and the agreements evidencing the grants of such Assumed
Options and that such Assumed Options shall continue in effect on the same terms
and conditions as the Company Stock Options (subject to the adjustment set forth
in this SECTION 5.10).
(d) As soon as practicable after the Effective Time, CIENA shall prepare
and file with the SEC a registration statement on Form S-8 (or another
appropriate form) registering a number of shares subject to the Assumed Options.
Such registration statement shall be kept effective (and the current status of
the prospectus required thereby shall be maintained in accordance with the
relevant requirements of the Securities Act and the Exchange Act) at least for
so long as any Assumed Options remain outstanding.
(e) Concurrent with the Effective Time, each warrant to purchase Company
Common Stock that is then outstanding and exercisable described in SCHEDULE 2.3
(each, a "Company Warrant"), without any action on the part of the holder, shall
be deemed assumed by CIENA and shall constitute a warrant to acquire, on the
same terms and conditions as were applicable under such Company Warrant, a
number of shares of CIENA Common Stock equivalent to (A) the number of Shares
that could have been purchased immediately prior to the Effective Time under
such Company Warrant multiplied by (B) the Common Stock Exchange Ratio (rounded
down to the nearest whole number), at a price per share of CIENA Common Stock
(rounded up to the nearest whole cent) equal to the exercise price per share
pursuant to such Company Warrant immediately prior to the Effective Time divided
by the Common Stock Exchange Ratio. At or prior to the Effective Time, the
Company shall make all necessary arrangements with respect to the Company
Warrants to permit the assumption of the unexercised Company Warrants by CIENA
pursuant to this SECTION 5.10(E).
SECTION 5.11. Notification of Certain Matters.
The Company shall give prompt notice to CIENA, and CIENA shall give prompt
notice to the Company, of (a) the occurrence, or non-occurrence, of any event
which would be likely to cause (i) any representation or warranty contained in
this Agreement to be untrue or inaccurate in any material respect or (ii) any
covenant, condition or agreement contained in this Agreement not to be complied
with or satisfied; and (iii) any failure of the Company, CIENA or Merger Sub, as
the case may be, to comply with or satisfy any covenant, condition or agreement
to be complied with or satisfied by it hereunder; provided that the delivery of
any notice pursuant to this SECTION 5.11 shall not limit or otherwise affect the
remedies available to the party receiving such notice.
SECTION 5.12. Reorganization.
Each of CIENA and the Company shall use its reasonable best efforts to
cause the business combination to be effected by the Merger to be qualified as a
"reorganization" described in Section 368(a) of the Code. CIENA shall take no
action following the Effective Time that would have the effect of causing the
Merger to fail to so qualify.
SECTION 5.13. Indemnification.
From and after the Effective Time for not less than (i) six (6) years, in
the case of acts or omissions under or pursuant to Section 174 of the DCGL and
Section 8109 of Title 10 of the Delaware Code Annotated, and (ii) four (4) years
for all other acts or omissions, after the Effective Time, CIENA shall fulfill
and honor in all respects the obligations of the Company to indemnify each
person who is or was a director or officer of the Company against losses such
person may incur based upon matters existing or occurring prior to the Effective
Time pursuant to any applicable indemnification agreements and any
indemnification and exculpation provision of the Company Certificate or its
bylaws as each is in effect on the date hereof.
SECTION 5.14. Actions by the Parties.
Upon the terms and subject to the conditions set forth in this Agreement,
each of the parties hereto will use its reasonable best efforts to take or cause
to be taken all actions, and to do, or cause to be done, all things necessary,
proper or advisable under applicable law and regulations to consummate and make
effective in the most expeditious manner practicable, the transactions
contemplated by this Agreement
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including (i) the obtaining of all necessary actions and non-actions, waivers
and consents, if any, from any governmental agency or authority and the making
of all necessary registrations and filings and the taking of all reasonable
steps as may be necessary to obtain an approval or waiver from, or to avoid an
action or proceeding by any governmental agency or authority; (ii) the obtaining
of all necessary consents, approvals or waivers from any other Person; (iii) the
defending of any claim, investigation, action, suit or other legal proceeding,
whether judicial or administrative, challenging this Agreement or the
consummation of the transactions contemplated hereby; and (iv) the execution of
additional instruments necessary to consummate the transactions contemplated by
this Agreement. Each party will promptly consult with the other and provide
necessary information (including copies thereof) with respect to all filings
made by such party with the any agency or authority in connection with this
Agreement and the transactions contemplated hereby.
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.1. Conditions Precedent to Each Party's Obligation to Effect the
Merger.
The respective obligations of each party hereto to effect the Merger shall
be subject to the fulfillment or satisfaction, prior to or on the Closing Date
of the following conditions:
(a) Approvals. All authorizations, consents, orders, declarations or
approvals of, or filings with, or terminations or expirations of waiting
periods imposed by (including without limitation, expiration of any
Hart-Scott-Rodino waiting period), any governmental or regulatory
authority, domestic or foreign, which the failure to obtain, make or occur
would have the effect of making the Merger or any of the transactions
contemplated hereby illegal or would have a CIENA Material Adverse Effect
or a Company Material Adverse Effect, assuming the Merger had taken place,
shall be in effect.
(b) No Injunction. No temporary restraining order, preliminary or
permanent injunction or other order from any court of competent
jurisdiction or other governmental or regulatory authority prohibiting or
preventing the consummation of the Merger or any of the transactions
contemplated hereunder shall be in effect.
(c) S-4. The S-4 Registration Statement shall have become effective
under the Securities Act. No stop order suspending the effectiveness of the
S-4 Registration Statement shall have been issued, and no proceeding for
that purpose shall have been initiated or be threatened, by the SEC.
(d) Stockholder Approval. The Merger shall have been duly approved by
holders of Company Capital Stock as required by the Company Certificate.
(e) NASDAQ Listing. The CIENA Common Stock to be issued in the Merger
shall have been approved for listing on NASDAQ.
SECTION 6.2. Conditions Precedent to Obligations of CIENA.
The obligations of CIENA to effect the Merger shall be subject to the
fulfillment or satisfaction, prior to or on the Closing Date, of each of the
following conditions precedent:
(a) Performance of Obligations; Representations and Warranties;
Dissenters.
(i) The Company shall have performed in all material respects and
complied in all material respects with all agreements and conditions
contained in this Agreement that are required to be performed or
complied with by it prior to or at the Closing. Each of the Company's
representations and warranties contained in ARTICLE II of this Agreement
shall be true and correct in all material respects, in each case, on and
as of the Closing with the same effect as though such representations
and warranties were made on and as of the Closing, except for changes
permitted by this Agreement and except to the extent that such
representations and warranties expressly relate to an earlier date, in
which case such representations and warranties shall be as
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of such earlier date. CIENA shall have received a certificate dated the
Closing Date and signed by the Chairman, President or a Vice-President
of the Company, certifying that, the conditions specified in this
SECTION 6.2(a) have been satisfied;
(ii) there shall have been no changes that have had or are
reasonably likely to have a Company Material Adverse Effect since the
date of this Agreement, except for changes contemplated by this
Agreement; and
(iii) holders of shares of Company Capital Stock representing in
excess of 2.0% of the issued and outstanding Company Capital Stock
immediately prior to the Effective Time shall not have demanded or
exercised appraisal rights under Section 262 of the DGCL.
(b) Consents. The Company shall have received consents or waivers, in
form and substance reasonably satisfactory to CIENA, from the other parties
to the contracts, leases or agreements to which the Company is a party and
which are set forth on SCHEDULE 6.2(b).
(c) Non-Competition Agreements. Each of the Non-Competition
Agreements shall be in full force and effect.
(d) Tax Opinion. CIENA shall have received the opinion of Hogan &
Hartson L.L.P., counsel to CIENA, dated the Closing Date, to the effect
that the Merger will not result in taxation to CIENA or Merger Sub under
the Code. In rendering such opinion, Hogan & Hartson L.L.P. shall require
delivery of and rely upon representation letters delivered by CIENA, Merger
Sub and the Company in customary form.
(e) Termination of Agreements. The Right of First Refusal and Cosale
Agreement and the Registration Rights Agreement shall be inapplicable to
this transaction and shall have been terminated.
(f) Escrow Agreement. The Stockholder Representative shall have
executed and delivered the Escrow Agreement in the form attached hereto as
EXHIBIT B, on behalf of all stockholders other than the holders of
Dissenting Shares.
SECTION 6.3. Conditions Precedent to the Company's Obligations.
The obligations of the Company to effect the Merger shall be subject to the
fulfillment or satisfaction, prior to or on the Closing Date, of each of the
following conditions precedent:
(a) Performance of Obligations; Representations and Warranties. CIENA
and Merger Sub shall have performed in all material respects and complied
in all material respects with all agreements and conditions contained in
this Agreement that are required to be performed or complied with by them
prior to or at the Closing. Each of the representations and warranties of
CIENA and Merger Sub contained in ARTICLES III and IV of this Agreement
shall be true and correct in all material respects, in each case, on and as
of the Closing with the same effect as though such representations and
warranties were made on and as of the Closing except for changes permitted
by this Agreement and except to the extent that such representations and
warranties expressly relate to an earlier date, in which case such
representations and warranties shall be as of such earlier date. The
Company shall have received certificates dated the Closing Date and signed
by the Chairman, President or a Senior Vice-President of CIENA, certifying
that the conditions specified in this SECTION 6.3(a) have been satisfied.
(b) Opinions of Counsel. The Company shall have received (i) the
favorable written opinion dated the Closing Date of counsel to CIENA and
Merger Sub, in form satisfactory to the Company, as to the legal validity
of the shares of CIENA stock to be issued in the Merger, and (ii) the
opinion of Brobeck, Phleger & Harrison LLP, counsel to the Company, dated
the Closing Date, to the effect that the Merger will not result in taxation
to the Company's Stockholders under the Code. In rendering such opinion,
Brobeck, Phleger & Harrison LLP shall require delivery of and rely upon
representation letters delivered by CIENA, Merger Sub and the Company in
customary form.
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(c) CIENA and Merger Sub shall have executed and delivered the Escrow
Agreement in the form attached hereto as EXHIBIT B.
ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION
SECTION 7.1. Survival of Representations and Warranties.
All of the Company's, CIENA's and Merger Sub's representations and
warranties representations and warranties in this Agreement or in any instrument
delivered pursuant to this Agreement shall survive the Merger and continue until
the date which is one year following the Closing Date.
SECTION 7.2. Indemnification; Escrow Agreements.
(a) Indemnification. CIENA, Merger Sub and their respective officers,
directors and affiliates (the "Indemnified Parties") shall be indemnified and
held harmless by the Stockholders (other than those dissenting stockholders
exercising rights of appraisal under Section 262 of the DGCL who do not receive
CIENA Common Stock in the Merger) against all claims, losses, liabilities,
damages, deficiencies, costs and expenses, including reasonable attorneys' fees
and expenses of investigation (hereinafter individually a "Loss" and
collectively "Losses") incurred by the Indemnified Parties directly or
indirectly as a result of: (i) any inaccuracy or breach of a representation or
warranty of the Company contained in this Agreement or contained in a
certificate of any officer of the Company delivered pursuant to this Agreement,
or (ii) any failure by the Company to perform or comply with any covenant or
agreement contained in this Agreement. The Stockholders shall not have any right
of contribution from the Company with respect to any Loss claimed by CIENA after
the Effective Time. Nothing herein shall limit the liability of the Company for
any breach of any representation, warranty, covenant or agreement if the Merger
is not consummated.
(b) Indemnification Threshold and Limitations.
(i) Except as set forth below, there shall be no liability for any
Stockholder under SECTION 7.2 unless the aggregate amount of Losses
incurred by the Indemnified Parties exceeds $1,000,000 (the
"Indemnification Threshold") in the aggregate, in which event the entire
aggregate amount of the Losses shall be indemnifiable pursuant to SECTION
7.2(a).
(ii) Subject to SECTIONS 7.2(a) and 7.5, the Indemnified Parties sole
and exclusive remedy for any inaccuracy or breach of a representation or
warranty of the Company or any failure by the Company to perform or comply
with any covenant and agreement in this Agreement or any agreement,
instrument or certificate delivered pursuant to or in connection therewith
shall be indemnification pursuant to this ARTICLE VII. Subject to SECTIONS
7.2(a) and 7.5, the liability of the Stockholders under and the right of
the Indemnified Parties to seek such indemnification shall be limited
solely and exclusively to the Escrow Amount (as defined in SECTION 7.2(c)).
(c) Satisfaction of Indemnification Obligations; Escrow Fund.
Each of the Stockholders receiving CIENA Common Stock in the Merger will be
deemed to have received and deposited with the Escrow Agent (as defined below)
the Escrow Amount (plus any additional shares as may be issued upon any stock
split, stock dividend or recapitalization effected by CIENA after the Effective
Time with respect to the Escrow Amount). The Escrow Amount will be deposited
with and will be held by an institution mutually acceptable to CIENA and the
Stockholders' Representative (as defined in SECTION 7.3) as Escrow Agent (the
"Escrow Agent"), such deposit to constitute an escrow fund (the "Escrow Fund")
to be governed by the terms set forth in the Escrow Agreement. Payment of any
Loss from the Escrow Amount shall be taken ratably from the Escrow Shares (as
defined in the Escrow Agreement). Each payment for Losses satisfied by shares of
the Escrow
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Amount which are subject to repurchase shall be in proportion to the number of
shares vested and unvested (including with respect to vesting dates).
(d) Liability for Disclosed Matter.
Notwithstanding any other provision of this ARTICLE VII and without regard
to any breach by the Company of a representation, warranty, covenant or
agreement contained herein, any claim for fees owed and any related liability
resulting from a claim for payment with respect to the matter disclosed as Item
42 on SCHEDULE 2.10(a) (referenced also as the second item listed on SCHEDULE
2.20) shall be satisfied in full out of the Escrow Amount and the
Indemnification Threshold shall be wholly inapplicable to any such claim.
SECTION 7.3. Stockholder's Representative.
(a) In the event the Stockholders approve the Merger, effective upon such
vote and without any further action by the Stockholders, Douglas Carlisle will
be appointed as agent and attorney-in-fact (the "Stockholders' Representative")
for each Stockholder receiving CIENA Common Stock in the Merger, for and on
behalf of the Stockholder. The Stockholders' Representative shall have full
power and authority to represent all of the Stockholders and their successors
with respect to all matters arising under this Agreement and the Escrow
Agreement and all actions taken by the Stockholders' Representative hereunder
and thereunder shall be binding upon all such Stockholders and their successors
as if expressly confirmed and ratified in writing by each of them. The
Stockholders' Representative shall take any and all actions which he believes
are necessary or appropriate under this Agreement and the Escrow Agreement for
and on behalf of the Stockholders, as fully as if the Stockholders were acting
on their own behalf, including, without limitation, defending all indemnity
claims against the Stockholders pursuant to SECTION 7.2 of this Agreement (an
"Indemnity Claim"), consenting to, compromising or settling all Indemnity
Claims, conducting negotiations with CIENA and its agents regarding such claims,
dealing with CIENA and the Escrow Agent under this Agreement and the Escrow
Agreement with respect to all matters arising under this Agreement and the
Escrow Agreement, taking any and all other actions specified in or contemplated
by this Agreement and the Escrow Agreement, and engaging counsel, accountants or
other Stockholders' Representatives in connection with the foregoing matters.
Without limiting the generality of the foregoing, the Stockholders'
Representative shall have full power and authority to interpret all the terms
and provisions of this Agreement and the Escrow Agreement and to consent to any
amendment hereof or thereof on behalf of all such Stockholders and such
successors. Notwithstanding the foregoing, each Stockholder shall have the right
to exercise any voting rights appertaining to the Escrow Shares.
(b) Indemnification of Stockholders' Representative. The Stockholders'
Representative may act upon any instrument or other writing believed by the
Stockholders' Representative in good faith to be genuine and to be signed or
presented by the proper person and shall not be liable in connection with the
performance by him of his duties pursuant to the provisions of the Escrow
Agreement, except for his own willful default or gross negligence. The
Stockholders' Representative shall be, and hereby is, indemnified and held
harmless, jointly and severally, by the Stockholders from all losses, costs and
expenses (including attorneys' fees) that may be incurred by the Stockholders'
Representative as a result of the Stockholders' Representative's performance of
his duties under this Agreement and the Escrow Agreement, provided that the
Stockholders' Representative shall not be entitled to indemnification for
losses, costs or expenses that result from any action taken or omitted by the
Stockholders' Representative as a result of his willful default or gross
negligence and provided, further, that each Stockholder's obligation to
indemnify the Stockholders' Representative under this Agreement and the Escrow
Agreement shall be limited to, and payable only from, each Shareholder's pro
rata interest in the Escrow Account and cash available, if any, to the
Stockholders under the Escrow Agreement. The Escrow Agent shall from time to
time sell such amount of the Escrow Shares as necessary to pay such
Stockholders' Representative's costs and expenses, to the extent required by the
preceding sentence.
(c) Access to Information. The Stockholders' Representative shall have
reasonable access to information of and concerning any Indemnity Claim and which
is in the possession, custody or control of
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the Company and the reasonable assistance of the Company's officers and
employees for purposes of performing the Stockholders' Representative's duties
under this Agreement or the Escrow Agreement and exercising its rights under
this Agreement and the Escrow Agreement, including for the purpose of evaluating
any Indemnity Claim against the Escrow Shares by CIENA; provided that the
Stockholders' Representative shall treat confidentially and not disclose any
nonpublic information from or concerning any Indemnity Claim to anyone (except
to the Stockholders' Representative's attorneys, accountants or other advisers,
to Stockholders, to the arbitrators appointed to resolve disputes pursuant to
this Agreement, and on a need-to-know basis to other individuals who agree to
keep such information confidential.)
(d) Reasonable Reliance. In the performance of his duties hereunder, the
Stockholders' Representative shall be entitled to rely upon any document or
instrument reasonably believed by him to be genuine, accurate as to content and
signed by any Stockholder or CIENA. The Stockholders' Representative may assume
that any person purporting to give any notice in accordance with the provisions
hereof has been duly authorized to do so.
(e) Attorney-in-Fact.
(i) The Stockholders' Representative is hereby appointed and
constituted the true and lawful attorney-in-fact of each Stockholder, with
full power in his, her or its name and on his, her or its behalf to act
according to the terms of this Agreement and the Escrow Agreement in the
absolute discretion of the Stockholders' Representative; and in general to
do all things and to perform all acts including, without limitation,
executing and delivering the Escrow Agreement and any other agreements,
certificates, receipts, instructions, notices or instruments contemplated
by or deemed advisable in connection with the Escrow Agreement.
(ii) This power of attorney and all authority hereby conferred is
granted and shall be irrevocable and shall not be terminated by any act of
any Stockholder, by operation of law, whether by such Stockholder's death,
disability protective supervision or any other event. Without limitation to
the foregoing, this power of attorney is to ensure the performance of a
special obligation and, accordingly, each Stockholder hereby renounces its,
his or her right to renounce this power of attorney unilaterally any time
before the end of the Escrow Period (as such term is defined in the Escrow
Agreement).
(iii) Each Stockholder hereby waives any and all defenses which may be
available to contest, negate or disaffirm the action of the Stockholders'
Representative taken in good faith under the Escrow Agreement.
(iv) Notwithstanding the power of attorney granted in this Section
8.3, no agreement, instrument, acknowledgement or other act or document
shall be ineffective by reason only of the Stockholders having signed or
given such directly instead of the Stockholders' Representative.
(f) Liability. If the Stockholders' Representative is required by the
terms of the Escrow Agreement to determine the occurrence of any event or
contingency, the Stockholders' Representative shall, in making such
determination, be liable to the Stockholders only for his proven bad faith as
determined in light of all the circumstances, including the time and facilities
available to him in the ordinary conduct of business. In determining the
occurrence of any such event or contingency, the Stockholders' Representative
may request from any of the Stockholders or any other person such reasonable
additional evidence as the Stockholders' Representative in his sole discretion
may deem necessary to determine any fact relating to the occurrence of such
event or contingency, and may at any time inquire of and consult with others,
including any of the Stockholders, and the Stockholders' Representative shall
not be liable to any Stockholder for any damages resulting from his delay in
acting hereunder pending his receipt and examination of additional evidence
requested by him.
(g) Orders. The Stockholders' Representative is authorized, in his sole
discretion, to comply with final, nonappealable orders or decisions issued or
process entered by any court of competent jurisdiction or arbitrator with
respect to the Escrow Shares. If any portion of the Escrow Shares is disbursed
to the Stockholders' Representative and is at any time attached, garnished or
levied upon under any court order, or in case the payment, assignment, transfer,
conveyance or delivery of any such property shall be stayed
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or enjoined by any court order, or in case any order, judgment or decree shall
be made or entered by any court affecting such property or any part thereof,
then and in any such event, the Stockholders' Representative is authorized, in
his sole discretion, but in good faith, to rely upon and comply with any such
order, writ, judgment or decree which he is advised by legal counsel selected by
him is binding upon him without the need for appeal or other action; and if the
Stockholders' Representative complies with any such order, writ, judgment or
decree, he shall not be liable to any Stockholder or to any other Person by
reason of such compliance even though such order, writ, judgment or decree may
be subsequently reversed, modified, annulled, set aside or vacated.
(h) Removal of Stockholders' Representative; Authority of Successor
Stockholders' Representative. Stockholders who in the aggregate hold at least a
majority of the Stockholders' interest in the Escrow Shares shall have the right
at any time during the term of the Escrow Agreement to remove the then-acting
Stockholders' Representative and to appoint a successor Stockholders'
Representative; provided, however, that neither such removal of the then acting
Stockholders' Representative nor such appointment of a successor Stockholders'
Representative shall be effective until the delivery to the Escrow Agent of
executed counterparts of a writing signed by each such Stockholder with respect
to such removal and appointment, together with an acknowledgment signed by the
successor Stockholders' Representative appointed in such writing that he or she
accepts the responsibility of successor Stockholders' Representative and agrees
to perform and be bound by all of the provisions of this Agreement applicable to
the Stockholders' Representative. Each successor Stockholders' Representative
shall have all of the power, authority, rights and privileges conferred by this
Agreement upon the original Stockholders' Representative, and the term
"Stockholders' Representative" as used herein and in the Escrow Agreement shall
be deemed to include any interim or successor Stockholders' Representative.
SECTION 7.4. Defense of Third Party Claims.
(a) In the event of the assertion or commencement by any Person of any
claim or legal proceeding ("Legal Proceeding") (whether against the Company,
against any other indemnitee or against any other Person) with respect to which
any of the Stockholders may become obligated to indemnify, hold harmless, pay,
compensate or reimburse CIENA, their officers, directors or affiliates ("CIENA
Indemnitee") pursuant to this ARTICLE VII, (i) CIENA, as soon as practicable
after it receives written notice of any such claim or Legal Proceeding shall
notify the Stockholders' Representative of such claim or Legal Proceeding (it
being understood that the failure to notify the Stockholders' Representative
shall not in any way limit the rights of the CIENA Indemnitees under this
Agreement unless such failure materially prejudices the rights or defenses
available to the Stockholders' Representative), and (ii) the Stockholders'
Representative shall have the right to participate in the defense of such claim
or Legal Proceeding at the sole expense of the Stockholders. If the
Stockholders' Representative so participates in the defense of any such claim or
Legal Proceeding, the Stockholders' Representative shall acknowledge in writing
the obligation of the Stockholders to indemnify the relevant CIENA Indemnitee
against any Losses that may result from such claim or Legal Proceeding.
(b) CIENA shall proceed with the defense of such claim or Legal Proceeding
and:
(i) all expenses relating to the defense of such claim or Legal
Proceeding shall be borne and paid exclusively by the Stockholders in the
manner and to the extent contemplated by the Escrow Agreement and SECTION
7.2 hereof;
(ii) the Stockholders shall make available to CIENA any documents and
materials in the possession or control of any of the Stockholders that may
be necessary to the defense of such claim or Legal Proceeding;
(iii) CIENA shall keep the Stockholders' Representative informed of
all material developments and events relating to such claim or Legal
Proceeding; and
(iv) CIENA shall not have the right to settle, adjust or compromise
such claim or Legal Proceeding without the prior written consent of the
Stockholders' Representative, provided, however, that the Stockholders'
Representative shall not unreasonably withhold such consent.
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SECTION 7.5. Maximum Payments; Remedy.
Notwithstanding anything to the contrary herein, the existence of this
Article and of the rights and restrictions set forth herein do not limit any
legal remedy against the parties hereto for claims based on fraud. No
Stockholder shall have any right to contribution from the Company for any claim
made by CIENA with respect to any Loss claimed by CIENA after the Effective
Time.
ARTICLE VIII
MISCELLANEOUS AND GENERAL
SECTION 8.1. Expenses.
Regardless of whether or not the transactions contemplated hereby have been
consummated at the Closing, each party hereto shall pay its own expenses
incidental to the preparation of this Agreement, the carrying out of the
provisions of this Agreement and the consummation of the transactions
contemplated hereby.
SECTION 8.2. Press Releases.
The Company shall not issue any press release or otherwise make public any
information with respect to this Agreement nor the transactions contemplated
hereby, prior to the Closing, without the prior written consent of CIENA. The
parties shall issue a joint initial press release announcing the execution of
this Agreement as may be mutually agreed.
SECTION 8.3. Contents of Agreement; Parties in Interest; Etc.
This Agreement and the agreements referred to or contemplated herein and
the letter agreement dated September 21, 2000, as amended on November 29, 2000,
concerning confidentiality (the "Confidentiality Agreement") set forth the
entire understanding of the parties hereto with respect to the transactions
contemplated hereby, and, except as set forth in this Agreement, such other
agreements and the Exhibits hereto and the Confidentiality Agreement, there are
no representations or warranties, express or implied, made by any party to this
Agreement with respect to the subject matter of this Agreement and the
Confidentiality Agreement. Except for the matters set forth in the
Confidentiality Agreement, any and all previous agreements and understandings
between or among the parties regarding the subject matter hereof, whether
written or oral, are superseded by this Agreement and the agreements referred to
or contemplated herein.
SECTION 8.4. Assignment and Binding Effect.
This Agreement may not be assigned by either party hereto without the prior
written consent of the other party; provided, that CIENA may assign its rights
and obligations under this Agreement to any directly or indirectly wholly-owned
Subsidiary of CIENA, upon written notice to the Company if the assignee shall
assume the obligations of CIENA hereunder and CIENA shall remain liable for its
obligations hereunder. All the terms and provisions of this Agreement shall be
binding upon and inure to the benefit of and be enforceable by the respective
successors and assigns of the parties hereto.
SECTION 8.5. Termination.
(a) Termination by Mutual Consent. This Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Time, whether
before or after the approval by Stockholders of the Company referred to in
SECTION 6.1(d), by mutual written consent of the Company and CIENA.
(b) Termination by Either CIENA or the Company. This Agreement may be
terminated and the Merger may be abandoned at any time prior to the Effective
Time by action of the Board of Directors of either CIENA or the Company if (i)
the Merger shall not have been consummated by June 30, 2001, whether such date
is before or after the date of approval by the Stockholders of the Company (the
"Termination Date"); (ii) the approval of the Company's stockholders required by
SECTION 6.1(d) shall not have been obtained at a meeting duly convened therefor
or at any adjournment or postponement
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thereof; or (iii) any Order permanently restraining, enjoining or otherwise
prohibiting consummation of the Merger shall become final and non-appealable;
provided, that the right to terminate this Agreement pursuant to clause (i) or
(ii) above shall not be available to any party that has breached in any material
respect its obligations under this Agreement in any manner that shall have
caused the occurrence of the failure of the Merger to be consummated or the
stockholder approval to be obtained.
(c) Termination by the Company. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the receipt of the approval of the
Company's Stockholders required by SECTION 6.1(d), by action of the Board of
Directors of the Company:
(i) if (A) the Company is not in material breach of any of the terms
of this Agreement, (B) the Merger shall not have been approved by the
Company's Stockholders as required by SECTION 6.1(d), (C) the Board of
Directors of the Company authorizes the Company, subject to complying with
the terms of this Agreement, to enter into a binding written agreement
concerning a transaction that constitutes a Superior Proposal and the
Company notifies CIENA in writing that it intends to enter into such an
agreement, attaching the most current version of such agreement to such
notice, (D) CIENA does not make, within five Business Days of receipt of
the Company's written notification of its intention to enter into a binding
agreement for a Superior Proposal, an offer that the Board of Directors of
the Company determines, in good faith after consultation with its outside
legal counsel and its financial advisors, is at least as favorable to the
stockholders of the Company as the Superior Proposal taking into account
the long-term value to stockholders of the revised Merger Consideration and
the strategic nature of the proposed Merger, if applicable, and (E) the
Company prior to such termination pays to CIENA in immediately available
funds the fees required to be paid pursuant to SECTION 8.5(e). The Company
agrees (1) that it will not enter into a binding agreement referred to in
clause (C) above until at least the sixth business day after it has
provided the notice to CIENA required thereby and (2) to notify CIENA
promptly if its intention to enter into a written agreement referred to in
its notification shall change at any time after giving such notification;
or
(ii) if it is not in material breach of its obligations under the
Agreement and there is a breach by CIENA or Merger Sub of any material
representation, warranty, covenant or agreement contained in this Agreement
and such breach has not been cured within thirty (30) days after written
notice thereof to CIENA, or such breach cannot be cured, and would cause a
condition set forth in SECTION 6.3(a) to be incapable of being satisfied.
(d) Termination by CIENA. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time, whether before or
after the receipt of the approval of the Company's Stockholders required by
SECTION 6.1(d), by written notice given to the Company by CIENA.
(i) if the Company or its Board of Directors shall have (A) withdrawn,
modified or amended in any respect adverse to CIENA its recommendation of
the adoption of this Agreement or failed to reconfirm its recommendation of
this Agreement or the Merger within three Business Days after a written
request by CIENA to do so ("Change in the Board Recommendation"), or (B)
approved, recommended or entered into an agreement with respect to, or
consummated, or adopted a resolution to approve, recommend, enter into an
agreement with respect to, or consummate, any Acquisition Proposal from a
person other than CIENA or any of its Affiliates; or
(ii) if it is not in material breach of its obligations under the
Agreement and there is a breach by the Company of any material
representation, warranty, covenant or agreement contained in this
Agreement, or such breach has not been cured within thirty (30) days after
written notice thereof to the Company and such breach cannot be cured and
would cause a condition set forth in SECTION 6.2(a) or 6.2(d) to be
incapable of being satisfied.
(e) Effect of Termination and Abandonment.
(i) In the event of termination of this Agreement and the abandonment
of the Merger pursuant to this SECTION 8.5, this Agreement (other than as
set forth in this SECTION 8.5(e)) shall become void
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and of no effect with no liability on the part of any party hereto (or of
any of its directors, officers, employees, agents, legal and financial
advisors or other representatives); provided, however, except as otherwise
provided herein, no such termination shall relieve any party hereto of any
liability or damages resulting from any willful breach of this Agreement.
(ii) In the event that this Agreement is terminated (A) by the Company
pursuant to SECTION 8.5(c)(i) or (B) by CIENA pursuant to SECTION
8.5(d)(i), then the Company shall (1) promptly, but in no event later than
the earlier of the date of such termination or date of entrance into an
agreement concerning an Acquisition Proposal or such earlier time as
required by this Agreement, pay to CIENA a termination fee of $80 million
payable by wire transfer of same day funds and (2) in no event later than
two business days after CIENA shall have requested payment of its charges
and expenses incurred in connection with the transactions contemplated
hereby, pay to CIENA the amount of such charges and expenses up to a
maximum of $1.5 million payable by wire transfer of same day funds.
Notwithstanding the foregoing, except as provided in clause (iii) below,
the Company shall have no obligation to pay the amounts payable in this
clause (ii) if (x) the Agreement is terminated pursuant to SECTION
8.5(d)(i)(A), and (y) the principal reason for the Change in the Board
Recommendation is a development or combination of developments relating to
CIENA that, in any such case individually or in the aggregate, has had or
is reasonably likely to result in a CIENA Material Adverse Effect.
(iii) In the event that this Agreement is terminated pursuant to
SECTION 8.5(b)(ii), or pursuant to SECTION 8.5(d)(i)(A) in a circumstance
where no termination fee is payable pursuant to the last sentence of
SECTION 8.5(e)(ii), and at the time of the Company Stockholders' Meeting or
Change in the Board Recommendation referred to therein any Person shall
have made an Acquisition Proposal to the Company or any of its stockholders
or shall have publicly announced an intention (whether or not conditional)
to make an Acquisition Proposal with respect to the Company, if within 12
months of such termination, the Company enters into an agreement concerning
a transaction that constitutes an Acquisition Proposal, the Company shall
(A) at the time of entering into such agreement, shall pay to CIENA the
termination fee of $80 million payable by wire transfer of same day funds
and (B) in no event later than two business days after CIENA shall have
requested payment of its charges and expenses incurred in connection with
the transactions contemplated hereby, pay to CIENA the amount of such
charges and expenses up to a maximum of $1.5 million payable by wire
transfer of same day funds.
(iv) The Company and CIENA each acknowledge that the agreements
contained in SECTIONS 8.5(e)(ii) and (iii) are an integral part of the
transactions contemplated by this Agreement, and that, without these
agreements, the Company, CIENA and Merger Sub would not enter into this
Agreement; accordingly, if the Company fails to promptly pay the amounts
due pursuant to this Section, and, in order to obtain such payment, CIENA
commences a suit which results in a judgment against the Company for the
fees set forth in this SECTION 8.5, the Company shall pay to CIENA its
costs and expenses (including attorneys' fees) in connection with such
suit, together with interest from the date of termination of this Agreement
on the amounts owed at the prime rate of First Union National Bank of
Maryland in effect from time to time during such period plus two percent.
SECTION 8.6. Joint Integration Team.
The parties agree that a joint integration team represented equally by the
Company and CIENA shall identify any person(s) performing redundant functions at
the Company to those performed at CIENA. The Parties agree that to the extent a
person is identified as performing a redundant function the joint integration
team shall use reasonable best efforts to identify a suitable non-redundant
position for such person. If the joint integration team is unable to identify a
suitable non-redundant position for such person(s) then it shall agree on a
salary and benefits continuation and Substitute Options vesting continuation for
such person(s) of from three to six months based on the experience level and
position of such person. In the event that the team is deadlocked on a
particular position the team shall bring the
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decision to the President of the Company (or its successor) for advice and
consultation and, if necessary, to CIENA's President or Chairman, who shall make
the ultimate decision.
SECTION 8.7. Definitions.
As used in this Agreement the terms set forth below shall have the
following meanings:
(a) "Affiliate" of a Person means any other Person who directly or
indirectly through one or more intermediaries controls, is controlled by or
is under common control with such Person. "Control" means the possession of
the power, directly or indirectly, to direct or cause the direction of the
management and policies of a Person whether through the ownership of voting
securities, by contract or otherwise.
(b) "Assets" means assets of every kind and everything that is or may
be available for the payment of liabilities (whether inchoate, tangible or
intangible), including, without limitation, real and personal property but
excluding Intellectual Property Rights.
(d) "Business Day" means a day other than Saturday or Sunday or a day
on which banks are required or authorized to close in the State of
California, Maryland or Delaware.
(e) "CIENA Material Adverse Effect" means a material adverse effect on
the business, financial condition, assets, liabilities or results of
operations of CIENA and its Subsidiaries, taken as a whole; provided,
however, that none of the following shall be deemed in themselves, either
alone or in combination, to constitute, and none of the following shall be
taken into account in determining whether there has been or will be, a
CIENA Material Adverse Effect: (a) any failure by CIENA to meet internal
projections of forecasts or published revenue or earnings predictions for
any period ending (or for which revenues or earnings are released) on or
after the date of this Agreement; (b) any adverse change, effect, event,
occurrence, state of facts or development to the extent attributable to the
announcement or pendency of the Merger (including any cancellations of or
delays in customer orders, any reduction in sales, any disruption in
supplier, distributor, partner or similar relationships or any loss of
employees); (c) any adverse change, effect, event, occurrence, state of
facts or development attributable to conditions affecting the industries in
which CIENA participates, the U.S. economy as a whole or foreign economies
in any locations where CIENA has material operations or sales or suppliers
or customers; (d) any adverse change, effect, event, occurrence, state of
facts or development attributable or relating to (i) out-of-pocket fees and
expenses (including legal, accounting, investment banking and other fees
and expenses) incurred in connection with the transactions contemplated by
this Agreement, or (ii) the payment of any amounts due to, or the provision
of any other benefits (including benefits relating to acceleration of stock
options) to, any officers or employees under employment contracts,
non-competition agreements, employee benefit plans, severance arrangements
or other arrangements in existence as of the date of this Agreement; or (e)
any adverse change, effect, event, occurrence, state of facts or
development resulting from or relating to compliance with the terms of, or
the taking of any action required by, this Agreement.
(f) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(g) "Company Material Adverse Effect" means a material adverse effect
on the business, financial condition, prospects, Assets, liabilities or
results of operations of the Company; provided, however, that none of the
following shall be deemed in themselves, either alone or in combination, to
constitute, and none of the following shall be taken into account in
determining whether there has been or will be, a Company Material Adverse
Effect: (a) any failure by Company to meet internal projections of
forecasts or published revenue or earnings predictions for any period
ending (or for which revenues or earnings are released) on or after the
date of this Agreement; (b) any adverse change, effect, event, occurrence,
state of facts or development to the extent attributable to the
announcement or pendency of the Merger (including any cancellations of or
delays in customer orders, any reduction in sales, any disruption in
supplier, distributor, partner or similar relationships or any loss of
employees); (c) attrition with respect to employees of the Company who do
not have employment contracts with CIENA after the Merger; (d) any adverse
change, effect, event,
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occurrence, state of facts or development attributable to conditions
affecting the industries in which Company participates, the U.S. economy as
a whole or foreign economies in any locations where Company has material
operations or sales or suppliers or customers; (e) any adverse change,
effect, event, occurrence, state of facts or development attributable or
relating to (i) out-of-pocket fees and expenses (including legal,
accounting, investment banking and other fees and expenses) incurred in
connection with the transactions contemplated by this Agreement, or (ii)
the payment of any amounts due to, or the provision of any other benefits
(including benefits relating to acceleration of stock options) to, any
officers or employees under employment contracts, non-competition
agreements, employee benefit plans, severance arrangements or other
arrangements in existence as of the date of this Agreement; or (f) any
adverse change, effect, event, occurrence, state of facts or development
resulting from or relating to compliance with the terms of, or the taking
of any action required by, this Agreement.
(h) "Encumbrances" means Liens, security interests, deeds of trust,
encroachments, reservations, orders of Governmental Entities, decrees,
judgments, contract rights, claims or equity of any kind.
(i) "Environmental Laws" shall mean all applicable federal, state,
local or foreign laws, rules and regulations, orders, decrees, judgments,
permits, filings and licenses relating (i) to protection and clean-up of
the environment and activities or conditions related thereto, including
those relating to the generation, handling, disposal, transportation or
release of Hazardous Substances and (ii) the health or safety of employees
in the workplace environment, all as amended from time to time, and shall
also include any common law theory based on nuisance, trespass, negligence
or other tortious conduct.
(j) "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended, and all Laws promulgated pursuant thereto or in connection
therewith.
(k) "Exchange Agent" shall mean a bank or trust company designated as
the exchange agent by CIENA (which designation shall be reasonably
acceptable to the Stockholders' Representative).
(l) "Exchange Ratios" shall mean the Company Preferred Stock Exchange
Ratio and the Company Common Stock Exchange Ratio.
(m) "Governmental Entity" means any United States or other national,
state, municipal or local government, domestic or foreign, any subdivision,
agency, entity, commission or authority thereof, or any quasi-governmental
or private body exercising any regulatory, taxing, importing or other
governmental or quasi-governmental authority.
(n) "Hazardous Substances" shall mean any and all hazardous and toxic
substances, wastes or materials, any pollutants, contaminants, or dangerous
materials (including, but not limited to, polychlorinated biphenyls, PCBs,
friable asbestos, volatile and semi-volatile organic compounds, oil,
petroleum products and fractions, and any materials which include hazardous
constituents or become hazardous, toxic, or dangerous when their
composition or state is changed), or any other similar substances or
materials which are included under or regulated by any Environmental Laws.
(o) "holders" shall mean, with respect to any Person entitled to
receive any portion of the Aggregate Share Consideration distributable in
accordance with ARTICLE I hereof, such holders on and as of the Effective
Time and their respective successors by operation of law, heirs, executors,
administrators and legal representatives.
(p) "Knowledge of the Company" or "Company's Knowledge" shall mean the
actual knowledge of any of the Directors and Officers of the Company as of
the date hereof.
(q) "Laws" means all foreign, federal, state and local statutes, laws,
ordinances, regulations, rules, resolutions, orders, determinations, writs,
injunctions, awards (including, without limitation, awards of any
arbitrator), judgments and decrees applicable to the specified persons or
entities.
(r) "Liens" shall mean any mortgage, pledge, lien, security interest,
conditional or installment sale agreement, encumbrance, charge or other
claims of third parties of any kind.
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(s) "Non-Competition Agreements" means the Non-Competition Agreements
dated as of the date hereof, to be effective as of the Closing Date,
between CIENA and certain officers of the Company.
(t) "Ordinary Course of Business" shall mean all actions taken by a
Person if such action is consistent with the past practices of such Person
and is taken in the ordinary course of the normal day-to-day operations of
such Person.
(u) "Permitted Encumbrances" shall mean (i) Liens for Taxes not yet
due or which are being contested in good faith by appropriate proceedings
and for which adequate reserves have been established in accordance with
applicable generally accepted accounting principles; (ii) such minor
encumbrances, easements or reservations of, or rights of others for,
sewers, electric lines, telegraph and telephone lines and other similar
purposes, or zoning restrictions as to the use of real properties, which do
not materially interfere with the use, occupation and enjoyment of the
property subject to the Lien by and in connection with the applicable
business; (iii) Liens incurred in the Ordinary Course of Business in
connection with workers' compensation, unemployment insurance and other
types of social security; and (iv) Liens in favor of customs authorities
arising as a matter of law to secure payment of customs duties in
connection with the importation of goods to the extent accred on the
relevant Financial Statements.
(v) "Person" shall mean any individual, corporation, partnership,
limited partnership, limited liability company, trust, association or
entity or government agency or authority.
(w) "Registration Rights Agreement" shall mean the Fourth Amended and
Restated Registration Rights Agreement, dated September 27, 2000 among the
Company and the parties named therein.
(x) "Right of First Refusal and Co-Sale Agreement" means the Third
Amended and Restated Right of First Refusal and Founders' Co-Sale Agreement
dated September 27, 2000, by and among the Company and holders of the
Company's Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, and Series E Preferred Stock and Alnoor Shivji, Shekhar
Mandal, Rafat Pirzada, Sunil Tomar and Diosdado Banatao.
(y) "Subsidiary" of a Person shall mean any corporation, partnership,
joint venture or other entity in which such person (a) owns, directly or
indirectly, 50% or more of the outstanding voting securities or equity
interests or (b) is a general partner.
(z) "Tax" (and, with correlative meaning, "Taxes" and "Taxable") shall
mean any federal, state, local or foreign net income, gross income, gross
receipts, windfall profit, severance, property, production, sales, use,
license, excise, franchise, employment, payroll, withholding, alternative
or add-on minimum, ad valorem, value-added, transfer, stamp, or
environmental tax, or any other tax, custom, duty, governmental fee or
other like assessment or charge of any kind whatsoever, together with any
interest or penalty, addition to tax or additional amount imposed by any
governmental authority.
(aa) "Tax Return" shall mean any return, report or similar statement
required to be filed with respect to any Tax (including any attached
schedules), including, without limitation, any information return, claim
for refund, amended return or declaration of estimated Tax.
SECTION 8.8. Notices.
Any notice, request, demand, waiver, consent, approval, or other
communication which is required or permitted to be given to any party hereunder
shall be in writing and shall be deemed given only if delivered to the party
personally or sent to the party by facsimile transmission (promptly followed by
a hard-copy delivered in accordance with this SECTION 8.8) or by registered or
certified mail (return receipt
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requested), with postage and registration or certification fees thereon prepaid,
addressed to the party at its address set forth below:
If to CIENA:
CIENA Corporation
1201 Winterson Road
Linthicum, Maryland 21090
Attention: General Counsel
with a copy to:
Hogan & Hartson L.L.P.
111 South Calvert Street, 16th Floor
Baltimore, Maryland 21202
Attention: Michael J. Silver
If to the Company:
Cyras Systems, Inc.
47100 Bayside Parkway
Fremont, California 94538
Attention: General Counsel
with a copy to:
Brobeck, Phleger & Harrison LLP
Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 94303
Attention: Warren T. Lazarow
or to such other address or Person as any party may have specified in a notice
duly given to the other party as provided herein. Such notice, request, demand,
waiver, consent, approval or other communication will be deemed to have been
given as of the date so delivered, telegraphed or mailed.
SECTION 8.9. Amendment.
This Agreement may be amended, modified or supplemented at any time prior
to the Effective Time by mutual agreement of the respective Boards of Directors
of the Company and CIENA, except as provided in Section 251(d) of the DGCL. Any
amendment, modification or revision of this Agreement and any waiver of
compliance or consent with respect hereto shall be effective only if in a
written instrument executed by the parties hereto.
SECTION 8.10. Governing Law.
This Agreement shall be governed by and interpreted and enforced in
accordance with the laws of the State of Delaware as applied to contracts made
and fully performed in such state.
SECTION 8.11. No Benefit to Others.
The representations, warranties, covenants and agreements contained in this
Agreement are for the sole benefit of the parties hereto, and their respective
successors and assigns, and they shall not be construed as conferring, and are
not intended to confer, any rights on any other Person except as provided in
ARTICLE I and SECTION 5.13 and 7.3(b).
SECTION 8.12. Severability.
If any term or other provision of this Agreement is determined to be
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other terms and provisions of the Agreement shall remain in full
force and effect. Upon such determination, the parties hereto shall negotiate in
good faith to
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modify this Agreement so as to give effect to the original intent of the parties
to the fullest extent permitted by applicable law.
SECTION 8.13. Section Headings.
All section headings are for convenience only and shall in no way modify or
restrict any of the terms or provisions hereof.
SECTION 8.14. Schedules and Exhibits.
All Schedules and Exhibits referred to herein are intended to be and hereby
are specifically made a part of this Agreement.
SECTION 8.15. Extensions.
At any time prior to the Effective Time, CIENA, on the one hand, and the
Company on the other may by corporate action, extend the time for compliance by
or waive performance of any representation, warranty, condition or obligation of
the other party subject to the provisions of SECTION 8.9 regarding the manner of
waiver.
SECTION 8.16. Counterparts.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, and the Company and CIENA may become a party hereto
by executing a counterpart hereof. This Agreement and any counterpart so
executed shall be deemed to be one and the same instrument.
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
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AGREEMENT AND PLAN OF MERGER BY AND AMONG CIENA CORPORATION,
CYRAS SYSTEMS, INC. AND CO ACQUISITION CORP. SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have duly executed this Agreement and Plan of Merger as of the date
first above written.
CIENA CORPORATION
By: /s/ PATRICK H. NETTLES
------------------------------------
Patrick H. Nettles, Ph.D.
Chairman
CO ACQUISITION CORP.
By: /s/ PATRICK H. NETTLES
------------------------------------
Patrick H. Nettles, Ph.D.
President
CYRAS SYSTEMS, INC.
By: /s/ ALNOOR SHIVJI
------------------------------------
Alnoor Shivji
President and CEO
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GLOSSARY OF DEFINED TERMS
LOCATION OF
DEFINED TERM DEFINITION
------------ ------------
Acquisition Proposal........................................ Section 5.4
Affiliate................................................... Section 8.7
Aggregate Share Consideration............................... Section 1.5
Aggregate Value............................................. Section 1.5
Agreement................................................... Preamble
Assets...................................................... Section 8.7
Assumed Option.............................................. Section 5.10
Assumed Value............................................... Section 1.5
Balance Sheet Date.......................................... Section 2.6
Board Recommendation........................................ Section 5.6
Business Day................................................ Section 8.7
Certificates................................................ Section 1.8
Change in the Board Recommendation.......................... Section 8.5
CIENA....................................................... Preamble
CIENA Charter Documents..................................... Section 3.2
CIENA Common Stock.......................................... Section 1.5
CIENA Indemnitee............................................ Section 7.4
CIENA Material Adverse Effect............................... Section 8.7
CIENA Stock................................................. Section 1.5
Closing..................................................... Section 1.1
Closing Date................................................ Section 1.1
Code........................................................ Section 8.7
Common Stock Exchange Ratio................................. Section 1.5
Company..................................................... Preamble
Company Benefit Plans....................................... Section 2.17
Company Capital Stock....................................... Recitals
Company Certificate......................................... Section 1.2
Company Common Stock........................................ Recitals
Company Material Adverse Effect............................. Section 8.7
Company Outstanding Shares.................................. Section 1.5
Company Preferred Stock..................................... Recitals
Company Requisite Vote...................................... Section 2.4
Company Stock Options....................................... Section 5.10
Company Warrant............................................. Section 5.10
Confidentiality Agreement................................... Section 8.3
Contracts................................................... Section 2.10
DGCL........................................................ Recitals
Dissenting Shares........................................... Section 1.7
Effective Time.............................................. Section 1.1
Encumbrances................................................ Section 8.7
Environmental Laws.......................................... Section 8.7
ERISA....................................................... Section 8.7
Escrow Agent................................................ Section 7.2
Escrow Amount............................................... Section 1.8
Escrow Fund................................................. Section 7.2
Exchange Act................................................ Section 3.7
Exchange Agent.............................................. Section 8.7
Exchange Fund............................................... Section 1.8
Exchange Ratios............................................. Section 8.7
Financial Statements........................................ Section 2.6
GAAP........................................................ Section 2.6
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LOCATION OF
DEFINED TERM DEFINITION
------------ ------------
Governmental Entity......................................... Section 8.7
Hart-Scott-Rodino Act....................................... Section 2.5
Hazardous Substances........................................ Section 8.7
holders..................................................... Section 8.7
Indemnity Claim............................................. Section 7.3
Indemnification Threshold................................... Section 7.2
Indemnified Parties......................................... Section 7.2
Intellectual Property Rights................................ Section 2.15
IRS......................................................... Section 2.17
Knowledge................................................... Section 8.7
Laws........................................................ Section 8.7
Legal Proceeding............................................ Section 7.4
Liens....................................................... Section 8.7
Loss........................................................ Section 7.2
Merger...................................................... Recitals
Merger Sub.................................................. Preamble
NASDAQ...................................................... Section 1.5
Non-Competition Agreement................................... Section 8.7
Option Consideration........................................ Section 1.5
Ordinary Course of Business................................. Section 8.7
Permitted Encumbrances...................................... Section 8.7
Person...................................................... Section 8.7
Preferred Liquidation Value................................. Section 1.5
Preferred Share Consideration............................... Section 1.5
Preferred Stock Exchange Ratio.............................. Section 1.5
Proxy Statement/Prospectus.................................. Section 5.5
Real Property............................................... Section 2.11
Registration Rights Agreement............................... Section 8.7
Right....................................................... Section 1.5
Right of First Refusal and Co-Sale Agreement................ Section 8.7
S-4 Registration Statement.................................. Section 5.5
SEC......................................................... Section 3.7
Securities Act.............................................. Section 2.17
Series A Preferred Stock.................................... Recitals
Series B Preferred Stock.................................... Recitals
Series C Preferred Stock.................................... Recitals
Series D Preferred Stock.................................... Recitals
Series E Preferred Stock.................................... Recitals
Stock Option Equivalents.................................... Section 1.5
Stock Plan.................................................. Section 5.10
Stock Price................................................. Section 1.5
Stockholders................................................ Section 1.5
Stockholders' Meeting....................................... Section 5.6
Stockholders' Representative................................ Section 7.3
Subsidiary.................................................. Section 8.7
Superior Proposal........................................... Section 5.4
Surviving Company........................................... Section 1.1
Tax......................................................... Section 8.7
Tax Return.................................................. Section 8.7
Termination Date............................................ Section 8.5
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APPENDIX B
DELAWARE GENERAL CORPORATION LAW
SECTION 262
sec. 262. Appraisal rights.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to sec. 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec. 251 (other than a merger effected pursuant to sec.
251(g) of this title), sec. 252, sec. 254, sec. 257, sec. 258, sec. 263 or sec.
264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of sec. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
sec.sec. 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
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(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec. 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
corporation. If the certificate of incorporation contains such a provision, the
procedures of this section, including those set forth in subsections (d) and (e)
of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of such
stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of
such stockholder's shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such stockholder's
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must
do so by a separate written demand as herein provided. Within 10 days after
the effective date of such merger or consolidation, the surviving or
resulting corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in
favor of or consented to the merger or consolidation of the date that the
merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to sec. 228
or sec. 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class of series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated
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therein. For purposes of determining the stockholders entitled to receive
either notice, each constituent corporation may fix, in advance, a record
date that shall be not more than 10 days prior to the date the notice is
given, provided, that if the notice is given on or after the effective date
of the merger or consolidation, the record date shall be such effective
date. If no record date is fixed and the notice is given prior to the
effective date, the record date shall be the close of business on the day
next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw such stockholder's demand for appraisal and to accept the terms offered
upon the merger or consolidation. Within 120 days after the effective date of
the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10 days
after such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by l or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has
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submitted such stockholder's certificates of stock to the Register in Chancery,
if such is required, may participate fully in all proceedings until it is
finally determined that such stockholder is not entitled to appraisal rights
under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of such
stockholder's demand for an appraisal and an acceptance of the merger or
consolidation, either within 60 days after the effective date of the merger or
consolidation as provided in subsection (e) of this section or thereafter with
the written approval of the corporation, then the right of such stockholder to
an appraisal shall cease. Notwithstanding the foregoing, no appraisal proceeding
in the Court of Chancery shall be dismissed as to any stockholder without the
approval of the Court, and such approval may be conditioned upon such terms as
the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
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APPENDIX C
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (the "Agreement") is made and dated as of
, 2001 by and among CIENA CORPORATION, a Delaware corporation
("CIENA"), CYRAS SYSTEMS, INC., a Delaware corporation (the "Company"), CO
ACQUISITION CORP., a Delaware corporation (the "Merger Sub"), [ ] (the
"Escrow Agent"), and Doug Carlisle, acting by virtue of the Agreement and Plan
of Merger dated as of December 18, 2000 (the "Merger Agreement") as the
attorney-in-fact and Representative of the Stockholders of the Company (the
"Stockholders' Representative").
W I T N E S S E T H:
WHEREAS, CIENA, the Company and the Merger Sub have entered into the Merger
Agreement, providing for the merger of the Merger Sub with and into the Company,
and in connection with which the Stockholders of the Company shall receive as
consideration a number of shares of Common Stock of CIENA (the "CIENA Common
Stock") as set forth in the Merger Agreement;
WHEREAS, pursuant to the Merger Agreement, CIENA, the Company and the
Merger Sub have agreed that the rights of indemnification under Article VII of
the Merger Agreement shall survive the consummation of the transactions
contemplated by the Merger Agreement, and shall be secured, pursuant to this
Agreement, by certain shares of CIENA Common Stock (together with any
accumulations thereto as provided herein, the "Escrow Shares"), to be registered
in the name of the Escrow Agent, as escrow agent hereunder, and deposited in
escrow with the Escrow Agent;
WHEREAS, the Escrow Agent is willing to act in the capacity of Escrow Agent
hereunder subject to, and upon the terms and conditions of this Agreement;
WHEREAS, pursuant to the Merger Agreement, the Stockholders' Representative
has been appointed as the Stockholders' attorney-in-fact and authorized and
empowered to act, for and on behalf of any or all of the Stockholders (with full
power of substitution in the premises) in connection with the indemnity
provisions of the Merger Agreement, this Escrow Agreement, and such other
matters as are reasonably necessary for the consummation of the transactions
contemplated hereby and thereby; and
WHEREAS, capitalized terms used and not defined herein have the meanings
assigned to such terms in the Merger Agreement.
NOW, THEREFORE, in consideration of the promises, covenants and agreements
set forth in this Agreement and of other good and valuable consideration, the
receipt and legal sufficiency of which they hereby acknowledge, and intending to
be legally bound hereby, and as an inducement for the execution and delivery of
the Merger Agreement, CIENA, the Company, the Merger Sub, the Escrow Agent and
the Stockholders' Representative hereby agree as follows:
ARTICLE I
DESIGNATION OF ESCROW AGENT AND CAPITAL SHARES SUBJECT TO ESCROW
1.1 Designation of Escrow Agent. CIENA, the Company and the Merger Sub
hereby mutually designate and appoint [TO BE PROVIDED], a corporation having an
office and place of business located at [TO BE PROVIDED], as Escrow Agent for
the purposes set forth herein. The Escrow Agent hereby accepts such appointment
and agrees to act in furtherance of the provisions of the Merger Agreement, but
only upon the terms and conditions provided in this Agreement.
1.2 Capital Stock Subject to Escrow. In accordance with Section 7.2 of the
Merger Agreement, upon execution of this Agreement and subject to compliance by
the Company with the provisions of the Merger Agreement, CIENA shall on the
Closing Date (as defined in the Merger Agreement) issue and deliver, or
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cause to be delivered, to the Escrow Agent one or more stock certificates (the
"Escrow Certificates"), each of which shall be registered in the name of the
Escrow Agent as escrow agent hereunder evidencing the Escrow Amount. The Escrow
Agent shall hold and distribute the Escrow Certificates and Escrow Shares in
accordance with the terms hereof.
1.3 Value of Escrow Shares. For all purposes pursuant to this Agreement,
including without limitation the distribution of Escrow Shares, the value of
each Escrow Share shall be equal to the Assumed Value.
1.4 Powers of Stockholders' Representative. Pursuant to the Merger
Agreement, Doug Carlisle has irrevocably been appointed as the Stockholders'
Representative to act as the true and lawful agent of the Stockholders and
attorney-in-fact with respect to all matters arising in connection with this
Agreement, including but not limited to the power and authority on behalf of
each Stockholder (other than in his or her own right) to do any one or all of
the following:
(a) give any written notices or consents and seek any declaratory
judgments, damages or other appropriate relief from a court or other
tribunal that the Stockholders' Representative may consider necessary or
appropriate;
(b) give any written direction to the Escrow Agent as the
Stockholders' Representative may consider necessary or appropriate;
(c) make, execute and deliver such amendments of and supplements to
this Agreement or any other agreements, instruments or documents relating
hereto that the Stockholders' Representative may consider necessary or
appropriate and not materially adverse to the Stockholders' interests
hereunder, such authority to be conclusively evidenced by the execution and
delivery thereof; and
(d) take all actions and do all things, including but not limited to
the execution and delivery of all documents necessary or proper, required,
contemplated or deemed advisable by the Stockholders' Representative,
including the execution, delivery and surrender of the Escrow Certificates
and accompanying stock powers, and generally to act for and in the name of
each such Stockholder with respect to this Agreement.
1.5 Stockholder Option. Each Stockholder shall have the option (the
"Option"), exercisable by written notice to the Escrow Agent delivered to the
Escrow Agent within ten (10) business days of the Closing Date, to demand that
the Escrow Agent sell all (but not some) of that portion of the Escrow Shares
contributed by such Stockholder on the open market and hold the proceeds from
such sale (the "Escrow Proceeds") in the Escrow Fund in lieu of such Escrow
Shares. Upon receipt of such demand, the Escrow Agent shall, as soon as
practicable, consummate such sale on behalf of all Stockholders who exercised
the Option and deposit the Escrow Proceeds from such sale into the Escrow Fund,
less any amounts in excess of the product of the number of shares sold and the
Assumed Value (which excess amount may be distributed to the Stockholders
exercising the Option). For purposes of this Agreement, the term "Escrow Fund"
shall include the Escrow Shares and the Escrow Proceeds.
ARTICLE II
TREATMENT OF ACCUMULATIONS TO ESCROW SHARES
2.1 Escrow Period; Distribution Upon Termination of Escrow
Periods. Subject to the following requirements, the Escrow Fund shall be in
existence immediately following the Closing Date and shall terminate on the
first anniversary of the Closing Date (the "Escrow Period"); provided, however,
that the Escrow Period shall not terminate with respect to any amount which, in
the reasonable judgment of CIENA, is necessary to satisfy any unsatisfied claims
specified in any Officer's Certificate (as defined below) delivered to the
Escrow Agent prior to termination of such Escrow Period with respect to facts
and circumstances existing prior to the termination of such Escrow Period. The
Escrow Agent shall promptly deliver to the Stockholders, and the Escrow Period
shall terminate with respect to, the remaining portion of the Escrow Fund not
required to satisfy such claims following the termination of the Escrow Period,
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provided, however, that any such release shall proportionately release both
Escrow Proceeds and Escrow Shares in proportion to the shares of CIENA Common
Stock contributed to the Escrow Fund by Stockholders who exercised the Option
and those that did not exercise the Option. As soon as all such claims have been
resolved and obligations have been satisfied, the Escrow Agent shall deliver to
the Stockholders all portions of the Escrow Fund not required to satisfy such
claims. Stockholders who did not exercise the Option shall receive a pro rata
portion of the Escrow Shares released from the Escrow Fund in proportion to
their respective contributions of CIENA Common Stock to the Escrow Fund as
compared to the other Stockholders who did not exercise the Option. Stockholders
who exercised the Option shall receive a pro rata portion of the Escrow Proceeds
released from the Escrow Fund, in proportion to their respective contribution of
shares of CIENA Common Stock to the Escrow Fund as compared to the other
Stockholders who exercised the Option.
2.2 Protection of Escrow Fund.
(a) The Escrow Agent shall hold and safeguard the Escrow Fund during the
Escrow Period, shall treat such fund as a trust fund in accordance with the
terms of this Agreement and not as the property of CIENA, and shall hold and
dispose of the Escrow Fund only in accordance with the terms hereof.
(b) Any shares of CIENA Common Stock or other equity securities issued or
distributed by CIENA (including shares issued upon a stock split) ("New Shares")
in respect of CIENA Common Stock in the Escrow Fund which have not been released
from the Escrow Fund shall be added to the Escrow Fund and become a part
thereof. New Shares issued in respect of shares of CIENA Common Stock which have
been released from the Escrow Fund shall not be added to the Escrow Fund but
shall be distributed to the record holders thereof. Cash dividends, if any, on
CIENA Common Stock shall not be added to the Escrow Fund but shall be
distributed to the Stockholders in proportion to their respective original
contributions to the Escrow Fund, except that Stockholders who exercised the
Option pursuant to SECTION 1.5 shall not be included in such calculation and
shall not receive such distribution.
(c) Each Stockholder shall have voting rights and the right to
distributions of cash dividends with respect to the Escrow Shares contributed to
the Escrow Fund by such Stockholder and not sold pursuant to SECTION 1.5 (and on
any voting securities added to the Escrow Fund in respect of such shares of
CIENA Common Stock). As the record holder of such shares, the Escrow Agent shall
vote such shares in accordance with the instructions of the Stockholders having
the beneficial interest therein and shall promptly deliver copies of all proxy
solicitation materials to such Stockholders.
2.3 Additional Property Subject to Escrow. If at any time after the date
hereof and prior to the distribution of the Escrow Shares any of the
Stockholders shall become entitled to receive or shall receive in connection
with the Escrow Shares any (i) non-taxable distribution of securities of CIENA
or of any other entity including, without limitation, any certificate in
connection with any increase or reduction of capital, reclassification,
recapitalization, merger, business combination, consolidation, sale of assets,
stock split-up or spin-off; or (ii) any non-taxable distribution of stock
options, warrants or rights, whether as an addition to or in substitution of or
exchange for any of the Escrow Shares; or (iii) non-taxable stock dividend or
other non-taxable distribution payable in securities or property of any
description, all of the shares of capital stock, or other property resulting
from any such distribution, stock option, warrant, right or stock dividend shall
be deemed to be Escrow Shares and shall be subject to the terms hereof to the
same extent as the original Escrow Shares. Any cash dividends and any taxable
stock dividends paid with respect to the Escrow Shares shall be paid to the
Stockholders in accordance with their respective proportionate interests in the
Escrow Shares and any taxable stock dividends. Each of the Stockholders shall
recognize as income on a current basis all of the cash dividends to which such
Stockholder is entitled to receive and for any non-cash dividend and any other
non-taxable distribution shall, through the Stockholders' Representative,
execute stock powers or other appropriate instruments of transfer for all
shares, options, warrants or rights as required for transfer.
2.4 Retained Voting and Other Rights. The Escrow Agent shall hold the
Escrow Shares and any additional property acquired with respect thereto pursuant
to SECTION 2.3 above in safekeeping and dispose thereof only in accordance with
the terms of this Agreement. The Escrow Agent may treat the
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Stockholders' Representative as the duly authorized agent and representative of
the Stockholders with respect to any additional property related to the Escrow
Shares. The Escrow Agent shall hold the Escrow Shares in accordance with each
Stockholder's proportionate interest in the Escrow Shares and shall (to the
extent legally permissible) vote the Escrow Shares in accordance with the
written instructions of the Stockholder for whose account such Escrow Shares are
held.
ARTICLE III
DISTRIBUTION OF ESCROW SHARES UPON TERMINATION OF THE AGREEMENT
3.1 Third-Party Claims. In the event CIENA becomes aware of an event which
CIENA reasonably believes may result in a demand against the Escrow Fund, CIENA
shall notify the Stockholders' Representative of such claim, and the
Stockholders shall be entitled, at their expense, to participate in any defense
of such claim. CIENA may not settle any such claim without the consent of the
Stockholders' Representative, which consent shall not be unreasonably withheld
or delayed. In the event that the Stockholders' Representative has consented to
any such settlement, the Stockholders shall have no power or authority to object
under any provision of this Article to the amount of any claim by CIENA against
the Escrow Fund with respect to such settlement.
3.2 Claims Upon Escrow Fund. Upon receipt by the Escrow Agent at any time
on or before the last day of the Escrow Period of a certificate signed in good
faith by any officer of CIENA (an "Officer's Certificate"): (A) stating that
CIENA has paid or properly accrued or, with respect to third-party claims of
which CIENA or the Company has received notice, reasonably anticipates that it
will have to pay or accrue Losses, and (B) specifying in reasonable detail the
individual items of Losses included in the amount so stated, the date each such
item was paid or properly accrued, or the basis for such anticipated liability,
and the nature of the misrepresentation, breach of warranty or covenant to which
such item is related, the Escrow Agent shall deliver to CIENA out of the Escrow
Fund, as promptly as practicable, but subject to SECTION 3.3 below, an amount of
Escrow Shares and Escrow Proceeds held in the Escrow Fund in the manner set
forth in the immediately following sentence, with an aggregate value equal to
such Losses; provided, however, that in the event of a third party claim that is
the subject of the demand on the Escrow Fund, no Escrow Shares or Escrow
Proceeds shall be delivered out of the Escrow Fund until the claim is settled or
adjudicated. The Escrow Agent shall allocate any amount of Loss it is required
to reimburse to CIENA in accordance with this Agreement among the Stockholders
who exercised the Option and those who did not exercise the Option based on the
number of shares of CIENA Common Stock contributed to the Escrow Fund at the
Closing Date by each such group of Stockholders; thereafter, the Escrow Agent
shall pay to CIENA in the form of Escrow Shares (each of which shall be valued
at the Assumed Value in accordance with SECTION 1.3 hereof) that amount of the
Loss allocated to the Stockholders that did not exercise the Option, and shall
pay in form of cash from the Escrow Proceeds that amount of Loss allocated to
the Stockholders that exercised the Option. Any Escrow Shares delivered to CIENA
out of the Escrow Fund shall (i) reduce each such Stockholder's interest in the
Escrow Fund in the form of CIENA Common Stock in proportion to such
Stockholder's respective original contributions to the Escrow Fund as compared
to other Stockholders that did not exercise the Option and (ii) consist of
vested and unvested Escrow Shares ratably in proportion to the amount of vested
and unvested shares held in the Escrow Fund with respect to such Stockholder at
the time of such delivery.
3.3 Notification of Stockholders' Representative. At the time of delivery
of any Officer's Certificate to the Escrow Agent, a duplicate copy of such
certificate shall be delivered to the Stockholders' Representative, and for a
period of thirty (30) days after such delivery, the Escrow Agent shall make no
delivery to CIENA of any Escrow Shares or Escrow Proceeds unless the Escrow
Agent shall have received written authorization from the Stockholders'
Representative to make such delivery. After the expiration of such thirty (30)
day period, the Escrow Agent shall make delivery of Escrow Shares and Escrow
Proceeds from the Escrow Fund; provided, however, that no such payment or
delivery may be made if the Stockholders' Representative shall object in a
written statement to the claim made in the Officer's
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Certificate, and such statement shall have been delivered to the Escrow Agent
prior to the expiration of such thirty (30) day period.
3.4 Resolution of Conflicts; Arbitration.
(a) In case the Stockholders' Representative shall object in writing to any
claim or claims made in any Officer's Certificate, the Stockholders'
Representative and CIENA shall attempt in good faith to agree upon the rights of
the respective parties with respect to such of such claims. If the Stockholders'
Representative and CIENA should so agree, a memorandum setting forth such
agreement shall be prepared and signed by both parties and shall be furnished to
the Escrow Agent in accordance with the terms thereof.
(b) If no such agreement can be reached after good faith negotiation,
either CIENA or the Stockholders' Representative may demand arbitration of the
matter unless the amount of the claim or Loss is at issue in pending litigation
with a third party, in which event arbitration shall not be commenced until such
amount is ascertained or both parties agree to arbitration; and in either such
event the matter shall be settled by arbitration conducted by one arbitrator
mutually agreeable to CIENA and the Stockholders' Representative. In the event
that within forty-five (45) days after submission of any dispute to arbitration,
CIENA and the Stockholders' Representative cannot mutually agree on one
arbitrator, CIENA and the Stockholders' Representative shall each select one
arbitrator, and the two arbitrators so selected shall select a third arbitrator.
The arbitrator or arbitrators, as the case may be, shall set a limited time
period and establish procedures designed to reduce the cost and time for
discovery while allowing the parties an opportunity, adequate in the sole
judgment of the arbitrator or majority of the three arbitrators, as the case may
be, to discover relevant information from the opposing parties about the subject
matter of the dispute. The arbitrator or a majority of the three arbitrators, as
the case may be, shall rule upon motions to compel or limit discovery and shall
have the authority to impose sanctions, including attorneys' fees and costs, to
the same extent as a competent court of law or equity, should the arbitrators or
a majority of the three arbitrators, as the case may be, determine that
discovery was sought without substantial justification or that discovery was
refused or objected to without substantial justification. The decision of the
arbitrator or a majority of the three arbitrators, as the case may be, as to the
validity and amount of any claim in such Officer's Certificate shall be binding
and conclusive upon the parties to this Agreement. Such decision shall be
written and shall be supported by written findings of fact and conclusions which
shall set forth the award, judgment, decree or order awarded by the
arbitrator(s).
(c) Judgment upon any award rendered by the arbitrator(s) may be entered in
any court having jurisdiction. Any such arbitration shall be held in Baltimore,
Maryland, under the rules then in effect of the American Arbitration
Association. The arbitrator(s) shall determine how all expenses relating to the
arbitration shall be paid, including without limitation, the respective expenses
of each party, the fees of each arbitrator and the administrative fee of the
American Arbitration Association.
ARTICLE IV
ESCROW AGENT
4.1 Escrow Agent's Duties.
(a) The Escrow Agent shall be obligated only for the performance of such
duties as are specifically set forth herein, and as set forth in any additional
written escrow instructions which the Escrow Agent may receive after the date of
this Agreement which are signed by an officer of CIENA and the Stockholders'
Representative, and may rely and shall be protected in relying or refraining
from acting on any instrument reasonably believed to be genuine and to have been
signed or presented by the proper party or parties. The Escrow Agent shall not
be liable for any act done or omitted hereunder as Escrow Agent while acting in
good faith and in the exercise of reasonable judgment, and any act done or
omitted pursuant to the advice of counsel shall be conclusive evidence of such
good faith.
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(b) The Escrow Agent is hereby expressly authorized to disregard any and
all warnings given by any of the parties hereto or by any other person, and is
hereby expressly authorized to comply with and obey any final non-appealable
orders, judgments or decrees of any court or of the arbitrator(s). In case the
Escrow Agent obeys or complies with any such order, judgment or decree of any
court or of the arbitration panel, the Escrow Agent shall not be liable to any
of the parties hereto or to any other person by reason of such compliance,
notwithstanding any such order, judgment or decree being subsequently reversed,
modified, annulled, set aside, vacated or found to have been entered without
jurisdiction.
(c) The Escrow Agent shall not be liable in any respect on account of the
identity, authority or rights of the parties executing or delivering or
purporting to execute or deliver this Agreement or any documents or papers
deposited or called for hereunder.
(d) The Escrow Agent shall not be liable for the expiration of any rights
under any statute of limitations with respect to this Agreement or any documents
deposited with the Escrow Agent.
(e) In performing any duties under the Agreement, the Escrow Agent shall
not be liable to any party for damages, losses, or expenses, except for
negligence or willful misconduct on the part of the Escrow Agent. The Escrow
Agent shall not incur any such liability for any action taken or omitted in
reliance upon any instrument, including any written statement of affidavit
provided for in this Agreement that the Escrow Agent shall in good faith believe
to be genuine, nor will the Escrow Agent be liable or responsible for forgeries,
fraud, impersonations, or determining the scope of any representative authority.
In addition, the Escrow Agent may consult with the legal counsel in connection
with Escrow Agent's duties under this Agreement and shall be fully protected in
any act taken, suffered, or permitted by him/her in good faith in accordance
with the advice of counsel. The Escrow Agent is not responsible for determining
and verifying the authority of any person acting or purporting to act on behalf
of any party to this Agreement, provided such determination or verification is
in good faith.
(f) If any controversy arises between the parties to this Agreement, or
with any other party, concerning the subject matter of this Agreement, its terms
or conditions, the Escrow Agent will not be required to resolve the controversy
or to take any action regarding it. The Escrow Agent may hold all documents,
Escrow Shares and Escrow Proceeds and may wait for settlement of any such
controversy by final appropriate legal proceedings or other means as, in the
Escrow Agent's discretion, the Escrow Agent may reasonably require, despite what
may be set forth elsewhere in this Agreement. In such event, the Escrow Agent
will not be liable for any damages. Furthermore, the Escrow Agent may at its
option, file an action of interpleader requiring the parties to answer and
litigate any claims and rights among themselves. The Escrow Agent is authorized
to deposit with the clerk of the court all documents, Escrow Shares and Escrow
Proceeds held in escrow, except all costs, expenses, charges and reasonable
attorney's fees incurred by the Escrow Agent due to the interpleader action and
which the parties jointly and severally agree to pay. Upon initiating such
action, the Escrow Agent shall be fully released and discharged of and from all
obligations and liability by the terms of this Agreement.
(g) The parties and their respective successors and assigns agree jointly
and severally to indemnify and hold Escrow Agent harmless against any and all
losses, claims, damages, liabilities, and expenses, including reasonable costs
of investigation, counsel fees, including allocated costs of in-house counsel
and disbursements that may be imposed on Escrow Agent or incurred by Escrow
Agent in connection with the performance of his/her duties under this Agreement,
including but not limited to any litigation or arbitration arising from this
Agreement or involving its subject matter other than arising out of its
negligence or willful misconduct.
(h) The Escrow Agent may resign at any time upon giving at least thirty
(30) days written notice to the parties; provided, however, that no such
resignation shall become effective until the appointment of a successor escrow
agent which shall be accomplished as follows: the parties shall use their best
efforts to mutually agree on a successor escrow agent within thirty (30) days
after receiving such notice. If the parties fail to agree upon a successor
escrow agent within such time, the Escrow Agent shall have the right to appoint
a successor escrow agent authorized to do business in the State of Delaware. The
successor escrow agent shall execute and deliver an instrument accepting such
appointment and it shall, without
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further acts, be vested with all the estates, properties, rights, powers, and
duties of the predecessor escrow agent as if originally named as Escrow Agent.
Upon appointment of a successor escrow agent, the Escrow Agent shall be
discharged from any further duties and liability under this Agreement.
4.2 Fees. All fees of the Escrow Agent for performance of its duties
hereunder shall be paid by CIENA in accordance with the standard fee schedule of
the Escrow Agent. It is understood that the fees and usual charges agreed upon
for services of the Escrow Agent shall be considered compensation for ordinary
services as contemplated by this Agreement. In the event that the conditions of
this Agreement are not promptly fulfilled, or if the Escrow Agent renders any
service not provided for in this Agreement, or if the parties request a
substantial modification of its terms, or if any controversy arises, or if the
Escrow Agent is made a party to, or intervenes in, any litigation or arbitration
pertaining to the Escrow Fund or its subject matter, the Escrow Agent shall be
reasonably compensated for such extraordinary services and reimbursed for all
costs, attorney's fees, including allocated costs of in-house counsel, and
expenses occasioned by such default, delay, controversy or litigation or
arbitration.
4.3 Consequential Damages. In no event shall the Escrow Agent be liable
for special, indirect or consequential loss or damage of any kind whatsoever
(including but not limited to lost profits), even if the Escrow Agent has been
advised of the likelihood of such loss or damage and regardless of the form of
action.
4.4 Successor Escrow Agents. Any corporation into which the Escrow Agent
in its individual capacity may be merged or converted or with which it may be
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Escrow Agent in its individual capacity shall be a
party, or any corporation to which substantially all the corporate trust
business of the Escrow Agent in its individual capacity may be transferred,
shall be the Escrow Agent under this Escrow Agreement without further act.
ARTICLE V
THE STOCKHOLDERS' REPRESENTATIVE
5.1 Stockholders' Representative Powers and Authority. The Stockholders'
Representative shall have full power and authority to represent all of the
Stockholders and their successors with respect to all matters arising under this
Agreement and the Merger Agreement and all actions taken by the Stockholders'
Representative hereunder and thereunder shall be binding upon all such
Stockholders and their successors as if expressly confirmed and ratified in
writing by each of them. The Stockholders' Representative shall take any and all
actions which he believes are necessary or appropriate under this Agreement and
the Merger Agreement for and on behalf of the Stockholders, as fully as if the
Stockholders were acting on their own behalf, including, without limitation,
defending all indemnity claims against the Stockholders pursuant to Section 7.2
of the Merger Agreement (an "Indemnity Claim"), consenting to, compromising or
settling all Indemnity Claims, conducting negotiations with CIENA and its agents
regarding such claims, dealing with CIENA and the Escrow Agent under this
Agreement and the Merger Agreement with respect to all matters arising under
this Agreement and the Merger Agreement, taking any and all other actions
specified in or contemplated by this Agreement and the Merger Agreement, and
engaging counsel, accountants or other Stockholders' Representatives in
connection with the foregoing matters. Without limiting the generality of the
foregoing, the Stockholders' Representative shall have full power and authority
to interpret all the terms and provisions of this Agreement and the Merger
Agreement and to consent to any amendment hereof or thereof on behalf of all
such Stockholders and such successors. Notwithstanding the foregoing, each
Stockholder shall have the right to exercise any voting rights appertaining to
the Escrow Shares.
5.2 Indemnification of Stockholders' Representative. The Stockholders'
Representative may act upon any instrument or other writing believed by the
Stockholders' Representative in good faith to be genuine and to be signed or
presented by the proper person and shall not be liable in connection with the
performance by him of his duties pursuant to the provisions of this Agreement,
except for his own willful
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default or gross negligence. The Stockholders' Representative shall be, and
hereby is, indemnified and held harmless, jointly and severally, by the
Stockholders from all losses, costs and expenses (including attorneys' fees)
that may be incurred by the Stockholders' Representative as a result of the
Stockholders' Representative's performance of his duties under this Agreement
and the Merger Agreement, provided that the Stockholders' Representative shall
not be entitled to indemnification for losses, costs or expenses that result
from any action taken or omitted by the Stockholders' Representative as a result
of his willful default or gross negligence and provided, further, that each
Stockholder's obligation to indemnify the Stockholders' Representative under
this Agreement and the Merger Agreement shall be limited to, and payable only
from, each Stockholder's pro rata interest in the Escrow Fund and cash
available, if any, to the Stockholders under the Escrow Agreement. The Escrow
Agent shall from time to time sell such amount of the Escrow Shares as necessary
to pay such Stockholders' Representative's costs and expenses, to the extent
required by the preceding sentence; provided, however, that such costs and
expenses shall be paid with an amount of proceeds from such sales and Escrow
Proceeds proportionate to the amounts of Escrow Shares and Escrow Proceeds held
in the Escrow Fund.
5.3 Access to Information. The Stockholders' Representative shall have
reasonable access to information of and concerning any Indemnity Claim and which
is in the possession, custody or control of the Company and the reasonable
assistance of the Company's officers and employees for purposes of performing
the Stockholders' Representative's duties under this Agreement or the Merger
Agreement and exercising its rights under this Agreement and the Merger
Agreement, including for the purpose of evaluating any Indemnity Claim against
the Escrow Shares by CIENA; provided that the Stockholders' Representative shall
treat confidentially and not disclose any nonpublic information from or
concerning any Indemnity Claim to anyone (except to the Stockholders'
Representative's attorneys, accountants and other advisers, to Stockholders, to
the arbitrators appointed to resolve disputes pursuant to this Agreement, and on
a need-to-know basis to other individuals who agree to keep such information
confidential).
5.4 Reasonable Reliance. In the performance of his duties hereunder, the
Stockholders' Representative shall be entitled to rely upon any document or
instrument reasonably believed by him to be genuine, accurate as to content and
signed by any Stockholder or CIENA. The Stockholders' Representative may assume
that any person purporting to give any notice in accordance with the provisions
hereof has been duly authorized to do so.
5.5 Attorney-in-Fact.
(a) The Stockholders' Representative is hereby appointed and constituted
the true and lawful attorney-in-fact of each Stockholder, with full power in
his, her or its name and on his, her or its behalf to act according to the terms
of this Agreement and the Merger Agreement in the absolute discretion of the
Stockholders' Representative; and in general to do all things and to perform all
acts including, without limitation, executing and delivering this Agreement and
any other agreements, certificates, receipts, instructions, notices or
instruments contemplated by or deemed advisable in connection with this
Agreement.
(b) This power of attorney and all authority hereby conferred is granted
and shall be irrevocable and shall not be terminated by any act of any
Stockholder, by operation of law, whether by such Stockholder's death,
disability protective supervision or any other event. Without limitation to the
foregoing, this power of attorney is to ensure the performance of a special
obligation and, accordingly, each Stockholder hereby renounces its, his or her
right to renounce this power of attorney unilaterally any time before the end of
the Escrow Period.
(c) Each Stockholder hereby waives any and all defenses which may be
available to contest, negate or disaffirm the action of the Stockholders'
Representative taken in good faith under this Agreement.
(d) Notwithstanding the power of attorney granted in this Article V, no
agreement, instrument, acknowledgement or other act or document shall be
ineffective by reason only of the Stockholders having signed or given such
directly instead of the Stockholders' Representative.
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5.6 Liability. If the Stockholders' Representative is required by the
terms of this Agreement to determine the occurrence of any event or contingency,
the Stockholders' Representative shall, in making such determination, be liable
to the Stockholders only for his proven bad faith as determined in light of all
the circumstances, including the time and facilities available to him in the
ordinary conduct of business. In determining the occurrence of any such event or
contingency, the Stockholders' Representative may request from any of the
Stockholders or any other person such reasonable additional evidence as the
Stockholders' Representative in his sole discretion may deem necessary to
determine any fact relating to the occurrence of such event or contingency, and
may at any time inquire of and consult with others, including any of the
Stockholders, and the Stockholders' Representative shall not be liable to any
Stockholder for any damages resulting from his delay in acting hereunder pending
his receipt and examination of additional evidence requested by him.
5.7 Orders. The Stockholders' Representative is authorized, in his sole
discretion, to comply with final, nonappealable orders or decisions issued or
process entered by any court of competent jurisdiction or arbitrator with
respect to the Escrow Shares and the Escrow Proceeds. If any portion of the
Escrow Shares or Escrow Proceeds is disbursed to the Stockholders'
Representative and is at any time attached, garnished or levied upon under any
court order, or in case the payment, assignment, transfer, conveyance or
delivery of any such property shall be stayed or enjoined by any court order, or
in case any order, judgment or decree shall be made or entered by any court
affecting such property or any part thereof, then and in any such event, the
Stockholders' Representative is authorized, in his sole discretion, but in good
faith, to rely upon and comply with any such order, writ, judgment or decree
which he is advised by legal counsel selected by him is binding upon him without
the need for appeal or other action; and if the Stockholders' Representative
complies with any such order, writ, judgment or decree, he shall not be liable
to any Stockholder or to any other Person by reason of such compliance even
though such order, writ, judgment or decree may be subsequently reversed,
modified, annulled, set aside or vacated.
5.8 Removal of Stockholders' Representative; Authority of Successor
Stockholders' Representative. Stockholders who in the aggregate hold at least a
majority of the Stockholders' interest in the Escrow Fund shall have the right
at any time during the term of the Escrow Agreement to remove the then-acting
Stockholders' Representative and to appoint a successor Stockholders'
Representative; provided, however, that neither such removal of the then acting
Stockholders' Representative nor such appointment of a successor Stockholders'
Representative shall be effective until the delivery to the Escrow Agent of
executed counterparts of a writing signed by each such Stockholder with respect
to such removal and appointment, together with an acknowledgment signed by the
successor Stockholders' Representative appointed in such writing that he or she
accepts the responsibility of successor Stockholders' Representative and agrees
to perform and be bound by all of the provisions of this Agreement applicable to
the Stockholders' Representative. Each successor Stockholders' Representative
shall have all of the power, authority, rights and privileges conferred by this
Agreement upon the original Stockholders' Representative, and the term
"Stockholders' Representative" as used herein and in the Escrow Agreement shall
be deemed to include any interim or successor Stockholders' Representative.
ARTICLE VI
MISCELLANEOUS
6.1 Successors and Assigns. This Agreement shall be binding upon and shall
inure to the benefit of Stockholders (by and through the Stockholders'
Representative), CIENA and the Escrow Agent, and their respective successors and
assigns, whether so expressed or not.
6.2 Waiver of Consent. No failure or delay on the part of any party hereto
in exercising any power or right hereunder shall operate as a waiver thereof,
nor shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. The rights and remedies of the parties hereunder are cumulative
and not exclusive of any rights or remedies which they would otherwise have. No
modification or waiver of any provision of this Agreement, nor consent to any
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departure by any party therefrom, shall in any event be effective unless the
same shall be in writing, and then such waiver or consent shall be effective
only in the specific instance and for the purpose for which given. No notice to
or demand on any party in any case shall entitle such party to any other or
further notice or demand in similar or other circumstances.
6.3 Captions. The Article and Section captions used herein are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
6.4 Notices. Any notice or other communication required or permitted
hereunder shall be sufficiently given if delivered in person or sent by telex,
telecopy or by registered or certified mail or by recognized overnight courier,
postage prepaid, addressed as follows:
If to CIENA or Merger Sub, to:
CIENA Corporation
1201 Winterson Road
Linthicum, Maryland 21090
Attention: General Counsel
Telecopy: (410) 865-8931
with a copy to its counsel:
Hogan & Hartson L.L.P.
111 South Calvert Street, 16th Floor
Baltimore, Maryland 21202
Attention: Michael J. Silver
Telecopy: (410) 659-2741
if to the Company, to:
Cyras Systems, Inc.
47100 Bayside Parkway
Fremont, California 94538
Attention: General Counsel
with a copy to its counsel:
Brobeck, Phleger & Harrison LLP
Two Embarcadero Place
220 Geng Road
Palo Alto, CA 94303
Attention: Warren T. Lazarow
if to the Escrow Agent, to:
[TO BE PROVIDED]
Telecopy:
if to the Stockholders' Representative, to:
Doug Carlisle
[address]
Such notice or communication shall be deemed to have been given as of the date
so delivered, sent by telecopies, telex or mailed.
6.5 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
each of which shall be deemed an original.
6.6 Governing Law. The interpretation and construction of this Agreement,
and all matters relating thereto, shall be governed by the laws of the State of
Delaware, without regard to the choice of law
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provisions thereof. Except as set forth in SECTION 3.4(c) with respect to any
arbitration commenced pursuant to SECTION 3.4, the non-prevailing party in any
dispute arising hereunder shall bear and pay the costs and expenses (including
without limitation reasonable attorneys' fees and expenses) incurred by the
prevailing party or parties in connection with resolving such dispute.
6.7 Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction or other authority to be
invalid, void, unenforceable or against its regulatory policy, the remainder of
the terms, provisions, covenants and restrictions of this Agreement shall remain
in full force and effect and shall in no way be affected, impaired or
invalidated.
6.8 Amendments and Waivers. The provisions of this Agreement, including
the provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given without the written consent of CIENA, the Stockholders' Representative and
the Escrow Agent, and any amendment or waiver hereunder shall be effective and
binding upon all Stockholders if signed by the Stockholders' Representative.
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IN WITNESS WHEREOF, CIENA, Merger Sub and the Escrow Agent have caused
their corporate names to be hereunto subscribed by their respective officers
thereunto duly authorized, and the Stockholders' Representative has executed
this Agreement, all as of the day and year first above written.
CIENA CORPORATION
By:
--------------------------------------
Patrick H. Nettles, PhD.
Chairman and Chief Executive
Officer
CYRAS SYSTEMS, INC.
By:
--------------------------------------
Name:
------------------------------------
Title:
------------------------------------
CO ACQUISITION CORP.
By:
--------------------------------------
Name:
------------------------------------
Title:
------------------------------------
STOCKHOLDERS' REPRESENTATIVE:
--------------------------------------
Doug Carlisle
[ESCROW AGENT]
--------------------------------------
Name:
--------------------------------------
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APPENDIX D
STOCKHOLDER AGREEMENT
STOCKHOLDER AGREEMENT, dated as of December 18, 2000 (this "Agreement"), by
the undersigned stockholder (the "Stockholder") of Cyras Systems, Inc., a
Delaware corporation (the "Company"), for the benefit of CIENA Corporation, a
Delaware corporation ("CIENA").
RECITALS
WHEREAS, CIENA, CO Acquisition Corp., the Company and certain stockholders
of the Company are entering into an Agreement and Plan of Merger, dated as of
December 18, 2000 (the "Merger Agreement"), whereby, upon the terms and subject
to the conditions set forth in the Merger Agreement, each issued and outstanding
share of capital stock of the Company ("Company Capital Stock"), not owned
directly or indirectly by CIENA or the Company, will be converted into shares of
Common Stock, par value $.01 per share, of CIENA ("CIENA Common Stock");
WHEREAS, the Stockholder owns of record and/or holds stock options,
warrants or convertible securities to acquire (whether or not vested) that
number and class of shares of Company Capital Stock appearing on the signature
page hereof (such shares of Company Capital Stock, together with any other
shares of capital stock of the Company acquired by such Stockholder after the
date hereof and during the term of this Agreement, being collectively referred
to herein as the "Subject Shares");
WHEREAS, as a condition to its willingness to enter into the Merger
Agreement, CIENA has required that the Stockholder agree, and in order to induce
CIENA to enter into the Merger Agreement, the Stockholder has agreed, to enter
into this Agreement.
NOW, THEREFORE, in consideration of the promises and the mutual covenants
and agreements set forth herein, the Stockholder agrees as follows:
1. Grant of Option. The Stockholder hereby grants CIENA an irrevocable
option (the "Option") to purchase the Subject Shares on the terms and subject to
the conditions set forth below:
(a) Exercise. At any time or from time to time prior to the
termination of the Option granted hereunder in accordance with the terms of
this Agreement, CIENA (or a wholly owned subsidiary of CIENA designated by
CIENA) may exercise the Option, in whole or in part, if, and only if, on or
after the date hereof any of the events described in Section 8.5(b)(ii),
(c)(i) or (d)(i) of the Merger Agreement or any other event that would
require the Company to pay CIENA the termination fee set forth in Section
8.5(e) of the Merger Agreement occurs (but without the necessity of CIENA
having terminated the Merger Agreement) or there shall be a breach by the
Stockholder of the covenants in SECTION 4 of this Agreement (any such
event, a "Trigger Event"). The Stockholder shall notify CIENA promptly in
writing of the occurrence of any Trigger Event of which it is aware;
provided, however, that notice shall not be a condition to the right of
CIENA to exercise the Option.
(b) Exercise Procedure. In the event CIENA wishes to exercise the
Option, CIENA shall deliver to the Stockholder a written notice (an
"Exercise Notice") specifying the total number of the Subject Shares it
wishes to purchase. Provided that the conditions set forth in paragraph (g)
hereof to the Stockholder's obligation to sell the Subject Shares to CIENA
hereunder have been satisfied or waived, CIENA shall, upon delivery of the
Exercise Notice and tender of the applicable aggregate Exercise Price (as
defined below), immediately be deemed to be the holder of record of such
Subject Shares purchasable upon such exercise, notwithstanding that the
stock transfer books of the Company shall then be closed or that
certificates representing the Subject Shares shall not theretofore have
been delivered to CIENA. Each closing of a purchase of such Subject Shares
(a "Closing") shall occur at a place, on a date and at a time designated by
CIENA in an Exercise Notice delivered at
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least two (2) business days prior to the date of the Closing, and shall
occur no later than fifteen (15) days after the Exercise Notice is
delivered.
(c) Termination of the Option. The Option shall terminate upon the
earliest of: (i) the Effective Time of the Merger; (ii) the termination of
the Merger Agreement for reasons other than those described in clause (iii)
below; and (iii) twelve (12) months following the termination of the Merger
Agreement pursuant to Section 8.5(b)(ii), (c)(i) or (d)(i) thereof.
Notwithstanding the foregoing, if the Option cannot be exercised by reason
of any applicable judgment, decree, order, law or regulation, the Option
shall remain exercisable and shall not terminate until the earlier of (x)
the date on which such impediment shall become final and not subject to
appeal, and (y) 5:00 p.m. New York City Time, on the tenth (10th) business
day after such impediment shall have been removed. Notwithstanding the
termination of the Option, CIENA shall be entitled to purchase the Subject
Shares with respect to which CIENA had exercised the Option prior to such
termination.
(d) Exercise Price. The purchase price per share of Subject Shares
purchased pursuant to the Option (the "Exercise Price") shall be (i) an
amount in cash equal to the product of (x) the Common Stock Exchange Ratio
(determined for this purpose as if the date of Closing was the date of the
Exercise Notice, and, as so determined, the "Assumed Common Stock Exchange
Ratio") multiplied by (y) the average closing price of CIENA Common Stock
for the twenty (20) trading days preceding the date the Option is exercised
(the "Cash Exercise Price") or (ii) a number of shares of CIENA Common
Stock equal to the Assumed Common Stock Exchange Ratio (the "Stock Exercise
Price"); provided, however, that the aggregate Cash Exercise Price paid to
the Stockholder when aggregated with all other cash purchases of Company
Common Stock including cash in lieu of fractional shares by CIENA shall be
limited to that amount of cash that would permit any subsequent acquisition
of the Company by CIENA that occurs to qualify as a tax free reorganization
under the provisions of Section 368(a) of the Code. In the event the Option
is exercised to purchase options or warrants, the relevant Cash Exercise
Price or Stock Exercise Price shall be reduced by the exercise price of the
options or warrants.
(e) Pro Rata Exercise. In the event CIENA determines to exercise the
Option in whole or in part, CIENA hereby covenants and agrees that it will
purchase the aggregate number of shares of Company Common Stock being
sought pro rata from each other Stockholder who has entered into an
Agreement on the date hereof that is substantially identical to this
Agreement.
(f) Conditions to Closing. The obligation of the Stockholder to sell
the Subject Shares to CIENA hereunder is subject to the conditions that (i)
all waiting periods, if any, under the HSR Act applicable to the sale of
the Subject Shares by Stockholder and the acquisition of the Subject Shares
by CIENA hereunder shall have expired or have been terminated; (ii) all
consents, approvals, orders or authorizations of, or registrations,
declarations or filings with, any federal, state or local administrative
agency or commission or other federal, state or local governmental
authority or instrumentality, if any, required in connection with the sale
of the Subject Shares by the Stockholder and the acquisition of the Subject
Shares by CIENA hereunder shall have been obtained or made, as the case may
be; and (iii) no preliminary or permanent injunction or other order by any
court of competent jurisdiction prohibiting or otherwise restraining such
sale shall be in effect.
(g) Closing. At any Closing, (i) the Stockholder shall deliver to
CIENA a certificate or certificates evidencing the Subject Shares being
purchased, duly endorsed in blank, or with appropriate stock powers, duly
executed in blank, in proper form for transfer, with the signature of the
Stockholder thereon guaranteed, and with all applicable taxes paid or
provided for; (ii) CIENA shall deliver to the Stockholder (A) by wire
transfer of immediately available funds to the account or accounts
specified in writing by the Stockholder the aggregate Cash Exercise Price
for the Subject Shares so designated and being purchased for cash, and (B)
one or more certificates representing shares of CIENA Common Stock equal to
the aggregate Stock Exercise Price for the Subject Shares so designated and
being purchased by delivery of CIENA Common Stock; and (iii) at which CIENA
is exercising the Option in part, CIENA shall present and surrender this
Agreement to the
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Stockholder, and the Stockholder shall deliver to CIENA an executed new
agreement with the same terms as this Agreement evidencing the right to
purchase the balance of the Subject Shares purchasable hereunder. If CIENA
delivers CIENA Common Stock at Closing, CIENA shall file and use reasonable
efforts to have declared effective a shelf Registration Statement covering
resale of the CIENA Common Stock on Form S-3 promptly thereafter, and shall
maintain the effectiveness thereof until such time as such shares may be
sold pursuant to Rule 144 without regard to the volume restrictions under
Rule 144(e), subject to the Stockholder's obligation to provide CIENA with
all information customarily required regarding selling stockholders in
registrations of that type.
2. Representations and Warranties of the Stockholder. The Stockholder
hereby represents and warrants to CIENA as follows:
(a) Organization; Authority; Execution and Delivery;
Enforceability. The Stockholder (i) is, if not a natural person, duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization, and (ii) has the requisite corporate,
company, partnership or other power and authority to execute and deliver
this Agreement, to consummate the transactions contemplated hereby and to
comply with the terms hereof. The execution and delivery by the
Stockholder, the consummation by the Stockholder of the transactions
contemplated hereby and compliance by the Stockholder with the provisions
hereof have been duly authorized by all necessary corporate, company,
partnership or other action on the part of the Stockholder and no other
corporate, company, partnership or other proceedings on the part of the
Stockholder are necessary to authorize this Agreement, to consummate the
transactions contemplated hereby or to comply with the provisions hereof.
This Agreement has been duly executed and delivered by the Stockholder and
constitutes a valid and binding obligation of the Stockholder and, assuming
this Agreement constitutes a valid and binding obligation of CIENA, is
enforceable against the Stockholder in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other laws affecting the rights
and remedies of creditors generally and general principles of equity
(whether considered in a proceeding in equity or at law). The execution and
delivery of this Agreement, the consummation of the transactions
contemplated hereby and compliance with the provisions hereof do not and
will not conflict with, or result in any violation or breach of, or default
(with or without notice or lapse of time, or both) under, or give rise to a
right of, or result in, termination, cancellation or acceleration of any
obligation or to loss of a material benefit under, or result in the
creation of any lien in or upon any of the properties or assets of the
Stockholder under, or give rise to any increased, additional, accelerated
or guaranteed rights or entitlements under, any provision of (i) any
certificate of incorporation or by-laws, partnership agreement or limited
liability company agreement (or similar organizational documents) of the
Stockholder, (ii) any material contract to which the Stockholder is a party
or any of the properties or assets of the Stockholder is subject or (iii)
subject to the governmental filings and other matters referred to in the
following sentence, any (A) statute, law, ordinance, rule or regulation or
(B) judgment, order or decree, in each case, applicable to the Stockholder
or its properties or assets, other than, in the case of clauses (ii) and
(iii) , any such conflicts, violations, breaches, defaults, rights, losses,
liens or entitlements that individually or in the aggregate could not
reasonably be expected to impair in any material respect the ability of the
Stockholder to perform its obligations under this Agreement or prevent or
materially impede or delay the consummation of any of the transactions
contemplated by this Agreement. No consent, approval, order or
authorization of, or registration, declaration or filing with, any
Governmental Entity is required by or with respect to the Stockholder in
connection with the execution and delivery of this Agreement by such
Stockholder, the consummation by the Stockholder of the transactions
contemplated hereby or the compliance by the Stockholder with the
provisions hereof, except for (1) filings under the Hart-Scott-Rodino Act
and any other applicable competition, merger control, antitrust or similar
law or regulation, and (2) such other consents, approvals, orders,
authorizations, registrations, declarations and filings the failure of
which to be obtained or made individually or in the aggregate could not
reasonably be expected to impair in any material respect the ability of the
Stockholder to perform its obligations under this
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Agreement or prevent or materially impede or delay the consummation of any
of the transactions contemplated hereby.
(b) The Subject Shares. (i) The Stockholder is the record and
beneficial owner of, and has good and marketable title to, the Subject
Shares set forth opposite its name on Schedule A hereto, free and clear of
any Liens except as set forth on Schedule A. As of the date hereof, other
than as set forth on Schedule A hereto, the Stockholder does not own (of
record or beneficially) any shares of capital stock of the Company, and the
Stockholder does not own (of record or beneficially) any options, warrants,
rights or other similar instruments to acquire any capital stock or other
voting securities of the Company. Except as set forth on Schedule A, the
Stockholder has the sole right to Transfer (as defined in SECTION 4(c)) and
direct the voting of the Subject Shares, and none of such Subject Shares is
subject to any voting trust or other agreement, arrangement or restriction
with respect to the Transfer or the voting of the Subject Shares, except as
set forth in SECTIONS 1 and 4 of this Agreement.
(ii) In the event CIENA exercises its Option pursuant to SECTION 1,
upon delivery of the Subject Shares covered thereby and payment of the
aggregate Exercise Price therefor as contemplated in Section 1, CIENA will
receive good and valid title to the Subject Shares free and clear of any
Liens or adverse claims.
(c) Investment Representations of the Stockholder. The Stockholder
represents, warrants, and covenants to CIENA as follows: (i) the
Stockholder understands that any issuance of CIENA Common Stock to such
Stockholder pursuant to this Agreement (the "Restricted Securities") is
intended to be exempt from registration under the Securities Act by virtue
of Section 4(2) of the Securities Act or Regulation D promulgated
thereunder, and that no registration statement relating to the issuance of
the Restricted Securities has been or will be filed with the SEC or any
state securities commission;
(ii) the Stockholder intends to acquire the Restricted Securities
solely for its own account, for investment purposes only and not with a
view to the resale or distribution other than pursuant to an effective
resale registration statement;
(iii) the Stockholder agrees not to sell (other than pursuant to an
effective resale registration statement), transfer, exchange, pledge or
otherwise dispose of, or make any offer or agreement relating to the
Restricted Securities and/or any option, right or other interest with
respect to the Restricted Securities that the Stockholder may acquire,
unless: (A) counsel representing the Stockholder, which counsel is
reasonably satisfactory to CIENA and CIENA's legal counsel, shall have
advised CIENA in a written opinion letter satisfactory to CIENA and CIENA's
legal counsel, and upon which CIENA and CIENA's legal counsel may rely,
that no registration under the Securities Act would be required in
connection with the proposed sale, transfer, exchange, pledge or other
disposition, and (B) all transferees (and other subsequent transferees) who
receive the Restricted Securities agree to be bound by the investment and
other restrictions to which the Stockholder was subject;
(iv) the Stockholder is an "accredited investor" as defined in Rule
501 of Regulation D under the Securities Act, has the capacity to protect
the Stockholder's interests in connection with this Agreement, and has such
knowledge and experience in financial, tax and business matters to be
capable of evaluating the merits and risks of an investment in the
Restricted Securities and in protecting the Stockholder's interests in
connection with the investment and, in the Stockholder's judgment, has
obtained sufficient information from CIENA to evaluate the merits and risks
of an investment in the Restricted Securities;
(v) the Stockholder acknowledges that (A) it has conducted its own
investigation and review of the business and affairs of CIENA, (B) it has
not relied on any representations or warranties of CIENA concerning the
business and affairs of CIENA or an investment in the Restricted
Securities, (C) it has had the opportunity to ask questions of and receive
information and answers from CIENA
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concerning the terms and conditions of this Agreement, the Restricted
Securities and other matters pertaining to an investment in the Restricted
Securities, and (D) it has been given the opportunity to verify the
information provided to it in order for the Stockholder to evaluate the
merits and risks of an investment in the Restricted Securities, and all
such questions have been answered and all such information has been
provided to the full satisfaction of the Stockholder;
(vi) the Stockholder further acknowledges, represents, agrees and is
aware that the representations, warranties, agreements, undertakings and
acknowledgments made by the Stockholder in this Agreement are made with the
intent that they be relied upon by CIENA in determining the suitability of
the Stockholder as an investor in the Restricted Securities; and
(vii) the Stockholder undertakes to notify CIENA immediately of any
change in any representation, warranty or other information relating to the
Stockholder set forth herein.
3. Representations and Warranties of CIENA. CIENA hereby represents and
warrants to the Stockholder as follows:
(a) Organization; Authority; Execution and Delivery;
Enforceability. CIENA (i) is duly incorporated, validly existing and in
good standing under the laws of the State of Delaware and (ii) has all
requisite corporate power and authority to execute and deliver this
Agreement, to consummate the transactions contemplated hereby and to comply
with the terms hereof. The execution and delivery of this Agreement by
CIENA, the consummation by CIENA of the transactions contemplated hereby
and compliance by CIENA with the provisions hereof have been duly
authorized by all necessary corporate action on the part of CIENA and no
other corporate proceedings on the part of CIENA are necessary to authorize
this Agreement, to consummate the transactions contemplated hereby or to
comply with the provisions hereof. This Agreement has been duly executed
and delivered by CIENA and, assuming due execution by the Stockholder,
constitutes a valid and binding obligation of CIENA enforceable against
CIENA in accordance with its terms, except as enforceability may be limited
by bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other laws affecting the rights and remedies of creditors
generally and general principles of equity (whether considered in a
proceeding in equity or at law). The execution and delivery of this
Agreement, the consummation of the transactions contemplated hereby and
compliance with the provisions hereof do not and will not conflict with, or
result in any violation or breach of, or default (with or without notice or
lapse of time, or both) under, or give rise to a right of, or result in,
termination, cancellation or acceleration of any obligation or to loss of a
material benefit under, or result in the creation of any Lien in or upon
any of the properties or assets of CIENA under, or give rise to any
increased, additional, accelerated or guaranteed rights or entitlements
under, any provision of (i) the Amended and Restated Certificate of
Incorporation or Amended and Restated By-laws of CIENA, (ii) any contract
to which CIENA is a party or any of its properties or assets is subject or
(iii) subject to the governmental filings and other matters referred to in
the following sentence, any (A) statute, law, ordinance, rule or regulation
or (B) judgment, order or decree, in each case, applicable to CIENA or its
properties or assets, other than, in the case of clauses (ii) and (iii) ,
any such conflicts, violations, breaches, defaults, rights, losses, Liens
or entitlements that individually or in the aggregate could not reasonably
be expected to impair in any material respect the ability of CIENA to
perform its obligations under this Agreement or prevent or materially delay
the consummation of any of the transactions contemplated by this Agreement.
No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required by or with
respect to CIENA in connection with the execution and delivery of this
Agreement by CIENA, the consummation by CIENA of the transactions
contemplated hereby or compliance by CIENA with the provisions hereof,
except for (1) filings under the Hart-Scott-Rodino Act and any other
applicable competition, merger control, antitrust or similar law or
regulation, (2) filings with the SEC of such reports under the Exchange Act
as may be required in connection with this Agreement and the transactions
contemplated hereby and (3) such other consents, approvals, orders,
authorizations, registrations, declarations and filings the failure of
which to be obtained or made individually or in the aggregate could not
reasonably be expected to
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impair in any material respect the ability of CIENA to perform its
obligations under this Agreement or prevent or materially delay the
consummation of any of the transactions contemplated hereby
(b) Investment Representations of CIENA. CIENA represents, warrants,
and covenants to the Stockholder as follows (except as contemplated by this
Agreement and the Merger Agreement and the transactions contemplated
thereby):
(i) CIENA does not now have, and as of any Closing will not have,
any present plan or intention to sell, transfer, exchange, pledge or
otherwise dispose of, or to effect any other transaction with respect to
the Subject Shares;
(ii) CIENA understands that any sale of the Subject Shares
hereunder is intended to be exempt from registration, and that no
registration statement relating to the sale of the Subject Shares in
connection with this Agreement has been or will be filed with the SEC or
any state securities commission;
(iii) CIENA intends to acquire the Subject Shares solely for its
own account, for investment purposes only and not with a view to the
resale or distribution thereof;
(iv) CIENA agrees not to sell, transfer, exchange, pledge or
otherwise dispose of, or make any offer or agreement relating to the
Subject Shares and/or any option, right or other interest with respect
to the Subject Shares that CIENA may acquire, unless: (A) counsel
representing CIENA, which counsel is reasonably satisfactory to the
Company and the Company's legal counsel, shall have advised the Company
in a written opinion letter satisfactory to the Company and the
Company's legal counsel, and upon which the Company and the Company's
legal counsel may rely, that no registration under the Securities Act
would be required in connection with the proposed sale, transfer,
exchange, pledge or other disposition, and (B) all transferees (and
other subsequent transferees) who receive the Subject Shares agree to be
bound by the investment and other restrictions to which CIENA was
subject;
(v) CIENA is an "accredited investor" as defined in Rule 501 of
Regulation D under the Securities Act, has the capacity to protect its
interests in connection with this Agreement, and has such knowledge and
experience in financial, tax and business matters to be capable of
evaluating the merits and risks of an investment in the Subject Shares
and in protecting its interests in connection with the investment and,
in CIENA's judgment, has obtained sufficient information from the
Company to evaluate the merits and risks of an investment in the Subject
Shares;
(vi) CIENA acknowledges that (A) it has conducted its own
investigation and review of the business and affairs of the Company, (B)
it has not relied on any representations or warranties of the Company
concerning the business and affairs of the Company or an investment in
the Subject Shares, (C) it has had the opportunity to ask questions of
and receive information and answers from the Company concerning the
terms and conditions of this Agreement, the Subject Shares and other
matters pertaining to an investment in the Subject Shares, and (D) it
has been given the opportunity to verify the information provided to it
in order for CIENA to evaluate the merits and risks of an investment in
the Subject Shares, and all such questions have been answered and all
such information has been provided to the full satisfaction of CIENA;
(vii) CIENA further acknowledges, represents, agrees and is aware
that the representations, warranties, agreements, undertakings and
acknowledgments made by CIENA in this Agreement are made with the intent
that they be relied upon by such Stockholder and the Company in
determining the suitability of CIENA as an investor in the Subject
Shares; and
(viii) CIENA undertakes to notify the Stockholder immediately of
any change in any representation, warranty or other information relating
to CIENA set forth herein.
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4. Covenants of Stockholder. Until the termination of this Agreement in
accordance with Section 5, Stockholder agrees as follows:
(a) At the Company Stockholder Meeting (or at any adjournment thereof)
or in any other circumstances upon which a vote, consent or other approval
with respect to the Merger and the Merger Agreement is sought, the
Stockholder shall vote (or cause to be voted) the Subject Shares in favor
of the Merger, the adoption of the Merger Agreement and the approval of the
terms thereof and each of the other transactions contemplated by the Merger
Agreement, including, if the Stockholder owns any Preferred Stock of the
Company, automatic conversion of the Preferred Stock as provided for in
Article IV.B. Section 3(b)(ii) of the Company's Amended and Restated
Certificate of Incorporation;
(b) At any meeting of stockholders of the Company or at any
adjournment thereof or in any other circumstances upon which the
Stockholder's vote, consent or other approval is sought, the Stockholder
shall vote (or cause to be voted) the Subject Shares against (i) any
Acquisition Proposal or transaction or occurrence that if proposed and
offered to the Company or its stockholders (or any of them) would
constitute an Acquisition Proposal (collectively, "Alternative
Transactions"), and (ii) any amendment of the Company's Restated
Certificate of Incorporation or By-Laws, which amendment would in any
manner impede, frustrate, prevent or nullify the Merger, the Merger
Agreement or any of the other transactions contemplated by the Merger
Agreement or change in any manner the voting rights of any class of capital
stock of the Company;
(c) Other than pursuant to this Agreement, the Stockholder agrees not
to (i) sell, transfer, pledge, assign or otherwise dispose of (including by
gift) (collectively, "Transfer"), or enter into any contract, option or
other arrangement (including any profit-sharing arrangement) with respect
to the Transfer of the Subject Shares to any person or (ii) enter into any
voting arrangement, whether by proxy, voting agreement or otherwise, in
relation to the Subject Shares, and agrees not to commit or agree to take
any of the foregoing actions;
(d) The Stockholder shall not, nor shall the Stockholder permit any
affiliate, director, officer, employee, investment banker, attorney or
other advisor or representative of the Stockholder to, (i) directly or
indirectly solicit, initiate or knowingly encourage the submission of, any
Acquisition Proposal or (ii) directly or indirectly participate in any
discussions or negotiations regarding, or furnish to any person any
information with respect to, or take any other action to facilitate any
inquiries or the making of any proposal that constitutes or may reasonably
be expected to lead to, any Acquisition Proposal; and
(e) The Stockholder shall use the Stockholder's best efforts to take,
or cause to be taken, all actions, and to do, or cause to be done, and to
assist and cooperate with CIENA in doing, all things necessary, proper or
advisable to support and to consummate and make effective, in the most
expeditious manner practicable, the Merger and the other transactions
contemplated by the Merger Agreement.
5. Termination. Except as set forth below, this Agreement shall terminate
at the time when the Option would otherwise expire under SECTION 1(c); provided,
however, that the provisions of Sections 4(a), 4(b), 4(d), and 4(e) shall
terminate upon the earliest of (i) the Effective Time and (ii) the termination
of the Merger Agreement in accordance with its terms. In the event of the
termination of this Agreement pursuant to this SECTION 5, except as set forth
herein, this Agreement shall forthwith become null and void, there shall be no
liability on the part of any of the parties, and except as set forth in this
SECTION 5 all rights and obligations of each party hereto shall cease; provided,
however, that no such termination of this Agreement shall relieve any party
hereto from any liability for any willful and material breach of any provision
of this Agreement prior to termination.
6. Further Assurances. The Stockholder will, from time to time, execute
and deliver, or cause to be executed and delivered, such additional or further
consents, documents and other instruments as CIENA
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may reasonably request for the purpose of effectively carrying out the
transactions contemplated by this Agreement.
7. Successors, Assigns and Transferees Bound. (a) The Stockholder agrees
that this Agreement and the obligations hereunder shall attach the Subject
Shares and shall be binding upon any person or entity to which legal or
beneficial ownership of the Subject Shares shall pass, whether by operation of
law or otherwise, including the Stockholder's heirs, guardians, administrators
or successors, and the Stockholder further agrees to take all actions necessary
to effectuate the foregoing. The Stockholder agrees that each certificate
representing the Subject Shares shall be inscribed with the legend required by
SECTION 7(b). In the event of any stock split, stock dividend, reclassification,
merger, reorganization, recapitalization or other change in the capital
structure of the Company affecting the capital stock of the Company, the number
of Subject Shares shall be adjusted appropriately. In the event of any change in
the Company Common Stock or CIENA Common Stock by reason of stock dividends,
stock splits, mergers (other than the Merger), recapitalizations, combinations,
exchange of shares or the like, the type and number of shares or securities
subject to the Option, and the purchase price per share provided in SECTION 1(d)
hereof, shall be adjusted appropriately, and proper provision shall be made in
the agreements governing such transaction so that CIENA shall receive, upon
exercise of the Option, the number and class of shares or other securities or
property that CIENA would have received in respect of the Company Common Stock
if the Option had been exercised immediately prior to such event or the record
date therefor, as applicable. In addition, in the event of any other acquisition
of additional shares of capital stock of the Company or other voting securities
of the Company by the Stockholder (including through the exercise of any
warrants, stock options or similar instruments), the number of Subject Shares
listed on Schedule A hereto shall be increased appropriately. This Agreement and
the representations, warranties, covenants, agreements and obligations hereunder
shall attach to any additional shares of capital stock of the Company or other
voting securities of the Company issued to or acquired by the Stockholder
directly or indirectly (including through the exercise of any warrants, stock
options or similar instruments).
(b) The Stockholder shall cause the certificated Subject Shares to have a
legend placed conspicuously on such certificate to the following effect:
"The shares of common stock evidenced by this certificate are subject
to a Stockholder Agreement dated December 18, 2000, entered into by the
record owner of such shares and CIENA Corporation."
The Stockholder shall cause a counterpart of this Agreement to be deposited
with the Company at its principal place of business or registered office where
it shall be subject to the same right of examination by a stockholder of the
Company, in person or by agent or attorney, as are the books and records of the
Company.
8. Remedies. The Stockholder acknowledges that money damages would be both
incalculable and an insufficient remedy for any breach of this Agreement by it,
and that any such breach would cause CIENA irreparable harm. Accordingly, the
Stockholder agrees that in the event of any breach or threatened breach of this
Agreement, CIENA, in addition to any other remedies at law or in equity it may
have, shall be entitled, without the requirement of posting a bond or other
security, to equitable relief, including injunctive relief and specific
performance.
9. Severability. The invalidity or unenforceability of any provision of
this Agreement in any jurisdiction shall not affect the validity or
enforceability of any other provision of this Agreement in such jurisdiction, or
the validity or enforceability of any provision of this Agreement in any other
jurisdiction.
10. Amendment. This Agreement may be amended only by means of a written
instrument executed and delivered by both the Stockholder and CIENA.
11. Governing Law. This Agreement shall be governed by, and construed in
accordance in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
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12. Capitalized Terms. Capitalized terms used in this Agreement that are
not defined herein shall have such meanings as set forth in the Merger
Agreement.
13. Counterparts. For the convenience of the parties, this Agreement may
be executed in counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
14. No Limitation on Actions of the Stockholder as Director. In the event
the Stockholder is a director of the Company, notwithstanding anything to the
contrary in this Agreement, nothing in this Agreement is intended or shall be
construed to require the Stockholder to take or in any way limit any action that
the Stockholder may take to discharge the Stockholder's fiduciary duties as a
director of the Company.
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188
IN WITNESS WHEREOF, Stockholder has caused this Agreement to be executed as
of the date first above written.
--------------------------------------
(print or type name)
By:
--------------------------------------
Accepted and Agreed to as of the date set forth above:
CIENA CORPORATION
By:
----------------------------------------------------
Name: Michael O. McCarthy, III
Title: Senior Vice President,
General Counsel and Secretary
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189
SCHEDULE A
NUMBER OF SUBJECT SHARES
OWNED OF RECORD OR PURSUANT TO VESTED OR
NAME AND ADDRESS OF STOCKHOLDER UNVESTED OPTIONS, WARRANTS OR CONVERTIBLE SECURITIES
------------------------------- ----------------------------------------------------
shares
stock options or warrants
Series A Preferred
Series B Preferred
Series C Preferred
Series D Preferred
D-11
190
[LETTERHEAD OF CREDIT SUISSE FIRST BOSTON CORPORATION]
APPENDIX E
DECEMBER 18, 2000
BOARD OF DIRECTORS
CYRAS SYSTEMS, INC.
47100 BAYSIDE PARKWAY
FREMONT, CALIFORNIA 94538
MEMBERS OF THE BOARD:
You have asked us to advise you with respect to the fairness, from a financial
point of view, to the holders of the common stock of Cyras Systems, Inc.
("Cyras"), other than affiliates of Cyras, of the Exchange Ratio (as defined
below) set forth in the Agreement and Plan of Merger, dated as of December 18,
2000 (the "Agreement"), among CIENA Corporation ("CIENA"), Cyras and CO
Acquisition Corp., a wholly owned subsidiary of CIENA ("Merger Sub"). The
Agreement provides for, among other things, the merger of Merger Sub with and
into Cyras (the "Merger") pursuant to which the outstanding shares of the common
stock, par value $0.0001 per share, of Cyras ("Cyras Common Stock") will be
converted into the right to receive a fraction of a share of common stock, par
value $0.01 per share, of CIENA ("CIENA Common Stock") equal to the Exchange
Ratio. As more fully described in the Agreement, the Exchange Ratio will be
equal to the quotient of (i) the sum of (x) 27,000,000 shares of CIENA Common
Stock (the "Aggregate Share Consideration") plus (y) the quotient of the
aggregate amount receivable from holders of options and warrants (the "Stock
Equivalents") to purchase shares of Cyras Common Stock upon the exercise of all
Stock Equivalents (assuming they were exercised for cash) divided by the Assumed
Value (as defined below) less (z) the shares of CIENA Common Stock issuable to
holders of Cyras Preferred Stock (as more fully described in the Agreement)
divided by (ii) the sum of the shares of Cyras Common Stock outstanding at the
effective time of the Merger and the number of shares of Cyras Common Stock
issuable upon exercise of the Stock Equivalents outstanding at the effective
time of the Merger less certain adjustments set forth in the Agreement. "Assumed
Value" is defined in the Agreement as the lower of (i) the average closing price
of a share of CIENA Common Stock as reported on the Nasdaq National Market
("NASDAQ") for the 20 most recent days that CIENA Common Stock has traded ending
on the third trading day prior to the effective time of the Merger and (ii) the
closing price of a share of CIENA Common Stock as reported on NASDAQ on the last
full trading day prior to the effective time of the Merger.
In arriving at our opinion, we have reviewed the Agreement, as well as certain
publicly available business and financial information relating to CIENA and
certain business and financial information relating to Cyras. We also have
reviewed certain other information relating to Cyras and CIENA, including
financial forecasts for Cyras and publicly available financial forecasts for
CIENA, provided to or discussed with us by Cyras and CIENA, and have met with
the managements of Cyras and CIENA to discuss the businesses and prospects of
Cyras and CIENA. We also have considered certain financial and stock market data
of CIENA and certain financial and other data of Cyras, and we have compared
those data with similar data for other publicly held companies in businesses we
deemed similar to those of Cyras and CIENA, and we have considered, to the
extent publicly available, the financial terms of certain other business
combinations and other transactions which have recently been effected. We also
considered such other information, financial studies, analyses and
investigations and financial, economic and market criteria which we deemed
relevant.
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information and have relied on
such information being complete and accurate in all material respects. With
respect to the financial forecasts relating to Cyras, we have been advised, and
have assumed, that such forecasts have been reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
management of Cyras as to the future financial performance of Cyras. With
respect to the financial forecasts relating to CIENA, we have reviewed and
discussed with the management of CIENA certain publicly available financial
forecasts relating to CIENA and have been advised by the management of CIENA,
and have assumed, that such forecasts represent reasonable estimates and
judgments as to the future
E-1
191
BOARD OF DIRECTORS
CYRAS SYSTEMS, INC.
DECEMBER 18, 2000
PAGE 2
financial performance of CIENA. In addition, we have relied, without independent
verification, upon the assessments of the managements of Cyras and CIENA as to
(i) the existing and future technology and products of Cyras and CIENA and the
risks associated with such technology and products, (ii) their ability to
integrate the businesses of Cyras and CIENA and (iii) their ability to retain
key employees of Cyras and CIENA. We also have assumed, with your consent, that
the Merger will be treated as a tax-free reorganization for federal income tax
purposes. In addition, we have not been requested to make, and have not made, an
independent evaluation or appraisal of the assets or liabilities (contingent or
otherwise) of Cyras or CIENA, nor have we been furnished with any such
evaluations or appraisals. Our opinion is necessarily based upon information
available to us, and financial, economic, market and other conditions as they
exist and can be evaluated on the date hereof. We are not expressing any opinion
as to what the value of CIENA Common Sock actually will be when issued pursuant
to the Merger or the prices at which CIENA Common Sock will trade subsequent to
the Merger. In connection with our engagement, we were requested prior to the
commencement of negotiations with respect to the Merger to contact, and we held
discussions with, selected third parties regarding a possible business
combination or similar transaction with Cyras, but we were not requested to, and
we did not, solicit generally third party indications of interest in the
possible acquisition of all or a part of Cyras. During the negotiations with
respect to the merger, Cyras received preliminary unsolicited indications of
interest in the purchase of the outstanding capital stock of Cyras from two
third parties (one orally and one in writing) which the Board of Directors of
Cyras determined not to pursue for various reasons, including, among other
things, the enhanced CIENA offer. Our opinion does not address the relative
merits of the Merger as compared to other business strategies that might be
available to Cyras, including the preliminary unsolicited indications of
interest referred to above, nor does it address the underlying business decision
of Cyras to proceed with the Merger.
We have acted as financial advisor to Cyras in connection with the Merger and
will receive a fee for such services, a significant portion of which is
contingent upon the consummation of the Merger. We also will receive a fee upon
delivery of this opinion. We and our affiliates in the past have provided
financial services to Cyras unrelated to the proposed Merger, for which services
we have received compensation. In the ordinary course of business, we and our
affiliates may actively trade the securities of CIENA and the debt securities of
Cyras for our and our affiliates' accounts and for the accounts of customers
and, accordingly, may at any time hold a long or short position in such
securities.
It is understood that this letter is for the information of the Board of
Directors of Cyras in connection with its evaluation of the Merger and does not
constitute a recommendation to any stockholder as to how such stockholder should
vote with respect to any matter relating to the Merger.
Based upon and subject to the foregoing, it is our opinion that, as of the date
hereof, the Exchange Ratio is fair, from a financial point of view, to the
holders of Cyras Common Stock, other than affiliates of Cyras.
Very truly yours,
CREDIT SUISSE FIRST BOSTON CORPORATION
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192
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the DGCL, a corporation may indemnify its directors,
officers, employees and agents and its former directors, officers, employees and
agents and those who serve, at the corporation's request, in such capacities
with another enterprise, against expenses (including attorneys' fees), as well
as judgments, fines and settlements in nonderivative lawsuits, actually and
reasonably incurred in connection with the defense of any action, suit or
proceeding in which they or any of them were or are made parties or are
threatened to be made parties by reason of their serving or having served in
such capacity. The DGCL provides, however, that such person must have acted in
good faith and in a manner such person reasonably believed to be in (or not
opposed to) the best interests of the corporation and, in the case of a criminal
action, such person must have had no reasonable cause to believe his or her
conduct was unlawful. In addition, the DGCL does not permit indemnification in
an action or suit by or in the right of the corporation, where such person has
been adjudged liable to the corporation, unless, and only to the extent that, a
court determines that such person fairly and reasonably is entitled to indemnity
for costs the court deems proper in light of liability adjudication. Indemnity
is mandatory to the extent a claim, issue or matter has been successfully
defended.
The Third Restated Certificate of Incorporation of CIENA (the "CIENA
Certificate") contains provisions that provide that no director of CIENA shall
be liable for breach of fiduciary duty as a director except for (1) any breach
of the directors' duty of loyalty to CIENA or its stockholders; (2) acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of the law; (3) liability under Section 174 of the DGCL; or (4) any
transaction from which the director derived an improper personal benefit. The
CIENA Certificate contains provisions that further provide for the
indemnification of directors and officers to the fullest extent permitted by the
DGCL. Under the bylaws of CIENA, CIENA is required to advance expenses incurred
by an officer or director in defending any such action if the director or
officer undertakes to repay such amount if it is determined that the director or
officer is not entitled to indemnification. In addition, CIENA has entered into
indemnity agreements with each of its directors pursuant to which CIENA has
agreed to indemnify the directors as permitted by the DGCL. CIENA has obtained
directors and officers liability insurance against certain liabilities,
including liabilities under the Securities Act.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
2.1 Merger Agreement (filed as Appendix A)
3.1 (1) Certificate of Amendment to Third Restated Certificate of
Incorporation
3.2 (1) Third Restated Certificate of Incorporation
3.3 (1) Amended and Restated Bylaws
3.5 (10) Certificate of Amendment to Third Restated Certificate of
Incorporation dated March 23, 1998
3.6 (10) Certificate of Amendment to Third Restated Certificate of
Incorporation dated March 16, 2000
4.1 (1) Specimen Stock Certificate
4.2 (3) Rights Agreement dated December 29, 1997
4.3 (4) Amendment to Rights Agreement
4.4 (11) Amendment No. 2 to Rights Agreement dated September 13, 1998
4.5 (4) Amendment No. 3 to Rights Agreement dated October 19, 1998
4.6 Indenture of CIENA Corporation to First Union National Bank
as Trustee relating to 3.75% Convertible Notes due
February 1, 2008 (to be filed by amendment)
5.1 Hogan & Hartson L.L.P. Opinion (to be filed by amendment)
8.1 Hogan & Hartson L.L.P. Tax Opinion (to be filed by
amendment)
8.2 Brobeck, Phleger & Harrison LLP Tax Opinion (to be filed by
amendment)
10.1 (1) Form of Indemnification Agreement for Directors and Officers
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193
10.2 (1) Amended and Restated 1994 Stock Option Plan
10.3 (1) Form of Employee Stock Option Agreements
10.4 (1) 1996 Outside Directors Stock Option Plan
10.5 (1) Forms of 1996 Outside Directors Stock Option Agreement
10.6 (1) Series C Preferred Stock Purchase Agreement dated December 20, 1995
10.7 (1) Lease Agreement dated October 5, 1995 between the Company and CS Corridor-32 Limited Partnership
10.8 (1)(8) Purchase Agreement Between Sprint/United Management Company and the Company dated December 14,
1995
10 (1)(8) Basic Purchase Agreement between WorldCom Network Services, Inc. and the Company dated September
19, 1996
10.10 (1) Settlement Agreement and Mutual Release, between the Company and William K. Woodruff & Company,
dated August 26, 1996
10.13 (1) Employment Agreement dated April 9, 1994 between the Company and Patrick Nettles
10.14 (1) Lease Agreement dated November 1, 1996 by and between the Company and Aetna Life Insurance
Company
10.15 (1) Revolving Note and Business Loan Agreement dated November 25, 1996 between the Company and
Mercantile-Safe Deposit & Trust Company
10.16 (1)(8) First Addendum to Procurement Agreement between the Registrant and Sprint/United Management
Company dated December 19, 1996
10.17 (5) Third Addendum to Procurement Agreement between the Registrant and Sprint/United Management
Company
10.18 (5) Form of Transfer of Control/Severance Agreement
10.19 (6) Lightera 1998 Stock Option Plan and Form of Stock Option Agreement
10.20 (7) Omnia Communications, Inc. 1997 stock plan and form of agreements
10.21 (9) Employment Agreement dated August 18, 1999 between the Company and Gary B. Smith
10.22 (9) 1999 Non-Officer Stock Option Plan and Form of Stock Option Agreement
10.23 (9) Lease Agreement dated June 1, 1999 between the Company and Ridgeview Court Associates, L.L.C.
21 (2) Subsidiaries of Registrant
23.1 Consent of PricewaterhouseCoopers LLP (filed herewith)
23.2 Consent of Deloitte & Touche LLP (filed herewith)
23.3 Consent of Hogan & Hartson L.L.P. (included in Exhibit 5.1)
23.4 Consent of Brobeck, Phleger & Harrison, LLP (included in Exhibit 8.2)
24.1 Powers of Attorney (previously filed with signature page)
99.1 Form of Proxy Card for Common Stockholders (filed herewith)
99.2 Form of Proxy Card for Preferred Stockholders (filed herewith)
99.3 Consent of Credit Suisse First Boston Corporation (previously filed)
---------------
(1) Incorporated by reference from the Company's Registration Statement on Form
S-1 (333-17729).
(2) Incorporated by reference from the Company's Registration Statement on Form
S-1 (333-28525).
(3) Incorporated by reference from the Company's Form 8-K dated December 29,
1997.
(4) Incorporated by reference from the Company's Form 8-K dated October 14,
1998.
(5) Incorporated by reference from the Company's Form 10-K dated December 19,
1998.
(6) Incorporated by reference from the Company's Form 10-Q dated May 21, 1999,
(7) Incorporated by reference from the Company's Form 10-Q dated August 19,
1999.
(8) Confidential treatment has been granted by the Securities and Exchange
Commission with respect to certain portions of these exhibits.
(9) Incorporated by reference from the Company's Form 10-K dated December 10,
1999.
(10) Incorporated by reference from the Company's Form 10-Q dated May 18, 2000.
(11) Incorporated by reference from the Company's Form 8-K dated September 14,
1998.
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194
ITEM 22. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 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 Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by 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 whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of this Registration Statement through the date
of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
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 of 1933;
(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 Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement; and
(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 this Registration Statement.
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the registration statement is on Form S-3, Form S-8 or Form F-3, and 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
Commission by the registrant pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the registration
statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, 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 initial bona
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.
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195
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) 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 initial bona fide offering thereof.
The undersigned registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through the use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
The registrant undertakes that every prospectus: (i) that is filed
pursuant to the paragraph immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, 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 initial bona fide offering thereof.
II-4
196
SIGNATURES
Pursuant to the requirements of the Securities Act, CIENA has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Linthicum, Maryland, on this 9th day
of February, 2001.
CIENA CORPORATION
By: /s/ PATRICK H. NETTLES, PH.D.
------------------------------------
Patrick H. Nettles, Ph.D.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Date: February 9, 2001 /s/ PATRICK H. NETTLES, PH.D.
---------------------------------------------
Patrick H. Nettles, Ph.D.
Chief Executive Officer, Chairman of the
Board of Directors
Principal Executive Officer
Date: February 9, 2001 /s/ GARY B. SMITH*
---------------------------------------------
Gary B. Smith
President, Chief Operating Officer
and Director
Date: February 9, 2001 /s/ JOSEPH R. CHINNICI*
---------------------------------------------
Joseph R. Chinnici
Sr. Vice President, Finance and Chief
Financial Officer
Principal Financial Officer
Date: February 9, 2001 /s/ ANDREW C. PETRIK*
---------------------------------------------
Andrew C. Petrik
Vice President, Controller and Treasurer
Principal Accounting Officer
Date: February 9, 2001 /s/ STEPHEN P. BRADLEY*
---------------------------------------------
Stephen P. Bradley
Director
Date: February 9, 2001 /s/ HARVEY B. CASH*
---------------------------------------------
Harvey B. Cash
Director
Date: February 9, 2001 /s/ JOHN R. DILLON*
---------------------------------------------
John R. Dillon
Director
Date: February 9, 2001 /s/ LAWTON W. FITT*
---------------------------------------------
Lawton W. Fitt
Director
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197
Date: February 9, 2001 /s/ JUDITH M. O'BRIEN*
---------------------------------------------
Judith M. O'Brien
Director
Date: February 9, 2001
---------------------------------------------
Gerald H. Taylor
Director
* pursuant to power of attorney
By: /s/ PATRICK H. NETTLES, PH.D.
----------------------------------
Patrick H. Nettles, Ph.D.
Attorney-in-Fact
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198
INDEX TO EXHIBITS
2.1 Merger Agreement (filed as Appendix A)
3.1 (1) Certificate of Amendment to Third Restated Certificate of
Incorporation
3.2 (1) Third Restated Certificate of Incorporation
3.3 (1) Amended and Restated Bylaws
3.5 (10) Certificate of Amendment to Third Restated Certificate of
Incorporation dated March 23, 1998
3.6 (10) Certificate of Amendment to Third Restated Certificate of
Incorporation dated March 16, 2000
4.1 (1) Specimen Stock Certificate
4.2 (3) Rights Agreement dated December 29, 1997
4.3 (4) Amendment to Rights Agreement
4.4 (11) Amendment No. 2 to Rights Agreement dated September 13, 1998
4.5 (4) Amendment No. 3 to Rights Agreement dated October 19, 1998
4.6 Indenture of CIENA Corporation to First Union National Bank
as Trustee relating to 3.75% Convertible Notes due
February 1, 2008 (to be filed by amendment)
5.1 Hogan & Hartson L.L.P. Opinion (to be filed by amendment)
8.1 Hogan & Hartson L.L.P. Tax Opinion (to be filed by
amendment)
8.2 Brobeck, Phleger & Harrison LLP Tax Opinion (to be filed by
amendment)
10.1 (1) Form of Indemnification Agreement for Directors and Officers
10.2 (1) Amended and Restated 1994 Stock Option Plan
10.3 (1) Form of Employee Stock Option Agreements
10.4 (1) 1996 Outside Directors Stock Option Plan
10.5 (1) Forms of 1996 Outside Directors Stock Option Agreement
10.6 (1) Series C Preferred Stock Purchase Agreement dated December
20, 1995
10.7 (1) Lease Agreement dated October 5, 1995 between the Company
and CS Corridor-32 Limited Partnership
10.8 (1)(8) Purchase Agreement Between Sprint/United Management Company
and the Company dated December 14, 1995
10 (1)(8) Basic Purchase Agreement between WorldCom Network Services,
Inc. and the Company dated September 19, 1996
10.10 (1) Settlement Agreement and Mutual Release, between the Company
and William K. Woodruff & Company, dated August 26, 1996
10.13 (1) Employment Agreement dated April 9, 1994 between the Company
and Patrick Nettles
10.14 (1) Lease Agreement dated November 1, 1996 by and between the
Company and Aetna Life Insurance Company
10.15 (1) Revolving Note and Business Loan Agreement dated November
25, 1996 between the Company and Mercantile-Safe Deposit &
Trust Company
10.16 (1)(8) First Addendum to Procurement Agreement between the
Registrant and Sprint/United Management Company dated
December 19, 1996
10.17 (5) Third Addendum to Procurement Agreement between the
Registrant and Sprint/United Management Company
10.18 (5) Form of Transfer of Control/Severance Agreement
10.19 (6) Lightera 1998 Stock Option Plan and Form of Stock Option
Agreement
10.20 (7) Omnia Communications, Inc. 1997 stock plan and form of
agreements
10.21 (9) Employment Agreement dated August 18, 1999 between the
Company and Gary B. Smith
10.22 (9) 1999 Non-Officer Stock Option Plan and Form of Stock Option
Agreement
10.23 (9) Lease Agreement dated June 1, 1999 between the Company and
Ridgeview Court Associates, L.L.C.
21 (2) Subsidiaries of Registrant
23.1 Consent of PricewaterhouseCoopers LLP (filed herewith)
23.2 Consent of Deloitte & Touche LLP (filed herewith)
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199
23.3 Consent of Hogan & Hartson L.L.P. (included in Exhibit 5.1)
23.4 Consent of Brobeck, Phleger & Harrison, LLP (included in Exhibit 8.2)
24.1 Powers of Attorney (previously filed with signature page)
99.1 Form of Proxy Card for Common Stockholders (filed herewith)
99.2 Form of Proxy Card for Preferred Stockholders (filed herewith)
99.3 Consent of Credit Suisse First Boston Corporation (previously filed)
---------------
(1) Incorporated by reference from the Company's Registration Statement on Form
S-1 (333-17729).
(2) Incorporated by reference from the Company's Registration Statement on Form
S-1 (333-28525).
(3) Incorporated by reference from the Company's Form 8-K dated December 29,
1997.
(4) Incorporated by reference from the Company's Form 8-K dated October 14,
1998.
(5) Incorporated by reference from the Company's Form 10-K dated December 19,
1998.
(6) Incorporated by reference from the Company's Form 10-Q dated May 21, 1999,
(7) Incorporated by reference from the Company's Form 10-Q dated August 19,
1999.
(8) Confidential treatment has been granted by the Securities and Exchange
Commission with respect to certain portions of these exhibits.
(9) Incorporated by reference from the Company's Form 10-K dated December 10,
1999.
(10) Incorporated by reference from the Company's Form 10-Q dated May 18, 2000.
(11) Incorporated by reference from the Company's Form 8-K dated September 14,
1998.
II-8