<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 11, 1999
REGISTRATION NO. 333-80375
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CIENA CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3661 23-2725311
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
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)
------------------------
G. ERIC GEORGATOS
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)
------------------------
Copies to:
<TABLE>
<S> <C>
MICHAEL J. SILVER PETER B. TARR
AMY BOWERMAN FREED HALE AND DORR LLP
HOGAN & HARTSON L.L.P. 60 STATE STREET
111 SOUTH CALVERT STREET BOSTON, MA 02109
BALTIMORE, MD 21202 (617) 526-6000
(410) 659-2700
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
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. [ ]
------------------------
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
OMNIA COMMUNICATIONS, INC.
400 Nickerson Road
Marlborough, Massachusetts
June 11, 1999
------------------------
MERGER PROPOSED
Dear fellow stockholder,
Omnia Communications, Inc. has entered into a merger agreement with CIENA
Corporation. Under that agreement, Omnia would be merged into CIENA and CIENA
would be the surviving company. Your Board of Directors is giving this
prospectus and proxy statement to you to solicit your proxy to vote for adoption
of the merger agreement and appointment of a stockholder representative at a
special meeting of stockholders to be held on July 1, 1999, and at any
adjournment or postponement of that meeting.
If we complete the merger, each share of Omnia preferred stock and Omnia
common stock that you own would be converted into shares of CIENA common stock,
unless you exercise appraisal rights under Delaware law. We will determine the
number of shares of CIENA common stock into which each share of Omnia preferred
stock and common stock will be converted immediately prior to completion of the
merger according to formulas specified in the merger agreement and described in
the attached materials. There is no public trading market for Omnia common stock
or Omnia preferred stock. CIENA common stock is quoted on the Nasdaq Stock
Market under the symbol "CIEN." The closing price for CIENA common stock
reported on the Nasdaq Stock Market on June 9, 1999, was $31.375 per share.
This is CIENA's prospectus relating to its offering of shares of CIENA
common stock to Omnia stockholders in the proposed merger, and Omnia's proxy
statement. It contains important information concerning CIENA, Omnia, 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 that are described starting on page 12 of this prospectus and proxy
statement.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE
FOR ADOPTION OF THE MERGER AGREEMENT AND FOR THE APPOINTMENT OF THE STOCKHOLDER
REPRESENTATIVE
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 Omnia Communications, Inc. is
greatly appreciated.
Sincerely,
[Sig for Champa]
Michael A. Champa
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 JUNE 11, 1999
FIRST MAILED TO STOCKHOLDERS ON OR ABOUT JUNE 11, 1999
<PAGE> 3
OMNIA COMMUNICATIONS, INC.
400 Nickerson Road
Marlborough, Massachusetts 01752
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 1, 1999
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of Omnia
Communications, Inc. will be held on July 1, 1999, at 10:00 a.m., local time, at
the offices of Hale and Dorr LLP, 60 State Street, Boston, Massachusetts 02109.
Only Omnia stockholders of record as of June 9, 1999 are entitled to attend
and vote at the special meeting. At the special meeting, you will be asked to
consider and vote upon the following proposals:
To approve and adopt the Agreement and Plan of Merger
dated as of March 15, 1999 between CIENA Corporation and Omnia
providing for the merger of Omnia into CIENA, and
To appoint Robi L. Soni as Stockholder Representative to
act on behalf of the stockholders in connection with the
merger.
THE BOARD OF DIRECTORS OF OMNIA UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT, APPROVAL OF THE MERGER AND
APPOINTMENT OF MR. SONI AS STOCKHOLDER REPRESENTATIVE.
STOCKHOLDERS OF OMNIA HOLDING IN THE AGGREGATE APPROXIMATELY 83.9% OF THE
OMNIA COMMON STOCK, 99.5% OF THE OMNIA SERIES A PREFERRED STOCK AND 98.5% OF THE
OMNIA SERIES B PREFERRED STOCK HAVE AGREED TO VOTE ALL OF THEIR SHARES IN FAVOR
OF THE ADOPTION OF THE MERGER AGREEMENT AND APPROVAL OF THE MERGER.
CONSEQUENTLY, ADOPTION OF THE MERGER AGREEMENT AND APPROVAL OF THE MERGER BY THE
OMNIA STOCKHOLDERS IS ASSURED.
Detailed information concerning the merger agreement and the merger is
contained in the accompanying proxy statement and prospectus. We encourage you
to read this entire document carefully.
For the Board of Directors,
[Sig for Champa]
Michael A. Champa
Chief Executive Officer
Marlborough, Massachusetts
June 10, 1999
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN. WHETHER
OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING IN PERSON, PLEASE COMPLETE, SIGN
AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE.
A STOCKHOLDER WHO EXECUTES A PROXY MAY REVOKE IT AT ANY TIME BEFORE IT IS
EXERCISED BY GIVING WRITTEN NOTICE OF REVOCATION TO OMNIA, BY SUBSEQUENTLY
DELIVERING ANOTHER PROXY OR BY ATTENDING THE SPECIAL MEETING AND VOTING IN
PERSON.
YOU SHOULD NOT SEND STOCK CERTIFICATES WITH YOUR PROXIES. A TRANSMITTAL
LETTER FOR YOUR STOCK WILL BE SENT TO YOU BY THE EXCHANGE AGENT AFTER THE
CLOSING.
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY............................... 1
RISK FACTORS.......................... 12
FORWARD-LOOKING STATEMENTS............ 18
OMNIA SPECIAL MEETING................. 18
General............................. 18
Matters to Be Considered............ 18
Board of Directors'
Recommendation................... 18
Record Date and Vote Required....... 18
Proxies............................. 19
THE MERGER............................ 20
General............................. 20
Background of the Merger............ 20
CIENA's Reasons for the Merger...... 22
Recommendation of the Omnia Board of
Directors........................ 26
Interests of Omnia's Directors and
Officers in the Merger........... 26
Omnia's Reasons for the Merger...... 29
Listing on The Nasdaq Stock
Market........................... 30
Governmental and Regulatory
Approvals........................ 31
Federal Income Tax Consequences..... 31
Appraisal Rights of Dissenting
Stockholders of Omnia............ 32
TERMS OF THE MERGER AGREEMENT......... 35
General............................. 35
Structure of the Merger............. 35
Management After the Merger......... 35
Conversion and Exchange of Shares... 35
Exchange of Certificates and
Fractional Shares................ 36
Effective Time...................... 37
Representations and Warranties...... 38
Business of Omnia Pending the Merger
and Other Agreements............. 39
No Solicitation by Omnia............ 41
Additional Agreements of CIENA and
Omnia............................ 41
Indemnification..................... 42
Maximum Payments and Remedies....... 42
Directors' and Officers' Insurance
and Indemnification.............. 43
What is Needed to Complete the
Merger........................... 43
Termination of the Merger Agreement
and Termination Fee.............. 44
Waiver and Amendment of the Merger
Agreement........................ 45
Expenses............................ 45
Voting Agreements................... 45
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Accounting Treatment................ 45
Restrictions on Resales by
Affiliates....................... 46
INFORMATION ABOUT CIENA............... 47
General............................. 47
Additional Information.............. 47
UNAUDITED PRO FORMA COMBINED FINANCIAL
DATA................................ 48
NOTES TO UNAUDITED PRO FORMA COMBINED
FINANCIAL STATEMENTS................ 54
INFORMATION CONCERNING OMNIA.......... 55
Business............................ 55
Management's Discussion and Analysis
of Financial Condition and
Results of Operations............ 55
Omnia's Chief Executive Officer..... 57
Executive Compensation.............. 57
Related Transactions................ 58
Security Ownership of Directors,
Executive Officers and Principal
Stockholders of Omnia............ 59
CIENA CAPITAL STOCK................... 61
Description of CIENA Capital
Stock............................ 62
Limitation of Liability and
Indemnification.................. 62
Important Charter and Statutory
Provisions....................... 63
Transfer Agent and Registrar........ 64
COMPARISON OF STOCKHOLDER RIGHTS...... 64
General............................. 64
Capitalization...................... 64
Voting Rights....................... 65
Number and Classification of
Directors........................ 65
Removal of Directors................ 65
Filling Vacancies on the Board of
Directors........................ 65
Charter Amendments.................. 65
Amendments to By-Laws............... 66
Action by Written Consent........... 66
Notice of Stockholder Actions....... 66
Right to Call Special Meeting of
Shareholders..................... 67
Dividends........................... 67
Conversion and Redemption........... 67
OTHER MATTERS......................... 67
Legal Matters....................... 67
Experts............................. 67
</TABLE>
i
<PAGE> 5
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Other Matters....................... 68
Where You Can Find More
Information...................... 68
OMNIA CONSOLIDATED FINANCIAL
STATEMENTS.......................... F-1
APPENDICES
APPENDIX A -- Agreement and Plan of
Merger.............................. A-1
APPENDIX B -- Section 262 of The
Delaware General Corporation Law.... B-1
APPENDIX C -- Escrow Agreement........ C-1
</TABLE>
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
OMNIA 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 JUNE
23, 1999.
ii
<PAGE> 6
SUMMARY
This document is a prospectus of CIENA and a proxy statement of Omnia. This
summary highlights selected information from the 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 68.
CIENA CORPORATION
1201 Winterson Road
Linthicum, Maryland 21090
(410) 865-8500
CIENA designs, makes and sells open architecture, dense wavelength division
multiplexing systems for fiberoptic communications networks, including
long-distance and local exchange carriers. Our systems enable these carriers to
carry greater volumes of communications traffic over existing fiber, by using
multiple optical signals, or wavelengths, where prior equipment used only a
single optical signal. CIENA also provides a range of engineering, furnishing
and installation services for our customers.
We designed all of our MultiWave systems with open architecture that allows them
to work with our customers' existing fiber optic transmission systems that have
a broad range of transmission speeds and signal formats. We target our research
and development efforts to broaden the product applications of our technology
and to integrate the technology as part of a more comprehensive approach to
optical communications solutions.
In March 1999, we acquired Lightera Networks, Inc., which is developing optical
core switches for fiberoptic communications networks.
OMNIA COMMUNICATIONS, INC.
400 Nickerson Road
Marlborough, Massachusetts 01752
(508) 229-8444
Omnia is a telecommunications equipment supplier. Omnia focuses on developing
solutions to allow public telephone network operators to offer services cost
effectively over integrated metropolitan fiberoptic access and transport
networks. Omnia's first product, the AXR 500, is a multi-service transport
platform that combines the functionality of traditional transport equipment with
advanced data networking capabilities. The AXR 500 uses new technology to allow
public telephone network operators to deliver both traditional services and
advanced high-speed data services, over an integrated optical infrastructure.
THE MERGER (PAGE 20)
The merger agreement provides that Omnia will merge with and into CIENA and
CIENA will be the surviving company. CIENA and Omnia hope to complete the merger
during CIENA's third fiscal quarter ending July 31, 1999.
The merger agreement is included as Appendix A to this prospectus and proxy
statement. It is the legal document that governs the merger.
CONVERSION AND EXCHANGE OF SHARES
(PAGE 35)
As a result of the merger, unless you exercise appraisal rights under Delaware
law, each share of Omnia common stock and preferred stock that you own would be
converted into a number of shares of CIENA common stock determined as follows:
For each share of Omnia common stock, a fraction of a share of CIENA common
stock equal to:
(a) 16,000,000 minus
(i) $17,981,101.50 divided by
(ii) the closing price of CIENA common stock on Nasdaq on the last
business day before the closing date,
divided by
(b) the total number of the following
items on the closing date:
- all outstanding shares of Omnia common stock;
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<PAGE> 7
- shares issuable upon exercise of all Omnia stock options;
- shares issuable upon exercise of warrants; and
- shares issuable upon exercise of other outstanding instruments or
agreements convertible into or exchangeable for or entitling the holder
to acquire Omnia common stock, including shares of Series B preferred
stock.
For each share of Series A preferred stock, a fraction of a share of CIENA
common stock equal to:
(a) $5,831,100 divided by the closing price
of CIENA common stock on Nasdaq on the last business day before the
closing date, divided by
(b) the total number of shares of Series A
preferred stock outstanding on the closing date.
For each share of Series B preferred stock, the fraction of a share of CIENA
common stock that you would receive if you had one share of Omnia common stock,
plus an additional fraction of a share of CIENA common stock equal to:
(a) $12,150,001.50 divided by the closing
price of CIENA common stock on Nasdaq on the last business day before
the closing date, divided by
(b) the total number of shares of Series B
preferred stock outstanding on the closing date.
These are only examples, because we do not know what CIENA's stock price
will be on the day before closing.
At the earliest practicable date after the completion of the merger, you
will receive a letter of transmittal that will provide instructions on the
procedure for exchanging your share certificates. For more information on how
the election and exchange procedures work, see "Terms of the Merger Agreement--"
on page 35 and "Terms of the Merger Agreement -- Exchange of Certificates and
Fractional Shares" on page 36.
PLEASE DO NOT SEND YOUR STOCK CERTIFICATES AT THIS TIME.
APPRAISAL RIGHTS OF DISSENTING STOCKHOLDERS OF OMNIA (PAGE 32)
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 OMNIA COMMON
STOCK AND OMNIA PREFERRED STOCK DETERMINED BY A COURT AND PAID TO YOU IN CASH.
If you are an Omnia stockholder and wish to dissent, you must deliver to
Omnia, 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 a duly executed proxy that contains a vote in favor or does not
contain voting instructions.
Examples of Exchange Values (Excluding Cash For Fractional Shares)
<TABLE>
<CAPTION>
YOU WILL
IF CIENA'S CLOSING STOCK PRICE IS RECEIVE THIS
$18.00 PER SHARE AND YOU OWN 100 MANY SHARES OF WORTH
SHARES OF OMNIA: CIENA STOCK THIS MUCH
--------------------------------- -------------- ---------
<S> <C> <C>
Common Stock........................... 88 $1,584
Series A Preferred..................... 5 90
Series B Preferred..................... 106 1,908
</TABLE>
<TABLE>
<CAPTION>
YOU WILL
IF CIENA'S CLOSING STOCK PRICE IS RECEIVE THIS
$26.00 PER SHARE AND YOU OWN 100 MANY SHARES OF WORTH
SHARES OF OMNIA: CIENA STOCK THIS MUCH
--------------------------------- -------------- ---------
<S> <C> <C>
Common Stock........................... 90 $2,340
Series A Preferred..................... 3 78
Series B Preferred..................... 103 2,678
</TABLE>
2
<PAGE> 8
Beneficial owners of shares of Omnia common stock or Omnia 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.
WHAT IS NEEDED TO COMPLETE THE MERGER (PAGE 43)
Several conditions must be satisfied before the merger will be completed. These
include:
- adoption of the merger agreement and approval of the merger by the Omnia
stockholders;
- receipt by Omnia of an opinion of its tax counsel that for U.S. federal
income tax purposes, the merger is generally not taxable to Omnia or the
Omnia stockholders;
- receipt by CIENA of an opinion of its tax counsel that for U.S. federal
income tax purposes, the merger is generally not taxable to CIENA;
- receipt by CIENA of a pooling letter from its independent accountants
stating that PricewaterhouseCoopers LLP concurs with management's
conclusions that the merger may be accounted for as a "pooling of
interests";
- holders of no more than 9.9% of Omnia's stock will have exercised
appraisal rights;
- other customary contractual conditions specified in the merger agreement.
If the law permits, CIENA or Omnia may each waive conditions for the benefit of
their company and stockholders and complete the merger even though one or more
of these conditions hasn't been met. We cannot assure you that the conditions
will be satisfied or waived or that the merger will occur.
INDEMNIFICATION (PAGE 42)
If the merger agreement is approved and the merger occurs, all holders of Omnia
capital stock who have not perfected dissenter's rights under Delaware law, by
their receipt of CIENA common stock in the merger, will be deemed to have agreed
personally to indemnify CIENA, the surviving corporation of the merger and its
affiliates against losses due to the breach of any of Omnia's representations,
warranties or agreements in the merger agreement. This obligation to indemnify
CIENA is limited to no more than 10% of the total number of shares of CIENA
common stock issued in the merger. An escrow arrangement will be established at
closing to hold this 10% amount. The escrow agreement is attached as Appendix C
to this proxy statement. If the stockholders approve of his selection, Robi L.
Soni will serve as Stockholder Representative to administer the escrow on behalf
of all former Omnia stockholders. Otherwise, the escrow fund will be
administered by the stockholders directly. The escrow and indemnification
obligations will end one year after closing. At that time, if CIENA has not made
a claim for the escrowed shares, the escrowed shares will be released to the
former Omnia stockholders. See "Terms of the Merger
Agreement -- Indemnification."
CONSEQUENTLY, IN SOME CIRCUMSTANCES YOU COULD BE REQUIRED TO FORFEIT TO CIENA
SOME OF THE CIENA COMMON STOCK YOU WOULD OTHERWISE RECEIVE IN THE MERGER.
FEDERAL INCOME TAX CONSEQUENCES (PAGE 31)
We intend that the merger qualify as a tax-free reorganization. Omnia received
an opinion of Hale and Dorr LLP that the merger will qualify as a reorganization
if the merger takes place as described in the merger agreement. If the merger
qualifies as a reorganization, Omnia stockholders will not recognize gain or
loss as a result of the merger, except with respect to cash received instead of
fractional shares and cash received in exchange for Omnia shares by
3
<PAGE> 9
Omnia stockholders who dissent to the merger. For a further discussion of the
federal income tax consequences of the merger to Omnia stockholders, see "The
Merger -- Federal Income Tax Consequences." See also "Terms of the Merger
Agreement -- What is Needed to Complete the Merger."
THESE MATTERS ARE VERY COMPLICATED. YOU SHOULD CONSULT YOUR TAX ADVISOR FOR A
FULL EXPLANATION OF THE TAX CONSEQUENCES OF THE MERGER TO YOU.
ACCOUNTING TREATMENT (PAGE 45)
CIENA expects to account for the merger using the pooling of interests method of
accounting.
TERMINATION OF THE MERGER AGREEMENT AND TERMINATION FEE (PAGE 44); EXPENSES
(PAGE 45)
CIENA and Omnia may agree to terminate the merger agreement without completing
the merger, even if you and the other Omnia stockholders have voted for the
merger. Each party will generally pay its own expenses if that happens. However,
if CIENA agrees to be acquired before this merger is completed and that event
delays the merger closing date past September 30, 1999, CIENA must advance $21
million to Omnia as a loan that will be forgiven if CIENA is thereafter
unwilling to complete this merger or the merger does not occur by December 31,
1999.
WAIVER AND AMENDMENT OF THE MERGER AGREEMENT (PAGE 45)
CIENA and Omnia may agree to amend the merger agreement prior to the time the
merger becomes effective, subject to applicable law. Either of us can waive our
right to require the other party to adhere to the terms and conditions of the
merger agreement, if the law allows, at any time prior to the time the merger
becomes effective.
INTERESTS OF OMNIA'S DIRECTORS AND OFFICERS IN THE MERGER (PAGE 26)
In considering the recommendation of the Omnia board about the merger, you
should be aware of the interests which executive officers and directors of Omnia
have in the merger that are different from your and their interests as
stockholders. These involve primarily restricted stock purchase agreements and
stock options. The Omnia board recognized all those interests described above
and concluded that those interests did not detract from the fairness of the
merger to the stockholders of Omnia who are not executive officers or directors
of Omnia.
OMNIA'S REASONS FOR THE MERGER (PAGE 29)
The Omnia board has unanimously approved the merger and recommends that you vote
to approve the merger agreement. The Omnia board believes that the merger is in
the best interests of Omnia and its stockholders. In reaching its decision, the
Omnia board considered a number of factors, including the following:
- the strategic importance to Omnia of the proposed merger;
- the consideration to be received by Omnia stockholders in the merger;
- Omnia management's view as to the effect of the merger on the core
business of Omnia, including its research and development efforts,
potential synergy of CIENA's technologies with Omnia's technologies,
CIENA's breadth of product offerings and sales and marketing
infrastructure.
COMPARISON OF STOCKHOLDER RIGHTS (PAGE 64)
If you own Omnia common stock or Omnia preferred stock and elect to receive
CIENA common stock, you will become a stockholder of CIENA upon completion of
the merger. Your rights would then be governed by Delaware law and by CIENA's
certificate of incorporation and bylaws, rather than Omnia's certificate of
incorporation and bylaws. Your rights as a stockholder of CIENA would differ
from your rights as a stockholder of Omnia. To review these differences in more
detail, see "Comparison of Stockholder Rights" on page 64.
4
<PAGE> 10
OMNIA SPECIAL MEETING (PAGE 18)
The special meeting will be held on July 1, 1999 at 10:00 a.m. at the offices of
Hale and Dorr LLP, 60 State Street, Boston, Massachusetts 02109. At the special
meeting, you will be asked to vote to adopt the merger agreement, approve the
merger and approve the appointment of Robi L. Soni as representative of the
stockholders.
You can vote, or submit a proxy to vote, at the special meeting if you were a
record holder of Omnia common stock or Omnia preferred stock at the close of
business on June 9, 1999. 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 the vote is taken.
RECORD DATE AND VOTE REQUIRED (PAGE 18)
Holders of a majority of the outstanding shares of Omnia common stock and Omnia
Series B preferred stock, voting together as a class, and holders of two thirds
of the Omnia Series A
preferred stock and Series B preferred stock must vote in favor of adoption of
the merger agreement before the merger can occur. There were 12,142,790 shares
of Omnia common stock, 5,890,000 shares of Omnia Series A preferred stock and
3,738,462 shares of Omnia Series B preferred stock outstanding as of June 9,
1999. Each holder of Omnia stock is entitled to one vote per share.
Stockholders owning 9,026,112 shares of Omnia common stock, 5,860,000 shares of
Omnia Series A preferred stock and 3,682,608 shares of Omnia Series B preferred
stock, representing approximately 83.9%, 99.5 and 98.5% of the respective
classes, have entered into agreements with CIENA to vote their shares in favor
of the merger agreement and against any competing transaction.
ADOPTION OF THE MERGER AGREEMENT AND APPROVAL OF THE MERGER BY THE OMNIA
STOCKHOLDERS IS THEREFORE ASSURED. HOWEVER, BECAUSE THERE ARE OTHER CONDITIONS
TO CLOSING THAT HAVE NOT YET BEEN FULFILLED, CLOSING OF THE MERGER IS NOT
ASSURED. ALSO, YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU
OWN.
5
<PAGE> 11
SELECTED UNAUDITED 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 the consolidated financial statements and
the notes to the consolidated financial statements, included in CIENA's current
report on Form 8-K filed April 1, 1999 and amended on April 5, 1999 which are
incorporated by reference in this prospectus and proxy statement. The current
report on Form 8-K/A reflects CIENA's recent merger with Lightera Networks, Inc.
which was accounted for as a pooling of interests. See "Where You Can Find More
Information" on page 68. CIENA's financial statements as of October 31, 1997 and
1998, and for each of the three years ended October 31, 1998 were audited by
PricewaterhouseCoopers LLP, independent accountants. The selected financial
information as of April 30, 1998 and 1999 and for the six months ended April 30,
1998 and 1999 is derived from CIENA's unaudited consolidated financial
statements, which are incorporated into this prospectus and proxy statement by
reference. 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 1994, 1995, 1997, and 1998 comprised 52 weeks and fiscal 1996
comprised 53 weeks. These statements, in the opinion of management, reflect all
adjustments necessary for the fair presentation of this unaudited interim
financial information. The results of operations for the six months ended April
30, 1999 are not necessarily indicative of the results to be expected for the
entire year.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED OCTOBER 31, APRIL 30,
-------------------------------------------------- -------------------
1994 1995 1996 1997 1998 1998 1999
------- ------- ------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenue........................... $20,890 $21,691 $88,463 $413,215 $508,087 $287,810 $211,907
Gross profit...................... 5,252 5,506 41,148 246,743 252,073 122,895 137,016
Income (loss) before income
taxes........................... 94 (5,624) 20,816 188,670(1) 90,228(2) 96,204 2,866(3)
Net income (loss)................. (848) (6,448) 17,263 115,967(1) 51,113(2) 54,908 1,877(3)
Basic net income (loss) per common
share........................... $ (0.12) $ (0.51) $ 1.25 $ 1.53 $ 0.46 $ 0.53 $ 0.02
Diluted net income (loss) per
common and dilutive potential
common share.................... $ (0.12) $ (0.51) $ 0.19 $ 1.11 $ 0.44 $ 0.50 $ 0.01
</TABLE>
<TABLE>
<CAPTION>
OCTOBER 31, APRIL 30,
-------------------------------------------------- -------------------
1994 1995 1996 1997 1998 1998 1999
------- ------- ------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents......... $ 4,440 $ 8,261 $24,040 $268,588 $239,780 $183,633 $194,920
Working capital................... 5,485 7,221 42,240 333,452 379,257 367,557 392,452
Total assets...................... 12,076 17,706 79,676 463,279 587,566 584,666 614,848
Long-term obligations, excluding
current portion and deferred
income taxes.................... 1,901 2,074 3,465 1,885 2,257 1,779 3,703
Mandatorily redeemable preferred
stock........................... 3,492 14,454 40,404 -- -- -- --
Stockholders' equity (deficit).... (300) (6,662) 10,783 372,414 488,785 465,966 498,437
</TABLE>
- ---------------
(1) In 1997, CIENA recorded a $7.5 million charge for litigation costs incurred
and estimated with the Pirelli litigation.
(2) In 1998, CIENA recorded a $30.6 million charge for the settlement of the
Pirelli litigation, a $9.5 million charge to write-off purchased research
and development associated with CIENA's acquisition of Terabit, and a $2.5
million charge for costs incurred related to CIENA's contemplated merger
with Tellabs.
(3) In the six months ended April 30, 1999, CIENA recorded a $2.3 million charge
for costs incurred related to CIENA's merger with Lightera.
6
<PAGE> 12
SELECTED UNAUDITED HISTORICAL CONSOLIDATED FINANCIAL DATA OF OMNIA
The information in the following selected historical consolidated financial
data is derived from Omnia's audited historical consolidated financial
statements. You should read this information in conjunction with the historical
consolidated financial statements, which are presented later in this prospectus
and proxy statement. Omnia's historical consolidated financial statements as of
December 31, 1997 and 1998, and for the period from June 3, 1997 (date of
inception) to December 31, 1997 and for the year ended December 31, 1998 were
audited by PricewaterhouseCoopers LLP, independent accountants.
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 3, 1997 THREE MONTHS
(DATE OF INCEPTION) YEAR ENDED ENDED MARCH 31,
TO DECEMBER 31, DECEMBER 31, -----------------
1997 1998 1998 1999
------------------- ------------ ------- -------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenue.................................. $ -- $ -- $ -- $ --
Gross profit............................. -- -- -- --
Loss before income taxes................. (614) (8,328) (1,234) (3,226)
Net loss................................. (614) (8,328) (1,234) (3,226)
Basic net loss per common share.......... $(0.32) $ (1.28) $ (0.22) $ (0.41)
Diluted net loss per common and dilutive
potential
common share........................... $(0.32) $ (1.28) $ (0.22) $ (0.41)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
---------------------------------- ------------------
1997 1998 1998 1999
------------------- ------------ ------- --------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED BALANCE SHEET
DATA:
Cash and cash equivalents............... $4,698 $10,934 $ 3,917 $ 7,382
Working capital......................... 4,411 8,909 3,564 5,555
Total assets............................ 4,968 12,114 4,427 8,730
Long-term obligations, excluding current
portion and deferred income taxes..... 15 762 18 689
Convertible preferred stock............. 5,247 17,981 5,831 17,981
Stockholders' deficit................... (598) (8,859) (1,823) (12,016)
</TABLE>
7
<PAGE> 13
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The information in the following selected unaudited pro forma combined
financial data of CIENA and Omnia are derived from the unaudited pro forma
condensed combined financial statements which are presented later in this
prospectus and proxy statement and give effect to the merger as a pooling of
interests. You should read this information in conjunction with the unaudited
pro forma statements and relevant notes. We present the selected unaudited pro
forma combined financial data for illustrative purposes only. This information
is not necessarily indicative of the operating results or financial position
that would have occurred if the merger had been consummated. In addition, it
does not necessarily represent or predict future operating results or the
financial position of the combined companies.
Since the fiscal years of CIENA and Omnia differ, the periods combined for
purposes of the pro forma combined financial data are as follows giving effect
to the merger as it had occurred at the beginning of each period presented:
<TABLE>
<CAPTION>
CIENA OMNIA
----- -----
<S> <C>
Fiscal year ended October 31, 1997 For the period from June 3, 1997 (date of
inception) to December 31, 1997
Fiscal year ended October 31, 1998 Fiscal year ended December 31, 1998
Six months ended April 30, 1998 and 1999 Six months ended April 30, 1998 and 1999
</TABLE>
For the year ended October 31, 1996, the unaudited pro forma financial data
is the same as the consolidated financial data of CIENA as Omnia did not
commence operations until June 3, 1997.
The six months ended April 30, 1998 and 1999 include two months of Omnia's
financial results, which are also recorded in the fourth quarters and for the
period from June 3, 1997 (date of inception) to December 31, 1997 and the year
ended December 31, 1998. Omnia's net loss for the two months ended November and
December 1997 and 1998 was $614,000 and $2,496,000, respectively.
8
<PAGE> 14
CIENA AND OMNIA
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED OCTOBER 31, APRIL 30,
----------------------------- ----------------------
1996 1997 1998 1998 1999
------- -------- -------- -------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
PRO FORMA COMBINED STATEMENT OF
OPERATIONS DATA:
Revenue............................... $88,463 $413,215 $508,087 $287,810 $211,907
Gross profit.......................... 41,148 246,743 252,073 164,915 74,891
Income (loss) before income taxes..... 20,816 188,056 81,900 93,975 (4,375)
Net income (loss)..................... 17,263 115,568 45,700 53,457 (2,866)
Basic net income (loss) per common
share............................... $ 1.25 $ 1.48 $ 0.38 $ 0.48 $ (0.02)
Diluted net income (loss) per common
and dilutive potential common
share............................... $ 0.19 $ 1.07 $ 0.35 $ 0.45 $ (0.02)
</TABLE>
<TABLE>
<CAPTION>
APRIL 30,
1999
--------------
(IN THOUSANDS)
<S> <C>
PRO FORMA COMBINED BALANCE SHEET DATA:
Cash and cash equivalents................................... $200,653
Working capital............................................. 400,770
Total assets................................................ 626,788
Long-term obligations, excluding current portion and
deferred income taxes..................................... 4,350
Convertible preferred stock................................. --
Stockholders' equity........................................ 507,701
</TABLE>
9
<PAGE> 15
COMPARATIVE PER SHARE DATA
(UNAUDITED)
The following table summarizes certain per share information for CIENA and
Omnia on a historical pro forma combined and equivalent pro forma combined
basis. You should read the information below along with the selected
consolidated financial data and the unaudited pro forma combined financial data
included elsewhere in this prospectus and proxy statement. The pro forma
combined financial data are not necessarily indicative of the operating results
of future operations or the actual results that would have occurred had the
merger occurred at the beginning of the periods presented.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED OCTOBER 31, APRIL 30,
------------------------ -------------------
1996 1997 1998 1998 1999
------ ------ ------ -------- --------
<S> <C> <C> <C> <C> <C>
HISTORICAL CIENA
Basic net income per common share......................... $1.25 $1.53 $0.46 $0.53 $0.02
Diluted net income per common and dilutive potential
common share............................................ $0.19 $1.11 $0.44 $0.50 $0.01
Book value per share at period end (1).................... $4.08 $4.11
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, APRIL 30,
--------------- --------------------
1997 1998 1998 (2) 1999 (2)
------ ------ -------- --------
<S> <C> <C> <C> <C>
HISTORICAL OMNIA
Basic net income (loss) per common share.................. $(0.32) $(1.28) $(0.38) $(0.93)
Diluted net income (loss) per common and dilutive
potential common share.................................. $(0.32) $(1.28) $(0.38) $(0.93)
Book value per share at period end........................ $(0.74) $(1.11)
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
OCTOBER 31, APRIL 30,
--------------------- -------------------
1996 1997 1998 1998 1999
----- ----- ----- -------- --------
<S> <C> <C> <C> <C> <C>
PRO FORMA COMBINED CIENA (3)
Basic net income (loss) per common share.................. $1.25 $1.48 $0.38 $0.48 $(0.02)
Diluted net income (loss) per common and dilutive
potential common share.................................. $0.19 $1.07 $0.35 $0.45 $(0.02)
Book value per share at period end (4).................... $3.73 $ 3.72
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
OCTOBER 31, APRIL 30,
--------------------- -------------------
1996 1997 1998 1998 1999
----- ----- ----- -------- --------
<S> <C> <C> <C> <C> <C>
EQUIVALENT PRO FORMA COMBINED OMNIA (5)
Basic net income (loss) per common share.................. $1.14 $1.35 $0.35 $0.44 $(0.02)
Diluted net income (loss) per common and dilutive
potential common share.................................. $0.17 $0.97 $0.32 $0.41 $(0.02)
Book value per share at period end........................ $3.39 $ 3.39
</TABLE>
- -------------------------
(1) Book value per share is computed by dividing total stockholders' equity by
the number of shares outstanding at the end of October 31, 1998 and April
30, 1999.
(2) Omnia's financial results for the six months ended April 30, 1998 and 1999
include two months of Omnia's financial results, which are also recorded in
the fourth quarters and for the period from June 3, 1997 (date of inception)
to December 31, 1997 and the year ended December 31, 1998.
(3) The pro forma combined net income (loss) for the years ended October 31,
1996, 1997 and 1998 and the six months ended April 30, 1998 and 1999 include
Omnia's net income (loss) for the period from June 3, 1997 (date of
inception) to December 31, 1997, the year ended December 31, 1998 and the
six months ended April 30, 1998 and 1999.
(4) CIENA pro forma combined book value per share is computed by dividing pro
forma stockholders' equity by the pro forma number of shares of CIENA common
stock which would have been outstanding had the merger been consummated as
of each balance sheet date.
(5) Omnia equivalent pro forma combined amounts are calculated by multiplying
the CIENA pro forma combined per share amounts and book value by the
exchange ratio assuming the exchange ratio is 0.91 of a share of CIENA
common stock for each share of Omnia common stock.
10
<PAGE> 16
DIVIDENDS CIENA has never declared or paid a cash dividend with respect to
its common stock and Omnia has never declared or paid a cash dividend with
respect to the Omnia common stock or the Omnia preferred stock.
COMPARATIVE MARKET DATA
CIENA. CIENA common stock is, and the shares of CIENA common stock offered
to Omnia stockholders are expected to be, listed on The Nasdaq Stock Market and
traded under the symbol "CIEN." CIENA common stock has been quoted on The Nasdaq
Stock Market since CIENA's initial public offering on February 7, 1997. Prior to
February 7, 1997, no established public trading market for CIENA common stock
existed. The following table sets forth the high and low sales price per share
of CIENA common stock as reported by The Nasdaq Stock Market for the CIENA
fiscal periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1997
Second Quarter (beginning February 7)............... $44.00 $22.25
Third Quarter....................................... 57.25 28.50
Fourth Quarter...................................... 63.63 43.00
1998
First Quarter....................................... 63.56 47.44
Second Quarter...................................... 58.25 37.25
Third Quarter....................................... 92.38 46.88
Fourth Quarter...................................... 75.88 8.13
1999
First Quarter....................................... 23.00 12.44
Second Quarter...................................... 29.25 16.63
Third Quarter (through June 9, 1999)................ 34.13 22.69
</TABLE>
On March 12, 1999, the last full trading day prior to the public
announcement of the proposed merger, the closing price of CIENA common stock was
$26.813 per share. On June 9, 1999, the closing price of CIENA common stock was
$31.375 per share.
As of June 9, 1999, there were 1,126 holders of record of CIENA common
stock.
OMNIA. There is no established public trading market for Omnia common
stock or Omnia preferred stock.
COMPARISON. The following table shows (1) closing prices for CIENA common
stock and (2) the estimated value of the CIENA common stock into which Omnia
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:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF CIENA
COMMON STOCK IN EXCHANGE FOR 100 SHARES OF:
---------------------------------------------------------------------------------------
CIENA CASH FOR OMNIA CASH FOR OMNIA CASH FOR
COMMON STOCK OMNIA FRACTIONAL SERIES A FRACTIONAL SERIES B FRACTIONAL
DATE PRICE COMMON STOCK SHARES PREFERRED STOCK SHARES PREFERRED STOCK SHARES
---- ------------ ------------ ---------- --------------- ---------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
March 12, 1999....... $26.813 90 $24.13 3 $18.50 103 $ 0.54
June 9, 1999......... $31.375 91 $15.06 3 $ 5.02 101 $26.36
</TABLE>
11
<PAGE> 17
RISK FACTORS
You should carefully consider the following risk factors relating to the
merger before you decide whether to vote to adopt the merger agreement and
approve the merger. You should also consider the other information in this
prospectus and proxy statement and the additional information in CIENA's other
reports on file with the SEC and in the other documents incorporated by
reference in this prospectus and proxy statement. See "Where You Can Find More
Information" on page 68.
CIENA'S STOCK PRICE IS VOLATILE AND THE VALUE OF THE CIENA COMMON STOCK YOU
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.
Fluctuations in the market price of CIENA common stock will affect the
value of the CIENA common stock you receive in the merger. The market price of
CIENA common stock is extremely volatile and has fluctuated over a wide range.
For example, from February 7, 1997 to June 9, 1999, the CIENA common stock
traded as high as $92.38 per share and as low as $8.13 per share. The market
price may continue to fluctuate significantly in response to various factors,
including:
- significant near-term dilutive effects on CIENA's earnings per share
resulting from the Lightera merger and this proposed merger
- 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
- general economic conditions
- adverse developments in the pending securities class action lawsuit
against CIENA
CIENA MAY NOT BE ABLE SUCCESSFULLY TO INTEGRATE OMNIA INTO ITS OPERATIONS.
The integration of Omnia into CIENA's operations involves a number of
risks. The recent acquisition of Lightera Networks by CIENA poses similar risks,
and the nearly concurrent integration efforts for these two acquisitions will
complicate and compound these risks.
Failure to overcome these risks or any other problems encountered in
connection with the merger or other similar transactions could have a material
adverse effect on CIENA's business, results of operations and financial
condition. In connection with similar transactions, CIENA may also issue
additional equity securities, incur additional debt or incur significant
amortization expenses related to goodwill and other intangible assets.
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.
We expect to incur charges of approximately $10.6 million in connection
with the merger. Of the $10.6 million, $7.9 million is a non-cash charge that
relates to the acceleration of warrants based upon CIENA's common stock price on
March 12, 1999 and $2.7 million relates to fees, legal and accounting services
and other integration costs. Some of these nonrecurring costs will be charged to
operations in the fiscal quarter in which the merger is consummated while others
will be expensed as incurred during the post-merger integration period. The
Unaudited Pro Forma Combined Balance Sheet reflects these estimated transaction
costs, of which the $7.9 million related to the acceleration of warrants is
shown net of tax and as if those costs were incurred as of April 30, 1999, but
the effects of these costs are not reflected in the Unaudited Pro Forma Combined
Statements of Operations. We could also incur other additional unanticipated
merger costs.
12
<PAGE> 18
SHAREHOLDERS MAY BE LIABLE FOR MERGER EXPENSES.
If Omnia's merger expenses are greater than $1,000,000, Omnia stockholders
must pay the excess amount. As of May 21, 1999, merger expenses were estimated
to be $950,000.00. If the merger is not approved, Omnia will pay all of its
merger expenses.
OUR RESULTS CAN BE UNPREDICTABLE.
Our near term results may be break-even or may involve losses. In general,
sequential revenue and operating results over the next 12 months are likely to
fluctuate and may continue to fluctuate in the future due to factors including:
- timing and size of orders
- satisfaction of contractual customer acceptance criteria
- shipment delays and deferrals
We budget expense levels partially on our expectations of long term future
revenue. These levels reflect our substantial investment in 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. As a result, we may continue to experience
increased inventory levels, operating expenses and general overhead.
Additionally, Lightera and Omnia have ongoing development and operating
expenses but are not expected to contribute materially to revenues until
calendar 2000.
WE FACE INTENSE COMPETITION WHICH COULD HURT OUR SALES AND PROFITABILITY.
A small number of very large companies have historically dominated our
industry including Lucent, Alcatel, Nortel, NEC, Pirelli, Siemens, Ericsson,
Fujitsu, and Hitachi. These companies have substantial financial, marketing and
intellectual property resources. We sell systems which displace their legacy
equipment, which represents a specific threat to these companies. Our
acquisitions of Lightera and Omnia may increase this perceived threat. We expect
continued aggressive tactics from many of these competitors such as:
- Substantial price discounting
- Early announcements of competing products
- "One-stop shopping" appeals
- Customer financing assistance
- Intellectual property disputes
These tactics can be particularly effective in a highly concentrated
customer base such as ours.
Sprint, a significant customer of ours, has long indicated that it intends
to establish a second vendor for DWDM products. We don't know when Sprint will
select a second vendor or what impact the selection might have on Sprint's
purchases from us. Sprint could reduce its purchases from us, which could in
turn have a material adverse effect on us.
New competitors may also emerge to compete with our existing products as
well as our future products.
DELAYS IN THE DEPLOYMENT OF NEW PRODUCTS COULD HURT OUR NEAR TERM PROSPECTS.
If we fail to deploy new and improved products, our competitive position
and financial condition would be materially and adversely affected.
The certification process for new telecommunications equipment used in RBOC
networks, which is a process traditionally conducted by Telcordia Technologies,
has in the past resulted in and may continue to result in unanticipated delays
which may affect the deployment of our products for the RBOC market.
In order to meet our delivery commitments for our newest products, we will
need to finalize component sourcing, which we have not yet completed. Any delays
in deployment could result in delays in recognizing revenues and, ultimately,
could adversely affect our customer relationships.
13
<PAGE> 19
SMALLER CUSTOMERS MAY INCREASE FLUCTUATION IN OUR RESULTS.
We have recently shifted our sales focus to smaller emerging carriers.
Timing and volume of purchasing from these smaller 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 capital budget constraints.
This increases the unpredictability of our financial results because even
smaller carriers purchase our products in multi-million dollar increments.
Unanticipated changes in customer purchasing plans also create
unpredictability in our results. Most 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 involve extended payment terms or other
financing assistance. Our ability to recognize revenue from financed sales to
these carriers will be impacted by their financial condition at the time of
product acceptance. Purchasing delays or changes in the amount of purchases by
any of these customers, could have a material adverse effect on us.
OUR PROSPECTS DEPEND ON DEMAND FOR BANDWIDTH WHICH WE CANNOT PREDICT OR CONTROL.
We may not anticipate changes in direction or magnitude of demand for
bandwidth. Unanticipated reductions in bandwidth demand would adversely affect
us.
Our products enable high capacity transmission over long distance, and
certain short-haul portions, of optical communications networks. Our Core
Director switching products are targeted to high capacity applications.
Customers, however, determine:
- the quantity of bandwidth needed
- the timing of its deployment, and
- the equipment configurations and network architectures they want.
Customer determinations are subject to abrupt change in response to their
own competitive pressures, pressures to raise capital and financial performance
expectations.
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. As CIENA has grown and matured, competitors' efforts to entice our
employees to leave have intensified, particularly among competitive startups and
other early stage companies seeking to replicate CIENA's experience. CIENA and
its employees are parties to agreements that limit the employee's ability to
work for a competitor following termination of employment. We expect our
competitors will respect these agreements and not interfere with them. But we
can make no assurances of that, or that we will be able to retain all of our key
contributors or attract new personnel to add to or replace them. The loss of key
personnel would likely have a material adverse effect on our business, financial
condition and results of operations.
WE MAY EXPERIENCE DELAYS FROM OUR SUPPLIERS AND FOR SOME ITEMS WE DO NOT HAVE
SUBSTITUTE SUPPLIERS.
We depend on a small number of suppliers for key components of our
products, as well as equipment used to manufacture our products. Our highest
capacity product currently being shipped, the MultiWave Sentry which is capable
of 96-channel configurations, includes several higher performance components for
which reliable, high volume suppliers are particularly limited. On occasion, we
have experienced delays in receipt of key components. Any future difficulty in
obtaining sufficient and timely delivery of them could result in delays or
reductions in product shipments which, in turn, could have a material adverse
effect on our business, financial condition and results of operations. Uniphase
Corporation and JDS FITEL, Inc., both of which are significant suppliers to
CIENA, recently announced a planned merger. If this merger and related
integration activities result in
14
<PAGE> 20
delayed deliveries of key components from either of these sources, those delays
could have a material adverse effect on CIENA's near-term results of operations.
PRODUCT PERFORMANCE PROBLEMS COULD LIMIT OUR SALES PROSPECTS.
The production of new fiberoptic systems with high technology content
involves occasional problems as the technology and manufacturing methods mature.
We are aware of instances domestically and internationally of delayed
installation and activation of some of our products due to faulty components. If
significant reliability, quality or network monitoring problems develop, a
number of material adverse effects could result, including:
- manufacturing rework costs
- high service and warranty 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 and the addition of channels, particularly because we do not
control all aspects of the installation and activation activities. If we
experience significant interruptions or delays that we can not promptly resolve,
confidence in our products could be undermined, which could have a material
adverse effect on us.
INVESTMENT IN NEW COMPANIES AND CHANGES IN TECHNOLOGY COULD RESULT IN MORE
COMPETITION.
We may not be able to successfully anticipate changes in technology,
industry standards, customer requirements and product offerings, yet our ability
to develop and introduce new and enhanced products will impact our position as a
leader in the deployment of high-capacity solutions. The accelerating pace of
deregulation in the telecommunications industry will likely intensify the
competition for improved technology. Many of our competitors have substantially
greater financial, technical and marketing resources and manufacturing capacity
with which to develop or acquire new technologies. There has been an increase in
the funding of new companies intending to develop new products for the rapidly
evolving telecom industry. These companies have time-to-market advantages due to
the narrow and exclusive focus of their efforts. New companies may provide
additional competition for our existing product lines as well as potential
future products. The introduction of new products embodying new technologies or
the emergence of new industry standards could render our existing products
uncompetitive from a pricing standpoint, obsolete or unmarketable. Any of these
outcomes would have a material adverse effect on our business, financial
condition and results of operations.
LEGAL PROCEEDINGS COULD HAVE AN ADVERSE EFFECT ON OUR BUSINESS.
In August 1998, shareholder class action lawsuits were filed against us and
certain of our officers and directors. We believe the lawsuits, now consolidated
into one, are without merit and are defending vigorously against them. However,
because the consolidated lawsuit is at an early stage, it is not possible to
predict the outcome at this time. If decided adversely to CIENA, however, it
could have a material adverse effect on our financial condition 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
certain key components from:
- Lucent
- Alcatel
- Nortel
- NEC, and
- Siemens
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Each of these companies offers optical communications systems and equipment
which are competitive with our products. Also, Lucent is the sole source of two
components and is one of two suppliers of two others. Alcatel and Nortel 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 materially and adversely affect our business,
financial condition and results of operations.
WE MAY NOT BE ABLE TO SUCCESSFULLY COMPLETE DEVELOPMENT AND ACHIEVE COMMERCIAL
ACCEPTANCE OF LIGHTERA AND OMNIA PRODUCTS.
Both Lightera and Omnia's products are in the laboratory testing phase but
the products have not matured into commercially manufacturable units suitable
for field deployment. We expect that field deployable units of Omnia's products
will be available in the second half of calendar 1999, and Lightera's products
by the end of the first quarter of calendar 2000. The maturing process from
laboratory prototype to commercial acceptance involves a number of steps,
including:
- successful completion of product development
- the qualification and multiple sourcing of critical components, including
application-specific integrated circuits ("ASIC's") which are not yet
finalized
- validation of manufacturing methods
- extensive quality assurance and reliability testing, and staffing of
testing infrastructure
- software validation
- establishment of systems integration and burn in 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 materially and adversely affect the speed and
scope of product introduction and marketplace acceptance of the products.
Specialized ASIC's, in particular, are key to the timely introduction of
Lightera's and Omnia's products, and schedule delays are common in the final
testing and manufacture of such components. 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.
Commercial acceptance of the products is also not established, and there is no
assurance that the substantial sales and marketing efforts necessary to achieve
commercial acceptance in traditionally long sales cycles will be successful.
WE MAY NOT BE ABLE TO RETAIN KEY EMPLOYEES OF LIGHTERA AND OMNIA.
Because of the high valuation we placed on Lightera and Omnia, their key
founders and employees have received or will receive a substantial number of
CIENA shares and can sell these shares at substantial gains. In many cases,
these individuals could become financially independent through these sales,
before the products of either company have fully matured into commercially
deliverable products commanding reasonable market share. Additionally, startup
and other companies will seek out these individuals due to the financial result
they have achieved for their investors. Under the circumstances, we face a
difficult and significant task of retaining and motivating the key personnel of
both companies to stay committed to us. We do not have employment contracts with
these personnel. We may not be successful in retaining them.
WE EXPECT THAT OUR ACQUISITIONS OF LIGHTERA AND OMNIA WILL MAKE OUR STOCK PRICE
MORE VOLATILE.
Both Lightera and Omnia are still completing their respective development
stages, and we do not expect either of them to generate any revenue or earnings
for at least several months. As a result, we expect to report approximately
breakeven results of operations, and may report operating losses, for the
balance of the fiscal year. Under these circumstances, we can expect significant
volatility over the next
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several quarters as investors make judgments as to our relative progress in:
- bringing the Lightera and Omnia products to market
- integrating the two companies
- managing retention issues, and
- generally executing on the strategic vision.
Additionally, the shares issued to Lightera shareholders are likely to
become eligible for sale without restriction in June 1999 and the vast majority
of shares issued in this transaction are likely to become eligible for sale
without restriction in late August 1999. Together, these shares will account for
approximately 25% of the outstanding shares of CIENA. If a large portion of
these shares are sold immediately or soon after they are eligible for sale, the
stock price may experience further volatility and may decline.
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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.
OMNIA SPECIAL MEETING
GENERAL
This proxy statement and prospectus is being furnished to holders of Omnia
stock in connection with the solicitation of proxies by the Omnia board for use
at the Omnia special meeting to be held on July 1, 1999 at the offices of Hale
and Dorr LLP, 60 State Street, Boston, Massachusetts 02109 commencing at 10:00
a.m., local time, and at any adjournment or postponement of the meeting.
This proxy statement and prospectus and the accompanying forms of proxy are
first being mailed to stockholders of Omnia on or about June 10, 1999.
MATTERS TO BE CONSIDERED
At the Omnia special meeting, Omnia stockholders will be asked to adopt the
merger agreement, approve the merger and appoint Robi L. Soni as Stockholder
Representative under the escrow agreement referred to in the merger agreement,
and to approve such other matters as may properly be brought before the meeting.
BOARD OF DIRECTORS' RECOMMENDATION
The Omnia board has unanimously approved the merger agreement and
recommends a vote FOR approval and adoption of the merger agreement and the
related appointment of Robi L. Soni as Stockholder Representative.
RECORD DATE AND VOTE REQUIRED
The Omnia board has fixed June 9, 1999 as the record date for determining
the holders of Omnia stock who are entitled to notice of and to vote at the
special meeting. As of the close of business on the record date, there were
12,142,790 shares of common stock, 5,890,000 shares of Series A preferred stock
and 3,738,462 shares of Series B preferred stock outstanding and entitled to
vote. The holders of common stock are entitled to cast one vote for each share
of common stock they hold on each matter submitted to a vote at the special
meeting. Except as described below, the holders of Series A preferred stock are
not entitled to vote. The holders of Series B preferred stock are entitled to
cast one vote for each share of common stock into which their Series B preferred
stock could then be converted on each matter submitted to a vote at the special
meeting. The presence in person or by proxy of the holders of a majority of the
shares of Omnia stock entitled to vote is necessary to constitute a quorum for
the transaction of business at the special meeting. Under the Delaware
corporation statute, the affirmative vote of at least a majority of the
outstanding shares of Omnia stock is required for the adoption of the merger
agreement. In addition, the affirmative vote of
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the holders of at least two-thirds of the outstanding shares of Series A
preferred stock and Series B preferred stock is required for adoption of the
merger agreement pursuant to Omnia's certificate of incorporation. If a
stockholder abstains from voting, that abstention will have the practical effect
of voting against the adoption of the merger agreement.
As of the record date, 9,026,112 (approximately 74.3%) of the outstanding
shares of common stock, 4,696,000 (approximately 79.7%) of the outstanding
shares of Series A preferred stock and 3,317,257 (approximately 88.7%) of the
outstanding shares of Series B preferred stock were beneficially owned by
directors and executive officers of Omnia and their affiliates. All of the
directors and executive officers have signed voting agreements requiring them to
vote all of their shares in favor of the adoption of the merger agreement.
Consequently, adoption of the merger agreement and approval of the merger is
assured.
PROXIES
This proxy statement and prospectus is being furnished to Omnia
stockholders in connection with the solicitation of proxies by the Omnia board
for use at the Omnia special meeting, and is accompanied by a form of proxy.
All shares of Omnia stock that are entitled to vote and are represented at
the Omnia special meeting by properly executed proxies received prior to or at
the meeting, and not revoked, will be voted at the meeting in accordance with
the instructions indicated on the proxies. If no instructions are so indicated,
the proxies will be voted for approval and adoption of the merger agreement,
except for proxies submitted by record holders of shares of Omnia stock who
indicate that they have not received voting instructions from the beneficial
holders of those shares.
If any other matters are properly presented for consideration at the Omnia
special meeting, the persons named in the enclosed form of proxy will have the
discretion to vote on those matters using their best judgment. Additional
matters which may come before the meeting include consideration of a motion to
adjourn the meeting to another time and/or place, which may be necessary for the
purpose of soliciting additional proxies from Omnia stockholders. The proxy
holders will not adjourn the meeting if there are insufficient votes to approve
the proposals at the date of the meeting.
Any person who gives a proxy may revoke it at any time before it is voted.
To revoke a proxy, you must (1) submit a later dated proxy with respect to the
same shares at any time prior to the vote on the adoption of the merger
agreement, (2) deliver written notice of revocation to the Secretary of Omnia at
any time prior to the vote or (3) attend the special meeting and vote in person.
Your attendance at the special meeting alone is not sufficient to revoke a
proxy.
Omnia will bear all expenses of its solicitation of proxies, including the
cost of mailing this proxy statement and prospectus. In addition to solicitation
by mail, directors, officers and employees of Omnia may solicit proxies in
person or by telephone, fax or other means of communication. These directors,
officers and employees will not receive additional compensation. However, they
may be reimbursed for reasonable out-of-pocket expenses that they incur in
connection with this solicitation.
OMNIA STOCKHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR PROXY
CARDS.
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THE MERGER
GENERAL
The Boards of Directors of CIENA and Omnia have each approved the merger
agreement, which provides for the merger of Omnia with and into CIENA, with
CIENA being the surviving corporation of the merger. Each share of Omnia common
stock, Omnia Series A preferred stock and Omnia Series B preferred stock
outstanding immediately prior to the merger will be converted into the right to
receive shares of CIENA common stock. The shares of Omnia common stock and Omnia
preferred stock will be converted into a number of shares of CIENA common stock
using formulas specified in the merger agreement, as described under "Terms of
the Merger Agreement -- Conversion and Exchange of Shares." Fractional shares of
CIENA common stock will not be issued in connection with the merger, and Omnia
stockholders otherwise entitled to a fractional share will be paid in cash for
each fractional share, in the manner described under "Terms of the Merger
Agreement -- Exchange of Certificates and Fractional Shares."
BACKGROUND OF THE MERGER
CHRONOLOGY OF THE NEGOTIATIONS
CIENA is regularly involved in the review of private companies developing
products that are generally relevant to ongoing changes in telecommunications
networks, including increasing requirements for new, high-bandwidth capabilities
and the shift from circuit-oriented technologies to cell and packet
technologies.
In October 1997, CIENA was made aware of Omnia by Michael Zak, a CIENA
director who was then an Omnia director and who is affiliated with Charles River
Partnerships, an investor in Omnia. CIENA corporate development officials met
with Omnia's founders to discuss possible joint product development activities,
but CIENA determined that Omnia's development was too early for CIENA to pursue
a further relationship at that time.
On January 8, 1999, the board of directors of CIENA met with its management
to discuss corporate strategy. This was the first board session devoted
exclusively to corporate strategy following the termination of CIENA's planned
merger with Tellabs, Inc., which was terminated in September 1998. They assessed
a variety of strategic alternatives. The board recommended further refinement of
CIENA's foundational strategy for continuing stand alone operations; and also
approved management's review and investigation of complementary technologies for
further development of CIENA in order to broaden its product and customer base.
On January 18, 1999, management of CIENA met in an off-site meeting to
review a number of early stage companies that CIENA's corporate development
group had identified as working on products or technologies believed to be
complementary to CIENA's. Omnia and Lightera Networks, Inc. were among the
identified companies. After discussion, management agreed that Omnia and
Lightera appeared to offer the most potential for synergistic fit.
On February 9, 1999, representatives of CIENA's strategy and corporate
development team met with representatives of Omnia. The meeting included an
overview of Omnia and its planned products. They also discussed the
applicability of the Omnia product as a complementary "front end" to CIENA's
MultiWave Metro product.
On February 15, 1999, CIENA management met at an off-site meeting and
reviewed the preliminary impressions of the strategy and corporate development
team which had met with Omnia. Management agreed that further discussions with
Omnia and Lightera would be worth pursuing. CIENA noted that both companies
intended or appeared likely to undertake initial public offerings within the
next 12 to 18 months, and that CIENA's acquisition proposals would be compared
against possible future IPO valuations, as well as possible alternative
acquisition proposals.
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On February 15, 1999, CIENA's President and Chief Executive Officer Patrick
Nettles spoke with Omnia's President and Chief Executive Officer, Michael
Champa, by telephone and invited Mr. Champa to meet with him on February 17,
1999 at CIENA. The outline of possible terms of an acquisition offer were
discussed.
On the morning of February 17, 1999, at a regularly scheduled meeting of
CIENA's board of directors, the board approved the formation of a Special
Independent Committee to evaluate and make recommendations with respect to any
specific proposals for the acquisition of either Omnia or Lightera. The
Committee was formed in recognition that Michael Zak, a director of CIENA, was a
former director of Omnia and is a general partner in the Charles River
partnerships, which had invested in Omnia; and H. Berry Cash, a director of
CIENA, is a general partner in the InterWest venture capital funds, which had
invested in Lightera. The Special Independent Committee consisted of Patrick
Nettles, Stephen Bradley and Billy Oliver.
In the afternoon of February 17, 1999, Mr. Champa and Omnia's Chief
Financial Officer, Lawrence Harding, met at CIENA's offices with Mr. Nettles,
CIENA's Chief Financial Officer, Joe Chinnici, and other CIENA officials and
discussed the possibility of combining the two companies.
On February 18, 1999, G. Eric Georgatos, CIENA's Senior Vice President,
Secretary, and General Counsel provided a proposed term sheet to Omnia.
On February 19, 1999, Mr. Champa telephoned Mr. Nettles to indicate that
the Omnia management had reviewed the term sheet, and requested a teleconference
for the next day with others from the management teams of CIENA and Omnia.
On February 20, 1999, a teleconference took place between various
representatives of Omnia and CIENA, who agreed that CIENA would submit a
modified term sheet to Omnia which could be discussed at Omnia's regularly
scheduled Board Meeting on February 24, 1999. Later that afternoon, Mr.
Georgatos provided the modified term sheet to Omnia.
On February 24, 1999, Omnia's Board of Directors met at a regularly
scheduled meeting, and the Board authorized management to initiate due diligence
discussions with members of CIENA's management. No term sheet was signed by
either party.
On February 22 and 24, 1999, Mr. Nettles and Mr. Champa spoke further by
telephone.
During the week of March 1, 1999, CIENA representatives met for two days
with representatives of Omnia at Omnia's offices. The CIENA representatives
focused on an in-depth analysis of the technical and development status of
Omnia's products, and plans for product rollout.
On March 2, 1999, Mr. Nettles met jointly with Mr. Champa and the chief
executive officer of Lightera at a financial conference in Santa Barbara,
California. Discussion topics included issues relating to the "fit" of culture,
organization, and vision among the three companies.
On March 4, 1999, a due diligence team from Omnia visited CIENA's offices.
The team focused on current financial results and examined the prospects for
future growth.
On March 5, 1999, the Special Independent Committee of the CIENA board of
directors met to receive due diligence reports from management and preliminary
assessments of the proposed Omnia and Lightera transactions.
On March 6, 1999, Mr. Champa met with Mr. Nettles to discuss issues
relating to the proposed transaction.
During the week of March 8, due diligence and negotiation of definitive
merger agreements took place through multiple telephone conference calls between
CIENA and Omnia, and between their respective counsels. At the same time, CIENA
conducted similar negotiations with Lightera.
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On March 10, 1999, the Special Independent Committee of the CIENA board of
directors met to receive further results of due diligence efforts from
management and information from CIENA's representatives regarding the Lightera
and Omnia acquisition proposals. The Committee unanimously voted to recommend
approval of both acquisitions to the full board.
On March 11, 1999, the board of directors of CIENA met to discuss the
proposed acquisitions. Management presented detailed information regarding the
perceived strategic fit of the two companies, the due diligence assessments, and
remaining issues to be negotiated or addressed prior to execution of definitive
merger agreements. Outside counsel to CIENA advised the CIENA board with respect
to the structure and material terms of the proposed acquisitions, as well as
legal requirements with respect to considering and voting upon interested
director transactions. The Special Independent Committee reported on its
unanimous recommendation that CIENA proceed with the two acquisitions. The board
informally endorsed continuing with the negotiations.
The board of directors of Omnia met on February 24, 1999, March 5, 1999,
March 6, 1999, March 11, 1999, March 13, 1999 and March 14, 1999 to discuss the
proposed merger. At each meeting, the Omnia board reviewed with Omnia management
information regarding the perceived strategic fit of the two companies, the
consideration to be received by Omnia stockholders in the merger, and remaining
issues to be negotiated or addressed prior to execution of the merger agreement.
The Omnia board also considered Omnia management's belief that CIENA would meet
publicly available consensus securities analyst expectations for fiscal 1999.
Outside counsel to Omnia advised the Omnia board with respect to the structure
and material terms of the proposed merger. At each meeting, the Omnia board
informally endorsed continuing with the negotiations. The Omnia board
unanimously approved the merger on March 14, 1999.
On March 14, 1999, the CIENA board of directors met to receive final due
diligence reports from management. The Board of Directors unanimously approved
each transaction, with Mr. Zak abstaining on the vote with respect to the Omnia
transaction, and Mr. Cash abstaining on the vote with respect to the Lightera
transaction. On March 15, 1999, the definitive agreements were executed on both
transactions, and they were publicly announced early in the morning of March 15,
1999.
On March 31, 1999, CIENA's acquisition of Lightera was completed.
CIENA'S REASONS FOR THE MERGER
IN THE CONTEXT OF PRODUCT STRATEGY
CIENA has experienced very rapid growth during its three 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's introduction of MultiWave Firefly(TM), for point-to-point short haul
applications and MultiWave Metro, for metropolitan and local access
applications, were the outgrowth of these efforts. CIENA has long recognized,
however, 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
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throughout the network and to end users. In short, there is a need to achieve
more of the potential of "intelligent optical networking".
CIENA believes the completed acquisition of Lightera and the proposed
acquisition of Omnia will enable it to address this larger customer need with
state-of-the-art, innovative solutions which are significantly more
cost-effective for customers than existing equipment.
IN THE CONTEXT OF CORPORATE HISTORY AND STRATEGY
Approximately a year ago, senior management of CIENA met to address CIENA's
strategic direction and alternatives. They examined and discussed in detail
industry trends, customer feedback and data, and selected competitor activities.
Some of the important conclusions they reached were:
- 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 will be taken to meet the network bandwidth
requirements -- for example, among traditional industry participants,
movement toward innovative data services will 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 (CLECs), 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. However, it would be difficult to sustain the
value and achieve the ability to influence the industry as a stand alone
company with a single product line.
In the face of these conclusions, and the trend of the intensely
competitive telecommunications equipment provider industry toward rapid
consolidation, CIENA's senior management discussed a number of potential
business combinations. Although the management team endorsed no single
combination at these early meetings, the team uniformly concluded that a
combination could enable CIENA to position itself better to compete in such an
environment.
Subsequently, CIENA was approached by Tellabs, Inc., a major provider of
telecommunications equipment, to consider a possible merger. CIENA's Board
determined that this proposal was consistent with CIENA's strategic assessment.
A proposed merger with Tellabs, Inc. was announced on June 3, 1998, but was
later terminated for reasons and under circumstances disclosed in CIENA's prior
public reports.
Following termination of the merger with Tellabs, CIENA's operating plan
was to:
- accelerate efforts to drive cost out of the existing and planned
products;
- aggressively manage inventories; and
- focus sales efforts on the entrepreneurial new carriers.
CIENA was not then seeking acquisitions nor was it seeking to be acquired.
By December 1998, CIENA had further broadened its customer base, and had
shown modest sequential revenue growth from the fourth fiscal quarter of 1998 to
the first fiscal quarter of 1999. Visibility beyond the second fiscal quarter of
1999 was, consistent with past experience, more limited, but the overall sense
of worldwide demand for additional bandwidth was also encouraging.
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CIENA's first quarter results, recent customer contracts in Europe and
Japan, as well as rumors of design and operating problems with competing DWDM
products, were restoring CIENA's competitive profile, and appeared to be
restoring investor confidence in CIENA, as reflected in a partial recovery of
CIENA's stock price.
Further strategy sessions of CIENA management and its board in January and
February 1999 focused on growing CIENA through targeted acquisitions which would
broaden its technology base and product offerings. Reinforcing this strategy was
a concern within CIENA's product development organization that the volume of
projects was jeopardizing CIENA's commitment to maintain its reputation as a
leader in time-to-market execution on new products.
CIENA investigated a number of other target companies in January and
February, 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. Lightera Networks and Omnia
Communications emerged as the two best strategic "fits". CIENA completed the
acquisition of Lightera on March 31, 1999.
THE STRATEGIC FIT
Omnia has an access concentrator product, the AXR 500, in laboratory test
which CIENA believes is valuable, not only as a "best of breed" product for the
local exchange market applications for which it was designed, but also as a
"front end" to CIENA's MultiWave Metro interoffice ring-based transport product.
Omnia also has a complementary product to the AXR 500, called the AXR 300, in
the design phase of development.
Omnia has devoted approximately $10.05 million to the development of the
AXR 500. CIENA does not expect that expenses necessary to bring the initial
version of the AXR 500 to commercial introduction will be material to CIENA. To
date, expenses incurred in the development of the AXR 300 have not been
material. CIENA does not expect to recognize significant revenues from sales of
either the AXR 500 or AXR 300 during fiscal 1999. Omnia expects to introduce
commercially the AXR 500 in June 1999. There is no assurance that either the AXR
500 or AXR 300 will be commercially introduced, or generate significant
revenues.
Omnia's planned products are intended to replace a number of distinct
devices in current use, including SONET add/drop multiplexers, channel bank
equipment and edge routers, with an integrated solution for delivering
metropolitan business services. These service applications range from
traditional telephone service to high-bandwidth private line connections to
fully routed internet connections. Omnia's planned product line incorporates
capabilities for grooming these services to use the network resources
effectively. The result can be a substantial reduction in the cost of
provisioning, as well as a reduction in operational costs for, a wide variety of
business services for either incumbent or emerging local exchange carriers.
Omnia's planned product line offers flexibility to change service provisioning
from time to time remotely. By employing an ATM fabric in the metropolitan ring,
Omnia's product line utilizes statistical multiplexing to reduce further the
cost of delivering these services. This results in a significant economic
advantage for carriers, especially valuable in handling the growing range of
high-bandwidth applications for business applications.
Early market reactions to MultiWave Metro have been positive for
interoffice and collector ring applications for the RBOCs and CLECS, but the
larger market opportunity is believed to exist nearer the network edge, i.e., in
feeder ring applications. However, the initial release of Metro requires feeds
at line rates that are often higher than the predominant feeds in use today.
Because of this limitation, the initial release of MultiWave Metro appears
optimized for the high-end, narrower portion of the potential market.
The Omnia product offers an opportunity to broaden significantly the
applications of CIENA's MultiWave Metro. Omnia's access concentrator product is
equipped to accept feeds of DS-3, T-1,
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down to DS-0, to provide routing for wide-area networking and internet
connections, and can statistically multiplex these inputs up to speeds Metro can
accept. CIENA believes that combining the Omnia access concentrator at the front
end of Metro will enhance the commercial attractiveness of both products and
differentiate them from competitive offerings which, to CIENA's knowledge, do
not deliver these capabilities.
CIENA believes the combination of Omnia with CIENA, including the potential
optical switching capability from the recent Lightera acquisition, will create a
powerful and immediate new player in the telecom equipment supply industry, with
the capability of offering intelligent optical networking, i.e., transporting,
managing and delivering substantial and flexible bandwidth throughout most of
the network, to customers worldwide, utilizing "best of breed" products designed
for the high capacity network of the future.
ADDITIONAL REASONS FOR THE MERGER
The strategic fit described above 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
Omnia, who were also customers or target customers of CIENA, were likely
to be very interested in the products of Omnia. Further, CIENA's sales
and marketing efforts had indicated significant potential to acquire
customers interested in the more comprehensive "intelligent optical
networking" solution that would be made possible by the combination.
- CULTURAL SIMILARITY. CIENA and Omnia 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.
- SHARED VISION. Though the Lightera/CIENA and Omnia/CIENA transactions
were independent of one another, they were negotiated simultaneously,
with each party having knowledge that both were possible. This factor
ultimately did not deter but encouraged the final outcome of each
negotiation, as the management teams of all three companies recognized
and subscribed to the larger strategic vision enabled by the two
transactions. CIENA believes this shared vision, and the commitment to
bring it to fruition, will be helpful to the retention of key employees
of the combined companies.
- EXECUTION SYNERGIES. As a development stage company which CIENA believes
is rapidly approaching completion of "beta" level products, the critical
challenge facing Omnia is execution: the task of bringing new products to
design completion, commercial manufacturability, with timely delivery,
superior reliability, and effective customer support for installation and
technical service. CIENA believes it has been successful in handling
similar execution risk with its DWDM product line, and this recent
experience is adaptable and relevant to the execution risks facing Omnia.
- WORLD CLASS ENGINEERING TEAMS. Due diligence efforts convinced CIENA's
management team that the engineering team at Omnia was world class in
quality, and would add significantly to the resources of CIENA and its
ability to continue to innovate and rapidly bring new products to market.
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In reaching its decision to approve the acquisition of Omnia, the CIENA
board also considered, in addition to other matters, the following factors that
may be relevant to Omnia stockholders:
- The effect on CIENA stockholder value of the recent Lightera and pending
Omnia acquisitions, 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 prices being paid for the two development stage
companies, and contrasted that dilution with the substantial expansion of
the addressable markets enabled by the acquisitions. The board concluded
the renewed growth potential for the combined companies justified the
near term dilution, and further concluded that the risks to CIENA
stockholder value of taking no action were greater than proceeding with
the two acquisitions;
- The execution risks facing both Lightera and Omnia 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, Lightera and Omnia did not proceed as planned, the
desired synergies would not be achieved, and the execution risk would not
be overcome. The Board recognized this risk as significant, but believed
that the management teams of each company would respond well to the
challenge;
- The impact of the merger on CIENA's employees, and on the employees of
Lightera and Omnia. The board discussed the risks of retaining the key
technical, marketing and management personnel of Lightera, Omnia and
CIENA in view of the prices being paid for the two companies, the partial
acceleration of stock vesting, and the liquidity potentially available to
the two companies' employees, and contrasted those risks with the efforts
planned for integrating the two companies. The board concluded that the
risks were significant but acceptable; and the exciting potential of the
combined company, as well as the remaining vesting requirements
applicable to the equity participation of the two companies' employees,
would likely create meaningful incentive for retention;
- The business risks associated with increased competition in the
telecommunications equipment supply industry, and the likelihood of
vigorous competitive response to the two acquisitions. While challenging,
the CIENA board concluded that these factors would not be likely to blunt
the significant economic advantages offered by the combined enterprise;
and
- The terms and conditions of the Omnia merger agreement, including the
limited conditions to closing. The CIENA board felt that the limited
conditions were in CIENA's best interest because they enhanced the
likelihood of accomplishing the acquisitions, thereby providing CIENA
with the strategic benefits outlined above.
RECOMMENDATION OF THE OMNIA BOARD OF DIRECTORS
The Omnia board has unanimously determined that the terms of the merger
agreement and the merger are fair to, and in the best interests of, Omnia and
the Omnia stockholders. Accordingly, the Omnia board has unanimously approved
the merger agreement and unanimously recommends that the Omnia stockholders vote
for the approval and adoption of the merger agreement and the approval of the
merger. Some members of the Omnia board may be deemed to have a conflict of
interest in recommending stockholder approval of the merger.
INTERESTS OF OMNIA'S DIRECTORS AND OFFICERS IN THE MERGER
In considering the recommendation of the Omnia board with respect to the
approval and adoption of the merger agreement and the approval of the merger,
the Omnia stockholders should be aware that certain members of the management of
Omnia and the Omnia Board may have certain interests in the merger that are
different from, or in addition to, the interests of Omnia stockholders
generally.
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STOCK OWNERSHIP. As of June 9, 1999, the directors and executive officers
of Omnia beneficially owned approximately 9,026,112 shares of Omnia Common
Stock, 4,696,000 shares of Omnia Series A preferred stock and 3,317,257 shares
of Omnia Series B preferred stock, for which they will receive the same
consideration in connection with the merger as other holders of Omnia common
stock, Series A preferred stock and Series B preferred stock, respectively.
Michael Zak, a former member of the Omnia board and a member of the CIENA
board and Richard Burnes, a current member of the Omnia board, are each a
general partner of the general partner of Charles River Partnership VIII, a
Limited Partnership and Charles River VIII-A LLC, investors in Omnia which
together own 2,228,000 shares of Omnia common stock, 2,228,000 shares of Omnia
Series A preferred stock and 698,370 shares of Omnia Series B preferred stock.
PROPRIETARY INFORMATION AGREEMENTS. As a condition to closing the merger
the following individuals must enter into proprietary information agreements
with CIENA:
- Jeffrey Black
- Michael Champa
- Jay Damiano
- Walter Dray
- Douglas Faber
- Lawrence Harding
- James O'Bray
- William Regan
- Mitchell Rosich
- Jeffrey Weiss
Under the terms of these agreements, these individuals would agree that:
- they will keep confidential commercially valuable information of CIENA;
- any inventions which they develop or conceive of during the course of
their employment with CIENA will become the property of CIENA;
- during the time they are employed by CIENA and for a period of twelve
months thereafter they will not directly or indirectly solicit employees
of CIENA to leave the employ of CIENA, hire any former employee of CIENA
within twelve months of the end of their employment with CIENA, solicit
business from customers of CIENA, interfere with CIENA's relationship
with any other person or disparage CIENA, its affiliates or employees;
and
- for the later of a twelve month period after the end of their employment
by CIENA or eighteen months after the closing of the merger they will not
directly or indirectly participate in a business or activity that
competes with the business of CIENA, including the development of DWDM
products, access concentrator products or switching products.
These individuals will not receive any consideration for entering into the
proprietary information agreements other than the CIENA stock issued to them in
the merger.
1997 STOCK PLAN. As of June 9, 1999, the directors and executive officers
of Omnia held stock options to purchase 469,346 shares of Omnia common stock. At
the effective time of the merger, all stock options (including the stock options
held by Omnia executive officers and directors) will convert into the right to
receive the number of shares of CIENA common stock that the holder would have
received in the merger if the holder had exercised the option in full
immediately prior to the closing of the merger and the exercise price will be
adjusted appropriately. At the effective time of the merger, the vesting of the
stock options will be accelerated according to the terms of the agreements
covering the stock options. Stockholders should be aware that Omnia and CIENA
believe that the merger constitutes a change of control of Omnia for purposes of
those agreements, but that
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these agreements and their vesting provisions will otherwise continue in effect
following closing. Accordingly, a consequence of a vote to approve the merger is
that the vesting will be accelerated to the extent provided for in the
agreements.
RESTRICTED STOCK AGREEMENTS. Omnia has entered into restricted stock
purchase agreements with the following directors and officers of Omnia:
- Jeffrey Black
- Michael A. Champa
- James M. Dow
- Walter Dray
- Lawrence M. Harding
- James O'Bray
- William Regan
- Jeffrey Weiss
Under the terms of their restricted stock purchase agreements, some or all of
the shares of Omnia common stock held by these individuals are subject to
repurchase by Omnia, with limited exceptions, in the event that the individual's
employment with Omnia is terminated for cause or voluntarily. Under the terms of
the restricted stock purchase agreements, the number of shares of Omnia common
stock then subject to repurchase by Omnia will be reduced by 50% at the time of
the merger and the number of shares remaining subject to the purchase option
will be reduced in equal increments over the following twelve months. On June 9,
1999, the above listed persons held a total of 4,570,112 shares of Omnia common
stock.
OWNERSHIP AND VOTING OF STOCK. As of June 9, 1999, directors and officers
of Omnia and their affiliates may be deemed to have beneficial ownership of
approximately 74.3% of the outstanding shares of Omnia common stock,
approximately 79.7% of the shares of outstanding Series A preferred stock and
approximately 88.7% of the outstanding shares of Series B preferred stock. These
directors and executive officers may be deemed to have beneficial ownership
either by themselves or with others. Each of the directors and executive
officers of Omnia and/or their affiliates has agreed to vote all of the
outstanding shares of Omnia stock over which he has or shares voting control to
be voted in favor of the merger agreement. See "Information Concerning
Omnia -- Security Ownership of Directors, Executive Officers and Principal
Stockholders of Omnia; Terms of the Merger Agreement -- Voting Agreements."
In connection with the execution of the merger agreement, CIENA entered
into voting agreements with the following stockholders of Omnia:
- Atlas Venture Entrepreneurs Fund III, L.P.
- Atlas Venture Fund III, L.P.
- Bessec Ventures IV L.P.
- Bessemer Venture Partners IV L.P.
- BVP IV Special Situations L.P.
- Bessemer Venture Investors L.P.
- Jeffrey Black
- Michael A. Champa
- Charles River Partnership VIII
- Charles River Partnership VIII, a Limited Partnership
- Charles River VIII-A LLC
- Jay Damiano
- James M. Dow
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- Walter Dray
- Lawrence M. Harding
- James O'Bray
- William Regan
- Mitchell Rosich
- SVE STAR Ventures Enterprises No. VIII
- SVM Star Ventures Managementgessellschaft mbH Nr. 3 & Co., Beteilgungs KG
No. 2
- SVE Star Ventures Enterprises No V
- SVM Star Ventures Management GmbH No. 3
- Jeffrey Weiss
As of June 9, 1999, these stockholders beneficially owned approximately 83.9% of
all of the outstanding shares of Omnia common stock, approximately 99.5% of all
outstanding shares of Series A preferred stock of Omnia and approximately 98.5%
of all outstanding shares of Series B preferred stock of Omnia. Under the terms
of the voting agreements, each of these stockholders has agreed to vote in favor
of the merger.
ACCOUNTING TREATMENT. The merger is intended to qualify as a pooling of
interests for financial reporting purposes in accordance with generally accepted
accounting principles. Consummation of the merger is conditioned upon receipt at
the closing of the merger by CIENA and Omnia of letters from
PricewaterhouseCoopers LLP, CIENA's and Omnia's independent accountants,
affirming the firm's concurrence with CIENA management and Omnia management
conclusions as to the appropriateness of pooling of interests accounting for the
merger under APB No. 16, if consummated according to the agreement.
OMNIA'S REASONS FOR THE MERGER
The Omnia Board believes that the following are reasons the merger will be
beneficial to Omnia and for its stockholders to vote FOR the merger:
- The merger may permit Omnia to utilize CIENA's research and development
capabilities and resources in developing its products, and may thereby
enhance Omnia's ability to compete more effectively against larger
competitors in the metropolitan fiber optic access and transport network
market.
- Strategically, packet and cell technology combined with an integrated
transport and access platform means carriers can more effectively deliver
multi-megabit internet services, while continuing to support existing
voice services over their current fiber optic infrastructures. By merging
with CIENA, Omnia extends the reach of both its recently developed AXR
500 and CIENA's MultiWave Metro product on a common optical
infrastructure.
- The addition of CIENA's sales and marketing resources, including its
geographically more expansive distribution channel, and its established
relationships with potential customers may increase Omnia's ability to
market and sell its products.
- The consideration to be paid to Omnia stockholders in the merger will be
shares of CIENA common stock, which are securities that are publicly
traded on the Nasdaq National Market and are more readily marketable than
shares of Omnia stock.
In the course of its deliberations during meetings held on February 24,
1999, March 5, 1999, March 6, 1999, March 11, 1999, March 13, 1999 and March 14,
1999, the Omnia Board reviewed
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with Omnia management and Omnia's legal advisor a number of additional factors
that the Omnia Board deemed relevant to the merger, including, but not limited
to:
- the strategic importance to Omnia of the proposed merger;
- the consideration to be received by Omnia stockholders in the merger;
- information concerning Omnia's and CIENA's respective businesses,
prospects, strategic business plans, financial performance and condition,
results of operations, technology positions, management and competitive
positions;
- Omnia management's view as to the financial condition, results of
operations and business of Omnia before and after giving effect to the
merger;
- Omnia management's view as to the prospects of Omnia's continuing as an
independent company;
- Omnia management's view as to Omnia's ability to gain access to the
necessary capital to meet its strategic business goals in both the
near-term and long-term and the relative costs associated with obtaining
the capital;
- current financial conditions and historical market prices, volatility and
trading information with respect to CIENA common stock;
- Omnia management's view as to the effect of the merger on the core
business of Omnia, including its research and development efforts,
potential synergy of CIENA's technologies with Omnia's technologies, the
breadth of CIENA's product offerings and sales and marketing
infrastructure;
- the impact of the merger on Omnia's strategic marketing partners and
employees; and
- the compatibility of the management of Omnia and CIENA.
During the course of its deliberations concerning the merger, the Omnia
Board also identified and considered a variety of potentially negative factors
that could materialize as a result of the merger, including, but not limited to:
- the risk that the potential benefits sought in the merger might not be
fully realized;
- the possibility that the merger might not be consummated and the effect
of the public announcement of the merger on Omnia's distributors,
customers and employees;
- the risks associated with obtaining the necessary approvals required to
complete the merger;
- the effects of the diversion of management resources necessary to respond
to due diligence inquiries and the negotiation and consummation of the
merger; and
- the other risks described under "Risk Factors."
The Omnia Board concluded that the risks associated with the merger were
outweighed by the potential benefits of the merger and unanimously determined
that the merger is fair to, and in the best interests of, Omnia and its
stockholders. Some directors of the Omnia Board may be deemed to have a conflict
of interest in the Board's approval of the merger and recommending stockholder
approval of the merger. See "-- Interests of Omnia's Directors and Officers in
the Merger."
In view of the wide variety of factors considered by the Omnia Board, the
directors did not find it practical to, and did not, quantify or otherwise
assign relative weights to the specific factors discussed above.
LISTING ON THE NASDAQ STOCK MARKET
CIENA has agreed to cause the shares of CIENA common stock issued in the
merger to be approved for listing on The Nasdaq Stock Market.
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GOVERNMENTAL AND REGULATORY APPROVALS
While no further antitrust approvals are required to consummate the merger,
at any time before the effective time of the merger, the Antitrust Division of
the Department of Justice, the Federal Trade Commission or a private person or
entity could seek under antitrust laws, among other things, to enjoin the merger
and any time after the effective time of the merger, to cause CIENA to divest
itself, in whole or in part, of certain businesses conducted by the surviving
corporation of the merger. There can be no assurance that a challenge to the
merger will not be made or that, if such a challenge is made, CIENA will
prevail.
FEDERAL INCOME TAX CONSEQUENCES
The following summary, which was prepared by Hale and Dorr LLP, discusses
the material federal income tax consequences of the merger to holders of Omnia
stock and is based upon the opinion of Hale and Dorr LLP as to the federal tax
consequences of the merger provided to Omnia. The summary is based upon the
Internal Revenue Code, Treasury Regulations, administrative rulings and judicial
authority as of the date of this proxy statement and prospectus. All of the
federal income tax consequences are subject to change, possibly with a
retroactive effect. The discussion assumes that holders of shares of Omnia stock
hold such shares as capital assets within the meaning of Section 1221 of the
Internal Revenue Code. In general, under Section 1221 property held for
investment is considered a capital asset. This discussion does not address any
consequences of the merger arising under the laws of any state, locality or
foreign jurisdiction or the consequences of any transactions effectuated prior
or subsequent to, or concurrently with, the merger regardless of whether or not
any of these transactions are undertaken in connection with the merger.
Neither Omnia nor CIENA has requested a ruling from the Internal Revenue
Service with regard to any of the federal income tax consequences of the merger.
The opinion of counsel as to the federal income tax consequences discussed below
will not be binding on the IRS, and the IRS is therefore not precluded from
successfully asserting a contrary opinion.
GENERAL. Hale and Dorr LLP has acted as counsel to Omnia in connection
with the merger. In the opinion of Hale and Dorr LLP, as of the date hereof, the
merger will constitute a "reorganization" within the meaning of Section 368(a)
of the Internal Revenue Code. This opinion is based on factual representations
which have been made by Omnia and CIENA and which are customarily given in
transactions of this type.
CONSEQUENCES TO OMNIA STOCKHOLDERS. Based on the conditions and
assumptions referred to above, as a result of the merger qualifying as a
reorganization, no gain or loss will be recognized by holders of Omnia stock
solely as a result of the surrender of their shares of Omnia stock in exchange
for shares of CIENA common stock under the terms of the merger or upon the
distribution of shares of CIENA common stock from the escrow established
according to the escrow agreement. The aggregate tax basis of the shares of
CIENA common stock received in the merger, which includes the shares of CIENA
common stock which are subject to the escrow agreement, will be the same as the
aggregate tax basis of the shares of Omnia stock surrendered in exchange
therefor in the merger. The holding period of the shares of CIENA common stock
received in the merger, including any shares of CIENA common stock that are
subject to the escrow agreement, will include the holding period of the shares
of Omnia stock surrendered in exchange for CIENA common stock.
A successful IRS challenge to the reorganization status of the merger would
result in stockholders of Omnia recognizing taxable gain or loss with respect to
each share of Omnia stock surrendered equal to the difference between (i) the
fair market value, as of the time of the merger, of the CIENA common stock
received in the merger; and (ii) the stockholder's basis in the share of Omnia
stock surrendered in the merger. In that event, a stockholder's aggregate basis
in the CIENA common stock received in the merger would equal its fair market
value as of the time of the merger, and the stockholder's holding period for
that stock would begin on the day after the merger.
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Holders of Omnia stock will recognize capital gain or loss equal to the
difference between the cash received in lieu of fractional shares of CIENA
common stock and their tax basis allocated to the fractional shares. The capital
gain or loss will be a long-term capital gain or loss if the holder's holding
period for the Omnia stock is more than one year.
CONSEQUENCES TO DISSENTING STOCKHOLDERS. Holders of Omnia stock who
exercise dissenters' rights with respect to the merger and receive a cash
payment for his or her shares of Omnia stock will recognize capital gain or loss
measured by the difference between the amount of cash received and the
stockholder's basis in those shares, provided that the payment is not treated as
a dividend under Section 302 of the Internal Revenue Code. A sale of shares
based on an exercise of dissenters' rights generally will not be treated as a
dividend if, as a result of the exercise, the stockholder exercising dissenters'
rights owns no shares of common stock of CIENA, immediately after the merger,
after giving effect to the constructive ownership rules of the Internal Revenue
Code. The capital gain or loss will be long-term capital gain or loss if the
holder's holding period in the shares is more than one year. Any payment in
respect of an exercise of dissenters' rights may be subject to backup
withholding.
CONSEQUENCES TO OMNIA AND CIENA. Provided that the merger qualifies as a
reorganization, neither Omnia nor CIENA will recognize gain or loss as a result
of the merger.
THE PRECEDING DISCUSSION IS NOT PURPORTED TO BE A COMPLETE ANALYSIS OR
DISCUSSION OF ALL POTENTIAL TAX EFFECTS OF THE MERGER WHICH MAY BE RELEVANT TO A
PARTICULAR OMNIA STOCKHOLDER. EACH OMNIA STOCKHOLDER IS URGED TO CONSULT ITS OWN
TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO IT OF THE MERGER, INCLUDING
TAX RETURN REPORTING REQUIREMENTS, THE APPLICABILITY AND EFFECT OF FEDERAL,
STATE, LOCAL, AND OTHER APPLICABLE TAX LAWS AND THE EFFECT OF ANY PROPOSED
CHANGES IN THE TAX LAWS.
Omnia has received an opinion of Hale and Dorr LLP, counsel to Omnia in
connection with the merger, to the effect that the discussion under this section
"-- Federal Income Tax Consequences," accurately describes the material federal
income tax considerations relevant to Omnia stockholders receiving CIENA common
stock in the merger.
APPRAISAL RIGHTS OF DISSENTING STOCKHOLDERS OF OMNIA
If the merger is consummated, a holder of record of Omnia 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 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 proxy statement and prospectus is being sent to all
holders of record of Omnia stock on the record date for the Omnia special
meeting and constitutes notice of the appraisal rights available to those
holders under Section 262. 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 proxy statement and prospectus. A copy of Section 262 is
attached as Appendix B to this proxy statement and prospectus.
A holder of Omnia stock who elects to exercise appraisal rights under
Section 262 must deliver a written demand for appraisal of its shares of Omnia
prior to the vote on the merger. The written demand must identify the
stockholder of record and state the stockholder's intention to demand
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appraisal of his or her shares. All demands should be delivered to Omnia,
Attention: Lawrence M. Harding, 400 Nickerson Road, Marlborough, Massachusetts
01752, telephone (508) 229-8444.
Only a holder of shares of Omnia 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 Omnia stock. If Omnia
stock is owned of record in a fiduciary capacity by a trustee, guardian or
custodian, the demand should be made in that capacity. If Omnia 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 Omnia 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 Omnia stock, held for those beneficial owners. In that case, the
written demand for appraisal should state the number of shares of Omnia stock
covered by it. Unless a demand for appraisal specifies a number of shares, the
demand will be presumed to cover all shares of Omnia stock held in the name of
the record owner.
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 OMNIA SPECIAL MEETING.
Within 10 days after the merger, CIENA 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 Omnia stock held by all stockholders seeking appraisal. A
dissenting stockholder must serve a copy of the petition on CIENA. If no
petition is filed by either CIENA 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 CIENA a statement setting forth the total number of
shares of Omnia stock not voted in favor of the merger with respect to which
demands for appraisal have been received by Omnia and the number of holders of
those shares. The statement must be mailed within 10 days after Omnia 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
Omnia stock owned by those stockholders. The court will determine the
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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 Omnia 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 Omnia 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, or thereafter may
withdraw a demand for appraisal with the written approval of CIENA. 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 Omnia stock who had demanded appraisal
for his shares fails to perfect or loses his 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 OMNIA STOCKHOLDER WHO IS CONSIDERING EXERCISING APPRAISAL RIGHTS SHOULD
CONSULT A LEGAL ADVISOR.
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TERMS OF THE MERGER AGREEMENT
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 incorporated herein by reference.
GENERAL
The merger agreement provides that Omnia will be merged with and into CIENA
at the effective time of the merger. Pursuant to the merger agreement, CIENA
will be the surviving corporation. The Omnia board has unanimously approved the
merger agreement and the merger. At the effective time of the merger, each
outstanding share of Omnia 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. Capitalized
terms used but not defined herein shall have the meanings ascribed to them in
the merger agreement.
STRUCTURE OF THE MERGER
According to the terms and conditions of the merger agreement and the
Delaware General Corporation Law, at the effective time of the merger Omnia will
merge with and into CIENA. CIENA will continue to exist as a corporation under
the laws of the State of Delaware. At the effective time of the merger, Omnia
will no longer exist as a separate corporation. The certificate of incorporation
of CIENA will become the certificate of incorporation of the surviving
corporation of the merger. The bylaws of CIENA will become the bylaws of the
surviving corporation of the merger.
MANAGEMENT AFTER THE MERGER
All of the officers and directors of CIENA before the merger will be the
officers and directors of CIENA after the merger.
CONVERSION AND EXCHANGE OF SHARES
At the effective time of the merger, each issued and outstanding share of
Omnia preferred stock and common stock, other than shares held in the treasury
of Omnia, held by CIENA or held by any direct or indirect wholly owned
subsidiary of CIENA or Omnia, will be converted into shares of CIENA common
stock according to the formulas described below.
(a) in the case of each share of Omnia common stock, a fraction of a share
of CIENA common stock equal to
(i) 16,000,000 less the Preferred Redemption Retirement Amount (as
defined below), divided by
(ii) the Fully-Diluted Omnia Capital Stock (as defined below).
- The Preferred Redemption Retirement Amount is equal to
$17,981,101.50 divided by the closing price per share of CIENA
common stock as reported on Nasdaq on the last business day
preceding the Closing Date (the "Stock Price"). The fraction
determined under this subparagraph is called the "common stock
exchange ratio"
- The Fully-Diluted Omnia Capital Stock is equal to the total number
of the following items:
- outstanding shares of Omnia common stock
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- Omnia stock options and restricted stock awards granted and
unexercised (whether vested or unvested)
- shares issuable upon exercise of outstanding Omnia warrants
- shares issuable upon exercise of other instruments or
agreements convertible into or exchangeable for or entitling
the holder to acquire Omnia common stock, including shares of
Omnia Series B preferred stock outstanding (in each case
expressed on a common share equivalent basis)
(b) in the case of each share of Omnia Series A preferred stock a fraction
of a share of CIENA common stock equal to:
(i) $5,831,100 divided by the Stock Price, divided by
(ii) the total number of shares of Omnia Series A preferred stock; and
(c) in the case of each share of Omnia Series B preferred stock a fraction
of a share of CIENA common stock equal to:
(i) the common stock exchange ratio plus
(ii) an additional fraction of a share of CIENA common stock equal to
- $12,150,001.50 divided by the Stock Price, divided by
- the total number of shares of Omnia Series B preferred stock
In addition, each share of CIENA common stock issued in the merger shall
include the corresponding fraction of a right to purchase shares of CIENA junior
preferred stock, under the Rights Agreement dated as of December 27, 1997
between CIENA and Boston EquiServe as Rights Agent. If there is a change in the
number of shares of CIENA common stock, under limited circumstances the exchange
ratio will be adjusted.
Each share of Omnia preferred stock and each share of Omnia common stock
held in the treasury of Omnia, held by CIENA or held by any direct or indirect
wholly owned subsidiary of CIENA or of Omnia will be canceled and extinguished
at the effective time of the merger without the payment of any consideration.
Each share of common stock of CIENA issued and outstanding immediately prior to
the effective time of the merger will continue to be one share of common stock
of the surviving corporation of the merger.
CIENA will assume each option or warrant to acquire Omnia common stock
granted under Omnia's 1997 Stock Plan or otherwise issued by Omnia 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 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 Omnia common stock subject to the Omnia 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
exercise price for the shares of Omnia common stock subject to the Omnia stock
option or warrant divided by the common stock exchange ratio. The duration and
other terms of each CIENA option or warrant, including the vesting terms, will
be the same as the prior Omnia stock option or warrant.
EXCHANGE OF CERTIFICATES AND FRACTIONAL SHARES
CIENA has agreed to deposit with Boston EquiServe as exchange agent in the
merger for the benefit of the holders of issued and outstanding shares of Omnia
preferred stock and Omnia common stock, certificates representing the shares of
CIENA common stock to be issued under the terms of the merger agreement.
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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 Omnia
preferred and common stock. The letter of transmittal will contain instructions
with respect to the surrender of stock certificates to the exchange agent.
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 Omnia 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 Omnia stock has been
converted. When they surrender their stock 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 the a certificate representing the applicable number of shares of CIENA
common stock.
CIENA will not issue any fractional shares. Instead, each Omnia 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 (i) the per share closing price on
the Nasdaq Stock Market of CIENA common stock on the date on the closing date
(or, if the CIENA common stock does not trade on Nasdaq on that date, the first
day of trading in CIENA common stock on Nasdaq thereafter) by (ii) the
fractional 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 Omnia preferred or common stock
must thereafter be surrendered for exchange to CIENA. Neither CIENA, Omnia, 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 stockholder's certificate representing Omnia preferred stock or Omnia
common stock is lost, stolen or destroyed, the exchange agent will issue the
CIENA common stock in exchange for that certificate only after the stockholder
makes an affidavit of loss, theft or destruction by, and, if required by CIENA,
posts a bond as indemnity against any claim that may be made against CIENA, the
surviving corporation of the merger 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 Omnia 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 in Article VII of the
merger agreement have been satisfied or waived. On the second business day after
the satisfaction or waiver of the conditions in Article VII 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 the filing. Omnia and CIENA each anticipate that, if the merger is
approved at the special meeting, it will be consummated during the summer of
1999. However, a delay in obtaining governmental consents required prior to
consummation of the transactions contemplated in the merger agreement could
delay the merger. There can be no assurances as to if or when the governmental
consents will be obtained or that the merger will be consummated.
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REPRESENTATIONS AND WARRANTIES
The merger agreement contains various representations of Omnia and CIENA.
Omnia makes representations and warranties regarding the following:
- the corporate organization and existence of Omnia and its subsidiary,
including that each 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 or articles of incorporation and bylaws or other
organizational documents of Omnia and its subsidiary
- the capitalization of Omnia, 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 Omnia to execute and deliver the
merger agreement and related documents and to consummate the transactions
contemplated thereby
- the compliance of the merger agreement and related documents with (1)
Omnia's certificate of incorporation and bylaws and the certificate or
articles of incorporation and bylaws of Omnia's subsidiary, (2)
applicable laws, and (3) some material agreements of Omnia and its
subsidiary, including the absence of events of default or acceleration
thereunder
- the required governmental and third-party consents
- the possession and validity of all required licenses, timely filing of
required regulatory reports and compliance with applicable laws by Omnia
and its subsidiaries
- Omnia's financial statements, including that the information in the
financial statements is a fair presentation of the financial condition
and results of operations of Omnia and its subsidiaries and is in
compliance with GAAP
- the absence of material undisclosed liabilities
- the absence of certain changes in Omnia's business since February 28,
1999
- the absence of material legal proceedings, injunctions and disputes
- the validity of and absence of defaults under debt instruments, leases
and other important agreements of Omnia and its subsidiaries
- the absence of conditions that would prevent CIENA from accounting for
the merger as a "pooling of interests"
- compliance with laws relating to employees or the workplace, and the
absence of material disputes with employees
- Omnia's employee benefit plans and related matters, including that such
plans have been operated and administered in accordance with applicable
law
- the filing and accuracy of Omnia's tax returns
- the absence of certain business practices of Omnia and its subsidiaries
- insurance
- the absence of certain potential conflicts of interests with employees,
directors, officers and significant stockholders
- the collectability of accounts receivable of Omnia and its subsidiaries
- the ownership and condition of the assets owned by Omnia or any of its
subsidiaries
- complete and correct books and records
- the absence of intellectual property infringement or contests
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- the adoption by the Omnia 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 Omnia
- the vote required to approve the merger
- compliance with environmental laws and the absence of environmental
liabilities
- the absence of material misstatements or omissions in the information
furnished by Omnia
- compensation and benefits of all directors and officers of Omnia and its
subsidiaries
CIENA, its officers, directors and affiliates may make a claim for
indemnification for breach of any of these representations and warranties until
the end of the twelfth month after the effective time of the merger.
Omnia's representations and warranties will survive until the end of the
twelfth month after the effective time of the merger. After the effective time
of the merger, the maximum liability of Omnia for any breach of representation,
warranty, covenant or agreement will be limited to 10% of the shares issued in
the merger transaction other than restricted shares and shares issuable upon
exercise of outstanding options and warrants. See "-- Indemnification."
The merger agreement contains representations and warranties of CIENA as
to, among other things:
- the corporate organization and existence of CIENA
- the corporate power and authority of CIENA to execute and deliver the
merger agreement and related documents and to consummate the transactions
contemplated thereby
- the compliance of the merger agreement and related documents with (1)
CIENA's certificate of incorporation and bylaws and the certificate of
incorporation and bylaws of CIENA, (2) applicable laws, and (3) material
agreements of CIENA
- the required governmental and third-party consents
- CIENA's filings with the SEC
- the capitalization of CIENA
- the qualification of the merger as a reorganization under Section 368(a)
of the Code
BUSINESS OF OMNIA PENDING THE MERGER AND OTHER AGREEMENTS
Under the terms of the merger agreement, Omnia 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, Omnia shall:
- 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 (i) to preserve its business intact, (ii) to keep
available to Omnia the services of its present officers and employees,
and (iii) to preserve for Omnia the goodwill of its suppliers, customers
and others having business relations with Omnia
Unless CIENA otherwise approves, Omnia may not
- amend or otherwise change its Certificate of Incorporation or By-Laws
- issue any stock or grant any options with certain exceptions in the
ordinary course, including under its option program
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- 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
- 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 certain
exceptions
- 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
- enter into any contract or agreement other than in the ordinary course of
business, consistent with past practice
- authorize any capital commitment or capital lease which is in excess of
$250,000 or capital expenditures which are, in the aggregate, in excess
of $1,500,000
- 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
- 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 Omnia, 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 director, officer or employee except for annual salary raises (on
the anniversary date of employment) to employees who are not officers
(not to exceed 10%) and severance payments consistent with past practices
and in the ordinary course of business
- 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) unless required by
generally accepted accounting principles
- make any tax election or settle or compromise any federal, state, local
or foreign income material 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 practice, 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 practice
- 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
- knowingly take or omit any other action that could disqualify the merger
as a "pooling of interests" for financial reporting purposes
- announce an intention, commit or agree to do any of the foregoing
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NO SOLICITATION BY OMNIA
Under the terms of the merger agreement, Omnia 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 Omnia 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
- participate in any discussions or negotiations regarding, or furnish to
any individual 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.
Omnia must promptly advise 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 Omnia or any
proposal or offer to acquire in any manner, directly or indirectly, an equity
interest in Omnia, any voting securities of Omnia or a substantial portion of
the assets of Omnia (except in connection with employee stock option grants or
warrant exercises).
ADDITIONAL AGREEMENTS OF CIENA AND OMNIA
Under the terms of the merger agreement, Omnia 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.
If CIENA agrees to be acquired prior to the merger closing date or
September 30, 1999, and in the event the merger closing date does not occur
prior to September 30, 1999 as a result of that acquisition, CIENA must advance
Omnia a $21 million loan on commercially reasonable terms by wire transfer on
September 30, 1999. If CIENA provides Omnia a legally binding written agreement
executed by an authorized representative of CIENA and all other parties to the
CIENA acquisition agreement confirming CIENA's intention and the intention of
those parties that all transactions contemplated by the merger agreement will be
consummated on the terms in the agreement on or before December 31, 1999, Omnia
will extend the September 30, 1999 termination date of the merger agreement to
December 31, 1999. If CIENA does not deliver that commitment to Omnia on
September 30, 1999, or if the merger closing date does not occur prior to
December 31, 1999, and Omnia elects to terminate the merger agreement under the
termination provisions contained in Section 9.5(b) of the merger agreement,
CIENA will forgive the $21 million advance and any accrued and unpaid interest.
In accordance with its certificate of incorporation and bylaws, Omnia will
take all action necessary to either
- convene a meeting of the holders of Omnia capital stock as promptly as
practicable after the S-4 Registration Statement is declared effective,
or
- solicit written consents from its stockholders, in either case to
consider and vote upon the approval of the merger.
Omnia's board of directors
- will recommend approval by its stockholders;
- will not withdraw or modify its recommendation; and
- shall take all lawful action to solicit approval as promptly as possible.
Omnia has agreed to use its reasonable best efforts to deliver to CIENA a
"comfort" letter of PricewaterhouseCoopers LLP, Omnia's independent public
accountants, dated as of the effective date of the S-4 registration statement,
and addressed to CIENA and Omnia. The form and substance of
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the letter must be reasonably satisfactory to CIENA and reasonably customary in
scope and substance for letters delivered by independent public accounts in
connection with transactions like those contemplated by the merger agreement.
INDEMNIFICATION
Under the merger agreement, the stockholders, other than dissenting
stockholders who exercise rights of appraisal under Section 262 of the Delaware
General Corporation Law who do not receive CIENA common stock in the merger,
will indemnify CIENA and its officers, directors and affiliates against all
claims, losses, and liabilities, incurred as a result of:
- any inaccuracy or breach of a representation or warranty of Omnia
contained in a certificate of any officer of Omnia delivered pursuant to
the merger agreement;
- any failure by Omnia to perform or comply with any covenant contained in
the merger agreement.
The total amount available for indemnification 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 greater than his pro rata
share of the CIENA stock deposited in the escrow fund. The escrow fund is
available to compensate the indemnified parties for any losses. The stockholders
will have no right of contribution from Omnia with respect to any loss claimed
by CIENA after the closing date. Nothing in the merger agreement limits the
liability of Omnia for any breach of any representation, warranty or covenant if
the merger is not consummated.
ESCROW FUND. As security for the indemnity referred to above and to
provide security to satisfy any contingencies arising from the representations
and warranties of Omnia, each of the stockholders who received CIENA common
stock in the merger will be deemed to have received and deposited with State
Street Bank and Trust, N.A., who is escrow agent, 10% of their CIENA shares
(plus any additional shares as may be issued upon any stock split, stock
dividend or recapitalization effected by CIENA after the closing date with
respect to those shares). The escrow amount will be deposited with the original
escrow agent or another institution acceptable to CIENA and the stockholder
representative appointed under the escrow agreement to act on behalf of the
former Omnia stockholders. The deposit with the escrow agent constitutes an
escrow fund to be governed by the terms in the escrow agreement. The portion of
the escrow amount contributed on behalf of each stockholder must be proportional
to the total number of shares of CIENA common stock to which that individual
would otherwise be entitled. The form of escrow agreement is attached to this
prospectus and proxy statement as Appendix C. Under the escrow agreement, the
stockholder representative may sell CIENA shares under certain circumstances,
but the proceeds of the sale must be maintained in the escrow until it expires.
The vote being taken at the upcoming meeting includes a vote to formally
approve Robi L. Soni as stockholder representative under the escrow agreement.
Mr. Soni is a member of the Board of Directors of Omnia and a member of Deer IV
& Co. LLC, the general partner of Bessemer Venture Partners IV, L.P., Bessemer
Ventures IV, L.P., BVP IV Special Situations L.P. and Bessemer Venture Investors
L.P. which together own 2,228,000 shares of Omnia common stock, 2,228,000 shares
of Omnia Series A preferred stock, and 698,370 shares of Omnia Series B
preferred stock.
MAXIMUM PAYMENTS AND REMEDIES
The escrow amount held under the escrow agreement provides the sole and
exclusive remedy for any and all damages CIENA suffers as the result of any
breach of the merger agreement or any
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claim of negligent misrepresentation against Omnia or the stockholders in
connection with the merger agreement or the merger. The merger agreement does
not, however, limit any:
- equitable remedies; or
- any type of statutory or common law remedy with respect to any actually
known or intentional breaches of the representations and warranties or
covenants of Omnia or the Omnia stockholders in the event of fraud,
provided the remedy may only be pursued against the person who committed
or authorized the breaches of the representations, warranties or
covenants.
DIRECTORS' AND OFFICERS' INSURANCE AND INDEMNIFICATION
For a period of four years after the closing, CIENA must fulfill and honor
in all respects the obligations of Omnia to indemnify each person who is or was
a director or officer of Omnia pursuant to any indemnification provision of
Omnia's certificate of incorporation or by-laws.
WHAT IS NEEDED TO COMPLETE THE MERGER
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 Omnia 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 a material adverse effect on Omnia, assuming the
merger had taken place;
- No temporary restraining order, preliminary or permanent injunction or
other order from any court 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;
- The S-4 registration statement must have become effective under the
Securities Act, and there must be no stop order or threat of proceedings
by the SEC to suspend the effectiveness of the S-4;
- Holders of Omnia stock must approve of the merger, as required by Omnia's
certificate of incorporation;
- The CIENA common stock to be issued in the merger must be approved for
listing on Nasdaq.
CONDITIONS PRECEDENT TO OBLIGATIONS OF CIENA
CIENA's obligations to effect the merger depend upon the fulfillment or
satisfaction, prior to or on the closing date, of each of the following
conditions:
- Omnia must have performed and complied in all material respects with all
agreements and conditions to be performed prior to or at the closing;
- Each of Omnia's representations and warranties contained in the merger
agreement must be true and correct in all material respects;
- Holders of no more than 9.9% of the issued and outstanding Omnia capital
stock immediately prior to the Closing Date shall be entitled to exercise
appraisal rights under Section 262 of the Delaware General Corporation
Law;
- CIENA must have received the favorable written opinion of Hale and Dorr
LLP, counsel to Omnia, in form satisfactory to CIENA, as to certain
customary matters;
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- Omnia must have delivered to CIENA the written resignation of all
trustees of the benefit plans of Omnia as shall be requested in writing
by CIENA;
- Omnia must have received all necessary consents or waivers, in form and
substance satisfactory to CIENA, from the other parties to all contracts,
leases or agreements to which Omnia is a party, except where the failure
to receive those consents would not reasonably be expected to have a
material adverse effect on CIENA;
- Certain individuals must 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 Omnia under the Code except to the extent
of any reimbursement of expenses to CIENA;
- CIENA must have received letters acknowledging transfer restrictions from
all persons identified by Omnia as affiliates and any other person who
CIENA reasonably believes to be an affiliate of Omnia, and CIENA must
have received, in form and substance reasonably satisfactory to CIENA, a
pooling letter from PricewaterhouseCoopers LLP stating that they concur
with management's conclusion that the merger be accounted for as a
"pooling of interests".
CONDITIONS PRECEDENT TO OMNIA'S OBLIGATIONS
Omnia's obligations to effect the merger depend upon 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. Each of CIENA's representations and warranties in the merger
agreement must be true and correct in all material respects;
- Omnia must have received the favorable written opinion of Hogan & Hartson
L.L.P., counsel to CIENA, as to certain customary matters;
- Omnia must have received the opinion of Hale and Dorr LLP, counsel to
Omnia, to the effect that the merger will constitute a reorganization
within the meaning of Section 368(a) of the Code.
TERMINATION OF THE MERGER AGREEMENT AND TERMINATION FEE
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 Omnia and CIENA; or
- by CIENA or Omnia if
- the closing date has not occurred by September 30, 1999, or a later
date under limited circumstances, but the right to terminate the
merger agreement is not available to any party whose failure to
fulfill any obligation under the agreement has caused the failure of
the closing to occur on or before that date; or
- any court of competent jurisdiction in the United States or other
United States governmental authority issues an order or takes any
other action restraining, enjoining or otherwise prohibiting the
merger.
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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 under the terms of the
merger agreement;
- waive compliance with any of the agreements or conditions contained in
the merger agreement;
- amend the merger agreement.
EXPENSES
Omnia 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. Notwithstanding the foregoing, the stockholders of Omnia must
promptly reimburse Omnia following closing for any expenses Omnia incurs in
excess of $1,000,000. Omnia does not expect to incur expenses significantly in
excess of $1,000,000.
VOTING AGREEMENTS
Stockholders of Omnia, owning 83.9% of the common stock, 99.5% of the
Series A preferred stock, and 98.5% of the Series B preferred stock, have signed
agreements in which they have agreed to do the following:
- vote in favor of adopting and approving the terms of the merger
agreement;
- vote against any amendment of Omnia's certificate of incorporation or
by-laws, which 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 Omnia.
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 Omnia shares to any
person;
- enter into any voting arrangement, whether by proxy, voting agreement or
otherwise, in relation to their Omnia shares;
- 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 alternative 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 facilitate any
inquiries or the making of any proposal that constitutes or may lead to,
any alternative acquisition proposal.
The stockholders are directors and officers of Omnia and holders of more
than 5% of its capital stock. Their voting agreements assure approval of the
merger at the upcoming Omnia special meeting.
ACCOUNTING TREATMENT
The merger is expected to qualify as a pooling of interests for accounting
and financial reporting purposes as set forth in Opinion No. 16, Business
Combinations of the Accounting Principles Board of the American Institute of
Certified Public Accountants as amended by Statements of the Financial
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Accounting Standards Board, and the rules and regulations of the U.S. Securities
and Exchange Commission. Accordingly, the recorded assets, liabilities and
stockholders' equity of Omnia will be combined with the corresponding balance
sheet categories of CIENA and carried forward to the combined company, subject
to any adjustments required to conform the accounting policies and financial
statement classifications of the two companies. In future financial statements,
the results of operations of the combined company will include the results of
both CIENA and Omnia for the entire fiscal year in which the merger occurs and
all prior fiscal periods presented therein. Some of the expenses incurred to
effect the merger must be treated by the combined company as current charges
against income rather than adjustments to its balance sheet.
RESTRICTIONS ON RESALES BY AFFILIATES
AFFILIATES OF OMNIA. The shares of CIENA stock to be issued to Omnia
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 Omnia 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 Omnia must be one permitted by
the resale provisions of Rule 145 promulgated under the Securities Act. If an
Omnia 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. These restrictions are expected to
apply to the executive officers and directors of Omnia.
CIENA has agreed following the closing to file a post-effective amendment
to its Form S-4 registration statement to permit resales by former Omnia
affiliates.
AFFILIATES OF EITHER OMNIA OR CIENA. SEC guidelines regarding qualifying
for the pooling-of-interests method of accounting also generally require that
affiliates of the acquiring company and the acquired company may not take action
to reduce the risk in their shares, including through sales, during the period
surrounding the merger. These guidelines indicate that the pooling-of-interests
method of accounting will generally not be challenged on the basis of sales by
the affiliates if these persons do not dispose of any of the shares of the
corporation they own or any shares of the corporation they receive in connection
with a merger during the period beginning 30 days prior to the effective time of
the merger and ending when financial results covering at least 30 days of post-
merger operations of the combined entity have been published.
AFFILIATE AGREEMENTS. Each of Omnia's affiliates has delivered to CIENA an
agreement that the person will not dispose of any CIENA common stock or Omnia
stock during the pooling restricted period described above.
46
<PAGE> 52
INFORMATION ABOUT CIENA
GENERAL
CIENA designs, manufactures and sells open architecture, dense wavelength
division multiplexing systems for fiberoptic communications networks, including
long-distance and local exchange carries. CIENA also provides a range of
engineering, furnishing and installation services for telecommunications service
providers. CIENA's long-distance DWDM solutions, the MultiWave 1600 system, the
MultiWave Sentry 1600, the MultiWave Sentry 4000 and the MultiWave Sentry 9600
were designed to alleviate capacity, or bandwidth, constraints in high traffic,
long-distance fiberoptic routes without requiring the installation of new fiber.
CIENA's long-distance MultiWave systems include optical transmission terminals,
optical amplifiers, optical add/drop multiplexers and network management
software. CIENA's short-distance DWDM solution, the MultiWave Firefly, is
designed for point-to-point short-haul applications (distances of 65 km or
less). The product contains no optical amplifiers, and allows simultaneous
transmission of up to 24 optical channels per fiber at transmission speeds of up
to 2.5 Gb/s per channel. We designed our DWDM access transport system, MultiWave
Metro, for use in metropolitan ring applications. The MultiWave Metro enables
carriers to offer multi-protocol high-bandwidth services using their existing
network infrastructure by providing up to 24 duplex channels over a single fiber
pair, enabling up to 120 Gb/s of traffic. CIENA's MultiWave systems are designed
with an open architecture that allows them to interoperate with carriers'
existing fiber optic transmission systems having a broad range of transmission
speeds and signal formats.
ADDITIONAL INFORMATION
A detailed description of CIENA's business, executive compensation, various
benefit plans, including stock option plans, voting securities and the principal
holders thereof, certain relationships and related transactions, financial
statements, certain pending shareholder class action litigation 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, 1998 as amended on April 5, 1999, its Form 10-Q for the
quarter ended January 31, 1999, its Form 10-Q for the quarter ended April 30,
1999, a Report on Form 8-K filed on April 1, 1999 and amended on April 5, 1999
and a Report on Form 8-K filed on April 5, 1999. Stockholders desiring copies of
these documents may contact CIENA at its address or telephone number indicated
under the caption "Where You Can Find More Information."
47
<PAGE> 53
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following unaudited pro forma combined financial statements have been
prepared to give effect to the merger, using the pooling of interests method of
accounting.
The unaudited pro forma combined financial data has been presented for
illustrative purposes only and is not necessarily indicative of the financial
position or results of operations that would have actually been reported had the
merger occurred at the beginning of the periods presented, nor is it necessarily
indicative of future financial position or results of operations. These
unaudited pro forma combined financial statements including the notes thereto
are qualified in their entirety by reference to and should be read in
conjunction with, the consolidated financial statements and notes thereto of
CIENA incorporated by reference in this prospectus and proxy statement and the
historical consolidated financial statements and notes thereto of Omnia included
later in this prospectus and proxy statement. The unaudited pro forma financial
data neither includes nor assumes any benefits from cost or operational savings
resulting from the merger.
The unaudited pro forma combined balance sheet as of April 30, 1999 gives
effect to the merger as if it had occurred on April 30, 1999 and combines the
unaudited consolidated balance sheet of CIENA and Omnia as of April 30, 1999.
The unaudited pro forma combined statement of operations for all periods
presented gives effect to the merger as if it had occurred on November 1, 1996.
The fiscal years of CIENA and Omnia are different. CIENA expects that upon
consummation of the merger, Omnia will change its fiscal year end to coincide
with that of CIENA. For the purpose of the unaudited pro forma combined
statements of operations for the fiscal years ended October 31, 1997 and 1998
and for the six months ended April 30, 1998 and 1999, Omnia's consolidated
statements of operations for the period from June 3, 1997 (date of inception) to
December 31, 1997, the fiscal year ended December 31, 1998 and for the six
months ended April 30, 1998 and 1999 have been combined with CIENA's
consolidated statements of operations for the fiscal years ended October 31,
1997 and 1998 and for the six months ended April 30, 1998 and 1999. A pro forma
combined statement of operations is not presented for the fiscal year ended
October 31, 1996, as Omnia did not commence operations until June 3, 1997. The
six months ended April 30, 1998 and 1999 include two months of Omnia's financial
results, which are also recorded in the fourth quarters and for the period from
June 3, 1997 (date of inception) to December 31, 1997 and the year ended
December 31, 1998.
48
<PAGE> 54
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
APRIL 30, 1999
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------- ------------------------------
CIENA OMNIA ADJUSTMENTS COMBINED
-------- -------- ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents......................... $194,920 $ 5,733 $ -- $200,653
Marketable debt securities........................ 100,021 -- -- 100,021
Accounts receivable, net.......................... 96,448 -- -- 96,448
Inventories....................................... 54,062 123 -- 54,185
Deferred income taxes............................. 13,514 -- 4,108(2)(4) 17,622
Prepaid expenses and other........................ 9,615 383 -- 9,998
-------- -------- -------- --------
Total current assets....................... 468,580 6,239 4,108 478,927
Equipment, furniture and fixtures, net.............. 127,085 1,593 -- 128,678
Goodwill and other intangible assets, net........... 14,446 -- -- 14,446
Other assets........................................ 4,737 -- -- 4,737
-------- -------- -------- --------
Total assets............................... $614,848 $ 7,832 $ 4,108 $626,788
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................. $ 24,144 $ 2,399 $ -- $ 26,543
Accrued liabilities............................... 40,773 -- 2,700(3) 43,473
Income taxes payable.............................. 9,216 -- (3,416)(2)(4) 5,800
Deferred revenue.................................. 719 -- -- 719
Other current liabilities......................... 1,276 346 -- 1,622
-------- -------- -------- --------
Total current liabilities.................. 76,128 2,745 (716) 78,157
Deferred income taxes............................. 36,580 -- -- 36,580
Other long-term obligations....................... 3,703 647 -- 4,350
-------- -------- -------- --------
Total liabilities.......................... 116,411 3,392 (716) 119,087
-------- -------- -------- --------
Commitments and contingencies:
Preferred stock................................... -- 17,981 (17,981)(1) --
Stockholders' equity:
Common stock...................................... 1,213 12 139(1) 1,364
Additional paid-in capital........................ 319,268 199 25,742(1)(4) 345,209
Notes receivable from stockholders'............... (629) -- -- (629)
Unearned compensation............................. (687) (59) -- (746)
Cumulative translation adjustment................. 21 -- -- 21
Retained earnings (loss).......................... 179,251 (13,693) (3,076)(2)(3)(4) 162,482
-------- -------- -------- --------
Total stockholders' equity (deficit)....... 498,437 (13,541) 22,805 507,701
-------- -------- -------- --------
Total liabilities and stockholders'
equity................................... $614,848 $ 7,832 $ 4,108 $626,788
======== ======== ======== ========
</TABLE>
- -------------------------
(1) Reflects the conversion of Omnia preferred and common stock based on the
exchange rates per the merger agreement. The CIENA stock price used in the
calculation was based on the close of business March 12, 1999 at a price of
$26.813.
(2) Reflects an adjustment to recognize the deferred tax asset and reverse the
valuation allowance of $4.1 million related to Omnia's prior net losses as
CIENA is able to realize Omnia's net operating loss carryforwards in future
periods.
(3) Reflects expenses of $2.7 million in connection with the merger: mainly
advisor fees, legal and accounting services and other integration costs.
(4) Reflects the estimated non-cash charge of $7.9 million associated with the
exercise of certain warrants based on the CIENA stock price on March 12,
1999 exercisable upon the completion of the proposed merger. The non-cash
charge will be based upon the CIENA stock price on the date the merger is
consummated.
49
<PAGE> 55
UNAUDITED PRO FORMA COMBINED
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1997
<TABLE>
<CAPTION>
HISTORICAL
-----------------
CIENA OMNIA ADJUSTMENTS (1) COMBINED
-------- ------ --------------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenue....................................... $413,215 $ -- $ -- $413,215
Cost of goods sold............................ 166,472 -- -- 166,472
-------- ------ ----- --------
Gross profit................................ 246,743 -- -- 246,743
Operating expenses:
Research and development.................... 23,308 465 -- 23,773
Selling and marketing....................... 22,627 -- -- 22,627
General and administrative.................. 11,823 142 -- 11,965
Pirelli litigation.......................... 7,500 -- -- 7,500
-------- ------ ----- --------
Total operating expenses............ 65,258 607 -- 65,865
-------- ------ ----- --------
Income (loss) from operations................. 181,485 (607) -- 180,878
Interest and other income (expense), net...... 7,593 36 -- 7,629
Interest expense.............................. (408) (43) -- (451)
-------- ------ ----- --------
Income (loss) before income taxes............. 188,670 (614) -- 188,056
Provision (benefit) for income taxes.......... 72,703 -- (215) 72,488
-------- ------ ----- --------
Net income (loss)............................. $115,967 $ (614) $ 215 $115,568
======== ====== ===== ========
Basic net income (loss) per common
share....................................... $ 1.53 $(0.32) $ 1.48
Diluted net income (loss) per common and
dilutive potential common share............. $ 1.11 $(0.32) $ 1.07
Weighted average basic common shares
outstanding................................. 75,802 1,942 78,135
Weighted average basic common and dilutive
potential common shares outstanding......... 104,664 1,942 107,524
</TABLE>
- ---------------
(1) Reflects an adjustment to recognize the deferred tax asset and reverse the
valuation allowance related to Omnia's prior net losses as CIENA is able to
realize Omnia's net operating loss carryforwards in future periods.
50
<PAGE> 56
UNAUDITED PRO FORMA COMBINED
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1998
<TABLE>
<CAPTION>
HISTORICAL
------------------
CIENA OMNIA ADJUSTMENTS (1) COMBINED
-------- ------- --------------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
-------------------------------------
<S> <C> <C> <C> <C>
Revenue....................................... $508,087 $ -- $ -- $508,087
Cost of goods sold............................ 256,014 -- -- 256,014
-------- ------- -------- --------
Gross profit................................ 252,073 -- -- 252,073
-------- ------- -------- --------
Operating expenses:
Research and development.................... 67,090 6,666 -- 73,756
Selling and marketing....................... 46,220 1,123 -- 47,343
General and administrative.................. 18,515 759 -- 19,274
Purchased research and development.......... 9,503 -- -- 9,503
Pirelli litigation.......................... 30,579 -- -- 30,579
Cost of proposed merger..................... 2,548 -- -- 2,548
-------- ------- -------- --------
Total operating expenses............ 174,455 8,548 -- 183,003
-------- ------- -------- --------
Income (loss) from operations................. 77,618 (8,548) -- 69,070
Interest and other income (expense), net...... 12,886 259 -- 13,145
Interest expense.............................. (276) (39) -- (315)
-------- ------- -------- --------
Income (loss) before income taxes............. 90,228 (8,328) -- 81,900
Provision (benefit) for income taxes.......... 39,115 -- (2,915) 36,200
-------- ------- -------- --------
Net income (loss)............................. $ 51,113 $(8,328) $ 2,915 $ 45,700
======== ======= ======== ========
Basic net income (loss) per common share...... $ 0.46 $ (1.28) $ 0.38
Diluted net income (loss) per common and
dilutive potential common share............. $ 0.44 $ (1.28) $ 0.35
Weighted average basic common shares
outstanding................................. 110,593 6,484 119,864
Weighted average basic common and dilutive
potential common shares outstanding......... 117,150 6,484 129,170
</TABLE>
- -------------------------
(1) Reflects an adjustment to recognize the deferred tax asset and reverse the
valuation allowance related to Omnia's prior net losses as CIENA is able to
realize Omnia's net operating loss carryforwards in future periods.
51
<PAGE> 57
UNAUDITED PRO FORMA COMBINED
STATEMENT OF OPERATIONS
SIX MONTHS ENDED APRIL 30, 1998
<TABLE>
<CAPTION>
HISTORICAL
------------------
CIENA OMNIA ADJUSTMENTS(1) COMBINED
-------- ------- -------------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenue........................................ $287,810 $ -- $ -- $287,810
Cost of goods sold............................. 122,895 -- -- 122,895
-------- ------- ----- --------
Gross profit................................. 164,915 -- -- 164,915
-------- ------- ----- --------
Operating expenses:
Research and development..................... 26,909 1,811 -- 28,720
Selling and marketing........................ 21,031 13 -- 21,044
General and administrative................... 8,311 406 -- 8,717
Purchased research and development........... 9,503 -- -- 9,503
Pirelli litigation........................... 10,000 -- -- 10,000
-------- ------- ----- --------
Total operating expenses............. 75,754 2,230 -- 77,984
-------- ------- ----- --------
Income (loss) from operations.................. 89,161 (2,230) -- 86,931
Interest and other income (expense), net....... 7,208 44 -- 7,252
Interest expense............................... (165) (43) -- (208)
-------- ------- ----- --------
Income (loss) before income taxes.............. 96,204 (2,229) -- 93,975
Provision (benefit) for income taxes........... 41,296 1 (779) 40,518
-------- ------- ----- --------
Net income (loss).............................. $ 54,908 $(2,230) $ 779 $ 53,457
======== ======= ===== ========
Basic net income (loss) per common share....... $ 0.53 $ (0.38) $ 0.48
Diluted net income (loss) per common and
dilutive potential common share.............. $ 0.50 $ (0.38) $ 0.45
Weighted average basic common shares
outstanding.................................. 103,443 5,861 110,887
Weighted average basic common and dilutive
potential common shares outstanding.......... 110,045 5,861 119,405
</TABLE>
- -------------------------
(1) Reflects an adjustment to recognize the deferred tax asset and reverse the
valuation allowance related to Omnia's prior net losses as CIENA is able to
realize Omnia's net operating loss carryforwards in future periods.
52
<PAGE> 58
UNAUDITED PRO FORMA COMBINED
STATEMENT OF OPERATIONS
SIX MONTHS ENDED APRIL 30, 1999
<TABLE>
<CAPTION>
HISTORICAL
-------------------
CIENA OMNIA ADJUSTMENTS(1) COMBINED
-------- -------- -------------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenue....................................... $211,907 $ -- $ -- $211,907
Cost of goods sold............................ 137,016 -- -- 137,016
-------- ------- ------- --------
Gross profit................................ 74,891 -- -- 74,891
-------- ------- ------- --------
Operating expenses:
Research and development.................... 40,950 5,362 -- 46,312
Selling and marketing....................... 25,301 1,399 -- 26,700
General and administrative.................. 10,229 656 -- 10,885
Merger costs................................ 2,253 -- -- 2,253
-------- ------- ------- --------
Total operating expenses............ 78,733 7,417 -- 86,150
-------- ------- ------- --------
Income (loss) from operations................. (3,842) (7,417) -- (11,259)
Interest and other income (expense), net...... 6,876 218 -- 7,094
Interest expense.............................. (168) (42) -- (210)
-------- ------- ------- --------
Income (loss) before income taxes............. 2,866 (7,241) -- (4,375)
Provision (benefit) for income taxes.......... 989 5 (2,503) (1,509)
-------- ------- ------- --------
Net income (loss)............................. $ 1,877 $(7,246) $ 2,503 $ (2,866)
======== ======= ======= ========
Basic net income (loss) per common share...... $ 0.02 $ (0.93) $ (0.02)
Diluted net income (loss) per common and
dilutive potential common share............. $ 0.01 $ (0.93) $ (0.02)
Weighted average basic common shares
outstanding................................. 120,646 7,804 133,139
Weighted average basic common and dilutive
potential common shares outstanding......... 127,824 7,804 133,139
</TABLE>
- -------------------------
(1) Reflects an adjustment to recognize the deferred tax asset and reverse the
valuation allowance related to Omnia's prior net losses as CIENA is able to
realize Omnia's net operating loss carryforwards in future periods.
53
<PAGE> 59
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
1. PERIODS PRESENTED
CIENA's fiscal year ends on October 31. Omnia's fiscal year ends on
December 31. The unaudited pro forma combined balance sheet as of April 30, 1999
combines the unaudited balance sheet of CIENA and Omnia as of April 30, 1999.
The unaudited pro forma combined statements of operations combines the results
of operations of CIENA for the years ended October 31, 1997 and 1998 and for the
six months ended April 30, 1998 and 1999 with the results of operations of Omnia
for the period from June 3, 1997 (date of inception) to December 31, 1997, the
year ended December 31, 1997 and for the six months ended April 30, 1998 and
1999. Unaudited pro forma combined statements of operations are not presented
for the year ended October 31, 1996, as Omnia did not commence operations until
June 3, 1997.
The six months ended April 30, 1998 and 1999 include two months of Omnia's
financial results, which are also recorded in the fourth quarters and for the
period from June 3, 1997 (date of inception) to December 31, 1997 and the year
ended December 31, 1998. Omnia's net loss for the two months ended November and
December 1997 and 1998 was $614,000 and $2,496,000, respectively.
2. PRO FORMA NET INCOME(LOSS) PER SHARE
The unaudited basic net income(loss) per common share is based upon the
weighted average number of CIENA and Omnia common shares outstanding for each
period using an exchange ratio of 0.91 of CIENA common stock for each share of
Omnia common stock. The unaudited diluted net income (loss) per common and
dilutive potential common share is based upon the weighted average number of
CIENA and Omnia common and potential dilutive common shares outstanding for each
period using an exchange ratio of 0.91 of CIENA common stock for each share of
Omnia common stock.
3. CONFORMING ADJUSTMENTS AND INTERCOMPANY TRANSACTIONS
There are no material intercompany transactions included in the unaudited
pro forma combined condensed financial statements. There were no material
adjustments required to conform the accounting policies of CIENA and Omnia.
4. TRANSACTION COSTS
CIENA and Omnia estimate they will incur direct transaction costs of
approximately $10.6 million associated with the merger. The $10.6 million
consists of $7.9 million estimated non-cash charge for the acceleration of
warrants based upon CIENA's common stock price on March 12, 1999 and $2.7
million for fees, legal and accounting services and other integration costs. The
$7.9 million warrant cost is shown net of tax. The warrants were issued to one
of Omnia's customers and are exercisable upon the consummation of this merger.
The actual non-cash charge for the acceleration of the warrants will be
determined based upon the CIENA stock price on the date the merger is
consummated. These nonrecurring transaction costs will be charged to operations
as incurred. These charges have been reflected in the unaudited pro forma
combined balance sheet but have not been included in the unaudited pro forma
combined statement of operations.
54
<PAGE> 60
INFORMATION CONCERNING OMNIA
BUSINESS
Omnia was incorporated in Delaware in June 1997. Omnia is a
telecommunications equipment supplier, focusing on the development of solutions
that enable companies that operate public telephone networks to offer new and
existing services cost-effectively over integrated metropolitan fiber optic
access and transport networks. Omnia's first product, the AXR 500, is a
multi-service transport platform that combines the functionality of traditional
transport equipment with advanced data networking capabilities. The AXR 500
utilizes packet and cell technology to enable service providers to deliver both
legacy services, and advanced high-speed data services, over an integrated
optical infrastructure.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED MARCH 31, 1999 COMPARED TO THE THREE MONTH PERIOD
ENDED MARCH 31, 1998
RESEARCH AND DEVELOPMENT. Research and development expenses consist
principally of compensation costs for engineers, materials used in the design
and development of Omnia's AXR 500 product, depreciation expense, supplies and
testing. Research and development expenses increased by $1,345,000 to $2,394,000
in the three month period ended March 31, 1999, from $1,049,000 for the three
month period ended March 31, 1998. The increase in spending was primarily due to
increased engineering staffing, and the material costs for the prototype
development of the AXR 500 included in the 1999 period.
SALES AND MARKETING. Sales and marketing expenses consist principally of
the hiring costs for sales and marketing personnel, compensation costs, travel
expenses, trade shows, costs related to the introduction of the AXR 500, and
other marketing programs. Sales and marketing expenses were $606,000 in the
three month period ended March 31, 1999. Omnia had no sales and marketing
expenses in the three month period ended March 31, 1998.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
principally of expenses for finance, administration and general management
activities, including legal, accounting and other professional fees. General and
administrative expenses increased by $112,000 to $305,000 in the three month
period ended March 31, 1999, from $193,000 for the three month period ended
March 31, 1998. The increase in spending was primarily due to the addition of
finance and administrative personnel to support overall company growth.
INTEREST INCOME, NET. Net interest income consists of interest on cash and
cash equivalents, less interest expense on long-term debt and capital lease
obligations. Net interest income increased by $71,000 to $79,000 in the three
month period ended March 31, 1999, from $8,000 for the three month period ended
March 31, 1998. The 1999 increase in interest income was primarily related to
the higher average cash balance available for investment as compared with the
same period in 1998. The higher cash balance in 1999 is the result of the
balance remaining from the Series B venture capital equity financing which
closed in September, 1998. Total interest expense in 1999 was also higher, as a
result of the $1,000,000 long-term debt balance that was outstanding in the
period. There was no long-term debt balance outstanding during the same period
in 1998.
INCOME TAXES. Omnia has generated taxable losses from operations since
inception and, accordingly, has not had taxable income available to offset the
carryback of net operating losses. Omnia has provided a full valuation allowance
for its deferred tax assets, since the ultimate realization of these future
benefits is not sufficiently assured.
55
<PAGE> 61
YEAR ENDED DECEMBER 31, 1998 COMPARED TO PERIOD FROM INCEPTION (JUNE 3,
1997) THROUGH DECEMBER 31, 1997
RESEARCH AND DEVELOPMENT. Research and development expenses consist
principally of compensation costs for engineers, materials used in the design
and development of Omnia's AXR 500 product, depreciation expense, supplies and
testing. Research and development expenses increased by $6,201,000 to $6,666,000
in the year ended December 31, 1998, from $465,000 for the period from June 3,
1997, the date of incorporation of Omnia, through December 31, 1997. The
increase in spending was primarily due to increased engineering staffing, the
material costs for the prototype development of the AXR 500, and because the
period ended December 31, 1997 included only seven months of operations.
SALES AND MARKETING. Sales and marketing expenses consist principally of
the hiring costs for sales and marketing personnel, compensation costs, travel
expenses, trade shows, costs related to the introduction of the AXR 500, and
other marketing programs. Sales and marketing expenses were $1,123,000 for the
year ended December 31, 1998. Omnia had no sales and marketing expenses in the
period from June 3, 1997 through December 31, 1997.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
principally of expenses for finance, administration and general management
activities, including legal, accounting and other professional fees. General and
administrative expenses increased by $617,000 to $759,000 in the year ended
December 31, 1998, from $142,000 for the period from June 3, 1997 through
December 31, 1997. The increase in spending was primarily due to the addition of
finance and administrative personnel to support overall company growth, and
because the period ended December 31, 1997 included only seven months of
operations.
INTEREST INCOME (EXPENSE). Interest income (expense) consists of interest
on cash and cash equivalents, less interest expense on long-term debt and
capital lease obligations. Net interest income (expense) increased by $227,000
in the year ended December 31, 1998, from ($7,000) for the period from June 3,
1997 through December 31, 1997 to $220,000 for the year ended December 31, 1998.
The 1998 increase in interest income was primarily related to the increase in
cash available for investment which resulted from the two venture capital equity
financings which closed during the year, while for a substantial part of 1997
Omnia was financed by a convertible note payable prior to the closing of its
initial equity financing in October 1997.
INCOME TAXES. Omnia has generated taxable losses from operations since
inception and, accordingly, has not had taxable income available to offset the
carryback of net operating losses. Omnia has provided a full valuation allowance
for its deferred tax assets, since the ultimate realization of these future
benefits is not sufficiently assured.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1999, Omnia had cash and cash equivalents of $7,382,000, an
increase of $3,465,000 from March 31, 1998. Omnia's net working capital position
at March 31, 1999 was $5,555,000. Omnia's principal sources of cash have been
sales of equity securities, a line of credit facility with a bank, and capital
equipment leasing. In March 1998, Omnia sold shares of Series A Redeemable
Preferred Stock for approximately $590,000, and in September 1998, Omnia sold
shares of Series B Convertible Preferred Stock for approximately $12,150,000.
During 1998, Omnia also borrowed $1,000,000 under an equipment line of credit
from a bank. The equipment line of credit bears interest at the prime rate, and
is payable in 36 equal monthly installments beginning in April 1999, plus
interest. Cash used in operations for the three month period ended March 31,
1999 was the result of Omnia's operating loss for the period, and the build up
of materials needed to complete Omnia's prototype phase, and to begin field
trials of the AXR 500 with customers.
56
<PAGE> 62
Investing activities in the three month period ended March 31, 1999
included $275,000 for equipment and improvements. Capital expenditures included
computers and equipment for research and development, sales, marketing and
general administration to support Omnia's growth.
At December 31, 1998, Omnia had cash and cash equivalents of $10,934,000,
an increase of $6,236,000 from December 31, 1997. Omnia's net working capital
position at December 31, 1998 was $8,909,000. Omnia's principal sources of cash
have been private sales of equity securities, a line of credit facility with a
bank, and capital equipment leasing. In October 1997 and March 1998, Omnia sold
shares of Series A Redeemable Preferred Stock for approximately $5,831,000 in
the aggregate, and in September 1998, Omnia sold shares of Series B
Participating Convertible Preferred Stock for approximately $12,150,000. During
1998, Omnia also borrowed $1,000,000 under an equipment line of credit from a
bank. The equipment line of credit bears interest at the prime rate, and is
payable in 36 equal monthly installments beginning in April 1999, plus interest.
Cash used in operations for 1998 was the result of Omnia's operating loss for
the year, and the build up of materials needed to complete Omnia's prototype
phase and to begin field trials of the AXR 500 with customers.
Investing activities in 1998 included $1,036,000 for equipment and
improvements. Capital expenditures included computers and equipment for research
and development, sales, marketing and general administration to support Omnia's
growth.
Omnia expects to incur significant cash outlays for the balance of fiscal
1999 related to the continued funding of operating losses, the build-up of
inventory and other working capital requirements as it commences with initial
product shipments to customers, and additional capital equipment investments,
including expenditures related to the relocation to a new primary facility in
which occurred in May 1999. Omnia intends to finance these investments and
working capital requirements through proceeds received from additional debt and
equity financings during the balance of fiscal 1999.
OMNIA'S CHIEF EXECUTIVE OFFICER
MICHAEL A. CHAMPA, 47, a co-founder of Omnia, has served as President,
Chief Executive Officer and a Director of Omnia since October 1997. Mr. Champa
served as an unpaid advisor to Omnia from its inception in June 1997 to October
1997. Prior to co-founding Omnia, Mr. Champa was Vice President, Worldwide Sales
and Service at Cascade Communications, a manufacturer of Frame Relay and ATM
switches targeted at the Telco/ISP market. From March 1990 to March 1992, he was
Vice President of International Sales at Microcom, Inc.
EXECUTIVE COMPENSATION
The following table sets forth the total compensation received in the
fiscal year ended December 31, 1998 by Omnia's Chief Executive Officer.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($)
--------------------------- ---- ------------
<S> <C> <C>
Michael A. Champa 1998 $120,000
President and Chief Executive Officer
</TABLE>
Mr. Champa holds no options to acquire Omnia shares and did not receive or
exercise any options during the fiscal year ended December 31, 1998.
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RELATED TRANSACTIONS
In December 1998, the compensation committee of Omnia's board of directors
submitted their recommendations to the board concerning overall 1999
compensation for Omnia's officers, founders and employees. On January 27, 1999,
at their regularly scheduled meeting, the board accepted the recommendations of
the committee. Included in the committee's recommendations was the grant, to
only those founders and officers who had been employees of Omnia for greater
than one year as of January 1, 1999, of the opportunity to purchase additional
restricted shares of Omnia's common stock. The purchase price for the restricted
shares was $0.33 per share, representing the fair market value of Omnia's common
stock at the grant date. Under the terms of this grant, and the standard terms
and conditions of the Company's restricted stock purchase agreements, Omnia
shall have the right to repurchase a certain percentage of the shares if the
officer or founder ceases to be employed by Omnia for any reason, with or
without cause, prior to January 2003. In addition, upon a change in control
(which the merger would qualify as), the number of shares then subject to the
repurchase option shall be reduced by 50%, and the number of shares remaining
subject to the purchase option thereafter will be reduced in equal increments
over the following twelve months. In January 1999, Mr. Champa purchased 20,000
shares of Omnia common stock under this grant.
The table below sets forth, for each director, executive officer and
affiliates of Omnia, the increase in value to be realized on each of their
purchases as a result of the merger. There is no increase in value of Series A
Preferred Stock but the individual stockholder receives the redemption value of
the shares (equal to the price paid). The increase in value of Series B
Preferred Stock also does not reflect the redemption value which is also paid on
the Series B Preferred Stock. The value of the CIENA stock is assumed, based on
the closing price of CIENA's common stock of $31.375 on June 9, 1999.
<TABLE>
<CAPTION>
OMNIA OMNIA PURCHASE
STOCKHOLDER SHARES PRICE INCREASE IN VALUE
----------- ------ -------------- -----------------
<S> <C> <C> <C>
Michael A. Champa.................................... $32,287,275.88
Common Stock 1,107,000 $0.001
20,000 .33
Series B Preferred Stock -- --
Bessemer Venture Partners............................ 79,385,371.56
Common Stock 2,228,000 .01
Series B Preferred Stock 698,370 3.25
Robi L. Soni......................................... 79,385,371.56
Common Stock 2,228,000 .01
Series B Preferred Stock 698,370 3.25
Charles River Partners............................... 79,385,371.56
Common Stock 2,228,000 .01
Series B Preferred Stock 698,370 3.25
Richard Burnes....................................... 79,385,371.56
Common Stock 2,228,000 .01
Series B Preferred Stock 698,370 3.25
Atlas Ventures....................................... 46,919,169.91
Common Stock --
Series B Preferred Stock 1,846,154 3.25
Barry Fidelman....................................... 46,919,169.91
Common Stock --
Series B Preferred Stock 1,846,154 3.25
SVM Star Ventures.................................... 41,486,764.78
Common Stock 1,164,000 0.01
Series B Preferred Stock 365,351 3.25
</TABLE>
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<PAGE> 64
<TABLE>
<CAPTION>
OMNIA OMNIA PURCHASE
STOCKHOLDER SHARES PRICE INCREASE IN VALUE
----------- ------ -------------- -----------------
<S> <C> <C> <C>
Jeffrey Weiss........................................ 29,360,548.32
Common Stock 10,000 0.33
1,014,750 0.001
Series B Preferred Stock -- --
Jeffrey Black........................................ 29,077,202.83
Common Stock 1,014,750 0.001
Series B Preferred Stock -- --
James M. Dow......................................... 11,394,848.46
Common Stock 340,000 0.01/.001
Series B Preferred Stock 74,363.00 3.25
Walter Dray.......................................... 10,856,873.79
Common Stock 379,000
10,000 0.33
369,000 0.001
Series B Preferred Stock --
William Regan........................................ 10,856,873.79
Common Stock 379,000
10,000 0.33
369,000 0.001
Series B Preferred Stock --
Lawrence M. Harding.................................. 5,237,795.52
Common Stock 183,367 0.10
Series B Preferred Stock --
James O'Bray......................................... 3,491,873.20
Common Stock 122,245 0.10
Series B Preferred Stock --
Jay Damiano.......................................... 2,537,182.24
Common Stock --
Series B Preferred Stock --
Options 150,000 11.75
Mitchell Rosich...................................... 5,401,593.32
Common Stock --
Series B Preferred Stock --
Options 319,346 11.75
</TABLE>
SECURITY OWNERSHIP OF DIRECTORS, EXECUTIVE OFFICERS AND PRINCIPAL STOCKHOLDERS
OF OMNIA
The following table sets forth, as of June 9, 1999, the security ownership
of the directors, executive officers and more than 5% stockholders of Omnia.
Unless otherwise indicated, each person's address is in care of Omnia
Communications, Inc., 400 Nickerson Road, Marlborough, Massachusetts 01752. To
the knowledge of Omnia, the persons named in the table have sole voting and
investment power with respect to all shares of Omnia stock shown as beneficially
owned by them, subject to the information contained in the footnotes to the
table. Beneficial ownership is determined according to the rules of the SEC.
Shares of Omnia common stock subject to options currently exercisable or
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<PAGE> 65
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 these options.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF NUMBER OF SHARES PERCENT OF
NUMBER OF SHARES PERCENT OF OF SERIES A SERIES A OF SERIES B SERIES B
OF COMMON STOCK COMMON PREFERRED STOCK PREFERRED PREFERRED STOCK PREFERRED
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED STOCK (1) BENEFICIALLY OWNED STOCK (2) BENEFICIALLY OWNED STOCK (3)
------------------------ ------------------ ---------- ------------------ ---------- ------------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Bessemer Venture Partners
(4) 1400 Old Country
Road, Suite 407
Westbury, NY 11590....... 2,228,000 18.3% 2,228,000 37.8% 698,370 18.7%
Robi L. Soni (5)
c/o Bessemer Venture
Partners
83 Walnut Street
Wellesley, MA 02481...... 2,228,000 18.3% 2,228,000 37.8% 698,370 18.7%
Charles River Partners (6)
Bay Colony Corporate
Center
1000 Winter Street, Suite
3300
Waltham, MA 02154........ 2,228,000 18.3% 2,228,000 37.8% 698,370 18.7%
Richard Burnes (7)
c/o Charles River
Partners
Bay Colony Corporate
Center
1000 Winter Street,
Suite 3300
Waltham, MA 02154........ 2,228,000 18.3% 2,228,000 37.8% 698,370 18.7%
Atlas Ventures (8)
222 Berkeley Street
Boston, MA 02116......... 0 0% 0 0% 1,846,154 49.4%
Barry Fidelman (9)
c/o Atlas Ventures
222 Berkeley Street
Boston, MA 02116......... 0 0% 0 0% 1,846,154 49.4%
SVM STAR Ventures
Management (10)
Possartstrasse 9 D-81679
Munich, Germany.......... 1,164,000 9.6% 1,164,000 19.8% 365,351 9.8%
Michael A. Champa.......... 1,127,000 9.3% 0 0% 0 0%
Jeffrey Weiss.............. 1,024,750 8.4% 0 0% 0 0%
Jeffrey Black.............. 1,014,750 8.4% 0 0% 0 0%
James M. Dow............... 340,000 2.8% 240,000 4.1% 74,363 2%
Walter Dray................ 379,000 3.1% 0 0% 0 0%
William Regan.............. 379,000 3.1% 0 0% 0 0%
Lawrence M. Harding........ 183,367 1.5% 0 0% 0 0%
James O'Bray............... 122,245 1.0% 0 0% 0 0%
Jay Damiano (11)........... 0 0% 0 0% 0 0%
Mitchell Rosich (11)....... 0 0% 0 0% 0 0%
All executive officers and
directors as a group (13
persons)................. 9,026,112 74.3% 4,696,000 79.7% 3,317,257 88.7%
<CAPTION>
PERCENTAGE
AGGREGATE
VOTING
NAME OF BENEFICIAL OWNER POWER
------------------------ ----------
<S> <C>
Bessemer Venture Partners
(4) 1400 Old Country
Road, Suite 407
Westbury, NY 11590....... 18.4%
Robi L. Soni (5)
c/o Bessemer Venture
Partners
83 Walnut Street
Wellesley, MA 02481...... 18.4%
Charles River Partners (6)
Bay Colony Corporate
Center
1000 Winter Street, Suite
3300
Waltham, MA 02154........ 18.4%
Richard Burnes (7)
c/o Charles River
Partners
Bay Colony Corporate
Center
1000 Winter Street,
Suite 3300
Waltham, MA 02154........ 18.4%
Atlas Ventures (8)
222 Berkeley Street
Boston, MA 02116......... 11.6%
Barry Fidelman (9)
c/o Atlas Ventures
222 Berkeley Street
Boston, MA 02116......... 11.6%
SVM STAR Ventures
Management (10)
Possartstrasse 9 D-81679
Munich, Germany.......... 9.6%
Michael A. Champa.......... 7.1%
Jeffrey Weiss.............. 6.5%
Jeffrey Black.............. 6.4%
James M. Dow............... 2.6%
Walter Dray................ 2.4%
William Regan.............. 2.4%
Lawrence M. Harding........ 1.2%
James O'Bray............... .8%
Jay Damiano (11)........... 1.0%
Mitchell Rosich (11)....... 2.0%
All executive officers and
directors as a group (13
persons)................. 77.7%
</TABLE>
- -------------------------
(1) Based on 12,142,790 shares outstanding as of March 15, 1999.
(2) Based on 5,890,000 shares outstanding as of March 15, 1999.
(3) Based on 3,738,462 shares outstanding as of March 15, 1999.
(4) Includes shares held by Bessemer Venture Partners IV L.P., Bessec Ventures
IV L.P., BVP IV Special Situations L.P. and Bessemer Venture Investors L.P.
Also includes shares held by
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<PAGE> 66
members, employees and former employees, or family partnerships of those
persons, of the limited partner or general partner of the foregoing limited
partnerships.
(5) Mr. Soni, a member of Deer IV & Co. LLC, the general partner of Bessemer
Venture Partners IV, L.P., Bessec Ventures IV L.P., BVP IV Special
Situations L.P. and Bessemer Venture Investors L.P., is a director of
Omnia. Mr. Soni shares voting power with respect to the shares listed and
investment power with respect to the shares held by the foregoing limited
partnerships. Mr. Soni owns directly 15,914 shares of Omnia common stock,
15,914 shares of Omnia Series A preferred stock and 14,532 shares of Omnia
Series B preferred stock. Mr. Soni disclaims beneficial ownership of all
other shares listed except to the extent of his pecuniary interest in the
shares held by the foregoing limited partnerships.
(6) Includes shares held by Charles River Partnership VIII, a Limited
Partnership, Charles River VIII-A LLC and Charles River Partnership VIII.
(7) Mr. Burnes, a general partner of Charles River VIII GP Limited Partnership,
the general partner of Charles River Partnership VIII, a Limited
Partnership, an officer of Charles River Friends VII, Inc., the manager of
Charles River VIII-A LLC and a general partner of Charles River Partnership
VIII, is a director of Omnia. Mr. Burnes shares voting and investment power
with respect to the shares listed. Mr. Burnes does not own any shares of
Omnia in his individual capacity and disclaims beneficial ownership of the
shares listed except to the extent of his pecuniary interest therein.
(8) Includes shares held by Atlas Venture Fund III, L.P. and Atlas Venture
Entrepreneurs' Fund III, L.P.
(9) Mr. Fidelman, a member manager of Atlas Venture Associates III, LLC, the
general partner of Atlas Venture Fund III, L.P. and Atlas Venture
Entrepreneurs' Fund III, L.P., is a director of Omnia. Mr. Fidelman shares
voting and investment power with respect to the shares listed. Mr. Fidelman
does not own any shares of Omnia in his individual capacity and disclaims
beneficial ownership of the shares listed except to the extent of his
pecuniary interest therein.
(10) Includes shares held by SVE STAR Ventures Enterprises No. VII, SVM Star
Ventures Managementgessellschaft mbH Nr. 3 & Co. Beteilgungs KG No. 2, SVE
STAR Ventures Enterprises No. V and SVM STAR Ventures Management GmbH No.
3.
(11) In the event that these option holders exercise all of their options, they
will have the percentage voting power designated.
CIENA CAPITAL STOCK
If the merger is completed, shares of Omnia common stock and preferred
stock will be converted into shares of CIENA common stock. As a result, Omnia
stockholders, whose rights are currently governed by the Delaware General
Corporation Law, Omnia's certificate of incorporation and bylaws, will become
CIENA stockholders, whose rights are governed by the same Delaware law, CIENA's
certificate of incorporation and bylaws.
The following is a description of the capital stock of CIENA, including the
CIENA common stock to be issued in the merger, and a summary of the material
differences between the rights of Omnia stockholders and CIENA stockholders.
These differences arise from the differences between CIENA's certificate of
incorporation and bylaws relative to Omnia's certificate of incorporation and
bylaws. Although it is impractical to compare all of the aspects in which the
companies' governing instruments differ with respect to stockholders' rights,
the following discussion summarizes the significant differences between them.
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<PAGE> 67
DESCRIPTION OF CIENA CAPITAL STOCK
The following summary description of the capital stock of CIENA does not
purport to be complete and is qualified in its entirety by the provisions of
CIENA's certificate of incorporation and bylaws and by the applicable provisions
of the DGCL. For information on how to obtain copies of CIENA's certificate of
incorporation and bylaws, see "Where You Can Find More Information."
AUTHORIZED AND OUTSTANDING CAPITAL STOCK OF CIENA
Under the provisions of CIENA's certificate of incorporation, CIENA has
authority to issue 380,000,000 shares of capital stock, consisting of
360,000,000 shares of CIENA common stock, par value $.01 per share, and
20,000,000 shares of preferred stock, par value $.01 per share. As of June 9,
1999, 121,502,327 shares of CIENA common stock, and no shares of CIENA preferred
stock were issued and outstanding.
The rights of the holders of CIENA common stock discussed below are subject
to those rights as the CIENA board may confer on holders of CIENA preferred
stock that may be issued in the future. The rights may adversely affect the
rights of holders of CIENA common stock.
CIENA COMMON STOCK
VOTING RIGHTS. Each holder of CIENA common stock is entitled to attend all
special and annual meetings of the stockholders of CIENA and to vote upon any
matter, including, without limitation, the election of directors, properly
considered and acted upon by the stockholders of CIENA. Holders of CIENA common
stock are entitled to one vote per share.
LIQUIDATION RIGHTS. In the event of any dissolution, liquidation or
winding up of CIENA, whether voluntary or involuntary, the holders of CIENA
common stock and holders of any class or series of stock entitled to participate
with them, will be entitled to participate in the distribution of any assets of
CIENA remaining after CIENA has paid all of its debts and liabilities after
CIENA has paid, or set aside for payment, to the holders of any class of stock
having preference over the CIENA common stock in the event of dissolution,
liquidation or winding up the full preferential amounts, if any, to which they
are entitled.
DIVIDENDS. Dividends may be paid on the CIENA common stock and on any
class or series of stock entitled to participate therewith when and as declared
by the CIENA board.
NO PREEMPTIVE OR CONVERSION RIGHTS. The holders of CIENA common stock have
no preemptive or subscription rights to purchase additional securities issued by
CIENA nor any rights to convert their CIENA common stock into other securities
of CIENA or to have their shares redeemed by CIENA.
CIENA PREFERRED STOCK
CIENA has no preferred stock outstanding. However, CIENA has classified
shares of Series A Junior Participating Preferred Stock in connection with the
establishment of its Stockholder Rights Plan, as described further below.
LIMITATION OF LIABILITY AND INDEMNIFICATION
LIMITATIONS OF DIRECTOR LIABILITY. Delaware law authorizes corporations to
limit or eliminate the personal liability of directors to corporations and their
stockholders for monetary damages for breach of directors' fiduciary duty of
care. Although Delaware law does not change directors' duty of care, it enables
corporations to limit available relief to equitable remedies as injunction or
rescission. CIENA's certificate of incorporation limits the liability of
directors to CIENA or its stockholders to the full extent permitted by Delaware
law. Specifically, directors of CIENA are not personally liable
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<PAGE> 68
for monetary damages to CIENA or its stockholders for breach of the director's
fiduciary duty as a director, except for liability for:
- any breach of the director's duty of loyalty to CIENA or its
stockholders
- acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law
- unlawful payments of dividends or unlawful stock repurchases or
redemptions
- any transaction from which the director derived an improper
personal benefit
INDEMNIFICATION. To the maximum extent permitted by law, CIENA's bylaws
provide for mandatory indemnification of directors and officers of CIENA against
any expense, liability or loss to which they may become subject, or which they
may incur as a result of being or having been a director or officer of CIENA. In
addition, CIENA must advance or reimburse directors and officers for expenses
they incur in connection with indemnifiable claims.
CIENA also maintains directors' and officers' liability insurance.
IMPORTANT CHARTER AND STATUTORY PROVISIONS
CLASSIFIED BOARD. CIENA's certificate of incorporation provides for the
division of the CIENA Board into three classes of directors, serving staggered
three-year terms. CIENA's certificate of incorporation further provides that the
approval of the holders of at least two-thirds of the shares entitled to vote
thereon and the approval of a majority of the entire CIENA Board are necessary
for the alteration, amendment or repeal of certain sections of CIENA's
certificate of incorporation relating to the election and classification of the
CIENA Board, action by written consent, limitation of director liability,
indemnification and the vote requirements for amendments to CIENA's certificate
of incorporation. These provisions may deter hostile takeovers or delay changes
in control or management of CIENA.
ACTION BY WRITTEN CONSENTS. CIENA's certificate of incorporation
eliminates action by written consent of stockholders. This provision, which
makes it difficult for stockholders to act outside of a special meeting, may
also deter hostile takeovers or delay changes in control or management of CIENA.
IMPORTANT STATUTORY PROVISIONS. CIENA is subject to the provisions of
Section 203 of the Delaware General Corporation Law. In general, this statute
prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless
- prior to that date, the corporation's board of directors approved
either the business combination or the transaction that resulted
in the stockholder becoming an interested stockholder,
- upon consummation of the transaction that resulted in the person
becoming an interested stockholder, the interested stockholder
owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding, for
purposes of determining the number of shares outstanding, shares
owned by directors or employee stock plans, or
- on or after the date the stockholder became an interested
stockholder, the business combination is approved by the
corporation's board of directors and authorized by the
affirmative vote, and not by written consent, of at least
two-thirds of the outstanding voting stock of the corporation
excluding that stock owned by the interested stockholder.
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<PAGE> 69
A "business combination" includes a merger, asset sale or other transaction
resulting in a financial benefit to the interested stockholder. An "interested
stockholder" is a person, other than the corporation and any direct or indirect
wholly owned subsidiary of the corporation, who together with affiliates and
associates, owns or, as an affiliate or associate, within three years prior, did
own 15% or more of the corporation's outstanding voting stock.
Section 203 expressly exempts from the requirements described above any
business combination by a corporation with an interested stockholder who becomes
an interested stockholder in a transaction approved by that corporation's board
of directors.
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. 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 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 Omnia shareholders will be issued with rights
attached.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the CIENA common stock is Boston
EquiServe.
COMPARISON OF STOCKHOLDER RIGHTS
GENERAL
Both Omnia and CIENA are corporations organized under the laws of Delaware
and are therefore subject to the Delaware corporation statute. However, there
are differences in the charters and by-laws of Omnia and CIENA that affect the
rights of their respective stockholders.
CAPITALIZATION
CIENA. CIENA is authorized to issue 360,000,000 shares of common stock and
20,000,000 shares of preferred stock. On June 9, 1999, 119,734,251 shares of
CIENA common stock were outstanding and no shares of CIENA preferred stock were
outstanding. CIENA's board has the authority, without stockholder approval, to
issue shares of authorized preferred stock from time to time in one or more
series and to fix the rights and preferences, including voting rights, of each
series of preferred stock, which rights and preferences may be superior to that
of CIENA's common stock.
OMNIA. Omnia is authorized to issue 18,000,000 shares of common stock,
5,890,000 shares of Series A preferred stock and 3,738,462 shares of Series B
preferred stock. On the record date, 12,142,790 shares of common stock and all
of the authorized shares of Series A preferred stock and Series B preferred
stock were outstanding. In the event of a merger or acquisition of Omnia, the
holders of Series A preferred stock and Series B preferred stock have the right
to have their shares of Omnia preferred stock redeemed by Omnia.
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<PAGE> 70
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.
OMNIA. Each holder of Omnia common stock is entitled to one vote for each
share and may not cumulate votes for the election of directors. Each holder of
Omnia Series B preferred stock is entitled to one vote for each share of Omnia
common stock into which the shares of Series B preferred stock are convertible
and may not cumulate votes for the election of directors. Holders of Omnia
Series A preferred stock are not entitled to vote on the election of directors
or on any other matter, except with respect to some of the matters specifically
set forth in Omnia's charter, including mergers.
NUMBER AND CLASSIFICATION OF DIRECTORS
CIENA. CIENA's charter provides that its board of directors will be
comprised of three classes of two 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 by-laws provide that the number of directors may not be less
than five nor more than seven.
OMNIA. Omnia's charter does not specify the number of directors Omnia must
have. Like CIENA's by-laws, Omnia's by-laws provide that the number of directors
may not be less than five nor more than seven. Omnia's by-laws 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
by-laws provide that a director may only be removed from office by the
stockholders at a special meeting called for that purpose.
OMNIA. Omnia's charter does not contain any provisions regarding the
removal of directors. Omnia's by-laws provide that a director may be removed
from office by the affirmative vote of a majority of the shares of capital stock
of Omnia outstanding and entitled to vote on the election of directors at any
annual meeting or special meeting, or by the affirmative vote of a majority of
the directors then in office.
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 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.
OMNIA. Omnia's charter does not contain any provisions regarding the
filling of vacancies. Omnia's by-laws provide that vacancies may be filled by
the stockholders or by the directors then in office.
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 some provisions of CIENA's charter relating to the board
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<PAGE> 71
of directors, stockholder action, amendment of the charter and indemnification
of officers and directors of CIENA.
OMNIA. Omnia's charter may be amended in any manner provided for by law,
except that any amendment that would adversely affect the rights, preferences or
privileges of the holders of Series A preferred stock or Series B preferred
stock requires the vote of the holders of two-thirds of the outstanding shares
of Series A preferred stock and Series B preferred stock.
AMENDMENTS TO BY-LAWS
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 by-laws.
OMNIA. Omnia's by-laws provide that they may be amended by the
stockholders at any annual or special meeting by the vote of a majority of all
shares outstanding and entitled to vote, except that where any amendment would
reduce a voting requirement required by law, the charter or the by-laws, such
amendment will require the affirmative vote designated in the provision being
amended. In addition, Omnia's by-laws provide that the by-laws may be amended by
the board at a meeting called for that purpose by a majority vote of the
directors, except that the directors may not amend the by-laws in a way that:
- changes the stockholder voting requirements for any action,
- alters or abolishes any preferential right or right of redemption
of a class or series of stock with shares already outstanding,
- alters the provisions of the by-laws relating to indemnification
of officers and directors, or
- permits the board to take any action which the law, the charter
or the by-laws requires the stockholders to take.
Furthermore, Omnia's charter provides that the by-laws may not be amended in any
manner that would adversely affect the rights, preferences or privileges of the
holders of Series A preferred stock or Series B preferred stock requires the
vote of the holders of two-thirds of the outstanding shares of Series A
preferred stock and Series B preferred stock.
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.
OMNIA. Omnia's by-laws 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 by-laws require advance notice of
stockholder nominations of directors or any other business to be brought by
stockholders before any meeting of stockholders.
OMNIA. Neither Omnia's charter nor its by-laws require advance notice of
business to be brought by stockholders before any meeting of stockholders,
except that stockholder nominations for directors must be made by written notice
to the secretary of Omnia at least 14 days, but not more than 60 days, before
any meeting called for the election of directors. However, if stockholders are
given less than 21 days' notice of the meeting, then they must give notice of
their nominations no later than five days after the day notice of the meeting
was mailed to them.
66
<PAGE> 72
RIGHT TO CALL SPECIAL MEETING OF SHAREHOLDERS
CIENA. CIENA's by-laws provide that a special meeting of stockholders may
be called at any time by the board or the president and must be called by the
president or the secretary at the request of the holders of at least 25% of the
number of shares of stock outstanding and entitled to vote at the meeting.
OMNIA. Omnia's by-laws provide that a special meeting of stockholders may
be called at any time by the board or the president.
DIVIDENDS
CIENA. CIENA's by-laws 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.
OMNIA. Subject to Omnia's charter, Omnia's by-laws provide that Omnia's
board may declare what, if any, dividends may be paid from Omnia's surplus or
from its net profits for the current or preceding fiscal year, or as otherwise
permitted by law. Dividends are payable on the dates as Omnia's board
designates. Omnia's charter provides that no dividends may be paid to the
holders of any other capital stock of Omnia unless sufficient funds are set
aside at the same time to pay dividends to the holders of Series B preferred
stock and the holders are actually paid the dividends.
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.
OMNIA. Holders of Omnia common stock and Series A preferred stock have no
right to convert their shares into any other shares of the capital stock of
Omnia or any other securities. Holders of Omnia Series B preferred stock have
the right to convert their shares into a number of shares of common stock
determined by dividing $3.25 by the then current conversion price as calculated
based on the provisions of the charter, which is currently $3.25 per share. The
holders of Series B preferred stock do not have to pay any additional money to
Omnia in order to convert their shares. Their shares automatically convert into
common stock upon the closing of a public offering of shares of common stock at
a price of at least $15.00 per share resulting in net proceeds to Omnia of at
least $15,000,000. Holders of Omnia Series A preferred stock and Series B
preferred stock also have the right to have their shares redeemed by Omnia on
certain dates and events specified in the charter, at a price of $.99 per share
for the Series A preferred stock and $3.25 per share for the Series B preferred
stock.
OTHER MATTERS
LEGAL MATTERS
The validity of the CIENA common stock offered hereby will be passed upon
by Hogan & Hartson L.L.P., 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., counsel
to CIENA, and Hale and Dorr LLP, counsel to Omnia.
EXPERTS
The consolidated financial statements of CIENA Corporation at October 31,
1997 and 1998, and for each of the three years in the period ended October 31,
1998, incorporated in this prospectus and proxy statement by reference to the
Current Report on Form 8-K of CIENA Corporation filed on April 1, 1999 and
amended on April 5, 1999, have been so incorporated in reliance on the report of
67
<PAGE> 73
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The consolidated financial statements of Omnia Communications, Inc., at
December 31, 1997 and 1998, and for the period from June 3, 1997 (date of
inception) to December 31, 1997, for the year ended December 31, 1998 and for
the period from June 3, 1997 (date of inception) to December 31, 1998, included
in this prospectus and proxy statement have been so included in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
OTHER MATTERS
As of the date of this prospectus and proxy statement, the Omnia 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 of the special meeting and are voted upon, the enclosed proxies
will confer discretionary authority on the individuals named as proxies to vote
the shares represented by the proxies as to any of those matters. The
individuals named as proxies intend to vote or not to vote in accordance with
the recommendation of the management of Omnia. However, if there are not enough
votes to approve the proposals, the proxy holders will not use discretionary
voting authority to adjourn the meeting.
WHERE YOU CAN FIND MORE INFORMATION
CIENA has filed the Registration Statement of which this proxy statement
and prospectus is a part. The Registration Statement registers the distribution
to Omnia 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.
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:
<TABLE>
<S> <C> <C>
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
</TABLE>
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.
68
<PAGE> 74
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,
1998, filed on December 10, 1998 and amended on April 5, 1999
- CIENA's two Current Reports on Form 8-K, filed on April 1, 1999 (and
amended April 5, 1999) and April 5, 1999
- CIENA's Quarterly Reports on Form 10-Q for the quarterly period ended
January 31, 1999, filed on February 18, 1999 and the quarterly period
ended April 30, 1999, filed on May 21, 1999
- 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 termination of the
offering are incorporated by reference into this prospectus and proxy
statement, effective the date that the documents are filed
- The description of CIENA common stock 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 that 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: Director, Investor Relations
Telephone (410) 865-8500
If you would like to request documents, please do so by June 23, 1999 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.
This document constitutes the prospectus of CIENA and the proxy statement
of Omnia. CIENA has supplied all information contained or incorporated by
reference in this prospectus and proxy statement relating to CIENA and Omnia has
supplied all such information relating to Omnia. Neither CIENA nor Omnia has
authorized anyone to give any information or make any representation about the
merger or CIENA or Omnia 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.
69
<PAGE> 75
OMNIA COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED FINANCIAL STATEMENTS
F-1
<PAGE> 76
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Omnia Communications, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, changes in stockholders' deficit and of
cash flows present fairly, in all material respects, the financial position of
Omnia Communications, Inc. (a development stage enterprise) at December 31, 1998
and 1997, and the results of its operations and its cash flows for the year
ended December 31, 1998 and for the periods from June 3, 1997 (date of
inception) to December 31, 1997 and from June 3 (date of inception) to December
31, 1998, in conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
March 2, 1999, except as to Note 11,
for which the date is March 15, 1999
F-2
<PAGE> 77
OMNIA COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
as of December 31, 1998 and 1997 and March 31, 1999 (unaudited)
<TABLE>
<CAPTION>
1998 1997 MARCH 31, 1999
----------- ---------- --------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................... $10,934,000 $4,698,000 $ 7,382,000
Prepaid expenses and other current assets................... 205,000 17,000 249,000
----------- ---------- ------------
Total current assets........................................ 11,139,000 4,715,000 7,631,000
Property and equipment, net................................. 975,000 205,000 1,099,000
Other assets................................................ -- 48,000 --
----------- ---------- ------------
Total assets................................................ $12,114,000 $4,968,000 $ 8,730,000
=========== ========== ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable............................................ $ 1,341,000 $ 219,000 $ 758,000
Accrued payroll............................................. 171,000 51,000 266,000
Accrued expenses............................................ 456,000 27,000 719,000
Current portion of capital leases and long-term debt........ 262,000 7,000 333,000
----------- ---------- ------------
Total current liabilities................................... 2,230,000 304,000 2,076,000
Long-term portion of capital leases and debt................ 762,000 15,000 689,000
Commitments and contingencies -- Note 8..................... -- -- --
----------- ---------- ------------
Total liabilities........................................... 2,992,000 319,000 2,765,000
Series A redeemable preferred stock, $.001 par value;
5,965,000 shares authorized; 5,300,000 issued and
outstanding at December 31, 1997; 5,890,100 issued and
outstanding at December 31, 1998 and March 31, 1999
(unaudited); at liquidation preference.................... 5,831,000 5,247,000 5,831,000
Series B participating convertible preferred stock, $.001
par value; 3,738,462 shares authorized, issued and
outstanding at December 31, 1998 and March 31, 1999
(unaudited); at liquidation preference.................... 12,150,000 -- 12,150,000
Stockholders' deficit:
Common stock, $.001 par value; 13,000,000 shares authorized,
9,776,000 issued and outstanding at December 31, 1997;
18,000,000 shares authorized at December 31, 1998 and
March 31, 1999 (unaudited), 12,007,832 and 12,216,332
shares issued at December 31, 1998 and March 31, 1999
(unaudited), respectively; 11,942,832 and 12,142,790
shares outstanding at December 31, 1998 and March 31, 1999
(unaudited), respectively................................. 12,000 10,000 12,000
Treasury stock, at cost................................. (1,000) -- (1,000)
Additional paid-in capital.............................. 153,000 45,000 218,000
Deficit accumulated during the development stage........ (8,942,000) (614,000) (12,168,000)
Notes receivable from stockholders.......................... (18,000) (4,000) (18,000)
Unearned compensation....................................... (63,000) (35,000) (59,000)
----------- ---------- ------------
Total stockholders' deficit................................. (8,859,000) (598,000) (12,016,000)
----------- ---------- ------------
Total liabilities and stockholders' deficit................. $12,114,000 $4,968,000 $ 8,730,000
=========== ========== ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE> 78
OMNIA COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
for the year ended December 31, 1998 and for the periods from
June 3, 1997 (date of inception) to December 31, 1997 and
from June 3, 1997 (date of inception) to December 31, 1998 and three months
ended March 31, 1999 and 1998 (unaudited) and for the period from June 3, 1997
(date of inception) to March 31, 1999 (unaudited)
<TABLE>
<CAPTION>
CUMULATIVE FROM
FOR THE PERIOD FROM CUMULATIVE FROM JUNE 3, 1997
YEAR ENDED JUNE 3, 1997 (DATE JUNE 3, 1997 (DATE THREE MONTHS ENDED (DATE OF
DECEMBER 31, OF INCEPTION) TO OF INCEPTION) TO MARCH 31, INCEPTION) TO
1998 DECEMBER 31, 1997 DECEMBER 31, 1998 1999 1998 MARCH 31, 1999
------------ ------------------- ------------------ ----------- ----------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Operating expenses:
Research and
development........ $ 6,666,000 $ 465,000 $ 7,131,000 $ 2,394,000 $ 1,049,000 $ 9,525,000
Sales and
marketing.......... 1,123,000 -- 1,123,000 606,000 -- 1,729,000
General and
administrative..... 759,000 142,000 901,000 305,000 193,000 1,206,000
----------- ---------- ----------- ----------- ----------- ------------
Operating loss....... (8,548,000) (607,000) (9,155,000) (3,305,000) (1,242,000) (12,460,000)
Interest expense..... (39,000) (43,000) (82,000) (20,000) (1,000) (102,000)
Interest income...... 259,000 36,000 295,000 99,000 9,000 394,000
----------- ---------- ----------- ----------- ----------- ------------
Net loss............. $(8,328,000) $ (614,000) $(8,942,000) $(3,226,000) $(1,234,000) $(12,168,000)
=========== ========== =========== =========== =========== ============
Net loss per common
share -- basic
and diluted........ $ (1.28) $ (0.32) $ (1.86) $ (0.41) $ (0.22) $ (2.32)
=========== ========== =========== =========== =========== ============
Weighted average
shares
outstanding........ 6,484,142 1,942,453 4,815,907 7,802,567 5,739,333 5,242,573
=========== ========== =========== =========== =========== ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE> 79
OMNIA COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
for the period from June 3, 1997 (date of inception) to March 31, 1999
(unaudited)
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
COMMON STOCK ADDITIONAL DURING THE
-------------------- PAID-IN- DEVELOPMENT NOTES UNEARNED
SHARES AMOUNT CAPITAL STAGE RECEIVABLE COMPENSATION
---------- ------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Initial issuance of common stock
upon formation of Company, June
1997............................ 400,000 $ -- $ 4,000 $ -- $ -- $ --
Issuance of common stock as part
of unit with Series A redeemable
preferred stock, October 1997... 5,300,000 6,000 47,000 -- -- --
Issuance costs................... -- -- (43,000) -- -- --
Restricted common stock issued to
employees....................... 4,076,000 4,000 37,000 -- (4,000) (37,000)
Amortization of unearned
compensation.................... -- -- -- -- -- 2,000
Net loss......................... -- -- -- (614,000) -- --
---------- ------- -------- ------------ -------- --------
Balance, December 31, 1997....... 9,776,000 10,000 45,000 (614,000) (4,000) (35,000)
Issuance of common stock as part
of unit with Series A redeemable
preferred stock, March 1998..... 590,000 1,000 5,000 -- -- --
Issuance costs................... -- -- (39,000) -- -- --
Exercise of common stock
warrants........................ 196,520 -- 2,000 -- -- --
Restricted common stock issued to
employees....................... 1,445,312 1,000 140,000 -- (53,000) (41,000)
Purchase of treasury stock....... -- -- -- -- -- --
Repayment of notes receivable
from stockholders............... -- -- -- -- 39,000 --
Amortization of unearned
compensation.................... -- -- -- -- -- 13,000
Net loss......................... -- -- -- (8,328,000) -- --
---------- ------- -------- ------------ -------- --------
Balance at December 31, 1998..... 12,007,832 12,000 153,000 (8,942,000) (18,000) (63,000)
Restricted common stock issued to
employees....................... 208,500 -- 65,000 -- (18,000) --
Purchase of treasury stock....... -- -- -- -- -- --
Repayment of notes receivable
from stockholders............... -- -- -- -- 18,000 --
Amortization of unearned
compensation.................... -- -- -- -- -- 4,000
Net loss......................... -- -- -- (3,226,000) -- --
---------- ------- -------- ------------ -------- --------
Balance at March 31, 1999
(unaudited)..................... 12,216,332 $12,000 $218,000 $(12,168,000) $(18,000) $(59,000)
========== ======= ======== ============ ======== ========
<CAPTION>
TREASURY STOCK TOTAL
----------------------- STOCKHOLDERS'
SHARES AMOUNT DEFICIT
------- ------------- -------------
<S> <C> <C> <C>
Initial issuance of common stock
upon formation of Company, June
1997............................ $ -- $ -- $ 4,000
Issuance of common stock as part
of unit with Series A redeemable
preferred stock, October 1997... -- -- 53,000
Issuance costs................... -- -- (43,000)
Restricted common stock issued to
employees....................... -- -- --
Amortization of unearned
compensation.................... -- -- 2,000
Net loss......................... -- -- (614,000)
------- ------- ------------
Balance, December 31, 1997....... -- -- (598,000)
Issuance of common stock as part
of unit with Series A redeemable
preferred stock, March 1998..... -- -- 6,000
Issuance costs................... -- -- (39,000)
Exercise of common stock
warrants........................ -- -- 2,000
Restricted common stock issued to
employees....................... -- -- 47,000
Purchase of treasury stock....... (65,000) (1,000) (1,000)
Repayment of notes receivable
from stockholders............... -- -- 39,000
Amortization of unearned
compensation.................... -- -- 13,000
Net loss......................... -- -- (8,328,000)
------- ------- ------------
Balance at December 31, 1998..... (65,000) (1,000) (8,859,000)
Restricted common stock issued to
employees....................... -- -- 47,000
Purchase of treasury stock....... (8,542) -- --
Repayment of notes receivable
from stockholders............... -- -- 18,000
Amortization of unearned
compensation.................... -- -- 4,000
Net loss......................... -- -- (3,226,000)
------- ------- ------------
Balance at March 31, 1999
(unaudited)..................... (73,542) $(1,000) $(12,016,000)
======= ======= ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE> 80
OMNIA COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the year ended December 31, 1998 and for the periods from
June 3, 1997 (date of inception) to December 31, 1997
and from June 3, 1997 (date of inception) to December 31, 1998
and three months ended March 31, 1999 and 1998 (unaudited)
and for the period from June 3, 1997 (date of inception) to March 31, 1999
(unaudited)
<TABLE>
<CAPTION>
FOR THE PERIOD CUMULATIVE FROM
YEAR ENDED FROM JUNE 3, 1997 JUNE 3, 1997 THREE MONTHS ENDED
DECEMBER 31, (DATE OF INCEPTION) TO (DATE OF INCEPTION) TO MARCH 31,
1998 DECEMBER 31, 1997 DECEMBER 31, 1998 1999 1998
------------ ---------------------- ---------------------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net loss....................... $(8,328,000) $ (614,000) $(8,942,000) $(3,226,000) $(1,234,000)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and
amortization............... 279,000 5,000 284,000 152,000 22,000
Interest expense associated
with convertible notes
payable.................... -- 43,000 43,000 -- --
Equity compensation.......... 13,000 2,000 15,000 4,000 2,000
Changes in operating assets
and liabilities:
Prepaid expenses and other
assets..................... (140,000) (65,000) (205,000) (44,000) (31,000)
Accounts payable and accrued
expenses................... 1,671,000 296,000 1,967,000 (225,000) 88,000
----------- ---------- ----------- ----------- -----------
Net cash used in operating
activities..................... (6,505,000) (333,000) (6,838,000) (3,339,000) (1,153,000)
----------- ---------- ----------- ----------- -----------
Investing activities:
Purchases of property and
equipment.................... (1,036,000) (186,000) (1,222,000) (275,000) (230,000)
----------- ---------- ----------- ----------- -----------
Net cash used in investing
activities..................... (1,036,000) (186,000) (1,222,000) (275,000) (230,000)
----------- ---------- ----------- ----------- -----------
Financing activities:
Proceeds from convertible
notes........................ -- 100,000 100,000 -- --
Proceeds from long-term debt... 1,000,000 -- 1,000,000 -- 13,000
Repayment of capital lease
obligations.................. (11,000) (2,000) (13,000) (3,000) (3,000)
Proceeds from issuance of
preferred stock.............. 12,734,000 5,063,000 17,797,000 -- 584,000
Proceeds from issuance of
common stock................. 55,000 99,000 154,000 47,000 8,000
Issuance costs................. (39,000) (43,000) (82,000) -- --
Proceeds from repayment of
notes receivable from
stockholders................. 39,000 -- 39,000 18,000 --
Purchase of treasury stock..... (1,000) -- (1,000) -- --
----------- ---------- ----------- ----------- -----------
Net cash provided by financing
activities..................... 13,777,000 5,217,000 18,994,000 62,000 602,000
----------- ---------- ----------- ----------- -----------
Increase (decrease) in cash and
cash equivalents............... 6,236,000 4,698,000 10,934,000 (3,552,000) (781,000)
Cash and cash equivalents at
beginning of period............ 4,698,000 -- -- 10,934,000 4,698,000
----------- ---------- ----------- ----------- -----------
Cash and cash equivalents at end
of period...................... $10,934,000 $4,698,000 $10,934,000 $ 7,382,000 $ 3,917,000
=========== ========== =========== =========== ===========
Supplemental cash flow
disclosures:
Conversion of notes payable and
accrued interest into 142,857
shares of Series A redeemable
preferred stock and 142,857
shares of common stock....... $ -- $ 143,000 $ 143,000 $ -- $ --
Notes received in exchange for
restricted common stock...... $ 14,000 $ 4,000 $ 4,000 $ 18,000 $ --
Acquisition of property and
equipment under capital lease
obligations.................. $ 13,000 $ 24,000 $ 37,000 -- $ 13,000
Interest paid.................. $ 39,000 $ -- $ 39,000 $ 20,000 $ 1,000
Taxes paid..................... $ 1,000 $ -- $ 1,000 $ 5,000 $ 1,000
<CAPTION>
CUMULATIVE FROM
JUNE 3, 1997
(DATE OF INCEPTION) TO
MARCH 31, 1999
----------------------
(UNAUDITED)
<S> <C>
Operating activities:
Net loss....................... $(12,168,000)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and
amortization............... 436,000
Interest expense associated
with convertible notes
payable.................... 43,000
Equity compensation.......... 19,000
Changes in operating assets
and liabilities:
Prepaid expenses and other
assets..................... (249,000)
Accounts payable and accrued
expenses................... 1,742,000
------------
Net cash used in operating
activities..................... (10,177,000)
------------
Investing activities:
Purchases of property and
equipment.................... (1,497,000)
------------
Net cash used in investing
activities..................... (1,497,000)
------------
Financing activities:
Proceeds from convertible
notes........................ 100,000
Proceeds from long-term debt... 1,000,000
Repayment of capital lease
obligations.................. (16,000)
Proceeds from issuance of
preferred stock.............. 17,797,000
Proceeds from issuance of
common stock................. 201,000
Issuance costs................. (82,000)
Proceeds from repayment of
notes receivable from
stockholders................. 57,000
Purchase of treasury stock..... (1,000)
------------
Net cash provided by financing
activities..................... 19,056,000
------------
Increase (decrease) in cash and
cash equivalents............... 7,382,000
Cash and cash equivalents at
beginning of period............ --
------------
Cash and cash equivalents at end
of period...................... $ 7,382,000
============
Supplemental cash flow
disclosures:
Conversion of notes payable and
accrued interest into 142,857
shares of Series A redeemable
preferred stock and 142,857
shares of common stock....... $ 143,000
Notes received in exchange for
restricted common stock...... $ 22,000
Acquisition of property and
equipment under capital lease
obligations.................. $ 37,000
Interest paid.................. $ 59,000
Taxes paid..................... $ 6,000
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE> 81
OMNIA COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS:
Omnia Communications, Inc. (the "Company"), which began operations in June
1997, is a development stage entity engaged in the design and development of
products that enable local exchange telephone network operators to cost
effectively offer new and existing services over metropolitan fiber optic access
and transport networks. Since its inception, the Company has devoted
substantially all of its efforts to raising capital, developing technologies,
acquiring equipment, and recruiting employees. Accordingly, the Company is
considered a development stage enterprise as defined in Statement of Financial
Accounting Standards No. 7, and the accompanying financial statements represent
those of a development stage enterprise.
The Company is subject to risks common to companies in the industry
including, but not limited to, new technological innovations, dependence on key
personnel, protection of proprietary technology, compliance with government
regulations, uncertainty of market acceptance of products, product liability and
the need to obtain additional financing.
The ultimate success of the Company is dependent upon its ability to raise
capital through equity placements, development of proprietary technology, sale
of product and interest income on invested capital. The Company's capital
requirements may change depending upon numerous factors, including progress of
the Company's research and development programs, resources the Company devotes
to self-funded projects, proprietary manufacturing methods and advanced
technologies and demand for the Company's products, if and when approved.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary, Omnia Communications Investment Corporation, a
Massachusetts Securities Corporation. All significant intercompany transactions
and balances have been eliminated. Certain prior year amounts have been
reclassified to be consistent with current year presentation.
INTERIM FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements of Omnia
Communications Inc. have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, the accompanying consolidated financial statements include all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of the financial position, results of operations and changes in
cash flows for the periods presented. The results of operations for the three
months ended March 31, 1999 are not necessarily indicative of the results to be
expected for the remainder of the fiscal year. These financial statements should
be read in conjunction with the audited consolidated financial statements and
notes thereto for the year ended December 31, 1998.
SIGNIFICANT ESTIMATES AND ASSUMPTIONS
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts
F-7
<PAGE> 82
OMNIA COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of assets and liabilities, and disclosure of contingent assets and liabilities,
if any, at the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from these estimates.
CASH EQUIVALENTS
The Company considers all highly liquid investments with remaining
maturities of three months or less at the time of acquisition to be cash
equivalents. Cash equivalents are comprised of a corporate note of approximately
$9,980,000 and money market accounts of approximately $954,000. Cash equivalents
are stated at cost which approximates market.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist of a corporate note and money market
accounts primarily through one financial institution.
EQUIPMENT AND IMPROVEMENTS
Equipment and improvements are stated at cost. Depreciation is computed
using the straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Computer equipment and purchased software...... 3 years
Furniture and fixtures......................... 5 years
Engineering lab equipment...................... 3 years
Leasehold improvements......................... Shorter of lease term or estimated useful life
</TABLE>
The cost of maintenance and repairs is charged to expense as incurred.
Costs of major additions and betterments are capitalized. On disposal, the
related cost and accumulated depreciation are eliminated from the accounts and
any resulting gain or loss is included in the determination of income or loss.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to expense as incurred.
STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," ("SFAS 123") requires that companies either recognize
compensation expense for grants of stock, stock options, and other equity
instruments to employees based on fair value, or provide pro forma disclosure
for net income and earnings per share as if such compensation expense had been
recognized in the notes to the financial statements. The Company applies the
disclosure provisions of SFAS 123 and has applied the provisions of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees,"
("APB 25") in accounting for its plans.
INCOME TAXES
The Company uses the liability method of accounting for income taxes. Under
the liability method, deferred tax assets and liabilities reflect the impact of
temporary timing differences between amounts of assets and liabilities for
financial reporting purposes and such amounts as measured by tax
F-8
<PAGE> 83
OMNIA COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
laws. A valuation allowance is required to offset any net deferred tax assets
if, based upon the available evidence, it is more likely than not that some or
all of the deferred tax assets will not be realized. Tax credits are generally
recognized as reductions of income tax provisions in the year the credit arises.
NET LOSS PER COMMON SHARE
The Company has adopted Statement of Financial Accounting Standard ("SFAS")
No. 128, "Earnings Per Share," which specifies the computation, presentation and
disclosure requirements for net loss per common share. Basic net loss per common
share is computed based on the weighted average number of common outstanding
during the period. Diluted net loss per common share gives effect to all
dilutive potential common shares outstanding during the period. Under SFAS No.
128, the computation of diluted earnings per share does not assume the issuance
of common shares that have an antidilutive effect on net loss per common share.
COMPREHENSIVE INCOME
The Company has adopted SFAS No. 130, "Reporting Comprehensive Income,"
which specifies that changes in comprehensive income to be shown in a financial
statement that is displayed with the same prominence as other financial
statements. The statement is effective for annual periods beginning after
December 15, 1997. The adoption of SFAS 130 has not affected, and is not
expected to affect, the Company's financial position or results of operations.
SEGMENTS OF AN ENTERPRISE
The Company has adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This statement supersedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise." This statement
includes requirements to report selected segment information quarterly and
entity-wide disclosures about products and services, major customers, and the
material countries in which the entity holds assets and reports revenues. No
additional disclosures are required related to SFAS No. 131 for the year or
periods ended December 31, 1998 or 1997.
RECENT PRONOUNCEMENTS
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-5
"Accounting for the Costs of Start-Up Activities" ("SOP 98-5"). SOP 98-5
requires all costs of start-up activities (as defined by SOP 98-5) to be
expensed as incurred. The Company does not believe SOP 98-5 will have a
significant impact on its financial statement disclosures.
In March of 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use". SOP 98-1 requires computer
software costs associated with internal use software to be charged to operations
as incurred until certain capitalization criteria are met. SOP 98-1 is effective
beginning January 1, 1999. The Company does not expect the adoption of this
statement to have a material effect on consolidated financial position or
results of operations.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative
Instruments and Hedging
F-9
<PAGE> 84
OMNIA COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Activities." The statement is effective for all fiscal quarters beginning after
June 15, 1999. At this time, the company holds no derivatives, and therefore it
does not expect that this pronouncement will have a significant impact on its
financial statement disclosures.
3. EQUIPMENT AND IMPROVEMENTS:
Equipment and improvements at December 31, 1998 and 1997 consist of:
<TABLE>
<CAPTION>
1998 1997
--------- --------
<S> <C> <C>
Computer equipment and purchased software.................. $ 774,000 $162,000
Furniture and fixtures..................................... 79,000 24,000
Engineering lab equipment.................................. 363,000 --
Office equipment........................................... 43,000 24,000
--------- --------
1,259,000 210,000
Less accumulated depreciation.............................. (284,000) (5,000)
--------- --------
$ 975,000 $205,000
========= ========
The carrying value of assets under capital leases which are included in computer
and office equipment is as follows:
Office equipment held under capital lease.................. $ 37,000 $ 24,000
Accumulated amortization................................... (23,000) (1,000)
--------- --------
$ 14,000 $ 23,000
========= ========
</TABLE>
Total depreciation expense was $279,000 in the year ended December 31, 1998
and $5,000 in the period from June 3, 1997 through December 31, 1997.
4. NOTES PAYABLE:
In July 1997, the Company issued two convertible notes payable totaling
$100,000. The agreements contained a provision that allowed the note holders to
convert the principal balance and any accrued interest into securities of the
Company issued in a financing agreement equal to 70% of the offering price. In
October 1997, the note holders elected to convert their principal and accrued
interest into 142,857 shares of Series A redeemable preferred stock and 142,857
shares of common stock resulting in a total discount of $43,000. The discount on
the stock was recorded as interest expense.
5. BANK ARRANGEMENTS:
During 1998, the Company entered into a loan and security agreement
providing for an equipment line of credit in the amount of $1 million for
equipment purchases through March 25, 1999 (the "line of credit"). The line of
credit bears interest at the prime rate (7.75% at December 31, 1998) plus .25%.
Through March, 1999 monthly payments on the line are for interest only.
Beginning in April, 1999, the unpaid principal balance of the line shall be
repaid in 36 equal monthly installments, plus interest. Substantially all of the
Company's tangible assets serve as collateral against amounts outstanding on the
line of credit. At December 31, 1998 $1,000,000 was outstanding on the line of
credit.
F-10
<PAGE> 85
OMNIA COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. REDEEMABLE PREFERRED STOCK:
In October 1997 the Company issued 5,300,000 shares, and in March 1998
issued another 590,000 shares, of equity units to outside investors at $1.00 per
unit. The combined units are comprised of 5,890,000 shares of common stock at
$.01 per share, and 5,890,000 shares of Series A redeemable preferred stock (the
"Series A shares") at $0.99 per share. The Company received total proceeds in
1997 of $5,247,000, less $143,000 relating to the notes payable conversion and
issuance costs of $42,000, and in 1998 received total proceeds of $590,000, less
issuance costs of $4,000.
In September 1998, the Company issued 3,738,462 shares of Series B
participating convertible preferred stock (the "Series B shares") to existing
and new investors at $3.25 per share. The Company received total proceeds of
$12,150,000, less $35,000 of issuance costs.
The Series A and the Series B shares include the following provisions:
LIQUIDATION PREFERENCE
In the event of any liquidation of the Company, the Series A and the
Series B shareholders are entitled to receive, in preference to all common
shareholders, an amount equal to the original offering price per share
($.99 for the Series A and $3.25 for the Series B) times the number of
shares held by them, plus any accrued and unpaid dividends. After payment
in full to the Series A and Series B shareholders, the Series B
shareholders are entitled to share ratably in any remaining assets based on
the numbers of common shares held by them, assuming conversion of the
Series B shares into common shares. If the amounts legally available for
distribution are insufficient for payment in full, then the amounts will be
distributed ratably between the Series A and Series B shareholders.
DIVIDENDS
The Company may not declare or pay any dividends to the Series A or
common shareholders without declaring or paying dividends to the Series B
shareholders. No dividends were declared or paid in 1997 or 1998.
VOTING RIGHTS
The Series A shareholders have no voting rights. The Series B
shareholders have the right to vote the number of shares equal to the
number of common shares into which each Series B share is convertible into
at the time of any shareholder vote.
COVENANTS
The Company cannot, without first obtaining the affirmative vote or
written consent of the holders of two-thirds of the Series A and Series B
shares, amend or repeal any provision or by-laws of the corporation,
authorize or issue any additional class of shares senior or on par with the
Series A and Series B shares, reclassify any shares, declare or pay any
dividends except on the Series B shares, or effect certain transactions
involving the assets or capital stock of the company, including sales,
mergers, consolidations, or liquidations.
F-11
<PAGE> 86
OMNIA COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
REDEMPTION RIGHTS
Unless otherwise requested by the holders of a majority of the Series
A shares outstanding, the Company shall redeem the Series A shares at their
liquidation value on certain redemption dates or upon certain redemption
events. The redemption dates are October 30, 2002, 2003, and 2004, each on
demand of the holders of a majority of the Series A shares then
outstanding, for up to one-third of the total Series A shares held. The
redemption events, for all of the Series A shares, are a) the date there is
a change in control through merger, consolidation, or acquisition of the
Company, or b) the date 90 days after the closing of a firm commitment
underwritten public offering of the Company of at least $15,000,000 at a
price per share of common stock of at least $5.00 per share.
Unless otherwise requested by the holders of a majority of the Series
B shares outstanding, the Company shall redeem the Series B shares at their
liquidation value on certain redemption dates or upon a redemption event.
The redemption dates are September 18, 2003, 2004, and 2005, each on demand
of the holders of a majority of the Series B shares then outstanding, for
up to one-third of the original Series B shares held. The redemption event,
for all of the Series B shares, is the date there is a change in control
through merger, consolidation, or acquisition of the Company.
CONVERSION RIGHTS
The Series B shares are convertible, at the option of the Series B
shareholder and without additional consideration, into one share of common
stock, subject to adjustment for any changes in the capital structure of
the common stock. Conversion is automatic upon the closing of a Qualified
Public Offering.
REISSUANCE
Any Series A or Series B shares that are redeemed or converted will be
canceled and not reissued by the Company.
7. COMMON STOCK:
In November 1997, the Company's Board of Directors and stockholders
approved the 1997 Stock Plan (the "Plan"). The Plan provides for the sale or
award of restricted common stock, or the grant of incentive stock options or
nonqualified stock options for the purchase of common stock, of up to 6,433,925
shares to officers, employees and consultants. The Plan is administered by the
Board of Directors.
In 1997 and 1998, officers and employees were granted stock awards for the
purchase of 4,076,000 and 1,540,812 shares, respectively. Of this amount,
5,521,312 shares were purchased pursuant to Restricted Stock Purchase Agreements
(the "Restricted Shares") which, in the case of officers and employees, are
subject to the Company's right to repurchase at cost in the event that
employment is terminated prior to specified dates. As of December 31, 1998,
65,000 Restricted Shares had been repurchased, and 4,343,833 shares remain
subject to this repurchase right. Another 95,500 stock awards were granted in
the form of incentive or non-qualified stock options (the "Options"). Options
expire over a period not exceeding ten years.
F-12
<PAGE> 87
OMNIA COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Options generally vest, and the repurchase rights for Restricted Shares
generally expire, over four years (the "Vesting Period"). Over the four-year
vesting period, 25% of the unvested shares vest after one year, and the
remaining unvested shares vest at the rate of 1/36(th) per month through the
fourth anniversary date. Upon a change in control, 50% of any then remaining
unvested shares shall become vested shares, and all remaining unvested shares
shall become vested in 12 equal increments over the successive twelve months or
over the original vesting schedule, whichever is faster.
The Company entered into restricted stock purchase agreements at purchase
prices equal to $0.001 in 1997 and at purchase prices ranging from $0.001 to
$0.33 in 1998.
Had compensation cost for the Company's stock-based compensation plan been
accounted for based on the fair value method of SFAS 123, the Company's net
income for the year ended December 31, 1998 and for the periods ended December
31, 1998 or 1997 would have been decreased by the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
NET LOSS
NET LOSS PER SHARE
----------- ---------
<S> <C> <C>
As reported:
Year-ended December 31, 1998............................ $(8,328,000) $(1.28)
Period from June 3, 1997 (Date of Inception) to December
31, 1997............................................. (614,000) (0.32)
Period from June 3, 1997 (Date of Inception) to December
31, 1998............................................. (8,942,000) (1.86)
Pro forma:
Year-ended December 31, 1998............................ $(8,329,000) $(1.28)
Period from June 3, 1997 (Date of Inception) to December
31, 1997............................................. (614,000) (0.32)
Period from June 3, 1997 (Date of Inception) to December
31, 1998............................................. (8,943,000) (1.86)
</TABLE>
The weighted average fair value of options granted during fiscal 1998 was
$.16 per share. In calculating these pro forma disclosures, the fair value of
each option grant in fiscal 1998 and 1997 has been estimated on the date of
grant using the minimum value method with the following assumptions: risk free
interest rate used in calculation ranged from 4.3% to 4.7% in fiscal 1998
expected lives of options were assumed to be three years and no dividends were
assumed.
F-13
<PAGE> 88
OMNIA COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1998 977,613 shares of common stock were reserved for
future issuance to employees and consultants of the Company and 882,113 options
were available for grant. Stock award activity is summarized as follows:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED WEIGHTED
SHARES AVERAGE AVERAGE
UNDER PURCHASE/ REMAINING
RESTRICTION EXERCISE CONTRACTUAL
OR OPTION PRICE LIFE
----------- --------- -----------
<S> <C> <C> <C>
Balance at June 3, 1997 (Date of inception)
Granted........................................... 4,076,000 $0.01 --
Exercised......................................... (4,076,000) 0.01 --
Canceled/Repurchased.............................. -- -- --
---------- ----- ---------
-- -- --
Balance at December 31, 1997
Granted........................................... 1,540,812 0.08 --
Exercised......................................... (1,380,312) 0.07 --
Canceled/Repurchased.............................. (65,000) 0.01 --
---------- ----- ---------
Balance at December 31, 1998........................ 95,500 $0.16 9.9 years
========== ===== =========
</TABLE>
UNEARNED COMPENSATION
The Company recognized $41,000 and $37,000 of unearned compensation in
1998 and 1997, respectively, related to the sale of restricted stock to
employees at less than fair value. The Company amortized $13,000 and $2,000
of these balances in 1998 and 1997, respectively.
STOCK WARRANTS
In August 1997, the Company issued warrants to Telco Systems, Inc.
("Telco") to purchase 5% of common shares issuable upon the closing of the
Company's first round of venture capital financing (the "First Venture
Round") at a price of $.01 per share. Upon 30 days after the closing of the
Company's First Venture Round, 40% of the warrants were exercisable. In
March 1998, under the terms of this provision, Telco purchased 196,520
shares of the Company's common stock for $.01 per share.
The remaining 60% of the warrants, or 294,780 shares as of December
31, 1998, are exercisable upon the realization by Telco of certain
equipment purchasing milestones for the Company's product, or upon a change
in control, whichever occurs first. Of the total remaining shares under the
terms of the Telco warrant, 98,260 become exercisable after $3 million of
equipment purchases, another 98,260 shares are exercisable after $6 million
is purchased, and the final 98,260 shares are exercisable after $9 million
is purchased. Upon vesting, the Company expects to record a non-cash charge
equal to the difference between fair market value of the common stock on
the date of vesting and the price paid.
F-14
<PAGE> 89
OMNIA COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NET LOSS PER COMMON SHARE
The calculation of per share earnings is as follows:
<TABLE>
<CAPTION>
PERIOD FROM CUMULATIVE FROM CUMULATIVE FROM
JUNE 3, 1997 JUNE 3, 1997 THREE MONTHS ENDED JUNE 3, 1997
(DATE OF (DATE OF MARCH 31, (DATE OF
INCEPTION) TO INCEPTION) TO ------------------------- INCEPTION) TO
1998 DECEMBER 31, 1997 DECEMBER 31, 1998 1999 1998 MARCH 31, 1999
----------- ----------------- ----------------- ----------- ----------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Basic:
Net loss........... $(8,328,000) $ (614,000) $(8,942,000) $(3,226,000) $(1,234,000) $(12,168,000)
Weighted average
common shares
outstanding...... 6,484,142 1,942,453 4,815,907 7,802,567 5,739,333 5,242,573
Net loss per
share............ $ (1.28) $ (0.32) $ (1.86) $ (0.41) $ (0.22) $ (2.32)
</TABLE>
Convertible preferred stock, options, warrants and unvested restricted
stock to purchase or convert to 14,764,817 shares of common stock were
outstanding for the period ended March 31, 1999, but were not included in
the computation of diluted net loss per common share. Convertible preferred
stock, options, warrants, and unvested restricted stock to purchase or
convert to 10,800,780 shares of common stock were outstanding for the
period ended March 31, 1998, but were not included in the computation of
diluted net loss per common share. These potentially dilutive securities
have not been included in the computation of diluted net loss per common
share because the Company is in a net loss position, and the inclusion of
such shares, therefore, would be antidilutive.
Convertible preferred stock, options, warrants and unvested restricted
stock to purchase or convert to 8,472,575 shares of common stock were
outstanding for the year ended December 31, 1998, but were not included in
the computation of diluted net loss per common share. Warrants to purchase
or convert to 184,920 shares of common stock were outstanding for the year
ended December 31, 1997, but were not included in the computation of
diluted net loss per common share. These potentially dilutive securities
have not been included in the computation of diluted net loss per common
share because the Company is in a loss position, and the inclusion of such
shares therefore, would be antidilutive.
8. COMMITMENTS:
The Company leases its facility and certain office equipment under
operating lease agreements and certain office equipment under a capital lease
agreement. These lease agreements expire at dates through 2001.
F-15
<PAGE> 90
OMNIA COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum lease payments are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
--------- -------
<S> <C> <C>
1999................................................. $ 99,000 $16,000
2000................................................. 5,000 15,000
2001................................................. -- 1,000
-------- -------
Total minimum payments required............ $104,000 32,000
========
Less -- amount representing interest................. 7,000
-------
Present value of minimum lease payments.............. 25,000
Less -- current portion.............................. 12,000
-------
$13,000
=======
</TABLE>
Rent expense was approximately $284,000 for the year ended December 31,
1998 and $47,000 for the period from inception (June 3, 1997) to December 31,
1997.
In January 1999, the Company executed a letter of intent to enter into an
operating lease for a new primary facility. Under the terms of the agreement
outlined in the letter of intent, future minimum lease payments for this
facility would approximate $270,000 in 1999, $600,000 in 2000, $690,000 in 2001
and $630,000 in 2002.
9. INCOME TAXES:
No provision for income taxes is recorded due to the Company's net losses.
Net deferred tax assets result from temporary differences in the recognition of
expenses for financial statements and income tax purposes. A full valuation
allowances for the net deferred tax assets have been provided due to the
uncertainty surrounding the realization of these assets.
Components of the net deferred tax asset at December 31, 1998 and 1997 are
as follow:
<TABLE>
<CAPTION>
1998 1997
----------- ---------
<S> <C> <C>
Deferred tax expense/(benefits):
Net operating carryforwards..................... $ 124,000 $ 6,000
Credit carryforward............................. 276,000 21,000
Start-up costs.................................. 808,000 75,000
Capitalized research and development costs...... 2,589,000 175,000
Other temporary differences..................... 58,000 (10,000)
----------- ---------
Total deferred tax assets............. 3,855,000 267,000
Valuation allowance............................. (3,855,000) (267,000)
----------- ---------
Net deferred tax asset (liability).............. $ -- $ --
=========== =========
</TABLE>
F-16
<PAGE> 91
OMNIA COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The provision for income taxes (benefit) differs from the Federal statutory
rate due to the following:
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
US Federal Statutory Rate................................. (34.00)% (34.00)%
State taxes - net of federal benefit...................... (6.27) (6.27)
R&D credits - federal..................................... (1.96) (2.55)
Other, net................................................ (0.92) (0.62)
Change in valuation allowance............................. 43.15 43.44
------ ------
Effective tax rate........................................ 0.00% 0.00%
====== ======
</TABLE>
At December 31, 1998, the Company had net operating loss carryforwards for
federal and state income tax purposes of approximately $311,000 and $296,000,
respectively, which begin to expire in 2012 and 2002, respectively. The Company
also has available research and development credits for federal and state income
tax purposes of approximately $187,000 and $134,000, respectively, which begin
to expire in 2012. However, changes in the Company's ownership, as defined in
the Internal Revenue Code, may limit the Company's ability to utilize net
operating loss and tax credit carryforwards.
Management of the Company has evaluated the positive and negative evidence
impacting the realizability of its deferred tax assets, which are comprised
principally of net operating loss carryforwards, tax credits and capitalized
expenses, as required by Statement of Financial Accounting Standards No. 109.
Management has considered the Company's history of annual and cumulative losses
and concluded, in accordance with the applicable accounting standards, that it
is more likely than not that it will not generate future taxable income prior to
the expiration of these items. Based on the weight of the available evidence, it
is more likely than not that all of the deferred tax assets will not be
realized, and accordingly, the deferred tax assets have been fully reserved.
10. SAVINGS PLAN:
In January 1998, the Company adopted a 401(k) profit sharing plan. The plan
covers all full time employees who are at least 21 years of age and who are not
covered by a collective bargaining agreement where retirement benefits are
subject to good faith bargaining. Participants may contribute up to 12% of
pre-tax compensation, subject to certain limitations. There is no required
employer matching contributions, but the Company may, at its discretion,
contribute a matching amount to employees, subject to the plan provisions. The
company made no contributions to the plan in 1998.
11. SUBSEQUENT EVENT:
In March 1999, the Company signed an Agreement and Plan of Merger (the
"Agreement") with CIENA Corporation (CIENA). Under the terms of the Agreement,
CIENA will acquire all outstanding shares of the Company's common stock
(including common shares arising out of the conversion of the Series B shares)
and stock options in exchange for 16.0 million shares of CIENA common stock,
less the number of CIENA shares, priced at the close of the merger, that are
required to fulfill the Liquidation Preference of the Series A and Series B
shares. It is expected that the merger will qualify as a tax-free reorganization
within the meaning of Section 368(a) of the Internal Revenue Code, and that it
will be accounted for as a "pooling of interests." The merger is expected to
close in the middle of 1999.
F-17
<PAGE> 92
APPENDIX A
<PAGE> 93
AGREEMENT AND PLAN OF MERGER
BETWEEN
CIENA CORPORATION
AND
OMNIA COMMUNICATIONS, INC.
DATED AS OF MARCH 15, 1999
<PAGE> 94
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C> <C>
ARTICLE I THE MERGER......................................................... A- 1
SECTION 1.1. General..................................................... A- 1
SECTION 1.2. Certificate of Incorporation................................ A- 2
SECTION 1.3. The By-Laws................................................. A- 2
SECTION 1.4. Board of Directors and Officers............................. A- 2
SECTION 1.5. Conversion of Securities.................................... A- 2
SECTION 1.6. Adjustment of the Exchange Ratios........................... A- 3
SECTION 1.7. Dissenting Shares........................................... A- 3
SECTION 1.8. Exchange Procedures; Distributions with Respect to
Unexchanged Shares; Stock Transfer Books.................. A- 4
SECTION 1.9. No Fractional Shares........................................ A- 6
SECTION 1.10. Return of Exchange Fund..................................... A- 6
SECTION 1.11. No Further Ownership Rights in Company Capital Stock........ A- 6
SECTION 1.12. Further Assurances.......................................... A- 6
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY..................... A- 7
SECTION 2.1. Organization and Qualification.............................. A- 7
SECTION 2.2. Certificate of Incorporation and Bylaws..................... A- 7
SECTION 2.3. Capitalization.............................................. A- 7
SECTION 2.4. Authority................................................... A- 8
SECTION 2.5. No Conflict; Required Filings and Consents.................. A- 8
SECTION 2.6. Financial Statements........................................ A- 8
SECTION 2.7. Accounts Receivable......................................... A- 9
SECTION 2.8. Absence of Certain Changes or Events........................ A- 9
SECTION 2.9. Ownership and Condition of the Assets....................... A- 9
SECTION 2.10. Leases...................................................... A-10
SECTION 2.11. Other Agreements............................................ A-10
SECTION 2.12. Real Property............................................... A-11
SECTION 2.13. Environmental Matters....................................... A-11
SECTION 2.14. Litigation.................................................. A-12
SECTION 2.15. Compliance with Laws........................................ A-12
SECTION 2.16. Intellectual Property....................................... A-12
SECTION 2.17. Taxes and Assessments....................................... A-13
SECTION 2.18. Employment and Benefit Matters.............................. A-14
SECTION 2.19. Transactions with Related Parties........................... A-15
SECTION 2.20. Insurance and List of Claims................................ A-15
SECTION 2.21. Intentionally Omitted....................................... A-16
SECTION 2.22. Brokers..................................................... A-16
SECTION 2.23. Disclosure.................................................. A-16
SECTION 2.24. Absence of Violation........................................ A-16
SECTION 2.25. Customers and Suppliers..................................... A-16
SECTION 2.26. Copies of Documents......................................... A-17
SECTION 2.27. Hardware and Software Development Status.................... A-17
SECTION 2.28. Accounting as "Pooling-of-Interests"........................ A-17
ARTICLE III................................................................... A-17
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF CIENA........................... A-17
SECTION 4.1. Organization and Qualification.............................. A-17
SECTION 4.2. Authority................................................... A-18
SECTION 4.3. No Conflict; Required Filings and Consents.................. A-18
SECTION 4.4. Brokers..................................................... A-18
</TABLE>
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<PAGE> 95
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
SECTION 4.5. Issuance of CIENA Stock..................................... A-18
SECTION 4.6. SEC Filings................................................. A-18
SECTION 4.7. Litigation.................................................. A-19
SECTION 4.8. Capitalization.............................................. A-19
SECTION 4.9. Reorganization under Section 368(a) of the Code............. A-19
ARTICLE V..................................................................... A-19
ARTICLE VI CONDUCT PENDING CLOSING........................................... A-19
SECTION 6.1. Conduct of Business Pending Closing......................... A-19
SECTION 6.2. Prohibited Actions Pending Closing.......................... A-20
SECTION 6.3. Access; Documents; Supplemental Information................. A-21
SECTION 6.4. No Solicitation............................................. A-21
SECTION 6.5. Information Supplied........................................ A-22
SECTION 6.6. Stockholder Meeting......................................... A-22
SECTION 6.7. Filings; Other Actions; Notification........................ A-22
SECTION 6.8. Comfort Letters............................................. A-23
SECTION 6.9. Nasdaq Listing.............................................. A-23
SECTION 6.10. Company Stock Options; Company Warrants..................... A-23
SECTION 6.11. Notification of Certain Matters............................. A-24
SECTION 6.12. Reorganization.............................................. A-24
SECTION 6.13. Indemnification............................................. A-25
SECTION 6.14. Actions by the Parties...................................... A-25
SECTION 6.15. CIENA Acquisition Proposal.................................. A-25
ARTICLE VII CONDITIONS PRECEDENT............................................. A-26
SECTION 7.1. Conditions Precedent to Each Party's Obligation to Effect
the Merger................................................ A-26
SECTION 7.2. Conditions Precedent to Obligations of CIENA................ A-26
SECTION 7.3. Conditions Precedent to the Company's Obligations........... A-27
ARTICLE VIII SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION..... A-28
SECTION 8.1. Survival of Representations and Warranties.................. A-28
SECTION 8.2. Indemnification; Escrow Agreements.......................... A-28
SECTION 8.3. Stockholder Representative.................................. A-28
SECTION 8.4. Maximum Payments; Remedy.................................... A-29
ARTICLE IX MISCELLANEOUS AND GENERAL......................................... A-29
SECTION 9.1. Expenses.................................................... A-29
SECTION 9.2. Press Releases.............................................. A-29
SECTION 9.3. Contents of Agreement; Parties in Interest; Etc............. A-29
SECTION 9.4. Assignment and Binding Effect............................... A-30
SECTION 9.5. Termination................................................. A-30
SECTION 9.6. Definitions................................................. A-30
SECTION 9.7. Notices..................................................... A-32
SECTION 9.8. Amendment................................................... A-32
SECTION 9.9. Governing Law............................................... A-32
SECTION 9.9. No Benefit to Others........................................ A-32
SECTION 9.10. Severability................................................ A-33
SECTION 9.11. Section Headings............................................ A-33
SECTION 9.12. Schedules and Exhibits...................................... A-33
SECTION 9.13. Extensions.................................................. A-33
SECTION 9.14. Counterparts................................................ A-33
</TABLE>
ii
<PAGE> 96
EXHIBIT INDEX
Exhibit A -- Form of Affiliate Letter
Exhibit B -- Form of Stockholder Agreement
Exhibit C -- Form of Opinion of Hale and Dorr LLP
Exhibit D -- Form of Proprietary Information Agreement
Exhibit E -- Form of Hogan & Hartson L.L.P. Tax Opinion
Exhibit F -- Form of Certificate of CIENA
Exhibit G -- Form of Certificate of Omnia
Exhibit H -- Form of Escrow Agreement
Exhibit I -- Form of Hale and Dorr LLP Tax Opinion
Exhibit J -- Form of Opinion of Hogan & Hartson L.L.P.
iii
<PAGE> 97
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement") dated as of March 15, 1999
by and among CIENA CORPORATION, a Delaware corporation ("CIENA") and OMNIA
COMMUNICATIONS, INC., a Delaware corporation (the "Company").
RECITALS
WHEREAS, the Boards of Directors of each of CIENA and the Company have
determined that the merger of the Company with and into CIENA (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 and the Company and their
respective stockholders and member;
WHEREAS, the Board of Directors of CIENA has received the opinion of
Morgan, Stanley & Co. Incorporated, financial advisor to CIENA, that the Merger
is fair, from a financial point of view, to CIENA;
WHEREAS, the Company is a Delaware corporation and has authorized
18,000,000 shares of common stock, par value $0.001 per share ("Company Common
Stock"), and 9,628,462 shares of preferred stock, $0.001 par value per share, of
which 5,890,000 shares have been designated Series A Preferred Stock ("Series A
Preferred Stock") and 3,738,462 shares have been designated Series B Preferred
Stock (the "Series B Preferred Stock") (the Company Common Stock, the Series A
Preferred Stock and the Series B Preferred Stock are referred to as the "Company
Capital Stock");
WHEREAS, in order to induce CIENA to enter into this Agreement, 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 B, pursuant to which, among
other things, each such stockholder agrees to vote in favor of this Agreement
and the Merger and makes certain representations and warranties to CIENA
regarding the matters set forth in ARTICLE II of this Agreement;
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; and
WHEREAS, the parties intend that, for financial accounting purposes, the
Merger shall be accounted for as a "pooling of interests."
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) the Company shall be merged with and
into CIENA, (ii) the separate corporate existence of the Company shall cease and
(iii) CIENA 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").
A-1
<PAGE> 98
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 VII 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 shall vest in the Surviving
Company, and all debts, liabilities, obligations, and duties of the Company
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 CIENA, as in effect immediately prior
to the Effective Time, 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 CIENA, as in effect immediately prior to the Effective Time,
shall be 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
CIENA 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 issued and outstanding share of CIENA capital stock shall
remain outstanding and unaffected as the outstanding shares 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) 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, par value $0.01 per share ("CIENA Common
Stock" or "CIENA Stock") including the corresponding fraction of a right
("Right") to purchase shares of junior preferred stock, par value $1.00 per
share, pursuant to the Rights Agreement dated as of December 27, 1997
between CIENA and Boston EquiServe as Rights Agent, determined as follows:
(i) in the case of each share of Company Common Stock, a fraction
of a share equal to (a) 16,000,000 less the Preferred Redemption
Retirement Amount (as defined below), divided by (b) the Fully-Diluted
Company Capital Stock (as defined below). The Preferred Redemption
Retirement Amount is equal to $17,981,101.50 divided by the closing
price per share of CIENA Common Stock as reported on Nasdaq on the last
business day preceding the Closing Date (the "Stock Price"). The
fraction determined under this subparagraph, as adjusted in accordance
with SECTION 1.6, is hereinafter called the "Common Stock Exchange
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<PAGE> 99
Ratio". The Fully-Diluted Company Capital Stock is equal to the total
number of the following items (without duplication) as of the Effective
Time: (x) outstanding shares of Company Common Stock, (y) Company stock
options and restricted stock awards granted and unexercised at Closing
(whether vested or unvested), (z) shares issuable upon exercise of
outstanding Company warrants and (aa) shares issuable upon exercise of
other instruments or agreements convertible into or exchangeable for or
entitling the holder to acquire Company Common Stock, including shares
of Series B Preferred Stock outstanding (in each case expressed on a
common share equivalent basis);
(ii) in the case of each share of Series A Preferred Stock, (a)
$5,831,100 divided by the Stock Price, divided by (b) the aggregate
number of shares of Series A Preferred Stock outstanding on the Closing
Date (such number as adjusted in accordance with SECTION 1.6, the
"Series A Exchange Ratio"); and
(iii) in the case of each share of Series B Preferred Stock, the
Common Stock Exchange Ratio plus an additional fraction of a share of
CIENA Common Stock equal to (a) $12,150,001.50 divided by the Stock
Price, divided by (b) the aggregate number of shares of Series B
Preferred Stock outstanding on the Closing Date (such number as adjusted
in accordance with SECTION 1.6, the "Series B Exchange Ratio").
The Common Stock Exchange Ratio, the Series A Exchange Ratio and the Series B
Exchange Ratio are collectively referred to as the "Exchange Ratios."
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. 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 Common Stock
of CIENA 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.
Notwithstanding the foregoing, shares of Company Capital Stock surrendered for
exchange by any person identified by CIENA at the Effective Time as an
"Affiliate" of the Company shall not be exchanged until CIENA has received a
written agreement from such person in the form of EXHIBIT A.
SECTION 1.6. Adjustment of the Exchange Ratios.
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 each Exchange Ratio,
and thereafter all references to an Exchange Ratio shall be deemed to be to such
Exchange Ratio 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(C). 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
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<PAGE> 100
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 8.2.
(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 VII, it is a
condition to CIENA's obligations pursuant to this Agreement that holders of
shares of Company Capital Stock representing in excess of 9.9% 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.
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 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 8.2. (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 use its
reasonable efforts to 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(C), 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 8.2), (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 8.2, CIENA shall cause to be distributed to the Escrow Agent
certificates representing 10% of the aggregate number of
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<PAGE> 101
shares of CIENA Common Stock to be issued in the Merger (less shares issued in
respect of Company Capital Stock subject to forfeiture or vesting arrangements
between the Company and the Stockholder that are assigned to CIENA in the
Merger) 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
referred to in SECTION 8.2. 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 and the distribution of such
cash payment to such Person or (ii) shall establish to the 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
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<PAGE> 102
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 the Nasdaq Stock
Market ("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 Time 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.
SECTION 1.11. No Further Ownership Rights in Company Capital Stock.
All certificates representing 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 the Company 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, all such deeds, bills of sale,
assignments and assurances and do, in the name and on behalf of the Company, 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,
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powers, franchises, properties or assets of the Company, as applicable, and
otherwise to carry out the purposes of this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to CIENA 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. Except as set forth in
SCHEDULE 2.1, the Company has no subsidiaries or any equity interest or other
investment in any person. Unless the context otherwise requires, references
herein to the Company shall refer to the Company and its subsidiary taken as a
whole.
SECTION 2.2. Certificate of Incorporation and Bylaws.
The Company has heretofore delivered to CIENA a complete and correct copy
of the certificate of incorporation and the bylaws of the Company, each as
amended to date. Such certificate of incorporation and bylaws are in full force
and effect. The Company is not in violation of any of the provisions of its
certificate of incorporation or bylaws.
SECTION 2.3. Capitalization.
(a) The authorized capital stock of the Company consists of 18,000,000
shares of common stock, $0.001 par value per share, of which 11,743,132 shares
are issued and outstanding and 9,628,462 shares of preferred stock, par value
$0.001 per share, of which 5,890,000 shares are designated as Series A Preferred
Stock, all of which are issued and outstanding, and 3,738,462 shares are
designated as Series B Preferred Stock, all of which are issued and outstanding.
To the knowledge of the Company, all of the issued and outstanding shares of
Series A Preferred Stock, Series B Preferred Stock and Common Stock of the
Company are owned of record by the Stockholders of the Company shown on SCHEDULE
2.3 hereto, free and clear of all Encumbrances. 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, 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. 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.
(b) Except as set forth in SCHEDULE 2.3, the Company has no outstanding
indebtedness for borrowed money and all such indebtedness as is set forth in
SCHEDULE 2.3 is prepayable in full, without premium or penalty, at any time.
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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 Series B
Preferred Stock, voting together as a single class and approval of the holders
of two-thirds the Series A Preferred Stock and Series B Preferred Stock, voting
separately as a class. The Series A Preferred Stock is not otherwise entitled to
any vote on the Merger. Assuming the 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 and
has recommended approval thereof by the Stockholders.
SECTION 2.5. No Conflict; Required Filings and Consents.
(a) Except as set forth in SCHEDULE 2.5, 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
certificate of incorporation or bylaws of the Company, (ii) conflict with or
violate any Law applicable to the Company, or (iii) 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, 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.
SECTION 2.6. Financial Statements.
Attached hereto as SCHEDULE 2.6 are (a) the unaudited consolidated balance
sheet of the Company as of the end of the fiscal year ended December 31, 1998
and the audited consolidated balance sheet of the Company as at the end of the
fiscal year ended December 31, 1997, and the unaudited and audited, respectively
consolidated statements of operations and cash flows for such fiscal years and
(b) the unaudited consolidated balance sheet of the Company as of February 28,
1999, and the unaudited consolidated statement of operations and cash flows for
the two months then ended (collectively, the "Financial Statements"). The
audited consolidated financial statements referred to in this SECTION 2.6
present fairly, in all material respects, the consolidated 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
consolidated financial statements referred to in this SECTION 2.6 present
fairly, in all material respects, the consolidated 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 consolidated financial statements are
accompanied by unqualified audit reports of PricewaterhouseCoopers LLP, who are
independent for purposes of federal securities laws. Except as set forth on
SCHEDULE 2.6 or as reflected in the
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unaudited balance sheet of the Company as of February 28, 1999 (the "Balance
Sheet Date"), the Company has 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, that would not
reasonably be expected to have a Company Material Adverse Effect.
SECTION 2.7. Accounts Receivable.
The accounts receivable of the Company shown on the balance sheet dated
December 31, 1998, if any, or thereafter acquired by the Company up to the date
of this Agreement, have been collected or are collectible in amounts not less
than the amounts thereof carried on the books of the Company (taking into
account the provision for doubtful accounts).
SECTION 2.8. 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 2.8, 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; (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. Except as set
forth in SCHEDULE 2.8, since December 31, 1998, there has not been: (a) any
change in the financial condition, assets, liabilities, personnel policies or
practices, or contracts or business of the Company or in its relationships with
suppliers, customers, licensors, licensees, distributors, lessors or others,
except changes in the Ordinary Course of Business (it being understood that the
Company has incurred losses from operations); (b) any damage, destruction or
loss (whether or not covered by insurance) or any other event affecting the
business or assets of the Company; (c) any forgiveness or cancellation of debts
or claims owed to the Company, or termination, abandonment or waiver of any
rights; (d) 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; (e) 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 (f) any agreement to do any
of the foregoing.
SECTION 2.9. Ownership and Condition of the Assets.
Except as set forth on SCHEDULE 2.9, 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. 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. Except as
set forth in SCHEDULE 2.9, all of the personal property of the Company is in
good working 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 except where
the failure to be so would not have a Company Material Adverse Effect.
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SECTION 2.10. Leases.
SCHEDULE 2.10 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 2.10 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 2.11. Other Agreements.
(a) SCHEDULE 2.11 is an accurate list 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. 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 2.11 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 $35,000 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 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;
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(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;
(8) a party to any agreement for the sale of goods or services to any
Governmental Entity;
(9) a party to any agreement granting any Person a Lien on any of the
Assets;
(10) 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
(11) 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 delivered 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). Except as set
forth on SCHEDULE 2.11, 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 Company's knowledge, 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 2.11, the Company knows 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 2.12. Real Property.
SCHEDULE 2.12 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 2.12
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
2.12, 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
delivered 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 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 2.13. Environmental Matters.
(a) The Company has complied in all material respects and is in material
compliance with all Environmental Laws. There are no pending or, to the
knowledge of the Company, threatened actions, suits, claims, legal proceedings
or other proceedings 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
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human health or an impediment to working conditions; (ii) the current or past
release or threatened release into the environment from the Real 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 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 2.13. 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) To the Company's knowledge, 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 2.14. Litigation.
Except as set forth on SCHEDULE 2.14, there is no action, suit,
investigation, claim, arbitration or litigation pending or, to the knowledge of
the Company, 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 2.15. 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 2.16. Intellectual Property.
(a) Except as set forth in SCHEDULE 2.16, 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, in all material respects, the Company's product
development and marketing plans through December 31, 1999 as previously
disclosed to CIENA (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. To the knowledge of the Company, 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.
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(b) SCHEDULE 2.16(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 jurisdictions as identified on SCHEDULE 2.16(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 2.16(b).
(c) All licenses or other agreements under which the Company is granted
rights in Intellectual Property Rights are listed on SCHEDULE 2.16(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 2.16(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 has no
knowledge of any infringement by others of any Intellectual Property Rights of
the Company.
(f) To the knowledge of the Company, 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 which 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 2.17. Taxes and Assessments.
Except as set forth on SCHEDULE 2.17, the Company has (i) duly and timely
paid all material Taxes which have become due and payable by it, and there are
no agreements, waivers or other
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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. 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 the same 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 2.18. Employment and Benefit Matters.
(a) Pension and Benefit Plans and Other Arrangements. SCHEDULE 2.18(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 delivered to CIENA, to the extent they exist, a true
and correct copy of (i) the two most recent annual reports (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"), the Securities Exchange Act of
1934, as amended (the "Exchange 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.
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(d) Employee Information. SCHEDULE 2.18(d) contains the names, positions
and rates of compensation of all officers, directors, employees and consultants
of the Company, 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 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.
(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 or with the recommendation of the
administrator or actuary for such Company Benefit Plan, and, where applicable,
the laws of the jurisdiction which govern such plan, have been made in a timely
manner. 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 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 2.19. Transactions with Related Parties.
Except as set forth on SCHEDULE 2.19, neither any present or former
officer, director, stockholder 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 2.20. Insurance and List of Claims.
SCHEDULE 2.20 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. The Company has delivered to CIENA true and correct copies of all such
policies. All such policies: (a) are in full force and effect; (b) 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; (c) are valid, outstanding, and enforceable policies; and (d) insure
against risks of the kind customarily insured against and in amounts customarily
carried by corporations similarly situated. All premiums due and payable on all
such policies have been paid. A true and complete list of all claims made since
January 1, 1997 under any of the policies (or their predecessors) listed on
SCHEDULE 2.20 is included on SCHEDULE 2.20.
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SECTION 2.21. Intentionally Omitted.
SECTION 2.22. Brokers.
Except as set forth in SCHEDULE 2.22, 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.
SECTION 2.23. Disclosure.
(a) The Company has fully provided CIENA with all documents and information
which CIENA has requested in writing. No representations or warranties by any of
the Company in this Agreement and no statement or information contained in the
schedules hereto or any certificate furnished or to be furnished by the Company
to CIENA pursuant to the provisions of this Agreement, contains or will contain
any untrue statement of a material fact or omits or will omit to state any
material fact necessary, in light of the circumstances under which it was made,
in order to make the statements herein or therein not misleading.
(b) The books of account, minute books, stock record books and other
financial and corporate records of the Company, all of which have been made
available to CIENA, are 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 or partnership 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.
(c) Each of Messrs. Michael Champa, Jeff Black, William Regan, Jeffrey
Weiss and Walter Drey have carefully read the representations and warranties of
the Company contained herein and the disclosure schedules provided to CIENA, and
are not aware of any facts that such representations, warranties and schedules
are not accurate and complete in all material respects.
SECTION 2.24. 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 2.25. Customers and Suppliers.
Except as set forth on SCHEDULE 2.25, the Company has no 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
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ended December 31, 1998, 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, 1998, 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.
SECTION 2.26. Copies of Documents.
True and complete copies of all documents listed in the Schedules have been
provided to CIENA.
SECTION 2.27. Hardware and Software Development Status.
SCHEDULE 2.27 sets forth a true and complete description of the current
status of development of all of the Company's hardware and software products
under development, including without limitation: (1) the expected bill of
materials required to manufacture the product, (2) the components for such
products having lead times of more than two weeks between order and delivery,
(3) the status of network management software, (4) certification efforts under
Bellcore's OSMINE, and NEBS testing, and (5) reliability or performance issues
identified to date in customer or laboratory trials.
SECTION 2.28. Accounting as "Pooling-of-Interests."
(a) As of the date hereof, to the knowledge of the Company, neither the
Company nor any of its Affiliates has taken or agreed to take any action that
would prevent CIENA from accounting for the business combination to be effected
by the Merger as a "pooling-of-interests" or prevent the Merger and the other
transactions contemplated by this Agreement from qualifying as a
"reorganization" within the meaning of Section 368(a) of the Code.
(b) The Company has provided to CIENA, CIENA's independent accountants and
the Company's independent accountants all information concerning actions taken
or agreed to be taken by the Company or any of its Affiliates on or before the
date of this Agreement that could reasonably be expected to adversely affect the
ability of CIENA to account for the business combination to be effected by the
Merger as a pooling of interests.
(c) SCHEDULE 2.28 identifies all Persons who are "affiliates" of the
Company for purposes of Rule 145 under the Securities Act and executed
"Affiliate Letters" from all such persons in the form of EXHIBIT A have been
provided to CIENA, together with Affiliate Letters from any other person
previously identified by CIENA as a person CIENA reasonably believes to be an
affiliate of the Company for purposes of Rule 145.
ARTICLE III
INTENTIONALLY OMITTED
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF CIENA
CIENA represents and warrants to the Company as follows:
SECTION 4.1. 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
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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 4.2. 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 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 4.3. 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 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 the filing of a registration statement with the Securities and
Exchange Commission and filings under the Hart-Scott-Rodino Act of 1976, as
amended (the "Hart-Scott-Rodino Act").
SECTION 4.4. 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 4.5. 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 4.6. SEC Filings.
CIENA has filed all reports required to be filed by it with the Securities
and Exchange Commission (the "SEC") since February 7, 1997. The reports filed
with the SEC (i) were prepared substantially in accordance of the requirements
of the Securities Exchange Act of 1934, as amended 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. Except as disclosed or contemplated in CIENA's SEC
reports, since the date of CIENA's last report filed with
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the SEC, 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 4.7 Litigation.
Except as set forth on SCHEDULE 4.7 or as otherwise publicly disclosed by
CIENA, 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 publicly disclosed, 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 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 4.8 Capitalization.
The authorized capital stock of CIENA consists of 360,000,000 shares of
common stock, $0.01 par value per share, of which 103,509,433 shares are issued
and outstanding as of March 11, 1999 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, 20,600,000 shares issuable under the
Agreement and Plan of Merger by and among CIENA, Lightera Networks, Inc. and
certain stockholders of Lightera Networks, Inc. and for 9,089,718 shares
issuable under outstanding stock options and 150,688 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 4.9 Reorganization under Section 368(a) of the Code.
Neither CIENA nor its Affiliates have taken any actions which would prevent
the Merger from qualifying as a reorganization under Section 368(a) of the Code.
ARTICLE V
INTENTIONALLY OMITTED
ARTICLE VI
CONDUCT PENDING CLOSING
SECTION 6.1. Conduct of Business Pending Closing.
From the date hereof until the Closing, the Company shall:
(a) maintain its existence in good standing;
(b) 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 this Agreement;
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(c) maintain business and accounting records consistent with past
practices; and
(d) use its best efforts (i) to preserve its business intact, (ii) to
keep available to the Company the services of its present officers and
employees, and (iii) to preserve for the Company the goodwill of its
suppliers, customers and others having business relations with the Company.
SECTION 6.2. Prohibited Actions Pending Closing.
Unless otherwise provided for herein or approved by CIENA in writing, from
the date hereof until the Closing, the Company shall not:
(a) amend or otherwise change its Certificate of Incorporation or
By-Laws;
(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 grant any options (other than options to
purchase Company Capital Stock to new employees under the Company's 1997
Stock Plan as in effect on the date hereof, in the Ordinary Course of
Business and consistent with past practice) or make other agreements with
respect to, any shares of its capital stock or any other of its securities,
except for 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;
(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 indebtedness incurred under commercially
reasonable terms to meet the Company's cash requirements for operations
substantially in accordance with the Company budget set forth in SCHEDULE
6.2;
(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 $250,000 or capital expenditures which are, in the aggregate,
in excess of $1,500,000;
(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;
(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,
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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 for annual
salary raises (on the anniversary date of employment) to employees who are
not officers not to exceed 10%) and severance payments consistent with past
practices and in the Ordinary Course of Business;
(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 last audited
financial statement provided to CIENA or subsequently incurred in the
Ordinary Course of Business and consistent with past practice;
(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;
(p) knowingly take or omit any other action that could disqualify the
Merger as a "pooling of interests" for financial reporting purposes; or
(q) announce an intention, commit or agree to do any of the foregoing.
SECTION 6.3. 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 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, 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 may have full opportunity to make such
investigations as it shall reasonably desire to make of the operations,
properties, business, financial condition and prospects of the Company, (ii) to
the independent certified public accountants of CIENA, 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 its 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 shall from time to time reasonably require.
(b) From the date of this Agreement through and including the Closing,
CIENA and the Company agree to furnish to each other 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, except for any such materials the furnishing of
which would, based on advice of counsel, be inadvisable or impermissible under
applicable Laws.
SECTION 6.4. 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 affiliates to (a)
solicit, initiate, or encourage the submission of, any Acquisition Proposal
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(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. 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 6.4 by the Company and its Affiliates. The Company
promptly shall advise 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 the Company or any proposal
or offer to acquire in any manner, directly or indirectly, an equity interest in
the Company, any voting securities of the Company or a substantial portion of
the assets of the Company (except in connection with employee stock option
grants or warrant exercises).
SECTION 6.5. 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 Merger (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
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 6.6. Stockholder Meeting.
The Company will take, in accordance with its certificate of incorporation
and bylaws, all action necessary to either (i) convene a meeting or meetings of
the holders of Company Capital Stock, to be held as promptly as practicable
after the S-4 Registration Statement is declared effective, or (ii) solicit
written consents from its stockholders, in either case to consider and vote upon
the approval of the Merger, and the Company's board of directors will recommend
such approval by its stockholders, will not withdraw or modify such
recommendation and shall take all lawful action to solicit such approval as
promptly as possible.
SECTION 6.7. 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
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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 in order to consummate the Merger or any of
the other transactions contemplated by this Agreement.
(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.
SECTION 6.8. Comfort Letters.
The Company shall use its reasonable best efforts to cause to be delivered
to CIENA a "comfort" letter of PricewaterhouseCoopers 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 6.9. Nasdaq Listing.
CIENA shall use its reasonable best efforts to 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 6.10. Company Stock Options; Company Warrants.
(a) Concurrent with the Effective Time, each stock option to purchase
Company Common Stock (the "Stock Options") which is outstanding immediately
prior to the Effective Time pursuant to the Company's 1997 Stock Option Plan in
effect on the date hereof (the "Stock Plan") shall be assumed by CIENA and
become and represent an option (a "Substitute Option") issued under an
appropriate CIENA stock option plan, 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 Stock Option
immediately prior to the Effective Time by (ii) the Common Stock Exchange Ratio,
which Stock Options shall have an exercise price per share of CIENA Common Stock
(rounded up to the nearest tenth of a cent) equal to the exercise price per
share of Common Stock immediately prior to the Effective Time divided by the
Common Stock Exchange Ratio. After the Effective Time, except as provided
herein, each Substitute Option shall be exercisable upon the same terms and
conditions as were applicable under the related Stock Option immediately prior
to the Effective Time. The Company agrees that it will not grant any stock
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appreciation rights or limited stock appreciation rights and will not permit
cash payments to holders of Stock Options in lieu of the substitution therefor
of Substitute Options.
(b) The adjustments provided herein with respect to any "Stock Options"
that are "Incentive Stock Options" as defined in Section 422 of the Code shall
be and are intended to be effected in a manner which is consistent with Section
424(a) of the Code.
(c) As soon as practicable after the Effective Time, CIENA shall deliver to
the holders of Stock Options appropriate notices setting forth such holders'
rights pursuant to CIENA's stock option plans and the agreements evidencing the
grants of such Substitute Options and that such Substitute Options shall
continue in effect on the same terms and conditions as the Stock Options
(subject to the adjustment set forth in this SECTION 6.10).
(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 Substitute
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 Substitute 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 tenth of a 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 6.7(e).
(f) CIENA and the Company agree that the Closing of the Merger will
constitute a "change of control" of the Company for purposes of applicable
vesting provisions of restricted stock agreements and stock option agreements
between the Company and its employees and other parties to such agreements.
SECTION 6.11. 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 or CIENA, 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 6.11 shall not limit or otherwise affect the
remedies available to the party receiving such notice.
SECTION 6.12. 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.
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SECTION 6.13. Indemnification.
From and after the Effective Time for a period of four years, 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 pursuant to any
indemnifications provision of the Company's Certificate of Incorporation or
By-Laws as each is in effect on the date hereof.
SECTION 6.14. 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 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.
SECTION 6.15 CIENA Acquisition Proposal
In the event that CIENA enters into any agreement to carry out a CIENA
Acquisition Proposal (as hereinafter defined) prior to the earlier of (i) the
Closing Date or (ii) September 30, 1999, and in the event the Closing Date does
not occur prior to September 30, 1999 as a result of the CIENA Acquisition
Proposal, CIENA shall advance the Company an $21 million loan on commercially
reasonable terms by wire transfer on September 30, 1999 and, if CIENA shall
provide the Company a legally binding written agreement (a "Commitment
Agreement") executed by an authorized representative of CIENA and all other
parties to the CIENA Acquisition Proposal agreement confirming the intention of
CIENA and those parties that all transactions contemplated by this Agreement
will be consummated on the terms set forth in this Agreement on or before
December 31, 1999, the Company shall agree to extend the date referred to in
Section 9.5(b) to December 31, 1999. If no such Commitment Agreement is
delivered to the Company on September 30, 1999, or if the Closing Date does not
occur prior to December 31, 1999, and the Company elects to terminate this
Agreement under Section 9.5(b), such advance and any accrued and unpaid interest
thereon shall be forgiven by CIENA. "CIENA Acquisition Proposal" means any
proposal for a merger or other business combination that would, if consummated,
result in a change in control of CIENA or a sale of substantially all of its
assets.
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ARTICLE VII
CONDITIONS PRECEDENT
SECTION 7.1. 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 have been obtained, made or occurred.
(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 have been enacted, issued, promulgated or
enforced.
(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's Certificate
of Incorporation.
(e) Nasdaq Listing. The CIENA Common Stock to be issued in the Merger
shall have been approved for listing on Nasdaq.
SECTION 7.2. Conditions Precedent to Obligations of CIENA.
All obligations of CIENA under this Agreement are 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 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 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 7.2(a) have been satisfied; and
(ii) holders of shares of Company Capital Stock representing in
excess of 9.9% of the issued and outstanding Company Capital Stock
immediately prior to the Effective Time shall not be entitled to
exercise appraisal rights under Section 262 of the DGCL.
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(b) Opinion of Counsel. CIENA shall have received the favorable
written opinion dated the Closing Date of Hale and Dorr LLP, counsel to the
Company, in form satisfactory to CIENA, to the effect stated in EXHIBIT C.
(c) Resignations. The Company shall have delivered to CIENA the
written resignation of all Trustees of all the benefit plans of the Company
as shall be requested in writing by CIENA.
(d) Consents. The Company shall have received all necessary consents
or waivers, in form and substance satisfactory to CIENA, from the other
parties to all contracts, leases or agreements to which the Company is a
party, except where the failure to receive such consent would not
reasonably be expected, individually or in the aggregate, to have a CIENA
Material Adverse Effect.
(e) Non-Competition Agreements. Each of the individuals listed on
SCHEDULE 7.2 shall have entered into Non-Competition Agreements with the
Surviving Company, each substantially in the form of EXHIBIT D hereto, and
such agreements shall be in full force and effect.
(f) Tax Opinion. CIENA shall have received the opinion of Hogan &
Hartson L.L.P., counsel to CIENA, in the form of EXHIBIT E dated the
Closing Date, to the effect that the Merger will not result in taxation to
CIENA or the Company under the Code except to the extent of any
reimbursement of expenses to CIENA. In rendering such opinion, Hogan &
Hartson L.L.P. shall require delivery of and rely upon the representations
letters delivered by CIENA and the Company substantially in the forms of
EXHIBIT F and EXHIBIT G hereto.
(g) Pooling Letters; Accountant Letters. (i) CIENA shall have received
(i) the Company Affiliates Letters in substantially the form attached
hereto as EXHIBIT A from all persons identified by the Company pursuant to
SECTION 2.19 and any other person who CIENA reasonably believes to be an
affiliate of the Company and (ii) CIENA shall have received, in form and
substance reasonably satisfactory to CIENA, from PricewaterhouseCoopers LLP
a favorable letter, dated the Closing Date, regarding the appropriateness
of "pooling-of-interests" accounting treatment for the Merger.
SECTION 7.3. Conditions Precedent to the Company's Obligations.
All obligations of the Company under this Agreement are 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
shall have performed 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 contained in ARTICLE 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 President or a Vice-President of CIENA, certifying that
the conditions specified in this SECTION 7.3(a) have been satisfied.
(b) Opinion of Counsel. The Company shall have received the favorable
written opinion dated the Closing Date of Hogan & Hartson L.L.P., counsel
to CIENA, in substantially the form attached hereto as EXHIBIT J.
(c) Tax Opinion. The Company shall have received the opinion of Hale
and Dorr LLP, counsel to the Company, in the form of EXHIBIT I, dated the
Closing Date, to the effect that the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code. In
rendering such opinion, Hale and Dorr LLP shall require delivery of and
rely upon the
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representations letters delivered by CIENA and the Company substantially in
the forms of EXHIBIT F and EXHIBIT G hereto.
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
SECTION 8.1. Survival of Representations and Warranties.
All of the Company's and CIENA's 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 8.2. Indemnification; Escrow Agreements.
(a) Indemnification. CIENA and its 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 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 contained in this Agreement; provided, however, that the aggregate
amount available to indemnify the Indemnified Parties shall not exceed the
amount deposited in the Escrow Fund (as defined below) and no Stockholder shall
be 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. The Escrow Fund shall be available to compensate the Indemnified Parties
for any such Losses. 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 or covenant if the Merger is not consummated.
(b) Escrow Fund. As security for the indemnity provided for in SECTION 8.2
and to provide security to satisfy any contingencies arising from the
representations and warranties of the Company hereunder, 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 Boston EquiServe (or another institution acceptable to CIENA and the
Stockholder Representative (as defined in SECTION 8.3) 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. The portion of
the Escrow Amount contributed on behalf of each Stockholder shall be in
proportion to the aggregate CIENA Common Stock which such holder would otherwise
be entitled under SECTION 1.5(c).
SECTION 8.3. Stockholder Representative.
Rob L. Soni will be appointed as agent and attorney-in-fact (the
"Stockholder Representative") for each Stockholder receiving CIENA Common Stock
in the Merger, for and on behalf of the Stockholder, to give and receive notices
and communications, to authorize delivery to CIENA of shares of CIENA Common
Stock from the Escrow Fund in satisfaction of claims by CIENA, to object to such
deliveries, to agree to, negotiate, enter into settlements and compromise of,
and demand arbitration and comply with orders of courts and awards of
arbitrators with respect to such claims, and to take all actions necessary or
appropriate in the judgment of the Stockholder
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Representative for the accomplishment of the foregoing, or for any other purpose
related to the transactions contemplated hereby including the granting of any
waivers or the making of any representations.
SECTION 8.4. Maximum Payments; Remedy.
Except as otherwise provided in this Section, from and after the Effective
Time this Article and the Escrow Fund held under the Escrow Agreement shall
provide the sole and exclusive remedy for any and all damages or other liability
sustained or incurred by the Indemnified Parties or their successors and assigns
as the result of any breach of any representation, warranty or covenant
contained in this Agreement or any claim of negligent misrepresentation against
the Company or the Stockholders in connection with this Agreement or the Merger.
Notwithstanding anything to the contrary herein, the existence of this Article
and of the rights and restrictions set forth herein do not limit any (i)
equitable remedies or (ii) any type of statutory or common law remedy (i.e., not
based on any indemnity right provided in this Article) with respect to any
knowing (meaning actual knowledge) or intentional breaches of the
representations and warranties or covenants of the Company or the Stockholders
contained in this Agreement or a certificate of any officer of the Company
delivered pursuant to this Agreement, or in the event of fraud, provided such
remedy may only be pursued against the person who committed or authorized such
knowing (meaning actual knowledge) or intentional breaches of such
representations, warranties or covenants. No Stockholder shall have any right to
contribution from the Company for any claim made by CIENA after the Effective
Time.
ARTICLE IX
MISCELLANEOUS AND GENERAL
SECTION 9.1. Expenses.
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. Notwithstanding the
foregoing, the Stockholders shall promptly reimburse the Company following
Closing for any expenses incurred by the Company in excess of $1,000,000.
SECTION 9.2. 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. CIENA
shall not issue an initial press release announcing the execution of this
Agreement without prior consultation with the Company concerning the contents of
such release.
SECTION 9.3. Contents of Agreement; Parties in Interest; Etc.
This Agreement and the agreements referred to or contemplated herein and
the letter agreement dated February 19, 1999 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.
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SECTION 9.4. 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 9.5. Termination.
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 and
adoption of this Agreement and the transactions contemplated hereby by the
stockholders of the Company:
(a) by the mutual agreement of the Board of Directors of the Company
and CIENA; or
(b) by CIENA or the Company if (i) the Effective Time shall not have
occurred by September 30, 1999 (unless extended in accordance with SECTION
6.15); provided that the right to terminate this Agreement under this
SECTION 9.5(b) shall not be available to any party whose failure to fulfill
any obligation under this Agreement has been the cause of, or resulted in,
the failure of the Effective Time to occur on or before such date; or (ii)
any court of competent jurisdiction in the United States or other United
States governmental authority shall have issued an order, decree, ruling or
taken any other action restraining, enjoining or otherwise prohibiting the
Merger and such order, decree, ruling or other action shall have become
final and nonappealable.
SECTION 9.6. 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 (i) directly or
indirectly through one or more intermediaries controls, is controlled by or
is under common control with, such Person or (ii) owns more than 5% of the
capital stock or equity interest in 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) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(c) "Company Material Adverse Effect" means a material adverse effect
on the business, financial condition, prospects, assets, liabilities or
results of operations of the Company.
(d) "Encumbrances" means Liens, security interests, deeds of trust,
encroachments, reservations, orders of Governmental Entities, decrees,
judgments, contract rights, claims or equity of any kind.
(e) "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.
(f) "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended, and all Laws promulgated pursuant thereto or in connection
therewith.
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(g) "Exchange Agent" shall mean Boston EquiServe or another bank or
trust company designated as the exchange agent by CIENA (which designation
shall be reasonably acceptable to the Company).
(h) "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.
(i) "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.
(j) "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.
(k) "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.
(l) "Ordinary Course of Business" shall mean all actions taken by a
Person if: (A) 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; (B) such action is not required to be authorized
by the board of directors of such Person (or by any Person or group of
Persons exercising similar authority); and (C) such action is similar in
nature and magnitude to actions customarily taken, without any
authorization by the board of directors (or by any Person or group of
Persons exercising similar authority), in the ordinary course of the normal
day-to-day operations of other Persons that are in the same line of
business and the same stage of development as such Person.
(m) "Person" shall mean any individual, corporation, partnership,
limited partnership, limited liability company, trust, association or
entity or government agency or authority.
(n) "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.
(o) "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.
(p) "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.
(q) "CIENA Material Adverse Effect" means a material adverse effect on
the business, financial condition, prospects, assets, liabilities or
results of operations of CIENA and its Subsidiaries, taken as a whole.
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SECTION 9.7. 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 9.7) or by registered or
certified mail (return receipt 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:
Omnia Communications, Inc.
100 Nickerson Road
Marlborough, Massachusetts 01752
with a copy to:
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
Attention: Peter B. Tarr
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 9.8. 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 9.9. Governing Law.
This Agreement shall be governed by and interpreted and enforced in
accordance with the laws of the State of Maryland as applied to contracts made
and fully performed in such state, except insofar as the DGCL shall be
mandatorily applicable to the Merger and the rights of the Stockholders in
connection therewith.
SECTION 9.9. 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.
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SECTION 9.10. 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 modify this Agreement so as to give effect to the original intent
of the parties to the fullest extent permitted by applicable law.
SECTION 9.11. 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 9.12. 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 9.13. 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.
SECTION 9.14. 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 BETWEEN CIENA CORPORATION
AND OMNIA COMMUNICATIONS, INC.
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, PH.D.
------------------------------------
Patrick H. Nettles, Ph.D.
President and Chief Executive
Officer
OMNIA COMMUNICATIONS, INC.
By: /s/ MICHAEL A. CHAMPA
------------------------------------
Michael A. Champa
Chief Executive Officer
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GLOSSARY OF DEFINED TERMS
<TABLE>
<CAPTION>
DEFINED TERM LOCATION OF DEFINITION
------------ ----------------------
<S> <C>
Acquisition Proposal........................................ Section 6.4
Affiliate................................................... Section 9.6
Agreement................................................... Preamble
Balance Sheet Date.......................................... Section 2.6
Certificates................................................ Section 1.8
Closing..................................................... Section 1.1
Closing Date................................................ Section 1.1
Code........................................................ Section 9.6
Common Stock Exchange Ratio................................. Section 1.5
Company..................................................... Preamble
Company Benefit Plans....................................... Section 2.18
Company Capital Stock....................................... Recitals
Company Common Stock........................................ Recitals
Company Material Adverse Effect............................. Section 9.6
Company Warrant............................................. Section 6.10
Confidentiality Agreement................................... Section 9.3
DGCL........................................................ Recitals
Dissenting Shares........................................... Section 1.7
Effective Time.............................................. Section 1.1
Encumbrances................................................ Section 9.6
Environmental Laws.......................................... Section 9.6
ERISA....................................................... Section 9.6
Escrow Agent................................................ Section 8.2
Escrow Fund................................................. Section 8.2
Exchange Act................................................ Section 2.18
Exchange Agent.............................................. Section 9.6
Exchange Fund............................................... Section 1.8
Exchange Ratios............................................. Section 1.5
Financial Statements........................................ Section 2.6
GAAP........................................................ Section 2.6
Governmental Entity......................................... Section 9.6
Hart-Scott-Rodino Act....................................... Section 2.5
Hazardous Substances........................................ Section 9.6
Indemnified Parties......................................... Section 8.2
Intellectual Property Rights................................ Section 2.16
IRS......................................................... Section 2.18
Laws........................................................ Section 9.6
Liens....................................................... Section 9.6
Loss........................................................ Section 8.2
Merger...................................................... Recitals
Nasdaq...................................................... Section 1.9
Ordinary Course of Business................................. Section 9.6
Person...................................................... Section 9.6
Real Property............................................... Section 2.12
Right....................................................... Section 1.5
S-4 Registration Statement.................................. Section 6.5
SEC......................................................... Section 4.6
Securities Act.............................................. Section 2.18
Series A Exchange Ratio..................................... Section 1.5
Series A Preferred Stock.................................... Recitals
</TABLE>
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<TABLE>
<CAPTION>
DEFINED TERM LOCATION OF DEFINITION
------------ ----------------------
<S> <C>
Series B Exchange Ratio..................................... Section 1.5
Series B Preferred Stock.................................... Recitals
Stock Options............................................... Section 6.10
Stock Plan.................................................. Section 6.10
Stock Price................................................. Section 1.5
Stockholder Representative.................................. Section 8.3
Stockholders................................................ Section 1.5
Subsidiary.................................................. Section 9.6
Substitute Option........................................... Section 6.10
Surviving Company........................................... Section 1.1
Tax......................................................... Section 9.6
Tax Return.................................................. Section 9.6
CIENA....................................................... Preamble
CIENA Common Stock.......................................... Section 1.5
CIENA Material Adverse Effect............................... Section 9.6
CIENA Stock................................................. Section 1.5
</TABLE>
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APPENDIX B
<PAGE> 134
DELAWARE GENERAL CORPORATION LAW
DELAWARE CODE ANNOTATED
TITLE 8. CORPORATIONS
CHAPTER 1. GENERAL CORPORATION LAW
SUBCHAPTER IX. MERGER OR CONSOLIDATION
SECTION 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 Section 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 Section 251 (other than a merger effected pursuant to
subsection (g) of Section 251 of this title), 252, 254, 257, 258, 263 or 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 holders of the surviving corporation as
provided in subsection (f) of Section 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
Sections 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;
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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.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 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
the 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 his shares
shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his 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 his 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 Section
228 or Section 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 or 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 twenty 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
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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 not ice has been given shall, in the absence of fraud, be prima
facie evidence of the facts stated 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 his 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
his 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 1 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
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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 submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he 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 his 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
<PAGE> 139
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (the "Agreement") is made and dated as of
by and among CIENA CORPORATION, a Delaware corporation (the "CIENA"), OMNIA
COMMUNICATIONS, INC., a Delaware corporation (the "Company"), BOSTON EQUISERVE
(the "Escrow Agent"), and ROBI L. SONI, acting by virtue of action taken by the
Stockholders of the Company by vote, consent or other approval appointing him as
the attorney-in-fact and Representative of the Stockholders of the Company (the
"Representative").
WITNESSETH:
WHEREAS, CIENA and the Company have entered into an Agreement and Plan of
Merger dated as of March 15, 1999 (the "Merger Agreement"), providing for the
merger of the Company with and into CIENA, and in connection with which the
Stockholders 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 and the Company have
agreed that the rights of indemnification under Article VIII 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, by virtue of action taken by the Stockholders of the Company by
vote, consent or other approval, the Representative has been appointed by the
Stockholders as their 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 premises, 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 Escrow Agent, and the Representative on behalf
of the Stockholders hereby agree as follows:
ARTICLE I
DESIGNATION OF ESCROW AGENT AND CAPITAL SHARES SUBJECT TO ESCROW
1.1 Designation of Escrow Agent. CIENA and the Stockholders hereby
mutually designate and appoint Boston EquiServe, a corporation having an office
and place of business located at 150 Royall Street, Canton, Massachusetts, 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 8.2 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 cause to
be delivered, to the Escrow Agent stock certificates (the "Escrow
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Certificates"), each of which shall be registered in the name of the Escrow
Agent as escrow agent hereunder, representing ten percent (10%) of CIENA's Stock
issued in consummation of the merger provided for by the Merger Agreement
(except for shares subject to certain vesting requirements). The Escrow Agent
shall hold and distribute the Escrow Certificates and Escrow Shares in
accordance with the terms hereof. The Escrow Shares plus any additional shares
issued upon any stock split, stock dividend or recapitalization with respect
thereto and any accumulations thereon or the sale proceeds thereof are herein
sometimes referred to as the "Escrow Fund."
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 closing price of a share of CIENA Common
Stock on the Nasdaq National Market on the last business day preceding the
Closing Date (the "Closing Price").
1.4 Powers of Stockholders' Representative. Pursuant to the action taken
by the Stockholders of the Company, the Representative is empowered to act as
the Stockholders' true and lawful agent and attorney-in-fact with respect to all
matters arising in connection with this Agreement and the Merger 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 Representative may consider necessary or appropriate;
(b) give any written direction to the Escrow Agent as the
Representative may consider necessary or appropriate;
(c) effecting a sale or disposition of the Escrow Shares by giving
written direction to the Escrow Agent subject to the provisions of SECTION
2.3 hereof;
(d) make, execute and deliver such amendments of and supplements to
this Agreement or any other agreements, instruments or documents relating
hereto that the 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
(e) 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 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.
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
earlier of (i) the first anniversary of the Closing Date or (ii) the
satisfaction in full of any indemnification obligations of the Company and the
Stockholders under the Merger Agreement in the reasonable judgment of CIENA (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 the first
anniversary of the Closing Date or the termination of such Escrow Period with
respect to facts and circumstances existing prior to the first anniversary of
the Closing Date or the termination of such Escrow Period. The Escrow Agent
shall promptly deliver to the Stockholders the remaining portion of the Escrow
Fund not required to satisfy such claims following the first anniversary of the
Closing Date or the termination of the Escrow
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Period. Deliveries of Escrow Amounts to the Stockholder pursuant to this Section
shall be made in proportion to their respective original contributions to the
Escrow Fund.
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.
(c) Each Stockholder shall have voting rights and the right to
distributions of cash dividends with respect to the shares of CIENA Common Stock
contributed to the Escrow Fund by such Stockholder (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.
(a) 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 through the Representative 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 Representative, execute stock powers or other appropriate
instruments of transfer for all shares, options, warrants or rights as required
for transfer.
(b) At any time beginning on the date that at least thirty days of results
of combined operations of CIENA and the Company have been published, and subject
to any restrictions on resale arising under federal or state securities laws,
the Representative may effect a sale of any or all Escrow Shares by written
direction given to the Escrow Agent provided that (i) the net proceeds per share
are at least equal to the Closing Price and (ii) the net proceeds are retained
in the Escrow Fund and are held at the election of the Representative in an
interest-bearing or non-interest bearing demand deposit account on behalf of the
Stockholders. The amount of net proceeds from any such disposition
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and any interest accruing thereon shall be allocated among the Stockholders in
accordance with their percentage interests in the Escrow Fund.
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 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 and all other amounts in the Escrow Fund in accordance
with each Stockholder's original 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 FUND UPON TERMINATION
OF THE AGREEMENT
3.1 Third-Party Claims. In the event that a third party makes a claim
against CIENA or a claim against the Escrow Fund, CIENA shall notify the
Representative of such claim, and the Representative shall be entitled to
participate in any defense of such claim. The expenses of the Representative
shall be paid by the Stockholders in accordance with the terms and conditions of
Section 5.2. CIENA may not settle any such claim without the consent of the
Representative, which consent shall not be unreasonably withheld or delayed. In
the event that the 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 earlier of the first anniversary of the Closing Date or the
last day of the Escrow Period of a certificate signed 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 and 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, shares of CIENA Common Stock
and/or cash held in the Escrow Fund with a 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 amounts shall be delivered out of the Escrow Fund
until the claim is settled or adjudicated.
3.3 Notification of 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 Representative, and for a period of thirty (30) days
after such delivery, the Escrow Agent shall make no delivery to CIENA of any
Escrow Amounts unless the Escrow Agent shall have received written authorization
from the Representative to make such delivery. After the expiration of such
thirty (30) day period, the Escrow Agent shall make delivery of shares of CIENA
Common Stock and/or cash from the Escrow Fund; provided, however, that no such
payment or delivery may be made if the Representative shall object in a written
statement to the claim made in the Officer's Certificate, and such statement
shall have been delivered to the Escrow Agent prior to the expiration of such
thirty (30) day period.
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3.4 Resolution of Conflicts; Arbitration.
(a) In case the Representative shall object in writing to any claim or
claims made in any Officer's Certificate, the Representative and CIENA shall
attempt in good faith to agree upon the rights of the respective parties with
respect to such claims. If the 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 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 Representative. In the event that within forty-five
(45) days after submission of any dispute to arbitration, CIENA and the
Representative cannot mutually agree on one arbitrator, CIENA and the
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 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.
(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).
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<PAGE> 144
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 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.
(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 determine the
controversy or to take any action regarding it. The Escrow Agent may hold all
documents and shares of CIENA Common Stock subject to such controversy 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 and shares of CIENA Common Stock held in escrow, except all
cost, 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
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<PAGE> 145
of Maryland. The successor escrow agent shall execute and deliver an instrument
accepting such appointment and it shall, without 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
reasonable 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 REPRESENTATIVE
5.1 General. The Representative may be removed and a new Representative or
Representatives may be appointed at any time and from time to time by the
written agreement of a majority of the Stockholders. Any such removal and
appointment shall be effective upon receipt by the Escrow Agent and CIENA of a
duly executed copy of the instrument appointing the new Representative. In the
event that the Representative shall resign or otherwise cease to act as the
Representative, the Stockholders shall immediately proceed to select a successor
Representative to act hereunder.
5.2 Responsibility. The Representative shall have no liability to the
Stockholders with respect to any action taken by him or her under this
Agreement, except with respect to the Representative's gross negligence or
willful misconduct. The Representative shall not be liable to any Stockholder in
the event that in the exercise of the Representative's reasonable judgment he
believes there will not be adequate resources available to cover his potential
costs and expenses to contest a claim made by Purchase or any CIENA hereunder.
The Representative may act in reliance upon the advice of counsel in reference
to any matter in connection with this Agreement and shall not incur any
liability to the other Stockholders or any one of them, for any action taken in
good faith in accordance with such advice. All Stockholders (inclusive of the
Representative) shall jointly and severally indemnify the Representative,
ratably according to the respective number of shares of CIENA Common Stock to be
received by each Stockholder, from and against any and all damages, losses,
demands, claims, costs, liabilities, judgments, deficiencies or expenses
incurred in connection with the Representative's actions under this Agreement or
by virtue of acting in his capacity as the Representative, except to
C-7
<PAGE> 146
the extent resulting from the Representative's gross negligence or willful
misconduct. The Representative shall be reimbursed by the Stockholders for all
costs and expenses incurred by him in connection with serving as representative
of the Stockholders hereunder. The Escrow Agent shall from time to time sell
such amount of the Escrow Shares as necessary to pay such Representative's costs
and expenses, to the extent required by the preceding sentence, and sell other
Escrow Shares in accordance with the written instructions of the Representative
as provided in SECTION 2.3. In the event that the Representative reasonably
believes that he will not have adequate resources available to cover his
potential costs and expenses, he will consult with the Stockholders in order to
make alternative arrangements for the costs and expenses of the 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 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
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, to:
CIENA Corporation
1201 Winterson Road
Linthicum, Maryland 21090
Attention: General Counsel
with a copy to its counsel:
Hogan & Hartson L.L.P.
111 South Calvert Street, 16th Floor
Baltimore, Maryland 21202
Attention: Michael J. Silver
if to the Escrow Agent, to:
Boston EquiServe
Blue Hills Office Park
Mail Stop 45-02-62
150 Royall Street
Canton, Massachusetts 02021
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<PAGE> 147
if to the Representative, to:
Robi L. Soni
c/o Bessemer Venture Partners
83 Walnut Street
Wellesley, Mass 02481
and if to any Stockholder, to such Stockholder at such Stockholder's address
appearing in CIENA's books and records or to such other address or number as
shall be furnished in writing by any such party, and 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
Maryland, without regard to the choice of law 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.
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
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<PAGE> 148
ESCROW AGREEMENT
CIENA CORPORATION
OMNIA COMMUNICATIONS, INC.
SIGNATURE PAGE
IN WITNESS WHEREOF, CIENA, the Company and the Escrow Agent have caused
their corporate names to be hereunto subscribed by their respective officers
thereunto duly authorized, and the Representative has executed this Escrow
Agreement, all as of the day and year first above written.
CIENA CORPORATION
By:
------------------------------------
G. Eric Georgatos
Senior Vice President, General
Counsel and Secretary
OMNIA COMMUNICATIONS, INC.
By:
-----------------------------------
Name:
-----------------------------
Title:
-----------------------------
REPRESENTATIVE:
--------------------------------------
Robi L. Soni
BOSTON EQUISERVE
--------------------------------------
Name:
---------------------------------
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<PAGE> 149
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the Delaware General Corporation Law ("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 Amended and 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.
II-1
<PAGE> 150
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<C> <S>
2.1 Merger Agreement (included as Appendix A to the
prospectus/proxy statement)
2.2 Form of Escrow Agreement (included as Appendix C to the
prospectus/proxy statement)
2.3(4) Form of Stockholder Voting Agreement
4.1(1) Specimen Stock Certificate
4.2(2) Rights Agreement dated December 29, 1997
4.3(3) Amendment to Rights Agreement
5.1 Hogan & Hartson L.L.P. Opinion
8.1 Hale and Dorr LLP Tax Opinion
23.1(4) Consent of Independent Accountants
23.2(4) Consent of Independent Accountants
23.3 Consent of Hogan & Hartson L.L.P. (included in Exhibit 5.1)
23.4 Consent of Hale and Dorr LLP (included in Exhibit 8.1)
99.1(4) Form of Proxy Card
</TABLE>
- -------------------------
(1) Incorporated by reference from the Company's Registration Statement on Form
S-1 (333-17729).
(2) Incorporated by reference to the Company's Form 8-K dated December 29, 1997.
(3) Incorporated by reference to the Company's Form 8-K dated October 14, 1998.
(4) Previously filed on June 10, 1999 as exhibits to the Company's Registration
Statement on Form S-4 (SEC File No. 333-80375).
(B) FINANCIAL STATEMENT SCHEDULES
None
(C) REPORTS, OPINIONS OR APPRAISALS
None
II-2
<PAGE> 151
ITEM 22. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or 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 Securities 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
Items 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 this Registration Statement when it became effective.
The undersigned registrant hereby undertakes to file, during any period in
which offers or sales are being made, a post-effective amendment to this
Registration Statement:
- to include any prospectus required by Section 10(a)(3) of the Securities
Act of 1933 (the "Securities Act");
- to reflect in the prospectus any facts or events arising after the
effective date of this Registration Statement (or the most recent
post-effective amendment hereof) which, individually or in the aggregate,
represents a fundamental change in the information set forth in this
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
Securities and Exchange Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in this Registration Statement
when it becomes effective; and
- to include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement or
any material change to such information in this Registration Statement.
The undersigned registrant hereby undertakes that, for the purpose of
determining any liability under the Securities Act, each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes 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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<PAGE> 152
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act that is incorporated by reference in the registration statement
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the 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 Form S-4 with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items of
Form S-4.
The undersigned registrant hereby undertakes that every prospectus (i) that
is filed pursuant to the immediately preceding paragraph, 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
<PAGE> 153
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
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 11th day of June, 1999.
CIENA CORPORATION
By: /s/ PATRICK H. NETTLES, PH.D.
------------------------------------
Patrick H. Nettles, Ph.D.
President and Chief Executive
Officer
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 date indicated.
<TABLE>
<S> <C> <C>
Date: June 11, 1999 By: /s/ PATRICK H. NETTLES, PH.D.
------------------------------------------
Patrick H. Nettles, Ph.D.
President and Chief Executive Officer
Date: June 11, 1999 /s/ JOSEPH R. CHINNICI*
------------------------------------------
Joseph R. Chinnici
Sr. Vice President, Chief Financial
Officer
(Principal Financial Officer)
Date: June 11, 1999 /s/ ANDREW C. PETRIK*
------------------------------------------
Andrew C. Petrik
Vice President, Controller and Treasurer
(Principal Accounting Officer)
Date: June 11, 1999 /s/ HARVEY B. CASH*
------------------------------------------
Harvey B. Cash
Director
Date: June 11, 1999 /s/ BILLY B. OLIVER*
------------------------------------------
Billy B. Oliver
Director
Date: June 11, 1999 /s/ JAGDEEP SINGH*
------------------------------------------
Jagdeep Singh
Director
Date: June 11, 1999 /s/ MICHAEL J. ZAK*
------------------------------------------
Michael J. Zak
Director
Date: June 11, 1999 /s/ STEPHEN P. BRADLEY*
------------------------------------------
Stephen P. Bradley
Director
</TABLE>
By: /s/ PATRICK H. NETTLES, PH.D.
----------------------------------
- ---------------
* Patrick H. Nettles, Ph.D., Attorney in Fact.
II-5
<PAGE> 154
INDEX TO EXHIBITS
<TABLE>
<C> <S>
2.1 Merger Agreement (included as Appendix A to the proxy
statement/prospectus)
2.2 Form of Escrow Agreement (included as Appendix C to the
proxy statement/prospectus)
2.3(4) Form of Stockholder Voting Agreement
4.1(1) Specimen Stock Certificate
4.2(2) Rights Agreement dated December 29, 1997
4.3(3) Amendment to Rights Agreement
5.1 Hogan & Hartson L.L.P. Opinion
8.1 Hale and Dorr LLP Tax Opinion
23.1(4) Consent of Independent Accountants
23.2(4) Consent of Independent Accountants
23.3 Consent of Hogan & Hartson L.L.P. (included in Exhibit 5.1)
23.4 Consent of Hale and Dorr LLP (included in Exhibit 8.1)
99.1(4) Form of Proxy Card
</TABLE>
- -------------------------
(1) Incorporated by reference from the Company's Registration Statement on Form
S-1 (333-17729).
(2) Incorporated by reference to the Company's Form 8-K dated December 29, 1997.
(3) Incorporated by reference to the Company's Form 8-K dated October 14, 1998.
(4) Previously filed on June 10, 1999 as exhibits to the Company's Registration
Statement on Form S-4 (SEC File No. 333-80375).
II-6
<PAGE> 1
EXHIBIT 5.1
HOGAN & HARTSON L.L.P.
111 South Calvert Street
Baltimore, Maryland 21202
June 11, 1999
Board of Directors
CIENA Corporation
1201 Winterson Road
Linthicum, MD 21090
Ladies and Gentlemen:
We are acting as counsel to CIENA Corporation, a Delaware corporation
(the "COMPANY"), in connection with its registration statement on Form S-4 (the
"REGISTRATION STATEMENT") filed with the Securities and Exchange Commission
relating to the registration of 16,000,000 shares of the Company's common stock,
par value $.01 per share (the "SHARES"), pursuant to the terms of the Agreement
and Plan of Merger between the Company and Omnia Communications, Inc. ("OMNIA"),
which provides for the merger of Omnia with and into the Company, with the
Company surviving the merger (the "MERGER"). This opinion letter is furnished to
you at your request to enable you to fulfill the requirements of Item 601(b)(5)
of Regulation S-K, 17 C.F.R. Section 229.601(b)(5), in connection with the
Registration Statement.
For purposes of this opinion letter, we have examined copies of the
following documents:
1. An executed copy of the Registration Statement.
2. The Third Restated Certificate of Incorporation of the
Company, as certified by the Secretary of the State of the
State of Delaware on April 19, 1999 and by the Secretary of
the Company on the date hereof as being complete, accurate and
in effect.
3. The Bylaws of the Company, as certified by the Secretary of
the Company on the date hereof as being complete, accurate
and in effect.
<PAGE> 2
4. Resolutions of the Board of Directors of the Company adopted
at a meeting held on March 14,1999, as certified by the
Secretary of the Company on the date hereof as being complete,
accurate and in effect, authorizing the issuance and sale of
the Shares.
5. Executed copies of the Agreement and Plan of Merger, dated
March 15, 1999, by and among the Company and Omnia
(the "Merger Agreement"), relating to, among other things,
the issuance of the Shares.
In our examination of the aforesaid documents, we have assumed the
genuineness of all signatures, the legal capacity of all natural persons, the
authenticity, accuracy and completeness of all documents submitted to us, the
authenticity of all original documents and the conformity to authentic original
documents of all documents submitted to us as copies (including telecopies).
This opinion letter is given, and all statements herein are made, in the context
of the foregoing.
This opinion letter is based as to matters of law solely on Delaware
corporate law. We express no opinion herein as to any other laws, statutes,
ordinances, rules, or regulations.
Based upon, subject to and limited by the foregoing, we are of the
opinion that following (i) effectiveness of the Registration Statement, (ii)
approval of the Merger by the Omnia stockholders, and (iii) the effectiveness of
the Merger pursuant to the General Corporation Law of the State of Delaware, the
Shares will be validly issued, fully paid and nonassessable.
This opinion letter has been prepared solely for your use in
connection with the Registration Statement and speaks as of the date hereof.
We assume no obligation to advise you of any changes in the foregoing
subsequent to the delivery of this opinion letter.
We hereby consent to the filing of this opinion letter as Exhibit 5.1
to the Registration Statement and to the reference to this firm under the
caption "Legal Matters" in the prospectus constituting a part of the
Registration Statement. In giving this consent, we do not thereby admit that we
are an "expert" within the meaning of the Securities Act of 1933, as amended.
Very truly yours,
HOGAN & HARTSON L.L.P.
<PAGE> 1
EXHIBIT 8.1
[HALE AND DORR LETTERHEAD]
Counsellors at Law
60 State Street, Boston, Massachusetts 02109
617-526-6000 - fax 617-526-5000
June 11, 1999
Omnia Communications, Inc.
100 Nickerson Road
Marlborough, MA 01752
Re: Merger pursuant to Agreement and Plan of Merger among
CIENA Corporation and Omnia Communications, Inc.
Ladies and Gentlemen:
This opinion is being delivered to you in connection with the filing of a
registration statement (the "Registration Statement") on Form S-4, which
includes the Proxy Statement and Prospectus relating to the Agreement and Plan
of Merger dated as of March 15, 1999 (the "Merger Agreement"), by and among
CIENA Corporation, a Delaware corporation ("CIENA"), and Omnia Communications,
Inc., a Delaware corporation ("Omnia"). Pursuant to the Merger Agreement, Omnia
will merge with and into CIENA (the "Merger"). Except as otherwise provided,
capitalized terms not defined herein have the meanings set forth in the Merger
Agreement and the exhibits thereto or in the letters delivered to Hale and Dorr
LLP by CIENA and Omnia containing certain representations of CIENA and Omnia
relevant to this opinion (the "Representation Letters"). All section references,
unless otherwise indicated, are to the United States Internal Revenue Code of
1986, as amended (the "Code").
In our capacity as counsel to Omnia in the Merger, and for purposes of
rendering this opinion, we have examined and relied upon the Registration
Statement, the Merger Agreement and the exhibits thereto, the Representation
Letters, and such other documents as we considered relevant to our analysis. In
our examination of documents, we have assumed the authenticity of original
documents, the accuracy of copies, the genuineness of signatures, and the legal
capacity of signatories.
<PAGE> 2
OMNIA COMMUNICATIONS, INC.
JUNE 11, 1999
PAGE 2
We have assumed that all parties to the Merger Agreement and to any other
documents examined by us have acted, and will act, in accordance with the terms
of such Merger Agreement and documents and that the Merger will be consummated
at the Effective Time pursuant to the terms and conditions set forth in the
Merger Agreement without the waiver or modification of any such terms and
conditions. Furthermore, we have assumed that all representations contained in
the Merger Agreement, as well as the factual representations contained in the
Representation Letters, are, and at the Effective Time will be, true and
complete in all material respects. We have not attempted to verify
independently such representations, but in the course of our representation,
nothing has come to our attention that would cause us to question the accuracy
thereof.
The conclusions expressed herein represent our judgment as to the proper
treatment of certain aspects of the Merger under the income tax laws of the
United States based upon the Code, Treasury Regulations, case law, and rulings
and other pronouncements of the Internal Revenue Service (the "IRS") as in
effect on the date of this opinion. No assurances can be given that such laws
will not be amended or otherwise changed prior to the Effective Time, or at any
other time, or that such changes will not affect the conclusions expressed
herein. Nevertheless, we undertake no responsibility to advise you of any
developments after the Effective Time in the application or interpretation of
the income tax laws of the United States.
Our opinion represents our best judgment of how a court would decide if
presented with the issues addressed herein and is not binding upon either the
IRS or any court. Thus, no assurances can be given that a position taken in
reliance on our opinion will not be challenged by the IRS or rejected by a
court.
This opinion addresses only the specific United States federal income tax
consequences of the Merger set forth below, and does not address any other
federal, state, local, or foreign income, estate, gift, transfer, sales, use, or
other tax consequences that may result from the Merger or any other transaction
(including any transaction undertaken in connection with the Merger). We express
no opinion regarding the tax consequences of the Merger to shareholders of Omnia
that are subject to special tax rules, and we express no opinion regarding the
tax consequences of the Merger arising in connection with the ownership of
options or warrants for Omnia stock.
On the basis of, and subject to, the foregoing, and in reliance upon the
representations and assumptions described above, we are of the following
opinions:
<PAGE> 3
OMNIA COMMUNICATIONS, INC.
JUNE 11, 1999
PAGE 3
1. The Merger will constitute a reorganization within the meaning of
Section 368(a) and
2. The discussion under the section "Federal Income Tax Consequences" in the
Registration Statement accurately describes the material federal income tax
considerations relevant to Omnia stockholders receiving CIENA Common Stock in
the Merger.
No opinion is expressed as to any federal income tax consequence of the
Merger except as specifically set forth herein, and this opinion may not be
relied upon except with respect to the consequences specifically discussed
herein.
This opinion has been prepared solely for your use in connection with the
filing of this Registration Statement and speaks as of the date hereof. We
hereby consent to the filing of this opinion as an exhibit to the Registration
Statement and further consent to the use of our name in the Registration
Statement in connection with references to this opinion and the tax
consequences of the Merger. In giving this consent, however, we do not hereby
admit that we are in the category of persons whose consent is required under
Section 7 of the Securities Act of 1933, as amended.
Very truly yours,
HALE AND DORR LLP
