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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 5, 2001
REGISTRATION NO. 333-53922
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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PRE-EFFECTIVE AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CIENA CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 23-2725311
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1201 WINTERSON ROAD
LINTHICUM, MARYLAND 21090
(410) 865-8500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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MICHAEL O. MCCARTHY III
SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
1201 WINTERSON ROAD
LINTHICUM, MARYLAND 21090
(410) 865-8500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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Copies to:
MICHAEL J. SILVER
AMY BOWERMAN FREED
HOGAN & HARTSON L.L.P.
111 S. CALVERT STREET, SUITE 1600
BALTIMORE, MARYLAND 21202
(410) 659-2700
DAVID SYLVESTER
BRENT B. SILER
SCOTT E. PUESCHEL
HALE AND DORR LLP
11951 FREEDOM DRIVE, SUITE 1400
RESTON, VIRGINIA 20190
(703) 654-7000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act") 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, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
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If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
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If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED
MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE(2)
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Common Stock(3)............................................. $925,000,000 $231,250
% Convertible notes due , 2008(3)(4)......... $575,000,000 $143,750
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(1)We estimated these amounts based on Rule 457(o).
(2)Previously paid in connection with the filing of this Registration Statement
on January 18, 2001.
(3)Includes rights to purchase Series A Junior Participating Preferred Stock
attached to the Common Stock.
(4)In addition to the securities issued directly under this Registration
Statement, we are registering an indeterminate number of shares of common
stock issuable upon conversion of the Notes. Pursuant to Rule 457(i), no
additional fee is required because no separate consideration will be received
for any shares of Common Stock so issued upon conversion.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON THE DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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EXPLANATORY NOTE
This registration statement consists of two preliminary prospectuses
relating to currently proposed separate common stock and convertible debt
offerings. These prospectuses supersede the prospectus supplements and base
prospectus that were filed as part of Pre-Effective Amendment No. 1 to this
Registration Statement on January 26, 2001.
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THE INFORMATION CONTAINED IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE
AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE
REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
IS EFFECTIVE. THIS PRELIMINARY PROSPECTUS IS NOT AN OFFER TO SELL THESE
SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY
STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION. DATED FEBRUARY 5, 2001.
[CIENA LOGO]
8,000,000 SHARES
CIENA CORPORATION
Common Stock
The common stock is quoted on the Nasdaq National Market under the symbol
"CIEN". The last reported sale price for the common stock on February 2, 2001
was $83.75 per share.
Concurrently with this offering, CIENA is also conducting a separate
offering of $350 million in % convertible notes due , 2008 by a
separate prospectus. Neither the completion of the convertible debt offering nor
the completion of this common stock offering is contingent upon the other.
See "Risk Factors" beginning on page 6 in this prospectus to read about
certain factors you should consider before buying shares of the common stock.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY
OR ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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Per Share Total
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Initial price to public..................................... $ $
Underwriting discount....................................... $ $
Proceeds, before expenses, to CIENA......................... $ $
To the extent the underwriters sell more than 8,000,000 shares of common
stock, the underwriters have the option to purchase up to an additional
1,200,000 shares from CIENA at the initial price to public, less the
underwriting discount.
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The underwriters expect to deliver the shares in New York, New York on
February , 2001.
GOLDMAN, SACHS & CO.
MORGAN STANLEY DEAN WITTER
BANC OF AMERICA SECURITIES LLC
ROBERTSON STEPHENS
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Prospectus dated February , 2001.
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PROSPECTUS SUMMARY
You should read this summary together with the entire prospectus, including
the more detailed information in our financial statements and accompanying notes
incorporated by reference in this prospectus.
CIENA CORPORATION
We are an established leader in the rapidly growing intelligent optical
networking equipment market. We offer a comprehensive portfolio of products for
communications service providers worldwide, including long-distance and
metropolitan optical transport, intelligent optical core switching and network
management solutions. Our customers include long-distance carriers, competitive
and incumbent local exchange carriers, Internet service providers and wholesale
carriers. We have pursued a strategy to develop and leverage the power of our
technologies to change the fundamental economics of building carrier-class tele-
and data-communications networks, thereby providing our customers with a
competitive advantage. Our intelligent optical networking products are designed
to enable carriers to deliver any time, any size, any priority bandwidth to
their customers. Our optical networking products add intelligence to the
network, enabling communications service providers to optimize network capacity
and to offer a new range of services on demand at a substantially lower cost
than traditional products. Furthermore, our products allow service providers to
optimize their investments in fiber-optic infrastructure while positioning them
to easily transition to next-generation optical network architectures.
Rapidly increasing use of the Internet and Internet-based applications and
services has fueled dramatic growth in the volume of data traffic in the public
communications network. In response, communications service providers are making
significant investments to upgrade their network infrastructure by laying
fiber-optic cable and installing transmission equipment based on optical
technology. While advances in optical technology have enabled carriers to expand
network capacity, they continue to face critical challenges including network
scalability, escalating capital and operational costs and network management
difficulties.
We provide a comprehensive portfolio of optical networking solutions that
address these challenges by optimizing bandwidth in critical areas of service
provider networks: long-distance and metropolitan optical transport, intelligent
optical core switching and network management. Our solutions provide our
customers with the following benefits:
- greater bandwidth capacity;
- simplified and more scalable networks;
- enhanced network manageability;
- lower capital and operational costs;
- ability to provision high-bandwidth services rapidly and flexibly; and
- ability to offer new revenue-generating services.
We have shipped products to over 35 customers, including 27 new customers
since the end of fiscal 1998. Our customers include:
- Bell South;
- Broadwing;
- Cable & Wireless (U.S. & U.K.);
- CrossWave Communications;
- Enron;
- GTS (now known as eBone);
- MobilCom AG;
- PSINet;
- Qwest;
- Sprint;
- Telecom Developpement;
- Telia AB;
- Verizon;
- WorldCom (U.S. & Europe); and
- XO Communications.
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Our strategy is to maintain and build upon our market leadership in the
development and deployment of intelligent optical networking systems and to
leverage our bandwidth-optimizing technologies to provide solutions for both
voice and data communications-based networks. Important elements of our strategy
are to:
- expand our base of customers using our intelligent optical networking
solutions;
- increase sales and marketing efforts;
- continue to emphasize technical support and customer service;
- maintain world class manufacturing capability; and
- leverage bandwidth-optimizing technology and know-how.
Our revenue and net income for the fiscal year ended October 31, 2000 were
$858.8 million and $81.4 million, respectively. Of our revenue for this period,
33.0% was derived from international sales. We recorded revenue for the fiscal
year ended October 31, 2000 from sales to 32 customers, including 12 new
customers.
We were incorporated in Delaware in 1992. Our principal executive offices
are located at 1201 Winterson Road, Linthicum, Maryland 21090. Our telephone
number is (410) 865-8500.
THE OFFERING
Common Stock offered by CIENA..................... 8,000,000 shares
Common Stock to be outstanding after this 296,060,207 shares
offering........................................
Use of Proceeds................................... For general corporate purposes, which may
include working capital, capital
expenditures and acquisitions
Nasdaq National Market Symbol..................... CIEN
The number of shares of our common stock to be outstanding immediately
after this offering is based on the number of shares outstanding as of January
31, 2001. It excludes, as of January 31, 2001, 30,294,778 shares of common stock
subject to options outstanding under our stock incentive plans with a weighted
average exercise price of $49.81 per share, 13,262,264 shares of common stock
available for future grant under these plans, and approximately 27 million
shares issuable in our pending acquisition of Cyras Systems, Inc.
Unless otherwise indicated, all information contained in this prospectus
assumes no exercise of the underwriters' option to purchase additional shares in
this offering. The share and per share numbers presented in this prospectus have
been retroactively restated to give effect to all stock splits.
CONCURRENT NOTES OFFERING
Concurrent with this offering of common stock, CIENA is conducting a
separate public offering of convertible notes with an aggregate principal amount
of $350 million. The common stock to be outstanding after this offering in the
table above excludes the shares of common stock issuable upon the conversion or
redemption of these notes. This offering of common stock is not conditioned on
the completion of the offering of our notes.
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RECENT DEVELOPMENTS
PROPOSED ACQUISITION OF CYRAS SYSTEMS, INC.
On December 19, 2000, we announced an agreement to acquire all of the
outstanding capital stock, options and warrants of Cyras Systems, Inc., a
privately held provider of next-generation optical networking systems based in
Fremont, California. As consideration in the acquisition, we agreed to issue a
total of approximately 27 million shares of our common stock and indirectly
assume $150 million principal amount of Cyras's convertible subordinated
indebtedness.
Cyras is designing and developing next-generation optical networking
solutions for telecommunications carriers. The Cyras K2 product, which is in the
development phase and is not yet ready for commercial manufacturing or
deployment, will enable carriers of metropolitan area networks to consolidate
multiple legacy network elements into a single transport and switching platform.
This consolidation results in the increased cost effectiveness, network
optimization and scalability that are demanded in today's increasingly
data-oriented carrier environment. We believe that the addition of the K2
product to our portfolio will increase our market opportunity by leveraging this
leading-edge product for the metropolitan network with our CoreDirector(TM) and
long-haul optical transport presence, extensive sales force and global services
and support infrastructure. These capabilities will enable us to offer carriers
seamless end-to-end service creation and management with unmatched scalability,
agility and efficiency using our LightWorks architecture for smart bandwidth
provisioning and network-wide service management.
We will account for the Cyras acquisition as a purchase. We expect to
complete the acquisition in the first calendar quarter of 2001. If and when we
complete the acquisition of Cyras, we will record a charge for acquired
in-process research and development, which we currently estimate will be
approximately $16.4 million, and will amortize goodwill and other intangibles of
approximately $1.6 billion over a three- to seven-year period and deferred stock
compensation of approximately $255 million over the relevant vesting periods. We
expect the Cyras acquisition to be dilutive to our fiscal 2001 earnings by $0.19
to $0.22 per share and, excluding one-time charges associated with the
acquisition and amortization of intangibles and deferred stock compensation,
accretive during the latter half of our fiscal 2002, assuming expected revenue
and cost synergies as well as anticipated product cost and pricing.
For the nine months ended September 30, 2000, Cyras recorded no revenues,
incurred operating expenses of $53.8 million and had a net loss of $54.4
million. Additional audited and unaudited financial information of Cyras, and
unaudited pro forma combined financial statements showing the pro forma effect
of the acquisition on our historical financial statements, are incorporated in
this prospectus by reference to our Form 8-K report filed on January 18, 2001.
The Cyras acquisition is subject to customary closing conditions, including
regulatory approvals. See "Risk Factors -- Risks Related to the Cyras
Acquisition".
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RISK FACTORS
Investing in our securities involves a high degree of risk. Before making
an investment decision, you should carefully consider the risk factors set forth
below as well as other information we include or incorporate by reference in
this prospectus and the additional information in the other reports we file with
the SEC. The risks and uncertainties we have described are not the only ones
facing our company. Additional risks and uncertainties not presently known to us
or that we currently deem immaterial may also affect us.
OUR RESULTS CAN BE UNPREDICTABLE
Our ability to recognize revenue during a quarter from a customer depends
upon our ability to ship product and satisfy other contractual obligations of a
customer sale in that quarter. In general, revenue and operating results in any
reporting period may fluctuate due to factors including:
- loss of a customer;
- the timing and size of orders from customers;
- changes in customers' requirements, including changes to orders from
customers;
- the introduction of new products by us or our competitors;
- changes in the price or availability of components for our products;
- readiness of customer sites for installation;
- satisfaction of contractual customer acceptance criteria and related
revenue recognition issues;
- manufacturing and shipment delays and deferrals;
- increased service, warranty or repair costs;
- the timing and amount of employer payroll tax to be paid on employee
gains on stock options exercised; and
- changes in general economic conditions as well as those specific to the
telecommunications and intelligent optical networking industries.
Our intelligent optical networking products require a relatively large
investment, and our target customers are highly demanding and technically
sophisticated. There are only a limited number of potential customers in each
geographic market, and each customer has unique needs. As a result, the sales
cycles for our products are long, often more than a year between our initial
contact with the customer and its commitment to purchase.
We budget expense levels on our expectations of long-term future revenue.
These budgets reflect our substantial investment in the financial, engineering,
manufacturing and logistics support resources we think we may need for large
potential customers, even though we do not know the volume, duration or timing
of any purchases from them. In addition, we make a substantial investment in
financial, manufacturing and engineering resources for the development of new
and enhanced products. As a result, we may continue to experience high inventory
levels, operating expenses and general overhead.
We have experienced rapid expansion in all areas of our operations,
particularly in the manufacturing of our products. Our future operating results
will depend on our ability to continue to expand our manufacturing facilities in
a timely manner so that we can satisfy our delivery commitments to our
customers. Our failure to expand these facilities in a timely manner and meet
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our customer delivery commitments would harm our business, financial condition
and results of operations.
Our product development efforts will require us to incur ongoing
development and operating expenses, and any delay in the contributions from new
products, such as the MultiWave CoreDirector product line, and enhancements to
our existing optical transport products could harm our business.
CHANGES IN TECHNOLOGY OR THE DELAYS IN THE DEPLOYMENT OF NEW PRODUCTS COULD HURT
OUR NEAR-TERM PROSPECTS
The market for optical networking equipment is changing at a rapid pace.
The accelerated pace of deregulation and the adoption of new technology in the
telecommunications industry likely will intensify the competition for improved
optical networking products. Our ability to develop, introduce and manufacture
new and enhanced products will depend upon our ability to anticipate changes in
technology, industry standards and customer requirements. Our failure to
introduce new and enhanced products in a timely manner could harm our
competitive position and financial condition. Several of our new products,
including the MultiWave CoreDirector and the enhancements to the MultiWave
CoreStream products, are based on complex technology which could result in
unanticipated delays in the development, manufacture or deployment of these
products. In addition, our ability to recognize revenue from these products
could be adversely affected by the extensive testing required for these products
by our customers. The complexity of technology associated with support equipment
for these products could also result in unanticipated delays in their
deployment. These delays could harm our competitive and financial condition.
Competition from competitive products, the introduction of new products
embodying new technologies, a change in the requirements of our customers, or
the emergence of new industry standards could delay or hinder the purchase and
deployment of our products and could render our existing products obsolete,
unmarketable or uncompetitive from a pricing standpoint. The long certification
process for new telecommunications equipment used in the networks of the
regional Bell operating companies, referred to as RBOCs, 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.
WE FACE INTENSE COMPETITION WHICH COULD HURT OUR SALES AND PROFITABILITY
The market for optical networking equipment is extremely competitive.
Competition in the optical networking installation and test services market is
based on varying combinations of price, functionality, software functionality,
manufacturing capability, installation, services, scalability and the ability of
the system solution to meet customers' immediate and future network
requirements. A small number of very large companies, including Alcatel, Cisco
Systems, Fujitsu Group, Hitachi, Lucent Technologies, NEC Corporation, Nortel
Networks, Siemens AG and Telefon AB LM Ericsson, have historically dominated the
telecommunications equipment industry. These companies have substantial
financial, marketing, manufacturing and intellectual property resources. In
addition, these companies have substantially greater resources to develop or
acquire new technologies than we do and often have existing relationships with
our potential customers. We sell systems that compete directly with product
offerings of these companies and in some cases displace or replace equipment
they have traditionally supplied for telecommunications networks. As such, we
represent a specific threat to these companies. The continued expansion of our
product offerings with the MultiWave CoreDirector product line and enhance-
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ments to our MultiWave CoreStream product line likely will increase this
perceived threat. We expect continued aggressive tactics from many of these
competitors, including:
- price discounting;
- early announcements of competing products and other marketing efforts;
- "one-stop shopping" options;
- customer financing assistance;
- marketing and advertising assistance; and
- intellectual property disputes.
These tactics can be particularly effective in a highly concentrated
customer base such as ours. Our customers are under increasing competitive
pressure to deliver their services at the lowest possible cost. This pressure
may result in pricing for optical networking systems becoming a more important
factor in customer decisions, which may favor larger competitors that can spread
the effect of price discounts in their optical networking products across a
larger array of products and services and across a larger customer base than
ours. If we are unable to offset any reductions in the average sales price for
our products by a reduction in the cost of our products, our gross profit
margins will be adversely affected. Our inability to compete successfully
against our competitors and maintain our gross profit margins would harm our
business, financial condition and results of operations.
Many of our customers have indicated that they intend to establish a
relationship with at least two vendors for optical networking products. With
respect to customers for whom we are the only supplier, we do not know when or
if these customers will select a second vendor or what impact the selection
might have on purchases from us. If a second optical networking supplier is
chosen, these customers could reduce their purchases from us, which could in
turn have a material adverse effect on us.
New competitors are emerging to compete with our existing products as well
as our future products. We expect new competitors to continue to emerge as the
optical networking market continues to expand. These companies may achieve
commercial availability of their products more quickly due to the narrow and
exclusive focus of their efforts. Several of these competitors have raised
significantly more cash and they have in some cases offered stock in their
companies, positions on technical advisory boards, or have provided significant
vendor financing to attract new customers. In particular, a number of companies,
including several start-up companies and recently public companies that have
raised substantial equity capital, have announced products that compete with our
products. Our inability to compete successfully against these companies would
harm our business, financial condition and results of operations.
WE MAY NOT BE ABLE TO SUCCESSFULLY COMPLETE DEVELOPMENT AND ACHIEVE COMMERCIAL
ACCEPTANCE OF NEW PRODUCTS
Our MultiWave CoreDirector CI product and some enhancements to the
MultiWave CoreDirector and MultiWave CoreStream product lines and LightWorks
Toolkit are in the development phase and are not yet ready for commercial
manufacturing or deployment. We expect to offer additional releases of the
MultiWave CoreDirector product over the life of the product and continue to
enhance features of our MultiWave CoreStream product, including the longer reach
and higher channel count functionality of our product line. The initial release
of MultiWave CoreDirector CI is expected in limited availability for customer
trials during the first
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calendar quarter of 2001. The maturing process from laboratory prototype to
customer trials, and subsequently to general availability, involves a number of
steps, including:
- completion of product development;
- the qualification and multiple sourcing of critical components, including
application-specific integrated circuits, referred to as ASICs;
- validation of manufacturing methods and processes;
- extensive quality assurance and reliability testing, and staffing of
testing infrastructure;
- validation of embedded software;
- establishment of systems integration and systems test validation
requirements; and
- identification and qualification of component suppliers.
Each of these steps in turn presents serious risks of failure, rework or
delay, any one of which could decrease the speed and scope of product
introduction and marketplace acceptance of the product. Specialized ASICs and
intensive software testing and validation, in particular, are key to the timely
introduction of enhancements to the MultiWave CoreDirector product line, and
schedule delays are common in the final validation phase, as well as in the
manufacture of specialized ASICs. In addition, unexpected intellectual property
disputes, failure of critical design elements, and a host of other execution
risks may delay or even prevent the introduction of these products. If we do not
develop and successfully introduce these products in a timely manner, our
business, financial condition and results of operations would be harmed.
The markets for our MultiWave CoreDirector product line are relatively new.
We have not established commercial acceptance of these products, and we cannot
assure you that the substantial sales and marketing efforts necessary to achieve
commercial acceptance in traditionally long sales cycles will be successful. If
the markets for these products do not develop or the products are not accepted
by the market, our business, financial condition and results of operations would
suffer.
WE DEPEND ON A LIMITED NUMBER OF SUPPLIERS AND FOR SOME ITEMS WE DO NOT HAVE A
SUBSTITUTE SUPPLIER
We depend on a limited number of suppliers for components of our products,
as well as for equipment used to manufacture and test our products. Our products
include several high-performance components for which reliable, high-volume
suppliers are particularly limited. Furthermore, some key optical and electronic
components we use in our optical transport systems are currently available only
from sole sources, and in some cases, that sole source is also a competitor. A
worldwide shortage of some electrical components has caused an increase in the
price of components. Any delay in component availability for any of our products
could result in delays in deployment of these products and in our ability to
recognize revenues. These delays could also harm our customer relationships.
Failures of components can affect customer confidence in our products and
could adversely affect our financial performance and the reliability and
performance of our products. On occasion, we have experienced delays in receipt
of components and have received components that do not perform according to
their specifications. Any future difficulty in obtaining sufficient and timely
delivery of components could result in delays or reductions in product shipments
which, in turn, could harm our business. A recent wave of consolidation among
suppliers of these components, such as the recent and pending purchases of E-TEK
and SDL, respectively, by JDS Uniphase, could adversely impact the availability
of components on which we depend. Delayed deliveries of key components from
these sources could adversely affect our business.
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Any delays in component availability for any of our products or test
equipment could result in delays in deployment of these products and in our
ability to recognize revenue from them. These delays could also harm our
customer relationships and our results of operations.
WE RELY ON CONTRACT MANUFACTURERS FOR OUR PRODUCTS
We rely on a small number of contract manufacturers to manufacture our
CoreDirector product line and some of the components for our other products. The
qualification of these manufacturers is an expensive and time-consuming process,
and these contract manufacturers build modules for other companies, including
for our competitors. In addition, we do not have contracts in place with many of
these manufacturers. We may not be able to effectively manage our relationships
with our manufacturers and we cannot be certain that they will be able to fill
our orders in a timely manner. If we cannot effectively manage these
manufacturers or they fail to deliver components in a timely manner, it may have
an adverse effect on our business and results of operations.
SOME OF OUR SUPPLIERS ARE ALSO OUR COMPETITORS
Some of our component suppliers are both primary sources for components and
major competitors in the market for system equipment. For example, we buy
components from:
- Alcatel;
- Lucent Technologies;
- NEC Corporation;
- Nortel Networks; and
- Siemens AG.
Each of these companies offers optical communications systems and equipment
that are competitive with our products. Also, Lucent is the sole source of two
components and is one of two suppliers of two others. Recently, Lucent has
announced that it intends to spin off a portion of its components business. Our
supply of components from Lucent may be adversely affected by this
restructuring. 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 harm our
business.
SALES TO EMERGING CARRIERS MAY INCREASE THE UNPREDICTABILITY OF OUR RESULTS
As we continue to address emerging carriers, timing and volume of
purchasing from these carriers can also be more unpredictable due to factors
such as their need to build a customer base, acquire rights of way and
interconnections necessary to sell network service, and build out new capacity,
all while working within their capital budget constraints. Sales to these
carriers may increase the unpredictability of our financial results because even
these emerging carriers purchase our products in multi-million dollar
increments.
Unanticipated changes in customer purchasing plans also create
unpredictability in our results. A portion of our anticipated revenue over the
next several quarters is comprised of orders of less than $25 million each from
several customers, some of which may involve extended payment terms or other
financing assistance. Our ability to recognize revenue from financed sales to
emerging carriers will depend on the relative financial condition of the
specific customer, among other factors. Further, we will need to evaluate the
collectibility of receivables from these customers if their financial conditions
deteriorate in the future. Purchasing delays and changes in the financial
condition or the amount of purchases by any of these customers could have a
material adverse effect on us. In the past we have had to make provisions for
the accounts receivables from customers that experienced financial difficulty.
If additional customers face similar financial difficulties, our receivables
from these customers may become uncollectible,
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and we would have to write off the asset or decrease the value of the asset to
the extent the receivable could not be collected. These write-downs or
write-offs would adversely affect our financial performance.
OUR ABILITY TO COMPETE COULD BE HARMED IF WE ARE UNABLE TO PROTECT AND ENFORCE
OUR INTELLECTUAL PROPERTY RIGHTS OR IF WE INFRINGE ON INTELLECTUAL PROPERTY
RIGHTS OF OTHERS
We rely on a combination of patent, copyright, trademark and trade secret
laws and restrictions on disclosure to protect our intellectual property rights.
We also enter into non-disclosure and proprietary rights agreements with our
employees and consultants, and license agreements with our corporate partners,
and control access to and distribution of our products, documentation and other
proprietary information. Despite our efforts to protect our proprietary rights,
unauthorized parties may attempt to copy or otherwise obtain and use our
products or technology. Monitoring unauthorized use of our products is difficult
and we cannot be certain that the steps we have taken will prevent unauthorized
use of our technology, particularly in foreign countries where the laws may not
protect our proprietary rights as fully as in the United States. If competitors
are able to use our technology, our ability to compete effectively could be
harmed. We are involved in an intellectual property dispute regarding the use of
our technology and may become involved with additional disputes in the future.
Such lawsuits can be costly and may significantly divert time and attention from
some members of our personnel.
We have received, and may receive in the future, notices from holders of
patents in the optical technology field that raise issues of possible
infringement by our products. Questions of infringement in the optical
networking equipment market often involve highly technical and subjective
analysis. We cannot assure you that any of these patent holders or others will
not in the future initiate legal proceedings against us, or that we will be
successful in defending against these actions. We are involved in an
intellectual property dispute regarding the possible infringement of our
products. In the past, we have been forced to take a license from the owner of
the infringed intellectual property, or to redesign or stop selling the product
that includes the challenged intellectual property. If we are sued for
infringement and are unsuccessful in defending the suit, we could be subject to
significant damages, and our business and customer relationships could be
adversely affected.
PRODUCT PERFORMANCE PROBLEMS COULD LIMIT OUR SALES PROSPECTS
The production of new optical networking products and systems with high
technology content involves occasional problems as the technology and
manufacturing methods mature. If significant reliability, quality or network
monitoring problems develop, including those due to faulty components, a number
of negative effects on our business could result, including:
- costs associated with reworking our manufacturing processes;
- high service and warranty expenses;
- high inventory obsolescence expense:
- high levels of product returns;
- delays in collecting accounts receivable;
- reduced orders from existing customers; and
- declining interest from potential customers.
Although we maintain accruals for product warranties, actual costs could
exceed these amounts. From time to time, there will be interruptions or delays
in the activation of our products at a customer's site. These interruptions or
delays may result from product performance problems or from aspects of the
installation and activation activities, some of which are outside
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our control. If we experience significant interruptions or delays that we can
not promptly resolve, confidence in our products could be undermined, which
could harm our business.
OUR PROSPECTS DEPEND ON DEMAND WHICH WE CANNOT RELIABLY PREDICT OR CONTROL
We may not anticipate changes in direction or magnitude of demand for our
products. The product offerings of our competitors could adversely affect the
demand for our products. In addition, unanticipated reductions in demand for our
products could adversely affect us.
Demand for our products depends on our customers' requirements. These
requirements may vary significantly from quarter to quarter due to factors such
as:
- the type and quantity of optical equipment needed by our customers;
- the timing of the deployment of optical equipment by our customers;
- the rate at which our current customers fund their network build-outs;
and
- the equipment configurations and network architectures our customers
want.
Customer determinations are subject to abrupt changes in response to their
own competitive pressures, capital requirements and financial performance
expectations. These changes could harm our business.
Recently we have experienced an increased level of sales activity that
could lead to an upsurge in demand that is reflected in the overall increase in
demand for optical networking and similar products in the telecommunications
industry. Our results may suffer if we are unable to address this demand
adequately by successfully scaling up our manufacturing capacity and hiring
additional qualified personnel. To date we have largely depended on our own
manufacturing and assembly facilities to meet customer expectations, but we
cannot be sure that we can satisfy our customers' expectations in all cases by
internal capabilities. In that case, we face the challenge of adequately
managing customer expectations and finding alternative means of meeting them. If
we fail to manage these expectations we could lose customers or receive smaller
orders from customers.
OUR SUCCESS LARGELY DEPENDS ON OUR ABILITY TO RETAIN KEY PERSONNEL
Our success has always depended in large part on our ability to attract and
retain highly-skilled technical, managerial, sales and marketing personnel,
particularly those skilled and experienced with optical communications
equipment. Our key founders and employees, together with the key founders and
employees of our acquired companies, have received a substantial number of our
shares and vested options that can be sold at substantial gains. In many cases,
these individuals could become financially independent through these sales
before our future products have matured into commercially deliverable products.
These circumstances may make it difficult to retain and motivate these key
personnel.
As we have grown and matured, competitors' efforts to hire our employees
have intensified, particularly among competitive start-up companies and other
early stage companies. We have agreements in place with most of our employees
that limit their ability to work for a competitor and prohibit them from
soliciting our other employees and our customers following termination of their
employment. Our employees and our competitors may not respect these agreements.
We have in the past been required to enforce, and are currently in the process
of enforcing, some of these agreements. We expect in the future to continue to
be required to resort to legal actions to enforce these agreements and could
incur substantial costs in doing so. We may not be successful in these legal
actions, and we may not be able to retain all of our key employees or attract
new personnel to add to or replace them. The loss of key personnel would likely
harm our business.
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PART OF OUR STRATEGY INVOLVES PURSUING STRATEGIC ACQUISITIONS THAT MAY NOT BE
SUCCESSFUL
As part of our strategy for growth, we will consider acquiring businesses
that are intended to accelerate our product and service development processes
and add complementary products and services. We may issue equity or incur debt
to finance these acquisitions and may incur significant amortization expenses
related to goodwill and other intangible assets. Acquisitions involve a number
of operational risks, including risks that the acquired business will not be
successfully integrated, may distract management attention and may involve
unforeseen costs and liabilities.
OUR STOCK PRICE MAY EXHIBIT VOLATILITY
Our common stock price has experienced substantial volatility in the past,
and is likely to remain volatile in the future. Volatility can arise as a result
of the activities of short sellers and risk arbitrageurs, and may have little
relationship to our financial results or prospects. Volatility can also result
from any divergence between our actual or anticipated financial results and
published expectations of analysts, and announcements that we, our competitors,
or our customers may make.
Divergence between our actual results and our anticipated results, analyst
estimates and public announcements by us, our competitors, or by customers will
likely occur from time to time in the future, with resulting stock price
volatility, irrespective of our overall year-to-year performance or long-term
prospects. As long as we continue to depend on a limited customer base, and
particularly when a substantial majority of their purchases consist of
newly-introduced products like the MultiWave CoreStream, MultiWave CoreDirector
and MultiWave Metro, there is substantial risk that our quarterly results will
vary widely.
FUTURE SALES OF OUR COMMON STOCK COULD DEPRESS ITS MARKET PRICE
Sales of substantial amounts of common stock by our officers, directors and
other stockholders in the public market after this offering, or the awareness
that a large number of shares is available for sale, could adversely affect the
market price of our common stock. In addition to the adverse effect a price
decline would have on holders of our common stock, that decline would impede our
ability to raise capital through the issuance of additional shares of common
stock or other equity or convertible debt securities. Substantially all of the
shares of our common stock currently outstanding are eligible for resale in the
public market. Furthermore, we will issue approximately 27 million additional
shares of common stock if our acquisition of Cyras is consummated, almost all of
which will be freely tradeable.
Although some of our officers and directors have agreed that for 90 days
after the date of this prospectus they will not offer, sell, contract to sell or
otherwise dispose of any shares of our common stock, Goldman, Sachs & Co. may,
in its discretion, waive this lock-up at any time for any holder.
RISKS RELATED TO THE CYRAS ACQUISITION
THE ACQUISITION MAY NOT BE COMPLETED
We currently expect to complete the acquisition of Cyras Systems, Inc. in
the first calendar quarter of 2001, but because completion is subject to
regulatory approvals and a shareholder vote of Cyras, the acquisition may be
delayed or not completed at all.
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WE MAY NOT BE ABLE TO ACHIEVE THE BENEFITS WE SEEK FROM THE ACQUISITION OR TO
INTEGRATE CYRAS SUCCESSFULLY INTO OUR OPERATIONS
Even if the acquisition of Cyras is completed, we cannot be certain that we
will achieve the benefits we envision from the acquisition. These benefits,
including the accretion to our earnings we expect to achieve in the second half
of fiscal 2002, depend on our ability to successfully complete the development
of the Cyras K2 product and integrate it into our product portfolio, achieve
market acceptance for the Cyras product, achieve our revenue expectations for
the Cyras product and the expected synergies, and successfully integrate and
retain Cyras personnel. Cyras's product is in the development phase and is not
yet ready for commercial manufacturing or deployment, and we cannot assure you
that the substantial efforts necessary to complete development of the product
and achieve commercial acceptance will be successful. We have only limited
experience in significant acquisitions and cannot assure you that this
acquisition will be successful.
The integration of Cyras into our operations following our merger with
Cyras involves a number of risks, including:
- difficulty assimilating Cyras's operations and personnel;
- diversion of management attention;
- potential disruption of ongoing business;
- inability to retain key personnel;
- inability to maintain uniform standards, controls, procedures and
policies; and
- impairment of relationships with employees, customers or vendors.
Failure to overcome these risks or any other problems encountered in
connection with the merger could have a material adverse effect on our business,
results of operations and financial condition.
SIGNIFICANT MERGER-RELATED CHARGES AGAINST EARNINGS WILL REDUCE OUR EARNINGS IN
THE QUARTER IN WHICH WE CONSUMMATE THE MERGER AND DURING THE POST-MERGER
INTEGRATION PERIOD
If and when we complete the acquisition of Cyras, we will incur a charge
for in-process research and development, which we currently estimate will be
approximately $16.4 million. The actual charge we incur could be greater than
this estimate, which could have a material adverse effect on our results of
operations and financial condition. Also, in the future we will incur non-cash
charges in connection with the merger related to goodwill and other intangible
amortization and amortization of deferred stock compensation. Other
merger-related costs will be capitalized as part of the acquisition's purchase
price and amortized in future periods. We could also incur other additional
unanticipated merger costs relating to our acquisition of Cyras.
WE WILL INCUR SIGNIFICANT ADDITIONAL DEBT IN CONNECTION WITH THE MERGER
Cyras has $150 million of 4 1/2% convertible subordinated notes
outstanding. We will indirectly assume these notes at the effective date of the
merger. This additional indebtedness could adversely affect CIENA in a number of
ways, including:
- limiting our ability to obtain necessary financing in the future;
- limiting our flexibility to plan for, or react to, changes in our
business;
- requiring us to use a substantial portion of our cash flow from
operations or utilize a significant portion of cash on hand to repay the
debt when due in August 2005, or earlier if we are required to offer to
repurchase the notes, as described below, rather than for other purposes,
such as working capital or capital expenditures;
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- making us more highly leveraged than some of our competitors, which may
place us at a competitive disadvantage; and
- making us more vulnerable to a downturn in our business.
Additionally, in the event that the holders of the notes convert their
notes into our common stock, we would have to issue a significant number of
shares of additional common stock. For example, if our merger with Cyras had
closed on December 28, 2000, when the estimated exchange ratio would have been
approximately 0.13, we would have had to issue approximately 1,000,000 shares of
our common stock if holders of the entire $150 million of convertible notes
decided to convert their notes.
In the event that the holders of the notes do not elect to convert them
into our common stock before March 31, 2002, and if a "complying public equity
offering" has not occurred on or before that date, we will have to make an offer
to repurchase the notes at 118.942% of the principal balance of the notes on
April 30, 2002. A "complying public equity offering" is defined as a firm
commitment underwritten public offering of the common stock of Cyras, in which
Cyras raises at least $50 million in gross proceeds.
FOLLOWING THE COMPLETION OF OUR ACQUISITION OF CYRAS, A SIGNIFICANT NUMBER OF
ADDITIONAL SHARES WILL BE ADDED TO OUR PUBLIC FLOAT
We will issue approximately 27 million shares of our common stock as
consideration in the Cyras acquisition. These shares represent 9.4% of our
outstanding common stock as of January 31, 2001. Almost all of these shares will
be freely tradable immediately following the closing of the acquisition which is
currently expected to be in the first calendar quarter of 2001. Any sales of
substantial numbers of shares of our common stock in the public market following
the completion of the Cyras acquisition could adversely affect the market price
of our common stock.
FORWARD LOOKING STATEMENTS
Some of the statements contained, or incorporated by reference, in this
prospectus 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 throughout this prospectus.
USE OF PROCEEDS
We estimate that our net proceeds from the sale of the 8,000,000 shares of
common stock that we are offering will be approximately $641.2 million, at the
assumed public offering price of $83.75 per share, after deducting an assumed
underwriting discount and estimated offering expenses. If the underwriters'
option to purchase additional shares in this offering is exercised in full, we
estimate that our net proceeds will be approximately $737.4 million.
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Concurrent with this offering of common stock, CIENA is conducting a
separate offering of convertible notes with an aggregate principal amount of
$350 million. This offering of common stock is not conditioned on the completion
of the offering of our notes.
The principal purpose of this offering is to obtain additional capital. We
may use the net proceeds for working capital, capital expenditures, acquisitions
and other general corporate purposes.
We have not determined the amounts we plan to spend on any of the uses
described above or the timing of these expenditures. Pending our use of the net
proceeds, we intend to invest them in short-term, interest-bearing, investment
grade securities.
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PRICE RANGE OF COMMON STOCK
CIENA common stock is, and the shares of CIENA common stock offered hereby
are expected to be, quoted on the Nasdaq National Market and traded under the
symbol "CIEN." The following table sets forth the high and low sales price per
share of CIENA common stock as reported by the Nasdaq National Market for the
periods indicated, adjusted to reflect the two-for-one stock split of the common
stock of CIENA, which became effective on September 18, 2000.
PRICE RANGE OF
COMMON STOCK
----------------
HIGH LOW
------- ------
Fiscal Year ending October 31, 1998
First Quarter............................................. $ 31.78 $23.72
Second Quarter............................................ $ 29.13 $18.63
Third Quarter............................................. $ 46.19 $23.44
Fourth Quarter............................................ $ 37.94 $ 4.06
Fiscal Year ending October 31, 1999
First Quarter............................................. $ 11.50 $ 6.22
Second Quarter............................................ $ 14.63 $ 8.31
Third Quarter............................................. $ 18.88 $11.35
Fourth Quarter............................................ $ 21.41 $14.53
Fiscal Year ending October 31, 2000
First Quarter............................................. $ 39.69 $16.75
Second Quarter............................................ $ 94.50 $30.03
Third Quarter............................................. $ 90.13 $44.94
Fourth Quarter............................................ $151.00 $64.19
Fiscal Year ending October 31, 2001
First Quarter............................................. $121.38 $59.56
Second Quarter (through February 2, 2001)................. $92.625 $83.50
On February 2, 2001, the last reported sale price of our common stock on
the Nasdaq National Market was $83.75 per share. As of January 31, 2001, there
were approximately 1,479 holders of record of our common stock.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock and
do not anticipate paying any cash dividends in the foreseeable future.
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SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations." CIENA has a 52- or 53-week fiscal year which ends on
the Saturday nearest to the last day of October in each year. For purposes of
financial statement presentation, each fiscal year is described as having ended
on October 31. Fiscal 1997, 1998, 1999 and 2000 comprised 52 weeks and fiscal
1996 comprised 53 weeks.
YEAR ENDED OCTOBER 31,
---------------------------------------------------
1996 1997 1998 1999 2000
------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenue................................ $88,463 $413,215 $508,087 $482,085 $858,750
Cost of goods sold..................... 47,315 166,472 256,014 299,769 477,393
------- -------- -------- -------- --------
Gross profit......................... 41,148 246,743 252,073 182,316 381,357
------- -------- -------- -------- --------
Operating expenses:
Research and development............. 8,922 23,773 73,756 104,641 129,069
Selling and marketing................ 5,641 22,627 47,343 61,603 90,922
General and administrative........... 6,346 11,476 18,468 22,736 34,000
Settlement of accrued contract
obligation........................ -- -- -- -- (8,538)
Purchased research and development... -- -- 9,503 -- --
Pirelli litigation................... -- 7,500 30,579 -- --
Merger-related costs................. -- -- 2,548 13,021 --
Provision for doubtful accounts...... 76 489 806 250 28,010
------- -------- -------- -------- --------
Total operating expenses..... 20,985 65,865 183,003 202,251 273,463
------- -------- -------- -------- --------
Income (loss) from operations.......... 20,163 180,878 69,070 (19,935) 107,894
Other income (expense), net............ 653 7,178 12,830 13,944 12,680
------- -------- -------- -------- --------
Income (loss) before income taxes...... 20,816 188,056 81,900 (5,991) 120,574
Provision (benefit) for income taxes... 3,553 72,488 36,200 (2,067) 39,187
------- -------- -------- -------- --------
Net income (loss)...................... $17,263 $115,568 $ 45,700 $ (3,924) $ 81,387
======= ======== ======== ======== ========
Basic net income (loss) per common
share................................ $ 0.62 $ 0.76 $ 0.19 $ (0.01) $ 0.29
======= ======== ======== ======== ========
Diluted net income (loss) per common
and dilutive potential common
share................................ $ 0.09 $ 0.55 $ 0.18 $ (0.01) $ 0.27
======= ======== ======== ======== ========
Weighted average basic common shares
outstanding.......................... 27,634 151,928 235,980 267,042 281,621
======= ======== ======== ======== ========
Weighted average basic common and
dilutive potential common shares
outstanding.......................... 184,814 209,686 255,788 267,042 299,662
======= ======== ======== ======== ========
OCTOBER 31,
-----------------------------------------------------
1996 1997 1998 1999 2000
------- -------- -------- -------- ----------
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents............ $24,040 $273,286 $250,714 $143,440 $ 143,187
Working capital...................... 42,240 338,078 391,305 427,471 639,675
Total assets......................... 79,676 468,247 602,809 677,835 1,027,201
Long-term obligations, excluding
current portion.................... 3,465 1,900 3,029 4,881 4,882
Mandatorily redeemable preferred
stock.............................. 40,404 -- -- -- --
Stockholders' equity................. 10,783 377,278 501,036 530,473 809,835
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Data."
OVERVIEW
CIENA is a leader in the rapidly growing intelligent optical networking
equipment market. We offer a comprehensive portfolio of products for
communications service providers worldwide. Our customers include long-distance
carriers, competitive and incumbent local exchange carriers, Internet service
providers, wireless and wholesale carriers. CIENA offers optical transport and
intelligent optical switching systems that enable service providers to
provision, manage and deliver high-bandwidth services to their customers.
CIENA's intelligent optical networking products are designed to enable carriers
to deliver any time, any size, any priority bandwidth to their customers.
CIENA has increased the number of revenue-generating optical networking
equipment customers from a total of 27 customers during fiscal 1999 to 32
customers for fiscal 2000. During fiscal 2000, three customers each represented
more than 10% of CIENA's total revenues. We intend to preserve and enhance our
market leadership and eventually build on our installed base with new and
additional products. CIENA believes that its product and service quality,
manufacturing experience, and proven track record of delivery will enable it to
endure competitive pricing pressure while concentrating on efforts to reduce
product costs and maximize production efficiencies. See "Risk Factors" in the
prospectus.
As of October 31, 2000, CIENA and its subsidiaries employed approximately
2,775 persons, which was an increase of 847 persons over the approximate 1,928
employed on October 31, 1999.
RESULTS OF OPERATIONS
FISCAL YEARS ENDED 2000, 1999 AND 1998
REVENUE. CIENA recognized $858.8 million, $482.1 million and $508.1
million in revenue for the fiscal years ended October 31, 2000, 1999 and 1998,
respectively. The approximate $376.7 million or 78.1% increase in revenue from
fiscal 1999 to fiscal 2000 was due primarily to an increase in product shipments
across all product lines. The approximate $26.0 million or 5.1% decrease in
revenue from fiscal 1998 to fiscal 1999 was largely the result of reduced
selling prices.
CIENA recognized revenues from a total of 32, 27, and 14 optical equipment
customers during fiscal 2000, 1999, and 1998, respectively. During fiscal year
2000, Sprint, Qwest Communications and GTS Network Ltd. each accounted for at
least 10% or more of CIENA's revenue and all three combined accounted for 60.9%
of CIENA's fiscal 2000 revenue. During fiscal year 1999 Sprint, WorldCom and GTS
Network Ltd. each accounted for at least 10% or more of CIENA's revenue and all
three combined accounted for 46.2% of CIENA's fiscal 1999 revenue. This compares
to fiscal 1998 in which Sprint was the only 10% customer and in total accounted
for 52.5% of CIENA's fiscal 1998 revenue. Revenue derived from foreign sales
accounted for approximately 33.0%, 44.3%, and 23.0% of CIENA's total revenues
during fiscal 2000, 1999, and 1998, respectively.
For fiscal 2000, CIENA's optical network equipment revenues were derived
from sales of the MultiWave Sentry 4000, MultiWave CoreStream configured for
both 2.5 gigabits per second ("Gbps") and 10.0 Gbps transmission rates,
MultiWave Sentry 1600, MultiWave Metro, MultiWave 1600, MultiWave CoreDirector,
MultiWave Firefly systems and MultiWave MetroOne. During fiscal 1999, CIENA
recognized revenues from sales of MultiWave Sentry 4000, MultiWave
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Sentry 1600, MultiWave 1600, MultiWave Metro, MultiWave Firefly, and MultiWave
CoreStream systems. During fiscal 1998, CIENA recognized revenues from sales of
MultiWave Sentry 1600, MultiWave 1600, MultiWave Firefly and MultiWave Sentry
4000 systems. The revenues for fiscal 2000 improved as compared to fiscal 1999
due to increased sales of MultiWave Sentry 4000, MultiWave CoreStream, MultiWave
Sentry 1600, MultiWave Metro, and MultiWave Firefly systems, and also from the
introduction of revenues from MultiWave CoreDirector and MultiWave MetroOne
systems. The amount of revenue recognized from MultiWave Sentry 1600 and
MultiWave 1600 declined in fiscal 1999 as compared to fiscal 1998. This decline
in MultiWave Sentry 1600 sales in fiscal 1999 was offset by the introduction of
new revenues from the MultiWave CoreStream and MultiWave Metro products in
fiscal 1999. Fiscal 1999 revenues from MultiWave Sentry 4000 and MultiWave
Firefly were comparable to the revenues recognized for these products in fiscal
1998. Revenues derived from engineering, furnishing and installation services as
a percentage of total revenue were 8.4%, 12.1%, and 9.2% for the fiscal years
2000, 1999, and 1998, respectively.
GROSS PROFIT. Cost of goods sold consists of component costs, direct
compensation costs, warranty and other contractual obligations, royalties,
license fees, inventory obsolescence costs and overhead related to CIENA's
manufacturing and engineering, furnishing and installation operations. Gross
profit was $381.4 million, $182.3 million, and $252.1 million for fiscal years
2000, 1999, and 1998, respectively. Gross margin was 44.4%, 37.8%, and 49.6% for
fiscal 2000, 1999, and 1998, respectively. The increase in gross profit from
fiscal 1999 to fiscal 2000 was due primarily to lower component costs and
improved production efficiencies. The decrease in gross profit from fiscal 1998
to fiscal 1999 was largely attributable to lower selling prices.
CIENA's gross margins may be affected by a number of factors, including
product mix, continued competitive market pricing, outsourcing of manufacturing,
manufacturing volumes and efficiencies, competition for skilled labor, and
fluctuations in component costs. Downward pressures on our gross margins may be
further impacted by an increased percentage of engineering, furnishing and
installation revenues from services or additional service requirements. CIENA
will continue to concentrate on efforts to reduce product costs and maximize
production efficiencies and, if successful in these efforts, may be able to
improve gross margins in the future. See "Risk Factors".
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses were
$129.1 million, $104.6 million, and $73.8 million for fiscal 2000, 1999, and
1998, respectively. The approximate $24.4 million or 23.3% increase from fiscal
1999 to 2000 and the approximate $30.9 million or 41.9% increase from fiscal
1998 to 1999 in research and development expenses related to increased staffing
levels, purchases of materials used in development of new or enhanced product
prototypes, and outside consulting services in support of certain developments
and design efforts. During fiscal 2000, 1999, and 1998 research and development
expenses were 15.0%, 21.7%, and 14.5% of revenue, respectively. CIENA expects
that its research and development expenditures will continue to increase in
absolute dollars and perhaps as a percentage of revenue during fiscal 2001 to
support the continued development of CIENA's intelligent optical networking
products, the exploration of new or complementary technologies, and the pursuit
of various cost reduction strategies. CIENA has expensed research and
development costs as incurred.
SELLING AND MARKETING EXPENSES. Selling and marketing expenses were $90.9
million, $61.6 million, and $47.3 million for fiscal 2000, 1999, and 1998,
respectively. The approximate $29.3 million or 47.6% increase from fiscal 1999
to 2000 and the approximate $14.3 million or 30.1% increase from fiscal 1998 to
1999 in selling and marketing expenses was primarily the result of increased
staffing levels in the areas of sales, technical assistance and field support,
and increases in commissions earned, trade show participation and promotional
costs. During fiscal 2000, 1999, and 1998 selling and marketing expenses were
10.6%, 12.8%, and 9.3% of revenue, respectively. CIENA anticipates that its
selling and marketing expenses may increase in
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absolute dollars and perhaps as a percentage of revenue during fiscal 2001 as
additional personnel are hired and additional offices are opened to allow CIENA
to pursue new customers and market opportunities. CIENA also expects the portion
of selling and marketing expenses attributable to technical assistance and field
support, specifically in Europe, Latin America, and Asia, will increase as
CIENA's installed base of operational MultiWave systems increases.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
were $34.0 million, $22.7 million and $18.5 million for fiscal 2000, 1999, and
1998, respectively. The approximate $11.2 million or 49.5% increase from fiscal
year 1999 to 2000 and the approximate $4.3 million or 23.1% increase from fiscal
year 1998 to 1999 in general and administrative expenses was primarily the
result of increased staffing levels and outside consulting services. During
fiscal 2000, 1999, and 1998 general and administrative expenses were 4.0%, 4.7%,
and 3.6% of revenue, respectively. CIENA believes that its general and
administrative expenses will increase in absolute dollars and perhaps as a
percentage of revenue during fiscal 2001 as a result of the expansion of CIENA's
administrative staff required to support its expanding operations.
SETTLEMENT OF ACCRUED CONTRACT OBLIGATION. The $8.5 million gain from
settlement of accrued contract obligation relates to the July 2000 termination
of certain accrued contract obligations that CIENA received from iaxis Limited,
one of CIENA's European customers. In September 2000, CIENA was informed that an
administrative order had been issued by a London court against iaxis Limited. As
a result of this order, joint administrators were appointed to manage the
business of iaxis Limited while they marketed the business for sale and
formulated a reorganization. See "Provision for Doubtful Accounts" below.
PURCHASED RESEARCH AND DEVELOPMENT. Purchased research and development
costs were $9.5 million for the fiscal year 1998. These costs were for the
purchase of technology and related assets associated with the acquisition of
Terabit during the second quarter of fiscal 1998.
PIRELLI LITIGATION. The Pirelli litigation costs of $30.6 million in
fiscal 1998 were attributable to a $30.0 million payment made to Pirelli during
the third quarter of 1998 and to additional other legal and related costs
incurred in connection with the settlement of this litigation.
MERGER-RELATED COSTS. The merger costs for fiscal 1999 of approximately
$13.0 million were costs related to CIENA's acquisition of Omnia and Lightera.
These costs include an $8.1 million non-cash charge for the acceleration of
warrants based upon CIENA's common stock price on June 30, 1999 and $4.9 million
for fees, legal and accounting services and other costs. The warrants were
issued to one of Omnia's potential customers and became exercisable upon the
consummation of the merger between CIENA and Omnia. The merger-related costs for
fiscal 1998 were costs related to the contemplated merger between CIENA and
Tellabs. These costs include approximately $1.2 million in Securities and
Exchange Commission filing fees and approximately $1.3 million in legal,
accounting, and other related expenses.
PROVISION FOR DOUBTFUL ACCOUNTS. CIENA performs ongoing credit evaluations
of its customers and generally does not require collateral from its customers.
CIENA maintains an allowance for potential losses when identified. CIENA's
allowance for doubtful accounts as of October 31, 2000 was $29.6 million.
Approximately $27.8 million relates to provisions made for doubtful accounts
associated with iaxis Limited, one of CIENA's European customers. In September
2000, CIENA was informed that an administrative order had been issued by a
London court against iaxis Limited. As a result of this order, joint
administrators were appointed to manage the business of iaxis Limited while they
marketed the business for sale and formulated a reorganization. In November
2000, CIENA was notified that Dynegy Inc. and its subsidiaries had entered into
a proposed agreement to acquire the assets and stock of iaxis Limited from the
administrators. As a consequence of the terms of (a) the proposed agreement
between the administrators of iaxis Limited, Dynegy and its subsidiaries, and of
(b) a related sales agreement between CIENA and Dynegy, CIENA expects to realize
approximately $8.9 million of the gross
21
23
outstanding accounts receivable balance due from iaxis Limited as of October 31,
2000. While the proposed purchase agreement between the administrators of iaxis
Limited and Dynegy is subject to certain administrative and judicial approvals,
CIENA believes that such approvals will be ultimately obtained and that CIENA
will be successful in collecting the net $8.9 million outstanding accounts
receivable balance from the customer. However, should such approvals not occur,
additional write-offs might be required.
OTHER INCOME (EXPENSE), NET. Other income (expense), net, consists of
interest income earned on CIENA's cash, cash equivalents and marketable debt
securities, net of interest expense associated with CIENA's debt obligations.
Other income (expense), net, was $12.7 million, $13.9 million, and $12.8 million
for fiscal 2000, 1999, and 1998, respectively. The decrease in other income
(expense) from fiscal 1999 to fiscal 2000 was due to lower balances of cash,
cash equivalents and marketable debt securities in fiscal 2000 as compared to
fiscal 1999. The increase in companies other income (expense) from fiscal 1998
to fiscal 1999 was primarily the result of the investment of the net proceeds of
CIENA's stock offerings and net earnings.
PROVISION (BENEFIT) FOR INCOME TAXES. CIENA's provision (benefit) for
income taxes was 32.5%, (34.5%), and 44.2% of pre-tax earnings (loss) for fiscal
2000, 1999 and 1998, respectively. The income tax provision for 2000 was lower
than the expected 35% primarily due to benefits from research and development
tax credits. The benefit for fiscal 1999 was less than the expected statutory
benefit of 35% due to non-deductible merger costs. The income tax provision for
1998 was higher than the expected statutory rate of 35%, due primarily to
charges for purchased research and development and state tax charges related to
the Alta acquisition. Purchased research and development charges are not
deductible for tax purposes. Exclusive of the effect of these charges, CIENA's
provision for income taxes was 38.6% of income before income taxes in fiscal
1998. As of October 31, 2000, CIENA's deferred tax asset was $143.0 million. The
realization of this asset could be adversely affected if future earnings are
lower than anticipated.
QUARTERLY RESULTS OF OPERATIONS
The tables below set forth the operating results and percentage of revenue
represented by certain items in CIENA's statements of operations for each of the
eight quarters in the period ended October 31, 2000. This information is
unaudited, but in the opinion of CIENA reflects all adjustments (consisting only
of normal recurring adjustments) that CIENA considers necessary for a fair
presentation of such information in accordance with generally accepted
accounting principles. The results for any quarter are not necessarily
indicative of results for any future period.
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24
QUARTER ENDED
-------------------------------------------------------------------------------------
JAN. 31, APR. 30, JUL. 31, OCT. 31, JAN. 31, APR. 30, JUL. 31, OCT. 31,
1999 1999 1999 1999 2000 2000 2000 2000
-------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenue................ $100,417 $111,490 $128,826 $141,352 $152,213 $185,679 $233,268 $287,590
Cost of goods sold..... 65,778 71,238 79,361 83,392 87,003 104,205 128,172 158,013
-------- -------- -------- -------- -------- -------- -------- --------
Gross profit......... 34,639 40,252 49,465 57,960 65,210 81,474 105,096 129,577
-------- -------- -------- -------- -------- -------- -------- --------
Operating expenses:
Research and
development........ 22,218 24,094 28,402 29,927 29,742 29,965 32,697 36,665
Selling and
marketing.......... 13,608 13,092 16,839 18,064 18,122 20,331 24,375 28,094
General and
administrative..... 5,036 5,849 5,433 6,418 6,621 7,176 9,339 10,864
Settlement of accrued
contract
obligation......... -- -- -- -- -- -- (8,538) --
Merger-related
costs.............. -- 2,253 10,768 -- -- -- -- --
Provision for
doubtful
accounts........... -- -- -- 250 250 -- 8,538 19,222
-------- -------- -------- -------- -------- -------- -------- --------
Total operating
expenses..... 40,862 45,288 61,442 54,659 54,735 57,472 66,411 94,845
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) from
operations........... (6,223) (5,036) (11,977) 3,301 10,475 24,002 38,685 34,732
Other income (expense),
net.................. 3,301 3,583 3,492 3,568 2,950 3,268 3,026 3,436
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before
income taxes......... (2,922) (1,453) (8,485) 6,869 13,425 27,270 41,711 38,168
Provision (benefit) for
income taxes......... (1,041) (468) (2,928) 2,370 4,363 8,863 13,556 12,405
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss)...... $ (1,881) $ (985) $ (5,557) $ 4,499 $ 9,062 $ 18,407 $ 28,155 $ 25,763
======== ======== ======== ======== ======== ======== ======== ========
Basic net income (loss)
per common share
(1).................. $ (0.01) $ 0.00 $ (0.02) $ 0.02 $ 0.03 $ 0.07 $ 0.10 $ 0.09
======== ======== ======== ======== ======== ======== ======== ========
Diluted net income
(loss) per common
share and dilutive
potential common
share (1)............ $ (0.01) $ 0.00 $ (0.02) $ 0.02 $ 0.03 $ 0.06 $ 0.09 $ 0.09
======== ======== ======== ======== ======== ======== ======== ========
Weighted average basic
common share (1)..... 262,404 265,060 266,032 267,616 276,182 280,162 282,258 285,177
======== ======== ======== ======== ======== ======== ======== ========
Weighted average basic
common and dilutive
potential common
share (1)............ 262,404 265,060 266,032 290,604 295,806 299,126 299,790 301,582
======== ======== ======== ======== ======== ======== ======== ========
- ---------------
(1) All share and per share information has been retroactively restated to
reflect the two-for-one stock split effective September 18, 2000.
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QUARTER ENDED
-------------------------------------------------------------------------------------
JAN. 31, APR. 30, JUL. 31, OCT. 31, JAN. 31, APR. 30, JUL. 31, OCT. 31,
1999 1999 1999 1999 2000 2000 2000 2000
-------- -------- -------- -------- -------- -------- -------- --------
(AS A PERCENTAGE OF REVENUE)
Revenue................................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold...................... 65.5 63.9 61.6 59.0 57.2 56.1 54.9 54.9
----- ----- ----- ----- ----- ----- ----- -----
Gross profit.......................... 34.5 36.1 38.4 41.0 42.8 43.9 45.1 45.1
Operating expenses:
Research and development.............. 22.1 21.6 22.0 21.2 19.5 16.1 14.0 12.7
Selling and marketing................. 13.6 11.7 13.1 12.8 11.9 10.9 10.4 9.8
General and administrative............ 5.0 5.2 4.2 4.5 4.3 3.9 4.0 3.8
Settlement of accrued contract
obligation.......................... -- -- -- -- -- -- (3.7) --
Merger-related costs.................. -- 2.0 8.4 -- -- -- -- --
Provision for doubtful accounts....... -- -- -- 0.2 0.2 -- 3.7 6.7
----- ----- ----- ----- ----- ----- ----- -----
Total operating expenses........ 40.7 40.5 47.7 38.7 35.9 30.9 28.4 33.0
----- ----- ----- ----- ----- ----- ----- -----
Income (loss) from operations........... (6.2) (4.4) (9.3) 2.3 6.9 13.0 16.7 12.1
Other income (expense), net............. 3.3 3.2 2.7 2.5 1.9 1.8 1.3 1.2
----- ----- ----- ----- ----- ----- ----- -----
Income (loss) before income taxes....... (2.9) (1.2) (6.6) 4.8 8.8 14.8 18.0 13.3
Provision (benefit) for income taxes.... (1.0) (0.4) (2.3) 1.7 2.9 4.8 5.8 4.3
----- ----- ----- ----- ----- ----- ----- -----
Net income(loss)........................ (1.9)% (0.8)% (4.3)% 3.1% 5.9% 10.0% 12.2% 9.0%
===== ===== ===== ===== ===== ===== ===== =====
CIENA's quarterly operating results have varied and are expected to vary in
the future. CIENA's detailed discussion of risk factors addresses the many
factors that have caused such variation in the past, and may cause similar
variations in the future. See "Risk Factors". CIENA's revenues have increased in
each of the last eight quarters due to strong demand across existing products
and introduction of new products such as MultiWave CoreStream configured for
both 2.5 Gbps and 10.0 Gbps transmission rates. CIENA's gross margin percentage
has improved from the first quarter fiscal 1999 to the fourth quarter fiscal
2000 as a result of component cost reductions, production efficiencies, and
relative stable sales pricing. CIENA's operating expenses have increased in each
of the last eight quarters due to continued investments in research and
development, selling and marketing, and infrastructure activities. Exclusive of
provisions for doubtful accounts and merger-related costs, the Company's
operating expenses as a percentage of revenue have generally decreased each of
the last eight quarters. During fiscal 2001, CIENA's operating expenses will
continue to increase in absolute dollars and may increase as percentage of
revenue. We expect to preserve and enhance our market leadership and build on
our installed base with new and additional products in conjunction with
increased investments in selling, marketing, and customer service activities.
See "Risk Factors".
LIQUIDITY AND CAPITAL RESOURCES
At October 31, 2000, CIENA's principal source of liquidity was its cash and
cash equivalents. CIENA had $143.2 million in cash and cash equivalents, and
$95.1 million in corporate debt securities and U.S. Government obligations.
CIENA's corporate debt securities and U.S. Government obligations have
contractual maturities of six months or less.
CIENA's operating activities provided cash of $59.0 million, $28.7 million,
and $48.8 million for fiscal 2000, 1999, and 1998, respectively. Cash provided
by operations in fiscal 2000 was primarily attributable to a net gain adjusted
for the non-cash charges of depreciation, amortization, tax benefit related to
exercise of stock options, provisions for doubtful accounts, inventory
obsolescence, and warranty, increases in accounts payable, and accrued expenses,
offset by increases in accounts receivable and inventories.
Cash used in investing activities in fiscal 2000, 1999, and 1998 was $103.2
million, $149.7 million, and $107.0 million, respectively. Included in
investment activities were additions to capital equipment and leasehold
improvements in fiscal 2000, 1999, and 1998 of $123.9 million, $46.8 million,
and $88.9 million, respectively. The capital equipment expenditures were
primarily for test, manufacturing and computer equipment. CIENA expects
additional combined capital
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26
equipment and leasehold improvement expenditures of approximately $208 million
to be made during fiscal 2001 to support selling and marketing, manufacturing
and product development activities and the construction of leasehold
improvements for its facilities.
We generated $43.9 million, $13.8 million, and $35.6 million in cash from
financing activities in fiscal 2000, 1999, and 1998, respectively. During fiscal
2000, CIENA received $44.0 million from the exercise of stock options and the
sale of stock through our employee stock purchase plan. During fiscal 1999 CIENA
received $11.3 million from the exercise of stock options, the sale of stock
through our employee stock purchase plan, and from the additional capitalization
of Omnia and Lightera. During fiscal 1998, CIENA received approximately $34.3
million from the issuance of stock associated with the capitalization of Omnia
and Lightera, and from the exercise of stock options.
We believe that our existing cash balances and investments, together with
cash flow from operations, will be sufficient to meet our liquidity and capital
spending requirements at least through the end of fiscal 2001. However, possible
investments in or acquisitions of complementary businesses, products or
technologies may require additional financing prior to such time. There can be
no assurance that additional debt or equity financing will be available when
required or, if available, can be secured on terms satisfactory to us.
EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 (SFAS No. 133), "Accounting for
Derivative Instruments and Hedging Activities". This Statement requires
companies to record derivatives on the balance sheet as assets or liabilities,
measured at fair value. Gains or losses resulting from changes in the values of
those derivatives would be accounted for depending on the use of the derivative
and whether it qualifies for hedge accounting. SFAS No. 133, as amended by SFAS
No. 137 "Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date for SFAS No. 133", will be
effective for the Company's fiscal year ending October 31, 2000. The Company
believes the adoption of SFAS No. 133 and SFAS No. 137 will not have a material
effect on the consolidated financial statements.
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements," (SAB
101) which clarifies the Securities and Exchange Commission's view on revenue
recognition. Subsequently, the SEC released SAB 101B, which delayed the
implementation date of SAB 101 for registrants with fiscal years that begin
between December 16, 1999 and March 15, 2000. CIENA is required to be in
conformity with the provisions of SAB 101, as amended, no later than January 31,
2001, with the impact of such adoption being treated on a cumulative basis as of
November 1, 2000. While management will continue to assess SAB 101, CIENA
presently believes its existing revenue recognition policies and procedures are
generally in compliance with SAB 101 and, therefore, SAB 101's adoption will
have no material impact on CIENA's financial condition, results of operations or
cash flows.
In July 2000, the FASB's Emerging Issues Task Force ("EITF") reached a
final consensus that the income tax benefit realized by a company upon the
exercise of a nonqualified stock option or the disqualifying disposition of an
incentive stock option should be classified in the operating section of the
statement of cash flows. The consensus is effective for the Company's quarters
ending after July 20, 2000. All comparative cash flow statements as presented
have been restated to comply with this consensus.
In September 2000, the FASB issued SFAS No. 140, "Accounting for the
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities".
SFAS No. 140 is effective for transfers occurring after March 31, 2001 and for
disclosures relating to the securitization transactions and collateral for
fiscal years ending after December 15, 2000. The Company believes the adoption
of SFAS No. 140 will not have a material effect on the consolidated financial
statements.
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27
BUSINESS
OVERVIEW
CIENA is an established leader in the rapidly growing intelligent optical
networking equipment market. We offer a comprehensive portfolio of products for
communications service providers worldwide. Our customers include long-distance
carriers, competitive and incumbent local exchange carriers, Internet service
providers, wireless and wholesale carriers. CIENA offers intelligent optical
transport and optical switching systems that enable service providers to
provision, manage and deliver high-bandwidth services to their customers. We
have pursued a strategy to develop and leverage the power of our technologies to
change the fundamental economics of building carrier-class tele- and
data-communications networks, thereby providing our customers with a competitive
advantage. CIENA's intelligent optical networking products are designed to
enable carriers to deliver any time, any size, any priority bandwidth to their
customers.
Historically, the significant majority of CIENA's revenue has come from the
sale of long-distance optical transport equipment. CIENA believes it is one of
the worldwide market leaders in field deployment of open-architecture
long-distance optical transport equipment utilizing dense wavelength division
multiplexing, or DWDM, technology. The majority of CIENA's fiscal 2000 revenue
was derived from sales of its long-distance optical transport products,
including MultiWave CoreStream(TM) and MultiWave Sentry 4000(TM). During the
fiscal year 2000, CIENA also recognized revenue from the sale of seven optical
networking products including sales of its metropolitan optical transport
product, MultiWave(R) Metro and its intelligent optical core switch, MultiWave
CoreDirector(TM).
For the fiscal year ended October 31, 2000, CIENA recorded revenue from
sales of intelligent optical networking equipment to a total of 32 customers.
Our research and development efforts as well as potential future acquisition and
partnership activities are targeted at capitalizing on our installed base of
carrier customers and leveraging our position as a leader in the rapidly growing
optical networking market.
INDUSTRY BACKGROUND
The world's tele- and data-communications infrastructure is formed by
fiber-optic networks owned and operated by service providers. In recent years,
the combination of several factors, including global deregulation which fueled
competition among service providers and increased bandwidth demand resulting
from the proliferation of the Internet and the emergence of electronic commerce,
gave rise to the increased deployment of communications equipment utilizing
dense wavelength division multiplexing technology.
DWDM replaces the single beam of light that traverses fiber-optic cable in
legacy networks with multiple colors of light, each of which is capable of
carrying tens of thousands of voice conversations or data transmissions. Prior
to the emergence of DWDM, service providers could increase network capacity
either by adding new physical fibers to their network or by increasing the rate
of transmission through the fiber. In many cases DWDM has proven to be more cost
efficient than physically deploying new fibers, and it has enabled the delivery
of significantly more traffic by service providers.
The widespread adoption of DWDM enabled carriers to efficiently and
economically expand network capacity, or bandwidth, while reducing bandwidth
costs. CIENA believes that the application of products using DWDM has led to a
dramatic decline in service providers' capital cost per bit from 1995 to
present, thereby enabling pricing competition between carriers and significant
bandwidth price declines of up to 80% in some U.S. regions.
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28
NETWORK SCALABILITY CHALLENGES
For the past several years DWDM has been implemented by carriers to
increase capacity between discrete points in their long-distance networks. To
construct a network using DWDM equipment as its backbone, a carrier must
interconnect the point-to-point high-capacity links and manage all traffic
flowing through them. For example, an important element enabling this
interconnection in traditional architectures has been the SONET/SDH add/drop
multiplexer, or ADM. In most network architectures, a SONET ADM is used to
transmit the information-carrying signal for each DWDM optical channel. A second
ADM then is used to receive the information-carrying signal from each DWDM
optical channel. As a result, every time an additional optical channel is
deployed, two additional SONET ADMs must be purchased, installed and
maintained -- one for each end of the traffic-carrying route. For example, in
order to transmit/receive the traffic from a DWDM optical transport system with
96 channels of DWDM, a service provider would require a total of 192 SONET ADMs.
Though DWDM gave carriers the ability to solve the bandwidth problem in the
core of their networks, the technology created operational and scalability
challenges for carriers. Historically this method has been the only way
available to service providers to scale their networks. Unfortunately, this
approach creates upwardly spiraling costs. In addition to the capital equipment
costs associated with the equipment, each SONET ADM uses valuable central office
space and power. Furthermore, as the number of DWDM channels and links
increases, the carrier's management of the network grows more complex, making
manual service provisioning and network operation more difficult and costly.
ESCALATING OPERATIONAL COSTS
In addition to the problems inherent in scaling traditional network
architectures, carriers are challenged to scale their operating staff as quickly
as they can grow their networks. According to information filed by carriers with
the United States Securities and Exchange Commission, many service providers are
spending more on operating, growing, and managing their networks than they are
on capital expenditures relating to their networks. In some cases, service
providers are spending two to four dollars on network operations and support
expenses for every dollar spent on network capital equipment. In addition, in
many cases, network operations and support expenses are increasing at a
significantly faster rate than revenues.
CIENA'S SOLUTIONS
CIENA's intelligent optical networking equipment was designed to enable
service providers to transition from inefficient, legacy, voice-centric networks
to more efficient data-optimized, intelligent optical networks. CIENA's systems
address both the network scalability challenges and the escalating operational
costs faced by service providers by:
- leveraging expertise in optics, software, systems and Application
Specific Integrated Circuits, or ASICs, to develop innovative products
designed to dramatically lower the cost of constructing service provider
networks;
- replacing multiple traditional network elements such as ADMs and digital
cross-connects with fewer, more intelligent network elements, thereby
simplifying the network and lowering carriers' capital and operational
costs;
- enhancing bandwidth availability to service providers, thereby allowing
them to increase network bandwidth with growing Internet demand;
- lowering ongoing network operating costs by enabling carriers to more
efficiently manage network traffic;
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29
- enabling carriers to shorten the time it takes to provision services, in
some cases from months to minutes, thereby accelerating the generation of
revenue; and
- enabling new, revenue-generating and differentiated optical services.
Our optical networking product portfolio is targeted at the critical areas
of service provider networks: long-distance and metropolitan optical transport,
intelligent optical core switching and network management.
- OPTICAL TRANSPORT. CIENA's long-distance optical transport products,
MultiWave CoreStream(TM), MultiWave Sentry(TM) and MultiWave 1600, and
our short-distance products, MultiWave Metro(TM), Metro One(TM) and
MultiWave Firefly(TM), utilize DWDM technology and should enable carriers
to cost effectively add critical network bandwidth when and where they
need it. As a result, service providers should be better able to scale
their networks to meet demand.
- INTELLIGENT OPTICAL CORE SWITCHING. Our intelligent optical core
switches, MultiWave CoreDirector(TM) and MultiWave CoreDirector CI(TM),
which is currently under development, allow carriers to manage the
bandwidth created with optical transport products. CoreDirector and
CoreDirector CI help carriers solve both the issues of network
scalability and escalating operating costs by incorporating the
functionality of multiple network elements into single elements with
previously unavailable switching capabilities and management.
- NETWORK MANAGEMENT. ON-Center, CIENA's recently introduced fully
integrated family of software-based tools for comprehensive element,
network and service layer management, is designed to enable accelerated
deployment of new, differentiating optical services. ON-Center should
also reduce network operating and management costs.
CIENA calls the network architecture created by these products "CIENA
LightWorks". The components of CIENA's LightWorks can be sold together as a
complete network solution or separately as best-of-breed solutions. CIENA's
LightWorks architecture is designed to dramatically simplify a carrier's network
by reducing the number of network elements. We believe this network
simplification will enable service providers to lower capital equipment and
operating costs.
STRATEGY
CIENA's strategy is to maintain and build upon its market leadership in the
deployment of intelligent optical networking systems and to leverage its
technologies in order to provide solutions for both voice and data
communications-based network architectures. CIENA believes that the
technological, operational and cost benefits of its optical networking solutions
create competitive advantages for service providers worldwide. We believe our
solutions will become increasingly important as these service providers are
being pressed by their customers to deliver services to address the dramatic
growth in Internet and other data communications traffic. CIENA's strategy
includes the following initiatives:
- EXPAND OUR BASE OF CUSTOMERS USING OUR INTELLIGENT OPTICAL NETWORKING
SOLUTIONS. We believe that achieving early widespread operational
deployment of our systems in a particular carrier's network will provide
CIENA significant competitive advantages with respect to additional
optical networking deployments and will enhance our marketing to other
carriers as a field-proven supplier. While continuing to aggressively
serve our existing customers, we intend to actively pursue additional
optical networking deployment opportunities among fiber-optic carriers in
domestic and foreign long distance, interoffice and local exchange
markets.
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- INCREASE SALES AND MARKETING EFFORTS. The nature of the target customer
base for all our product lines requires a focused sales effort on a
customer-by-customer basis. We will continue to increase our sales and
marketing efforts aimed at the worldwide market of service providers.
CIENA increased the number of revenue-generating optical networking
customers from 27 during 1999 to 32 in 2000. In addition, CIENA has a
significant international presence, particularly in Europe. Revenues from
international customers represented 33.0% of CIENA's total revenues in
fiscal 2000. CIENA plans to continue to strengthen its marketing programs
and to increase its domestic and international presence through both
direct sales and distributor relationships.
- CONTINUE TO EMPHASIZE TECHNICAL SUPPORT AND CUSTOMER SERVICE. CIENA
markets technically advanced systems to sophisticated customers. The
nature of CIENA's systems and market require a high level of technical
support and customer service. We believe we have a good reputation for
our technical support and customer service, and we intend to emphasize
our global service and support excellence and capabilities as
differentiating factors in our efforts to maintain and enhance our market
position. CIENA offers complete engineering, furnishing and installation
services in addition to full-time customer support from strategic
locations worldwide.
- MAINTAIN WORLD CLASS MANUFACTURING CAPABILITY. CIENA's optical
networking systems play a critical role in our customers' networks.
Quality assurance and manufacturing excellence are necessary for CIENA to
achieve success. CIENA believes it has developed a world class optical
manufacturing capability, and this capability provides CIENA with a
significant competitive advantage. CIENA achieved ISO 9001 certification
in July 1997 in further support of this element of its strategy. CIENA
expects to continue to invest in both the capital and the human resources
necessary to maintain and leverage this advantage. In addition, CIENA
expects to utilize this expertise to leverage our manufacturing
capability with contract manufacturers.
- LEVERAGE CIENA'S BANDWIDTH-OPTIMIZING TECHNOLOGY AND KNOW-HOW. We
believe the overall growth in demand for bandwidth and the need for
intelligent bandwidth-optimizing services in telecommunications networks
will lead to transmission bottlenecks in other segments of the networks
where the application of optical technologies and other high bandwidth
enabling technologies may provide solutions, either within existing
network architectures, or as part of the design and development of
alternative data communications-based network architectures. CIENA
expects to leverage the core competencies it has developed in the design,
development and manufacturing of its optical transport and intelligent
optical switching product lines and key enabling components by pursuing
new product development efforts, and strategic alliances or acquisitions,
to address these expected opportunities. CIENA intends to move
aggressively to maintain leadership in the design and development of
intelligent optical networking equipment, components and software which
will both respond to customer needs and help customers move toward newer,
higher capacity, more cost-efficient network designs for the future.
PRODUCTS
Our optical networking product portfolio is targeted at the critical areas
of service provider networks: long-distance and metropolitan optical transport,
intelligent optical core switching and network management. CIENA's open
architecture design allows its products to operate with most carriers' existing
fiber-optic transmission systems and network elements, including connecting
directly to either traditional SONET equipment, ATM switches or IP routers.
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31
LONG-DISTANCE OPTICAL TRANSPORT
PRODUCT FEATURES
------- --------
MULTIWAVE CORESTREAM - CIENA's fourth generation carrier-class
intelligent optical transport product.
- First commercially deployed 96-channel DWDM
system with commercial shipments beginning in
the third fiscal quarter of 1999.
- Utilizes DWDM technology to deliver up to 96
optical channels at 2.5Gbps (240 gigabits) or
up to 48 channels at 10Gbps (480 gigabits).
- Designed for in-service growth; scalable to
handle 2 terabits of traffic in the future.
- With its longer reach feature set, will
ultimately be capable of transporting signals
up to 5,000 kilometers without electrical
regeneration.
MULTIWAVE SENTRY 4000 - CIENA's third generation carrier-class
intelligent optical transport product.
- First commercially deployed 40-channel system
with commercial shipments beginning in the
second fiscal quarter of 1998.
- Utilizes DWDM technology to deliver up to 40
channels at 2.5Gbps (100 gigabits).
MULTIWAVE SENTRY 1600 - CIENA's second generation carrier-class
intelligent optical transport product.
- Utilizes DWDM technology to deliver up to 16
channels at 2.5Gbps (40 gigabits).
- Incorporated performance monitoring
capabilities, not previously available in
DWDM equipment beginning in the second half
of fiscal 1996.
MULTIWAVE 1600 - CIENA's first generation carrier-class
intelligent optical transport product.
- First commercially deployed 16-channel system
with commercial shipments beginning in the
first half of fiscal 1996.
- Utilizes DWDM technology to deliver 16
channels at 2.5Gbps (40 gigabits).
METROPOLITAN OPTICAL TRANSPORT
PRODUCT FEATURES
------- --------
MULTIWAVE METRO - A carrier-class optical transport product
designed specifically to address the
performance and economic requirements of
metropolitan markets.
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32
- Provides up to 24 duplex channels over a
single fiber pair, enabling a service
provider to transport up to 60Gbps.
- Supports multiple network topologies, such as
rings, hubs, and stars.
- Offers a wide range of interfaces from 100
megabits per second up to 10Gbps.
MULTIWAVE METRO ONE - Offers the same carrier-class reliability and
functionality as MultiWave Metro, but for a
single channel in a reduced size and reduced
power consumption package.
MULTIWAVE FIREFLY - MultiWave Firefly was developed specifically
for use by carriers in short-distance,
point-to-point applications.
- Multiplexes up to 24 channels at 2.5Gbps,
over a single fiber pair, allowing a carrier
to transport up to 60Gbps.
INTELLIGENT OPTICAL CORE SWITCHING
PRODUCT FEATURES
------- --------
MULTIWAVE COREDIRECTOR - Provides traffic management and switching
capability beyond current network solutions
of up to 256 ports of OC-48 or up to 640Gbps
in a single 7 foot bay.
- Designed to reduce capital equipment costs by
displacing multiple traditional devices.
- CoreDirector's intelligence is designed to
simplify service provisioning, in some cases
reducing provisioning times from months to
seconds.
- CoreDirector offers the ability to switch at
the wavelength level or at levels of
granularity down to an STS-1.
- CoreDirector should enable new revenue
opportunities for service providers through
new optical layer capabilities and services.
COREDIRECTOR CI - When available, CoreDirector CI will provide
up to 64 ports of OC-48 or up to 160Gbps in a
half bay.
- CoreDirector CI will deliver CoreDirector
functionality in a smaller package and at a
lower entry cost that is ideal for lower
capacity networks or smaller switching sites.
NETWORK MANAGEMENT
PRODUCT FEATURES
------- --------
LIGHTWORKS ON-CENTER - A fully integrated family of software-based
tools for comprehensive element, network and
service layer management across service
provider networks.
- ON-Center is designed to enable accelerated
deployment of new, differentiating optical
services, reduced network
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operating and management costs, and
innovative customer service solutions.
- Designed so that service providers can select
any or all components necessary to meet their
particular network's management needs,
LightWorks ON-Center is comprised of:
- an Optical Service Layer Management
System for cross-vendor end-to-end
service management;
- an Optical Network Management System for
integrated management across all of
CIENA's intelligent optical transport,
switching and access systems; and
- a Modeling and Planning System for
network design.
NEW OPTICAL SERVICES
In addition to allowing significant capital equipment and operational cost
savings, CIENA's intelligent optical networking equipment is designed to enable
its customers to offer new, revenue-generating optical layer services. CIENA's
LightWorks Toolkit(TM) is designed to allow carriers to offer dynamic
high-bandwidth services and handle real-time service provisioning and
prioritization. By mixing and matching CIENA's ToolKit options, carriers will be
able to offer customized services and further differentiate themselves from
their competition.
When development is completed, the breadth of options in the LightWorks
ToolKit will ultimately include:
SERVICE DESCRIPTION
------- -----------
OPTICAL PRIORITY PROVISIONING - Optical Priority Provisioning is designed to
allow carriers to turn-up optical services in
seconds, and to specify priority levels for
further differentiation of optical services.
For instance, a carrier may elect to offer
multiple levels of optical bandwidth, ranging
from "premium" to "best-effort" service, with
each level of service being priced and
delivered differently. Optical Priority
Provisioning is designed to help carriers
more easily meet service level agreements by
assigning and adjusting traffic priorities in
seconds, potentially allowing carriers to
unlock more revenue from data services.
- Optical Priority Provisioning should simplify
the delivery of differentiated optical
services by providing access to service
templates of predefined restoration
priorities, preemptability, and linear, ring
and mesh protection options. Using these
simplified templates, service provisioners
should be able to deliver optical services,
at any service level, in just a few clicks of
a mouse.
FLEXIBLE CONCATENATION - In legacy networks, bandwidth demand is
arbitrarily shoehorned into SONET/SDH-sized
transport containers where the size of the
container is fixed. For example, if a
customer requires OC-15 service, the customer
must purchase OC-48 service, even though only
a fraction of
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the 48 time slots in the transport container
will be filled with bits. In this scenario,
the customer is paying for bandwidth it is
not using and the carrier is losing valuable
network bandwidth. CIENA is using a
combination of silicon and software to
redefine how carriers access and deliver
bandwidth.
- When available, Flexible Concatenation will
allow carriers to access all time slots
within the SONET/SDH frame -- even when those
frames are fractionally filled. That means
carriers will be able to create true OC-"N"
services in which "N" can be any number
between 1 and 48 and in the future will be
192 and eventually 768 instead of the current
restrictions of SONET, which sets fixed sizes
on transport containers. Flexible
concatentation is designed to enable carriers
to maximize their network bandwidth and
deliver customer-specific service.
RATE ADAPTIVE GIGABIT ETHERNET - CIENA's Rate-Adaptive Gigabit Ethernet
technology uses software and ASICs to enable
service providers to sell Gigabit Ethernet
services in customizable increments of 50Mbps
(STS-1) up to 1.25Gbps.
- When available, service providers will be
able to use Rate Adaptive Gigabit Ethernet to
create a wide range of customized optical
service options for end-users and deliver
those services over more efficient access and
core networks that leverage the economies of
Gigabit Ethernet transmission.
VSR OPTICS - For increased profitability, carriers must
continually drop their cost per bit. However,
to stay competitive, carriers must continue
to increase the value of their services. VSR
(Very Short Reach) Optics are designed to
provide lower-cost, high-capacity connections
between Internet and optical networking
systems within a service provider's central
office. VSR Optics leverage Vertical Cavity
Surface Emitting Laser (VCSEL) technology and
Gigabit Ethernet standards to make
variable-rate optical services possible and
economical -- a valuable service for
unpredictable bandwidth demands. When
available, CIENA will apply this data
rate-scalable technology to 10Gbps network
connections.
TRANSPARENT SERVICE
MULTIPLEXING - As opposed to traditional SONET/SDH
multiplexing, CIENA's "transparent"
multiplexing is designed to enable optical
services to be delivered without compromising
the SONET/SDH overheads of individual
tributaries that make up the aggregate
signal. Enabling multiple signals to be
transparently multiplexed, transported and
demultiplexed means signals are delivered as
if they were connected directly to the
destination equipment by their own unique
wavelength, maintaining the customers'
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signal security and integrity. When
available, Transparent Service Multiplexing
(TSM) should be ideal for delivering IP
traffic, wavelength services and other new
optical services that CIENA's Toolkit
enables. With TSM, each end device appears to
communicate over its own unique wavelength
while actually being economically
consolidated with other signals.
WAVELENGTH BINDING - With unprecedented traffic growth and
changing traffic demands, Internet-centric
carriers are looking for ways to better match
the changes in IP router traffic demands with
the provisioned bandwidth capacities
available within their networks. To meet this
need, CIENA is developing Wavelength Binding.
- Wavelength Binding will leverage intellectual
property to enable a device of any speed to
be connected to a network operating at a
lower speed by building "virtual channels" of
multiple wavelengths bound together in a
single, very high-capacity bitstream. As a
result, when Wavelength Binding is available,
CIENA's customers will be able to deliver
40Gbps without changing their transport
infrastructure. Wavelength Binding will also
give carriers previously unavailable network
flexibility by enabling them to bundle and
unbundle wavelengths as network capacity
demands change.
PRODUCT DEVELOPMENT
We believe the overall growth in utilization of fiber-optic
telecommunications networks will lead to transmission bottlenecks in other
segments of the networks where the application of optical networking
technologies may provide solutions. We also believe there may be opportunities
for us to develop products and technologies complementary to existing optical
networking technologies which may broaden our ability to provide, facilitate
and/or interconnect with high-bandwidth solutions offered throughout fiber-optic
networks. CIENA intends to focus its product development efforts and possibly
pursue strategic alliances or acquisitions to address expected opportunities in
these areas, including our recently announced acquisition of Cyras Systems, Inc.
CUSTOMERS
CIENA has announced publicly relationships with the following customers:
DOMESTIC INTERNATIONAL
-------- -------------
Alltel Cable & Wireless, UK
Bell South CompleTel, France
Broadwing Crosswave Communications, Japan
Cable & Wireless Daini Deuden, Japan
Digital Teleport Dynegy, Austria
Enron ESAT Telecom, Ireland
Genuity Solutions Fibernet
Intermedia Communications Global Crossing, UK
PSINet GTS (now known as eBone), Belgium
Qwest HanseNet Telekommunikation, Germany
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DOMESTIC INTERNATIONAL
-------- -------------
RCN of Pennsylvania Interoute, UK
Sprint Japan Telecom, Japan
Verizon KDD/Teleway Japan, Japan
Williams Communications Korea Telecom, Korea
WorldCom MobilCom AG, Germany
XO Communications Operadora Protel, Mexico
Telecom Developpement, France
Telia AB, Sweden
WorldCom, Europe
In addition, CIENA has a number of unannounced customer relationships.
CUSTOMERS BY CATEGORY
INTEREXCHANGE CARRIERS (IXCS)
The initial deployments of CIENA's bandwidth enhancing optical transport
equipment occurred in the core of the U.S. long-distance network with the
interexchange carriers, or IXCs. IXCs provide connections between local
exchanges in different geographic areas. In recent years, incumbent IXCs such as
Sprint, WorldCom and AT&T have seen increased competition from emerging
long-distance carriers such as Qwest Communications, Global Crossing, Broadwing
Communications Services, Inc., and Level 3 Communications. We expect that
continued competition in long-distance call rates, as well as the carriers'
desire for market and service differentiation, will continue to drive demand for
the increased capacity and features offered by CIENA's optical networking
equipment.
INCUMBENT LOCAL EXCHANGE CARRIERS
Incumbent local exchange carriers, such as the RBOCs, are very active in
interoffice and local exchange markets and, under the Telecommunications Act of
1996, RBOCs are eligible to enter the long-distance market once they have met
certain requirements for opening their local markets to competition. CIENA
believes that over time the RBOCs will continue to gain approval to offer
long-distance services, although when and how they will offer these services is
unclear. For instance, the RBOCs' move to offering long-distance services could
occur through the establishment of owned network facilities, through the
purchase of long-distance capacity from other long-distance carriers, or through
some combination of the two. Regardless of the timing of any such move, CIENA
believes there are opportunities for in-region deployment of CIENA's
long-distance and metropolitan optical transport products at certain RBOCs.
INTERNATIONAL COMPETITIVE CARRIERS
New competitive carriers are emerging as a result of deregulation in the
international telecommunications markets. CIENA has concentrated its sales
efforts on these emerging carriers as opposed to the traditional carriers or
PTTs. During fiscal 2000, CIENA increased its announced international customer
base from fourteen to eighteen customers. In many cases, these new competitive
carriers do not have the installed fiber base of the larger carriers and
therefore are in need of the scalable bandwidth CIENA's optical transport
systems offer. In addition, because of the economies and flexibility afforded by
the application of DWDM technology, CIENA's equipment is being used on several
new projects where the service provider is physically constructing the network.
CIENA expects that in the near term, the majority of its international revenue
will come from these smaller, more aggressive competitive carriers, and CIENA
will continue to concentrate its sales efforts accordingly.
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COMPETITIVE LOCAL EXCHANGE CARRIERS (CLECS)
Deregulation has fueled the growth of U.S. competitive local exchange
carriers, or CLECs. CIENA believes that in the short term, CLECs could benefit
from the hesitancy of incumbent local exchange carriers, such as the Regional
Bell Operation Companies, or RBOCs, to open their local markets to competitors,
and that these CLECs are likely to move aggressively to capitalize on
opportunities in the local area. CIENA recognized revenues from CLEC customers
in fiscal 2000 and expects that tactical CLEC applications for its long-haul
products, as well as the short-distance products, will be well suited to CLEC
network applications.
NON-TRADITIONAL TELECOMMUNICATION SERVICE PROVIDERS
The growth of the Internet has produced traffic growth substantial enough
to attract new, non-traditional telecommunication service providers to compete
in this market as well. Both domestically and internationally, companies with
rights-of-way, such as utility companies, cable TV providers, and railroads are
capitalizing on their "network", whether a pipeline, a railroad, or a highway,
and in some cases, are laying optical fiber and constructing telecommunications
networks along those rights-of-way. The transmission capabilities of CIENA's
optical networking equipment enable these new carriers to provide competitive
services while purchasing and laying a minimal amount of fiber-optic cable.
MARKETING AND DISTRIBUTION
CIENA's intelligent optical networking systems require substantial
investment, and our target customers in the fiber-optic telecommunications
market -- where network capacity and reliability are critical -- are highly
demanding and technically sophisticated. There are only a small number of such
customers in any country or geographic market. Also, every network operator has
unique configuration requirements, which impact the integration of optical
networking systems with existing transmission equipment. The convergence of
these factors leads to a very long sales cycle for optical networking equipment,
often more than a year between initial introduction to CIENA and the customer's
commitment to purchase, and has further led CIENA to pursue sales efforts on a
focused, customer-by-customer basis. See "Management's Discussion and Analysis
of Financial Conditions and Results of Operations" and "Risk Factors".
CIENA has organized its resources for the separate but coordinated approach
to United States and international customers. In the United States market, a
sales team, comprised of an account manager, systems engineers and technical
support and training personnel, is assigned responsibility for each customer
account, and for the coordination and pursuit of sales contacts. In the
international market, CIENA pursues prospective customers through direct sales
efforts, as well as through distributors, independent marketing representatives
and independent sales consultants. Through its subsidiaries, CIENA has
established offices in the U.S., Europe and Latin America, including offices in
the U.K., Germany, France, Spain, Mexico and Brazil. CIENA has distributor or
marketing representative arrangements, including agreements with agents in
Italy, the Republic of Korea, Japan, Venezuela, Columbia and Chile.
In support of its worldwide selling efforts, CIENA conducts marketing
communications programs intended to position and promote its products within the
telecommunications industry. Marketing personnel also coordinate our
participation in trade shows and conduct media relations activities with trade
and general business publications.
MANUFACTURING
CIENA conducts most of the optical assembly, final assembly and final
component, module and system test functions for its optical transport products
at its manufacturing facilities in Maryland. We also manufacture the in-fiber
Bragg gratings used in our optical transport product lines. We expect the
majority of the manufacturing associated with our MultiWave CoreDirector
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and CoreDirector CI products will be performed by third-party manufacturers,
with only final system test and assembly performed by CIENA. We also rely on
third-party manufacturers to manufacture some of our components for our products
and continue to evaluate whether additional portions of our manufacturing can be
done on a reliable and cost-effective basis by third-party manufacturers.
CIENA believes that portions of its manufacturing technologies and
processes represent a key competitive advantage. Accordingly, we have invested
significantly in automated production capabilities and manufacturing process
improvements and expect to further enhance our manufacturing process with
additional production process control systems. Some critical manufacturing
functions require a highly skilled work force, and CIENA puts significant
efforts into training and maintaining the quality of its manufacturing personnel
and in maintaining its proprietary information in this area.
CIENA's optical transport product lines utilize hundreds of individual
parts, many of which are customized for CIENA. Component suppliers in the
specialized, high technology end of the optical communications industry are
generally not as plentiful or, in some cases, as reliable, as component
suppliers in more mature industries. CIENA works closely with its strategic
component suppliers to pursue new component technologies that could either
reduce cost or enhance the performance of our products.
COMPETITION
Competition in the telecommunications equipment industry is intense,
particularly in that portion of the industry focused on delivering higher
bandwidth and more cost effective services throughout the telecommunications
network. CIENA believes that its position as a leading supplier of open
architecture optical networking equipment and the field-tested design and
performance of its optical transport products give it a competitive advantage,
and CIENA expects to leverage that advantage in bringing its core switching
products to market. However, competition has been and will continue to be very
intense. See "Management's Discussion and Analysis of Financial Conditions and
Results of Operations" and "Risk Factors".
CIENA's competition is dominated by a small number of very large, usually
multinational, vertically integrated companies, each of which has substantially
greater financial, technical and marketing resources, and greater manufacturing
capacity as well as more established customer relationships with long distance
carriers than CIENA. Included among CIENA's competitors are Alcatel Alsthom
Group, Cisco, Fujitsu Group, Hitachi Ltd., Lucent Technologies Inc., NEC
Corporation, Nortel Networks Corporation, Siemens AG, Telefon AB LM Ericsson and
several new companies, such as ONI Systems, Sycamore Networks, Corvis Systems,
and Tellium, Inc. CIENA believes each of its major competitors is in various
stages of development, introduction or deployment of products directly
competitive with CIENA's optical transport, core switching and service delivery
systems.
In addition to optical networking equipment suppliers, traditional
TDM-based transmission equipment suppliers compete with CIENA in the market for
transmission capacity. Alcatel, Fujitsu, Hitachi, Lucent, NEC and Nortel are
already providers of a full complement of such transmission equipment. These and
other competitors have introduced or are expected to introduce equipment that
will offer 10 Gbps transmission capability.
PATENTS AND OTHER INTELLECTUAL PROPERTY RIGHTS
CIENA has licensed intellectual property from third parties, including key
enabling technologies with respect to the production of in-fiber Bragg gratings,
utilized publicly available technology associated with Erbium-doped fiber
amplifiers, and applied its design, engineering and manufacturing skills to
develop its optical transport systems. These licenses expire when the last of
the licensed patents expires or is abandoned. CIENA also licenses from third
parties some
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software components for its network management products. These licenses are
perpetual but will generally terminate after an uncured breach of the agreement
by CIENA. We have registered trademarks for CIENA, WaveWatcher, MODULE SCOPE,
CIENA Optical Communications, Multiwave and Multiwave Sentry. CIENA also relies
on contractual rights, trade secrets and copyrights to establish and protect its
proprietary rights in its products.
CIENA intends to enforce vigorously its intellectual property rights if
infringement or misappropriation occurs.
CIENA's practice is to require its employees and consultants to execute
non-disclosure and proprietary rights agreements upon commencement of employment
or consulting arrangements with CIENA. These agreements acknowledge CIENA's
exclusive ownership of all intellectual property developed by the individual
during the course of his or her work with CIENA, and require that all
proprietary information disclosed to the individual will remain confidential.
CIENA's employees generally also sign agreements not to compete with CIENA for a
period of twelve months following any termination of employment.
As of November 2000, CIENA had received fifty-eight United States patents,
and had one hundred sixteen pending U.S. patent applications. We also have a
number of foreign patents and patent applications. Of the United States patents
that have been issued to CIENA, the earliest any will expire is 2012. Pursuant
to an agreement between CIENA and General Instrument Corporation dated March 10,
1997, CIENA is a co-owner with General Instrument Corporation of a portfolio of
27 United States and foreign patents relating to optical communications,
primarily for video-on-demand applications. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Risk Factors".
EMPLOYEES
As of October 31, 2000, CIENA and its subsidiaries employed 2,775 persons,
of whom 527 were primarily engaged in research and development activities, 1,233
in manufacturing, 412 in installation services, 372 in sales, marketing,
customer support and related activities and 231 in administration. None of
CIENA's employees are currently represented by a labor union. CIENA considers
its relations with its employees to be good.
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UNDERWRITING
CIENA and the underwriters for the offering named below have entered into
an underwriting agreement with respect to the shares being offered. Subject to
certain conditions, each underwriter has severally agreed to purchase the number
of shares indicated in the following table. Goldman, Sachs & Co., Morgan Stanley
& Co. Incorporated, Banc of America Securities LLC and Robertson Stephens, Inc.
are the representatives of the underwriters.
UNDERWRITERS NUMBER OF SHARES
------------ ----------------
Goldman, Sachs & Co. .......................................
Morgan Stanley & Co. Incorporated...........................
Banc of America Securities LLC..............................
Robertson Stephens, Inc. ...................................
---------
Total.................................................. 8,000,000
=========
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have an option to buy up to an additional
1,200,000 shares from CIENA to cover such sales. They may exercise that option
for 30 days. If any shares are purchased pursuant to this option, the
underwriters will severally purchase shares in approximately the same proportion
as set forth in the table above.
The following table shows the per share and total underwriting discounts
and commissions to be paid to the underwriters by CIENA. Such amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares.
NO EXERCISE FULL EXERCISE
----------- -------------
Per share................................................. $ $
Total..................................................... $ $
Shares sold by the underwriters to the public will initially be offered at
the initial price to public set forth on the cover of this prospectus. Any
shares sold by the underwriters to securities dealers may be sold at a discount
of up to $ per share from the initial price to public. Any such securities
dealers may resell any shares purchased from the underwriters to certain other
brokers or dealers at a discount of up to $ per share from the initial price
to public. If all the shares are not sold at the initial price to public, the
underwriters may change the offering price and the other selling terms.
CIENA and some of its officers and directors have agreed with the
underwriters not to dispose of or hedge any of our common stock or securities
convertible into or exchangeable for shares of common stock during the period
from the date of this prospectus continuing through the date 90 days after the
date of this prospectus, except with the prior written consent of Goldman, Sachs
& Co. CIENA's agreement does not apply to any securities issued: (i) under
employee benefit plans or dividend reinvestment plans, (ii) upon exercise of
currently outstanding stock options, (iii) upon conversion or exchange of
currently outstanding convertible or exchangeable securities, (iv) in connection
with the acquisition of Cyras Systems, Inc. or (v) in connection with other
mergers, acquisitions or similar transactions so long as those parties agree to
be bound by the terms of the lock-up. This agreement does not restrict us from
filing a shelf registration statement which includes equity securities. CIENA
will issue approximately 27 million shares of common stock if the Cyras
acquisition is consummated, almost all of which shares will be freely tradeable.
The common stock is quoted on the Nasdaq National Market under the symbol
"CIEN".
In connection with the offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions
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and purchases to cover positions created by short sales. Short sales involve the
sale by the underwriters of a greater number of shares than they are required to
purchase in the offering. "Covered" short sales are sales made in an amount not
greater than the underwriters' option to purchase additional shares from the
Company in the offering. The underwriters may close out any covered short
position by either exercising their option to purchase additional shares or
purchasing shares in the open market. In determining the source of shares to
close out the covered short position, the underwriter will consider, among other
things, the price of shares available for purchase in the open market as
compared to the price at which they may purchase shares through the
overallotment option. "Naked" short sales are sales in excess of such option.
The underwriters must close out any naked short position by purchasing shares in
the open market. A naked short position is more likely to be created if the
underwriters are concerned that there may be downward pressure on the price of
the common stock in the open market after pricing that could adversely affect
investors who purchase in the offering. Stabilizing transactions consist of
certain bids or purchases of common stock made by the underwriters in the open
market prior to the completion of the offering.
The underwriters also may impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares sold
by or for the account of such underwriter in stabilizing or short covering
transactions.
Purchases to cover a short position and stabilizing transactions may have
the effect of preventing or retarding a decline in the market price of the
common stock, and together with the imposition of the penalty bid, may
stabilize, maintain, or otherwise affect the market price of the common stock.
As a result, the price of the common stock may be higher than the price that
otherwise might exist in the open market. If these activities are commenced,
they may be discontinued by the underwriters at any time. These transactions may
be effected on the Nasdaq National Market, in the over-the-counter market or
otherwise.
CIENA has agreed to indemnify the several underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
CIENA estimates that its share of the total expenses of the offering,
excluding underwriting discounts and commissions, will be approximately
$305,000.
Some of the underwriters have from time to time performed, and may in the
future perform, certain investment banking and advisory services for CIENA for
which they have received, and may in the future receive, customary fees and
expenses.
Lawton W. Fitt, a director of CIENA, is a Managing Director of Goldman,
Sachs & Co., one of the underwriters in this offering.
LEGAL MATTERS
Hogan & Hartson L.L.P., Baltimore, Maryland, will provide CIENA with an
opinion as to legal matters in connection with the common stock offered by this
prospectus. Certain legal matters in connection with this offering will be
passed on for the underwriters by Hale and Dorr LLP, Reston, Virginia.
EXPERTS
The consolidated financial statements of CIENA Corporation as of October
31, 2000 and 1999 and for each of the three years in the period ended October
31, 2000 incorporated in this prospectus by reference to CIENA's Annual Report
on Form 10-K for the year ended October 31, 2000, as amended January 18, 2001,
have been so incorporated in reliance on the report of PricewaterhouseCoopers
LLP, given on the authority of said firm as experts in auditing and accounting.
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The financial statements of Cyras Systems, Inc. as of December 31, 1998 and
1999 and for the period from July 24, 1998 (inception) to December 31, 1998 and
for the year ended December 31, 1999, incorporated in this prospectus by
reference to the current report on Form 8-K of CIENA Corporation filed January
18, 2001, have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report, which is incorporated herein by reference, and have been
so incorporated by reference in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC under the Securities Act a registration
statement on Form S-3. This prospectus does not contain all of the information
contained in the registration statement, certain portions of which have been
omitted under the rules of the SEC. We also file annual, quarterly and special
reports, proxy statements and other information with the SEC under the Exchange
Act. The Exchange Act file number for our SEC filings is 000-21969. You may read
and copy the registration statement and any other document we file at the
following SEC public reference rooms:
Judiciary Plaza 500 West Madison Street 7 World Trade Center
450 Fifth Street, N.W. 14th Floor Suite 1300
Rm. 1024 Chicago, Illinois 60661 New York, New York 10048
Washington, D.C. 20549
You may obtain information on the operation of the public reference room in
Washington, D.C. by calling the SEC at 1-800-SEC-0330. We file information
electronically with the SEC. Our SEC filings are available from the SEC's
Internet site at http://www.sec.gov, which contains reports, proxy and
information statements and other information regarding issuers that file
electronically. You may read and copy our SEC filings and other information at
the offices of Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006.
INCORPORATION BY REFERENCE
The SEC allows us to "incorporate by reference" the documents we file with
it, which means that we can disclose important information to you by referring
you to those documents instead of reproducing that information in this
prospectus. The information incorporated by reference is considered to be part
of this prospectus, and information in documents that we file later with the SEC
will automatically update and supersede information in this prospectus. We
incorporate by reference the documents listed below:
- Our Annual Report on Form 10-K for the fiscal year ended October 31,
2000, as amended on January 18, 2001;
- Our Form 8-K filed on January 18, 2001;
- All documents filed by us pursuant to Section 13(a), 13(c), 14 or 15(d)
of the Securities Exchange Act of 1934 after the date of this prospectus
and before the termination of the offering; and
- The description of common stock contained in our Form 8-A filed on
January 13, 1997, as amended.
We will provide a copy of the documents we incorporate by reference, at no
cost, to any person who receives this prospectus. To request a copy of any or
all of these documents, you should write or telephone us at: 1201 Winterson
Road, Linthicum, MD, (410) 865-8500, Attention: Director, Investor Relations.
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No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus. You must
not rely on any unauthorized information or representations. This prospectus is
an offer to sell only the shares offered hereby, but only under circumstances
and in jurisdictions where it is lawful to do so. The information contained in
this prospectus is current only as of its date.
------------------------
TABLE OF CONTENTS
Page
----
Prospectus Summary................... 3
Risk Factors......................... 6
Forward Looking Statements........... 15
Use of Proceeds...................... 15
Price Range of Common Stock.......... 17
Dividend Policy...................... 17
Selected Consolidated
Financial Data..................... 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 19
Business............................. 26
Underwriting......................... 39
Legal Matters........................ 40
Experts.............................. 40
Where You Can Find
More Information................... 41
Incorporation by Reference........... 41
8,000,000 Shares
CIENA CORPORATION
Common Stock
------------------------
[Ciena logo]
------------------------
GOLDMAN, SACHS & CO.
MORGAN STANLEY DEAN WITTER
BANC OF AMERICA SECURITIES LLC
ROBERTSON STEPHENS
- ------------------------------------------------------
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- ------------------------------------------------------
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44
THE INFORMATION CONTAINED IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE
AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE
REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
IS EFFECTIVE. THIS PRELIMINARY PROSPECTUS IS NOT AN OFFER TO SELL THESE
SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY
STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION. DATED FEBRUARY 5, 2001.
[CIENA LOGO]
$350,000,000
CIENA CORPORATION
% Convertible Notes due , 2008
You may convert the notes into shares of CIENA Corporation's common stock at
any time before their maturity or their prior redemption or repurchase by CIENA.
The notes will mature on , 2008. The conversion rate is shares
per each $1,000 principal amount of notes, subject to adjustment in some
circumstances. This is equivalent to a conversion price of approximately
$ per share. On February 2, 2001, the last reported sale price for CIENA's
common stock on the Nasdaq National Market was $83.75 per share. The common
stock is quoted on the Nasdaq National Market under the symbol "CIEN".
CIENA will pay interest on the notes on February and August
of each year. The first interest payment will be made on August ,
2001. The notes will be issued only in denominations of $1,000 and integral
multiples of $1,000.
On or after the third business day after , 2004, CIENA has the
option to redeem all or a portion of the notes that have not been previously
converted at the redemption prices set forth in this prospectus. You have the
option, subject to certain conditions, to require CIENA to repurchase any notes
held by you in the event of a "change in control", as described in this
prospectus, at a price equal to 100% of the principal amount of the notes plus
accrued interest to the date of repurchase.
Concurrently with this offering, CIENA is also conducting a separate public
offering of 8,000,000 shares of its common stock by a separate prospectus.
Neither the completion of the common stock offering nor the completion of this
convertible debt offering is contingent upon the other.
See "Risk Factors" beginning on page 8 in this prospectus to read about
certain factors you should consider before buying our convertible debt
securities.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY
HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------
Per Note Total
-------- -----
Initial public offering price........................ % $
Underwriting discount................................ % $
Proceeds, before expenses, to CIENA.................. % $
The offering prices set forth above do not include accrued interest, if any.
Interest on the notes will accrue from the date of original issuance of the
notes, expected to be February , 2001.
To the extent the underwriters sell more than $350,000,000 of notes at the
initial public offering price, the underwriters have the option to purchase up
to an additional $52,500,000 of notes from CIENA at the initial offering price
less the underwriting discount.
------------------------
The underwriters expect to deliver the notes in book-entry form only through
the facilities of the Depository Trust Company in New York, New York on February
, 2001.
GOLDMAN, SACHS & CO.
MORGAN STANLEY DEAN WITTER
BANC OF AMERICA SECURITIES LLC
ROBERTSON STEPHENS
------------------------
Prospectus dated February , 2001
45
PROSPECTUS SUMMARY
You should read this summary together with the entire prospectus, including
the more detailed information in our financial statements and accompanying notes
incorporated by reference in this prospectus.
CIENA CORPORATION
We are an established leader in the rapidly growing intelligent optical
networking equipment market. We offer a comprehensive portfolio of products for
communications service providers worldwide, including long-distance and
metropolitan optical transport, intelligent optical core switching and network
management solutions. Our customers include long-distance carriers, competitive
and incumbent local exchange carriers, Internet service providers and wholesale
carriers. We have pursued a strategy to develop and leverage the power of our
technologies to change the fundamental economics of building carrier-class tele-
and data-communications networks, thereby providing our customers with a
competitive advantage. Our intelligent optical networking products are designed
to enable carriers to deliver any time, any size, any priority bandwidth to
their customers. Our optical networking products add intelligence to the
network, enabling communications service providers to optimize network capacity
and to offer a new range of services on demand at a substantially lower cost
than traditional products. Furthermore, our products allow service providers to
optimize their investments in fiber-optic infrastructure while positioning them
to easily transition to next-generation optical network architectures.
Rapidly increasing use of the Internet and Internet-based applications and
services has fueled dramatic growth in the volume of data traffic in the public
communications network. In response, communications service providers are making
significant investments to upgrade their network infrastructure by laying
fiber-optic cable and installing transmission equipment based on optical
technology. While advances in optical technology have enabled carriers to expand
network capacity, they continue to face critical challenges including network
scalability, escalating capital and operational costs and network management
difficulties.
We provide a comprehensive portfolio of optical networking solutions that
address these challenges by optimizing bandwidth in critical areas of service
provider networks: long-distance and metropolitan optical transport, intelligent
optical core switching and network management. Our solutions provide our
customers with the following benefits:
- greater bandwidth capacity;
- simplified and more scalable networks;
- enhanced network manageability;
- lower capital and operational costs;
- ability to provision high-bandwidth services rapidly and flexibly; and
- ability to offer new revenue-generating services.
We have shipped products to over 35 customers, including 27 new customers
since the end of fiscal 1998. Our customers include:
- Bell South;
- Broadwing;
- Cable & Wireless (U.S. & U.K.);
- CrossWave Communications;
- Enron;
- GTS (now known as eBone);
- MobilCom AG;
- PSINet;
- Qwest;
- Sprint;
- Telecom Developpement;
- Telia AB;
- Verizon;
- WorldCom (U.S. & Europe); and
- XO Communications.
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Our strategy is to maintain and build upon our market leadership in the
development and deployment of intelligent optical networking systems and to
leverage our bandwidth-optimizing technologies to provide solutions for both
voice and data communications-based networks. Important elements of our strategy
are to:
- expand our base of customers using our intelligent optical networking
solutions;
- increase sales and marketing efforts;
- continue to emphasize technical support and customer service;
- maintain world class manufacturing capability; and
- leverage bandwidth-optimizing technology and know-how.
Our revenue and net income for the fiscal year ended October 31, 2000 were
$858.8 million and $81.4 million, respectively. Of our revenue for this period,
33.0% was derived from international sales. We recorded revenue for the fiscal
year ended October 31, 2000 from sales to 32 customers, including 12 new
customers.
We were incorporated in Delaware in 1992. Our principal executive offices
are located at 1201 Winterson Road, Linthicum, Maryland 21090. Our telephone
number is (410) 865-8500.
RATIO OF EARNINGS TO FIXED CHARGES
We present below the ratio of our earnings to our fixed charges for each of
the fiscal years ended October 31, 1996, 1997, 1998, 1999 and 2000:
YEARS ENDED OCTOBER 31,
----------------------------------------
1996 1997 1998 1999 2000
----- ------ ------ ----- ------
Ratio of earnings to fixed charges..................... 33.8x 153.1x 36.2x -- 25.9x
===== ====== ====== ===== ======
These computations include CIENA and its consolidated subsidiaries. For
these ratios "earnings" represents income (loss) before taxes plus fixed
charges. "Fixed charges" consists of interest on all indebtedness and interest
expense under operating leases deemed by us to be representative of the interest
factor. Due to the loss before income taxes in the year ended October 31, 1999,
the ratio coverage was less than 1:1. CIENA must have generated additional
earnings of $5,991,000 to achieve a coverage ratio of 1:1 for the year ended
October 31, 1999.
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47
THE OFFERING
Securities offered......... $350.0 million aggregate principal amount of %
Convertible Notes due , 2008 ($402.5
million if the underwriters exercise their
overallotment option).
Offering price............. 100% of the principal amount of the notes, plus
accrued interest, if any, from February ,
2001.
Interest................... We will pay interest on the notes semi-annually on
February and August of each year, commencing
August , 2001.
Conversion................. You may convert your notes into shares of our
common stock at a conversion rate of shares of
common stock per $1,000 principal amount of notes.
This is equivalent to a conversion price of
approximately $ per share. The conversion rate
is subject to adjustment in certain events. The
notes will be convertible at any time before the
close of business on the maturity date, unless we
have previously redeemed or repurchased the notes.
You may convert your notes called for redemption or
submitted for repurchase up to and including the
business day immediately preceding the date fixed
for redemption or repurchase, as the case may be.
Global note; Book-entry
system................... We will issue the notes only in fully registered
form with interest coupons and in minimum
denominations of $1,000. The notes will be
evidenced by one or more global notes deposited
with the trustee for the notes, as custodian for
DTC. Beneficial interests in the global note will
be shown on, and transfers of those beneficial
interests can only be made through, records
maintained by DTC and its participants.
Optional redemption by
CIENA.................... On or after the third business day after February
, 2004, we have the right, at any time, to redeem
some or all of your notes at the redemption prices
set forth in this prospectus plus accrued and
unpaid interest.
Repurchase at the option of
the holders upon a change
in control............... In the event of a change in control, as that term
is defined in "Description of the
Notes -- Repurchase at Option of Holders Upon a
Change in Control", you will have the right,
subject to conditions and restrictions, to require
us to repurchase some or all of your notes at a
price equal to 100% of the principal amount, plus
accrued and unpaid interest to the repurchase date.
The repurchase price is payable in cash or, at our
option and subject to certain conditions, in shares
of our common stock, valued at 95% of the average
closing sales prices of the common stock for the
five trading days preceding and including the third
trading day prior to the repurchase date.
Use of proceeds............ We will use the net proceeds from the offering for
general corporate purposes, which may include
working capital, capital expenditures and
acquisitions. We have not determined the amount we
plan to spend on any of the uses described above or
the timing of these expenditures. Pending our use
of the net
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proceeds, we intend to invest them in short-term
interest-bearing, investment grade securities.
Events of default.......... The following will be events of default under the
indenture for the notes:
- we fail to pay principal of, or any premium on,
any note when due, whether or not the payment is
prohibited by the subordination provisions of the
indenture;
- we fail to pay any interest on any note when due
and that default continues for 30 days;
- we fail to provide the notice that we are
required to give in the event of a change in
control;
- we fail to perform any other covenant in the
indenture and that failure continues for 60 days
after written notice to us by the trustee or the
holders of at least 25% in aggregate principal
amount of outstanding notes;
- we or any of our significant subsidiaries fail to
pay when due at final maturity thereof, either at
its maturity or upon acceleration, any
indebtedness under any bonds, debentures, notes
or other evidences of indebtedness for money
borrowed, or any guarantee thereof, in excess of
$25 million if the indebtedness is not
discharged, or the acceleration is not annulled,
within 30 days after written notice to us by the
trustee or the holders of at least 25% in
aggregate principal amount of the outstanding
notes; and
- events of bankruptcy, insolvency or
reorganization with respect to us or any of our
significant subsidiaries specified in the
indenture.
Listing of notes........... The notes will not be listed on any securities
exchange or quoted on the Nasdaq National Market.
Our common stock is quoted on the Nasdaq National
Market under the symbol "CIEN".
Governing law.............. The indenture and the notes will be governed by the
laws of the State of New York.
CONCURRENT COMMON STOCK OFFERING
Concurrent with this offering of convertible notes, CIENA is conducting a
separate public offering of 8,000,000 shares of its common stock by a separate
prospectus. Neither the completion of the common stock offering nor the
completion of this convertible debt offering is contingent upon the other.
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RECENT DEVELOPMENTS
PROPOSED ACQUISITION OF CYRAS SYSTEMS, INC.
On December 19, 2000, we announced an agreement to acquire all of the
outstanding capital stock, options and warrants of Cyras Systems, Inc., a
privately held provider of next-generation optical networking systems based in
Fremont, California. As consideration in the acquisition, we agreed to issue a
total of approximately 27 million shares of our common stock and indirectly
assume $150 million principal amount of Cyras's convertible subordinated
indebtedness.
Cyras is designing and developing next-generation optical networking
solutions for telecommunications carriers. The Cyras K2 product, which is in the
development phase and is not yet ready for commercial manufacturing or
deployment, will enable carriers of metropolitan area networks to consolidate
multiple legacy network elements into a single transport and switching platform.
This consolidation results in the increased cost effectiveness, network
optimization and scalability that are demanded in today's increasingly
data-oriented carrier environment. We believe that the addition of the K2
product to our portfolio will increase our market opportunity by leveraging this
leading-edge product for the metropolitan network with our CoreDirector(TM) and
long-haul optical transport presence, extensive sales force and global services
and support infrastructure. These capabilities will enable us to offer carriers
seamless end-to-end service creation and management with unmatched scalability,
agility and efficiency using our LightWorks architecture for smart bandwidth
provisioning and network-wide service management.
We will account for the Cyras acquisition as a purchase. We expect to
complete the acquisition in the first calendar quarter of 2001. If and when we
complete the acquisition of Cyras, we will record a charge for acquired
in-process research and development, which we currently estimate will be
approximately $16.4 million, and will amortize goodwill and other intangibles of
approximately $1.6 billion over a three- to seven-year period and deferred stock
compensation of approximately $255 million over the relevant vesting periods. We
expect the Cyras acquisition to be dilutive to our fiscal 2001 earnings by $0.19
to $0.22 per share and, excluding one-time charges associated with the
acquisition and amortization of intangibles and deferred stock compensation,
accretive during the latter half of our fiscal 2002, assuming expected revenue
and cost synergies as well as anticipated product cost and pricing.
For the nine months ended September 30, 2000, Cyras recorded no revenues,
incurred operating expenses of $53.8 million and had a net loss of $54.4
million. Additional audited and unaudited financial information of Cyras, and
unaudited pro forma combined financial statements showing the pro forma effect
of the acquisition on our historical financial statements, are incorporated in
this prospectus by reference to our Form 8-K report filed on January 18, 2001.
The Cyras acquisition is subject to customary closing conditions, including
regulatory approvals. See "Risk Factors -- Risks Related to the Cyras
Acquisition".
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RISK FACTORS
Investing in our securities involves a high degree of risk. Before making
an investment decision, you should carefully consider the risk factors set forth
below as well as other information we include or incorporate by reference in
this prospectus and the additional information in the other reports we file with
the SEC. The risks and uncertainties we have described are not the only ones
facing our company. Additional risks and uncertainties not presently known to us
or that we currently deem immaterial may also affect us.
OUR RESULTS CAN BE UNPREDICTABLE
Our ability to recognize revenue during a quarter from a customer depends
upon our ability to ship product and satisfy other contractual obligations of a
customer sale in that quarter. In general, revenue and operating results in any
reporting period may fluctuate due to factors including:
- loss of a customer;
- the timing and size of orders from customers;
- changes in customers' requirements, including changes to orders from
customers;
- the introduction of new products by us or our competitors;
- changes in the price or availability of components for our products;
- readiness of customer sites for installation;
- satisfaction of contractual customer acceptance criteria and related
revenue recognition issues;
- manufacturing and shipment delays and deferrals;
- increased service, warranty or repair costs;
- the timing and amount of employer payroll tax to be paid on employee
gains on stock options exercised; and
- changes in general economic conditions as well as those specific to the
telecommunications and intelligent optical networking industries.
Our intelligent optical networking products require a relatively large
investment, and our target customers are highly demanding and technically
sophisticated. There are only a limited number of potential customers in each
geographic market, and each customer has unique needs. As a result, the sales
cycles for our products are long, often more than a year between our initial
contact with the customer and its commitment to purchase.
We budget expense levels on our expectations of long-term future revenue.
These budgets reflect our substantial investment in the financial, engineering,
manufacturing and logistics support resources we think we may need for large
potential customers, even though we do not know the volume, duration or timing
of any purchases from them. In addition, we make a substantial investment in
financial, manufacturing and engineering resources for the development of new
and enhanced products. As a result, we may continue to experience high inventory
levels, operating expenses and general overhead.
We have experienced rapid expansion in all areas of our operations,
particularly in the manufacturing of our products. Our future operating results
will depend on our ability to continue to expand our manufacturing facilities in
a timely manner so that we can satisfy our delivery commitments to our
customers. Our failure to expand these facilities in a timely manner and meet
our customer delivery commitments would harm our business, financial condition
and results of operations.
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Our product development efforts will require us to incur ongoing
development and operating expenses, and any delay in the contributions from new
products, such as the MultiWave CoreDirector product line, and enhancements to
our existing optical transport products could harm our business.
CHANGES IN TECHNOLOGY OR THE DELAYS IN THE DEPLOYMENT OF NEW PRODUCTS COULD HURT
OUR NEAR-TERM PROSPECTS
The market for optical networking equipment is changing at a rapid pace.
The accelerated pace of deregulation and the adoption of new technology in the
telecommunications industry likely will intensify the competition for improved
optical networking products. Our ability to develop, introduce and manufacture
new and enhanced products will depend upon our ability to anticipate changes in
technology, industry standards and customer requirements. Our failure to
introduce new and enhanced products in a timely manner could harm our
competitive position and financial condition. Several of our new products,
including the MultiWave CoreDirector and the enhancements to the MultiWave
CoreStream products, are based on complex technology which could result in
unanticipated delays in the development, manufacture or deployment of these
products. In addition, our ability to recognize revenue from these products
could be adversely affected by the extensive testing required for these products
by our customers. The complexity of technology associated with support equipment
for these products could also result in unanticipated delays in their
deployment. These delays could harm our competitive and financial condition.
Competition from competitive products, the introduction of new products
embodying new technologies, a change in the requirements of our customers, or
the emergence of new industry standards could delay or hinder the purchase and
deployment of our products and could render our existing products obsolete,
unmarketable or uncompetitive from a pricing standpoint. The long certification
process for new telecommunications equipment used in the networks of the
regional Bell operating companies, referred to as RBOCs, 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.
WE FACE INTENSE COMPETITION WHICH COULD HURT OUR SALES AND PROFITABILITY
The market for optical networking equipment is extremely competitive.
Competition in the optical networking installation and test services market is
based on varying combinations of price, functionality, software functionality,
manufacturing capability, installation, services, scalability and the ability of
the system solution to meet customers' immediate and future network
requirements. A small number of very large companies, including Alcatel, Cisco
Systems, Fujitsu Group, Hitachi, Lucent Technologies, NEC Corporation, Nortel
Networks, Siemens AG and Telefon AB LM Ericsson, have historically dominated the
telecommunications equipment industry. These companies have substantial
financial, marketing, manufacturing and intellectual property resources. In
addition, these companies have substantially greater resources to develop or
acquire new technologies than we do and often have existing relationships with
our potential customers. We sell systems that compete directly with product
offerings of these companies and in some cases displace or replace equipment
they have traditionally supplied for telecommunications networks. As such, we
represent a specific threat to these companies. The continued expansion of our
product offerings with the MultiWave CoreDirector product line and enhancements
to our MultiWave CoreStream product line likely will increase this perceived
threat. We expect continued aggressive tactics from many of these competitors,
including:
- price discounting;
- early announcements of competing products and other marketing efforts;
- "one-stop shopping" options;
- customer financing assistance;
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- marketing and advertising assistance; and
- intellectual property disputes.
These tactics can be particularly effective in a highly concentrated
customer base such as ours. Our customers are under increasing competitive
pressure to deliver their services at the lowest possible cost. This pressure
may result in pricing for optical networking systems becoming a more important
factor in customer decisions, which may favor larger competitors that can spread
the effect of price discounts in their optical networking products across a
larger array of products and services and across a larger customer base than
ours. If we are unable to offset any reductions in the average sales price for
our products by a reduction in the cost of our products, our gross profit
margins will be adversely affected. Our inability to compete successfully
against our competitors and maintain our gross profit margins would harm our
business, financial condition and results of operations.
Many of our customers have indicated that they intend to establish a
relationship with at least two vendors for optical networking products. With
respect to customers for whom we are the only supplier, we do not know when or
if these customers will select a second vendor or what impact the selection
might have on purchases from us. If a second optical networking supplier is
chosen, these customers could reduce their purchases from us, which could in
turn have a material adverse effect on us.
New competitors are emerging to compete with our existing products as well
as our future products. We expect new competitors to continue to emerge as the
optical networking market continues to expand. These companies may achieve
commercial availability of their products more quickly due to the narrow and
exclusive focus of their efforts. Several of these competitors have raised
significantly more cash and they have in some cases offered stock in their
companies, positions on technical advisory boards, or have provided significant
vendor financing to attract new customers. In particular, a number of companies,
including several start-up companies and recently public companies that have
raised substantial equity capital, have announced products that compete with our
products. Our inability to compete successfully against these companies would
harm our business, financial condition and results of operations.
WE MAY NOT BE ABLE TO SUCCESSFULLY COMPLETE DEVELOPMENT AND ACHIEVE COMMERCIAL
ACCEPTANCE OF NEW PRODUCTS
Our MultiWave CoreDirector CI product and some enhancements to the
MultiWave CoreDirector and MultiWave CoreStream product lines and LightWorks
Toolkit are in the development phase and are not yet ready for commercial
manufacturing or deployment. We expect to offer additional releases of the
MultiWave CoreDirector product over the life of the product and continue to
enhance features of our MultiWave CoreStream product, including the longer reach
and higher channel count functionality of our product line. The initial release
of MultiWave CoreDirector CI is expected in limited availability for customer
trials during the first calendar quarter of 2001. The maturing process from
laboratory prototype to customer trials, and subsequently to general
availability, involves a number of steps, including:
- completion of product development;
- the qualification and multiple sourcing of critical components, including
application-specific integrated circuits, referred to as ASICs;
- validation of manufacturing methods and processes;
- extensive quality assurance and reliability testing, and staffing of
testing infrastructure;
- validation of embedded software;
- establishment of systems integration and systems test validation
requirements; and
- identification and qualification of component suppliers.
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Each of these steps in turn presents serious risks of failure, rework or
delay, any one of which could decrease the speed and scope of product
introduction and marketplace acceptance of the product. Specialized ASICs and
intensive software testing and validation, in particular, are key to the timely
introduction of enhancements to the MultiWave CoreDirector product line, and
schedule delays are common in the final validation phase, as well as in the
manufacture of specialized ASICs. In addition, unexpected intellectual property
disputes, failure of critical design elements, and a host of other execution
risks may delay or even prevent the introduction of these products. If we do not
develop and successfully introduce these products in a timely manner, our
business, financial condition and results of operations would be harmed.
The markets for our MultiWave CoreDirector product line are relatively new.
We have not established commercial acceptance of these products, and we cannot
assure you that the substantial sales and marketing efforts necessary to achieve
commercial acceptance in traditionally long sales cycles will be successful. If
the markets for these products do not develop or the products are not accepted
by the market, our business, financial condition and results of operations would
suffer.
WE DEPEND ON A LIMITED NUMBER OF SUPPLIERS AND FOR SOME ITEMS WE DO NOT HAVE A
SUBSTITUTE SUPPLIER
We depend on a limited number of suppliers for components of our products,
as well as for equipment used to manufacture and test our products. Our products
include several high-performance components for which reliable, high-volume
suppliers are particularly limited. Furthermore, some key optical and electronic
components we use in our optical transport systems are currently available only
from sole sources, and in some cases, that sole source is also a competitor. A
worldwide shortage of some electrical components has caused an increase in the
price of components. Any delay in component availability for any of our products
could result in delays in deployment of these products and in our ability to
recognize revenues. These delays could also harm our customer relationships.
Failures of components can affect customer confidence in our products and
could adversely affect our financial performance and the reliability and
performance of our products. On occasion, we have experienced delays in receipt
of components and have received components that do not perform according to
their specifications. Any future difficulty in obtaining sufficient and timely
delivery of components could result in delays or reductions in product shipments
which, in turn, could harm our business. A recent wave of consolidation among
suppliers of these components, such as the recent and pending purchases of E-TEK
and SDL, respectively, by JDS Uniphase, could adversely impact the availability
of components on which we depend. Delayed deliveries of key components from
these sources could adversely affect our business.
Any delays in component availability for any of our products or test
equipment could result in delays in deployment of these products and in our
ability to recognize revenue from them. These delays could also harm our
customer relationships and our results of operations.
WE RELY ON CONTRACT MANUFACTURERS FOR OUR PRODUCTS
We rely on a small number of contract manufacturers to manufacture our
CoreDirector product line and some of the components for our other products. The
qualification of these manufacturers is an expensive and time-consuming process,
and these contract manufacturers build modules for other companies, including
for our competitors. In addition, we do not have contracts in place with many of
these manufacturers. We may not be able to effectively manage our relationships
with our manufacturers and we cannot be certain that they will be able to fill
our orders in a timely manner. If we cannot effectively manage these
manufacturers or they fail to deliver components in a timely manner, it may have
an adverse effect on our business and results of operations.
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SOME OF OUR SUPPLIERS ARE ALSO OUR COMPETITORS
Some of our component suppliers are both primary sources for components and
major competitors in the market for system equipment. For example, we buy
components from:
- Alcatel;
- Lucent Technologies;
- NEC Corporation;
- Nortel Networks; and
- Siemens AG.
Each of these companies offers optical communications systems and equipment
that are competitive with our products. Also, Lucent is the sole source of two
components and is one of two suppliers of two others. Recently, Lucent has
announced that it intends to spin off a portion of its components business. Our
supply of components from Lucent may be adversely affected by this
restructuring. 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 harm our
business.
SALES TO EMERGING CARRIERS MAY INCREASE THE UNPREDICTABILITY OF OUR RESULTS
As we continue to address emerging carriers, timing and volume of
purchasing from these carriers can also be more unpredictable due to factors
such as their need to build a customer base, acquire rights of way and
interconnections necessary to sell network service, and build out new capacity,
all while working within their capital budget constraints. Sales to these
carriers may increase the unpredictability of our financial results because even
these emerging carriers purchase our products in multi-million dollar
increments.
Unanticipated changes in customer purchasing plans also create
unpredictability in our results. A portion of our anticipated revenue over the
next several quarters is comprised of orders of less than $25 million each from
several customers, some of which may involve extended payment terms or other
financing assistance. Our ability to recognize revenue from financed sales to
emerging carriers will depend on the relative financial condition of the
specific customer, among other factors. Further, we will need to evaluate the
collectibility of receivables from these customers if their financial conditions
deteriorate in the future. Purchasing delays and changes in the financial
condition or the amount of purchases by any of these customers could have a
material adverse effect on us. In the past we have had to make provisions for
the accounts receivables from customers that experienced financial difficulty.
If additional customers face similar financial difficulties, our receivables
from these customers may become uncollectible, and we would have to write off
the asset or decrease the value of the asset to the extent the receivable could
not be collected. These write-downs or write-offs would adversely affect our
financial performance.
OUR ABILITY TO COMPETE COULD BE HARMED IF WE ARE UNABLE TO PROTECT AND ENFORCE
OUR INTELLECTUAL PROPERTY RIGHTS OR IF WE INFRINGE ON INTELLECTUAL PROPERTY
RIGHTS OF OTHERS
We rely on a combination of patent, copyright, trademark and trade secret
laws and restrictions on disclosure to protect our intellectual property rights.
We also enter into non-disclosure and proprietary rights agreements with our
employees and consultants, and license agreements with our corporate partners,
and control access to and distribution of our products, documentation and other
proprietary information. Despite our efforts to protect our proprietary rights,
unauthorized parties may attempt to copy or otherwise obtain and use our
products or technology. Monitoring unauthorized use of our products is difficult
and we cannot be certain that the steps we have taken will prevent unauthorized
use of our technology, particularly in foreign countries where the laws may not
protect our proprietary rights as fully as in the United States. If competitors
are able to use our technology, our ability to compete effectively could be
harmed. We are involved in an intellectual property dispute regarding the use of
our technology and may
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become involved with additional disputes in the future. Such lawsuits can be
costly and may significantly divert time and attention from some members of our
personnel.
We have received, and may receive in the future, notices from holders of
patents in the optical technology field that raise issues of possible
infringement by our products. Questions of infringement in the optical
networking equipment market often involve highly technical and subjective
analysis. We cannot assure you that any of these patent holders or others will
not in the future initiate legal proceedings against us, or that we will be
successful in defending against these actions. We are involved in an
intellectual property dispute regarding the possible infringement of our
products. In the past, we have been forced to take a license from the owner of
the infringed intellectual property, or to redesign or stop selling the product
that includes the challenged intellectual property. If we are sued for
infringement and are unsuccessful in defending the suit, we could be subject to
significant damages, and our business and customer relationships could be
adversely affected.
PRODUCT PERFORMANCE PROBLEMS COULD LIMIT OUR SALES PROSPECTS
The production of new optical networking products and systems with high
technology content involves occasional problems as the technology and
manufacturing methods mature. If significant reliability, quality or network
monitoring problems develop, including those due to faulty components, a number
of negative effects on our business could result, including:
- costs associated with reworking our manufacturing processes;
- high service and warranty expenses;
- high inventory obsolescence expense:
- high levels of product returns;
- delays in collecting accounts receivable;
- reduced orders from existing customers; and
- declining interest from potential customers.
Although we maintain accruals for product warranties, actual costs could
exceed these amounts. From time to time, there will be interruptions or delays
in the activation of our products at a customer's site. These interruptions or
delays may result from product performance problems or from aspects of the
installation and activation activities, some of which are outside our control.
If we experience significant interruptions or delays that we can not promptly
resolve, confidence in our products could be undermined, which could harm our
business.
OUR PROSPECTS DEPEND ON DEMAND WHICH WE CANNOT RELIABLY PREDICT OR CONTROL
We may not anticipate changes in direction or magnitude of demand for our
products. The product offerings of our competitors could adversely affect the
demand for our products. In addition, unanticipated reductions in demand for our
products could adversely affect us.
Demand for our products depends on our customers' requirements. These
requirements may vary significantly from quarter to quarter due to factors such
as:
- the type and quantity of optical equipment needed by our customers;
- the timing of the deployment of optical equipment by our customers;
- the rate at which our current customers fund their network build-outs;
and
- the equipment configurations and network architectures our customers
want.
Customer determinations are subject to abrupt changes in response to their
own competitive pressures, capital requirements and financial performance
expectations. These changes could harm our business.
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Recently we have experienced an increased level of sales activity that
could lead to an upsurge in demand that is reflected in the overall increase in
demand for optical networking and similar products in the telecommunications
industry. Our results may suffer if we are unable to address this demand
adequately by successfully scaling up our manufacturing capacity and hiring
additional qualified personnel. To date we have largely depended on our own
manufacturing and assembly facilities to meet customer expectations, but we
cannot be sure that we can satisfy our customers' expectations in all cases by
internal capabilities. In that case, we face the challenge of adequately
managing customer expectations and finding alternative means of meeting them. If
we fail to manage these expectations we could lose customers or receive smaller
orders from customers.
OUR SUCCESS LARGELY DEPENDS ON OUR ABILITY TO RETAIN KEY PERSONNEL
Our success has always depended in large part on our ability to attract and
retain highly-skilled technical, managerial, sales and marketing personnel,
particularly those skilled and experienced with optical communications
equipment. Our key founders and employees, together with the key founders and
employees of our acquired companies, have received a substantial number of our
shares and vested options that can be sold at substantial gains. In many cases,
these individuals could become financially independent through these sales
before our future products have matured into commercially deliverable products.
These circumstances may make it difficult to retain and motivate these key
personnel.
As we have grown and matured, competitors' efforts to hire our employees
have intensified, particularly among competitive start-up companies and other
early stage companies. We have agreements in place with most of our employees
that limit their ability to work for a competitor and prohibit them from
soliciting our other employees and our customers following termination of their
employment. Our employees and our competitors may not respect these agreements.
We have in the past been required to enforce, and are currently in the process
of enforcing, some of these agreements. We expect in the future to continue to
be required to resort to legal actions to enforce these agreements and could
incur substantial costs in doing so. We may not be successful in these legal
actions, and we may not be able to retain all of our key employees or attract
new personnel to add to or replace them. The loss of key personnel would likely
harm our business.
PART OF OUR STRATEGY INVOLVES PURSUING STRATEGIC ACQUISITIONS THAT MAY NOT BE
SUCCESSFUL
As part of our strategy for growth, we will consider acquiring businesses
that are intended to accelerate our product and service development processes
and add complementary products and services. We may issue equity or incur debt
to finance these acquisitions and may incur significant amortization expenses
related to goodwill and other intangible assets. Acquisitions involve a number
of operational risks, including risks that the acquired business will not be
successfully integrated, may distract management attention and may involve
unforeseen costs and liabilities.
RISKS RELATED TO THE CYRAS ACQUISITION
THE ACQUISITION MAY NOT BE COMPLETED
We currently expect to complete the acquisition of Cyras Systems, Inc. in
the first calendar quarter of 2001, but because completion is subject to
regulatory approvals and a shareholder vote of Cyras, the acquisition may be
delayed or not completed at all.
WE MAY NOT BE ABLE TO ACHIEVE THE BENEFITS WE SEEK FROM THE ACQUISITION OR TO
INTEGRATE CYRAS SUCCESSFULLY INTO OUR OPERATIONS
Even if the acquisition of Cyras is completed, we cannot be certain that we
will achieve the benefits we envision from the acquisition. These benefits,
including the accretion to our earnings,
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which we expect to achieve in the second half of fiscal 2002, depend on our
ability to successfully complete the development of the Cyras K2 product and
integrate it into our product portfolio, achieve market acceptance for the Cyras
product, achieve our revenue expectations for the Cyras product and the expected
synergies, and successfully integrate and retain Cyras personnel. Cyras's
product is in the development phase and is not yet ready for commercial
manufacturing or deployment, and we cannot assure you that the substantial
efforts necessary to complete development of the product and achieve commercial
acceptance will be successful. We have only limited experience in significant
acquisitions and cannot assure you that this acquisition will be successful.
The integration of Cyras into our operations following our merger with
Cyras involves a number of risks, including:
- difficulty assimilating Cyras's operations and personnel;
- diversion of management attention;
- potential disruption of ongoing business;
- inability to retain key personnel;
- inability to maintain uniform standards, controls, procedures and
policies; and
- impairment of relationships with employees, customers or vendors.
Failure to overcome these risks or any other problems encountered in
connection with the merger could have a material adverse effect on our business,
results of operations and financial condition.
SIGNIFICANT MERGER-RELATED CHARGES AGAINST EARNINGS WILL REDUCE OUR EARNINGS IN
THE QUARTER IN WHICH WE CONSUMMATE THE MERGER AND DURING THE POST-MERGER
INTEGRATION PERIOD
If and when we complete the acquisition of Cyras, we will incur a charge
for in-process research and development, which we currently estimate will be
approximately $16.4 million. The actual charge we incur could be greater than
this estimate, which could have a material adverse effect on our results of
operations and financial condition. Also, in the future we will incur non-cash
charges in connection with the merger related to goodwill and other intangible
amortization and amortization of deferred stock compensation. Other
merger-related costs will be capitalized as part of the acquisition's purchase
price and amortized in future periods. We could also incur other additional
unanticipated merger costs relating to our acquisition of Cyras.
WE WILL INCUR SIGNIFICANT ADDITIONAL DEBT IN CONNECTION WITH THE MERGER
Cyras has $150 million of 4 1/2% convertible subordinated notes
outstanding. We will indirectly assume these notes at the effective date of the
merger. This additional indebtedness could adversely affect CIENA in a number of
ways, including:
- limiting our ability to obtain necessary financing in the future;
- limiting our flexibility to plan for, or react to, changes in our
business;
- requiring us to use a substantial portion of our cash flow from
operations or utilize a significant portion of cash on hand to repay the
debt when due in August 2005, or earlier if we are required to offer to
repurchase the notes, as described below, rather than for other purposes,
such as working capital or capital expenditures;
- making us more highly leveraged than some of our competitors, which may
place us at a competitive disadvantage; and
- making us more vulnerable to a downturn in our business.
Additionally, in the event that the holders of the notes convert their
notes into our common stock, we would have to issue a significant number of
shares of additional common stock. For example, if our merger with Cyras had
closed on December 28, 2000, when the estimated
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exchange ratio would have been approximately 0.13, we would have had to issue
approximately 1,000,000 shares of our common stock if holders of the entire $150
million of convertible notes decided to convert their notes.
In the event that the holders of the notes do not elect to convert them
into our common stock before March 31, 2002, and if a "complying public equity
offering" has not occurred on or before that date, we will have to make an offer
to repurchase the notes at 118.942% of the principal balance of the notes on
April 30, 2002. A "complying public equity offering" is defined as a firm
commitment underwritten public offering of the common stock of Cyras, in which
Cyras raises at least $50 million in gross proceeds.
FOLLOWING THE COMPLETION OF OUR ACQUISITION OF CYRAS, A SIGNIFICANT NUMBER OF
ADDITIONAL SHARES WILL BE ADDED TO OUR PUBLIC FLOAT
We will issue approximately 27 million shares of our common stock as
consideration in the Cyras acquisition. These shares represent 9.4% of our
outstanding common stock as of February 1, 2001. Almost all of these shares will
be freely tradable immediately following the closing of the acquisition which is
currently expected to be in the first calendar quarter of 2001. Any sales of
substantial numbers of shares of our common stock in the public market following
the completion of the Cyras acquisition could adversely affect the market price
of our common stock.
RISKS RELATED TO THE NOTES
SIGNIFICANT LEVERAGE AND DEBT SERVICE OBLIGATIONS MAY ADVERSELY AFFECT OUR CASH
FLOW AND OUR ABILITY TO REPAY OR REPURCHASE THE NOTES
We will have significant amounts of outstanding indebtedness, primarily
related to the notes, upon the completion of this offering, and will assume
significant additional indebtedness if our acquisition of Cyras is consummated.
As a result of this indebtedness, our principal and interest payment obligations
will increase substantially. There is the possibility that we may be unable to
generate sufficient cash to pay the principal of, interest on and other amounts
due in respect of our indebtedness, including the notes, when due. We may also
add equipment loans and lease lines to finance capital expenditures and may
obtain additional long-term debt, working capital lines of credit and lease
lines.
Our significant leverage could have important negative consequences,
including:
- increasing our vulnerability to general adverse economic and industry
conditions;
- limiting our ability to obtain additional financing;
- requiring the dedication of a substantial portion of our expected cash
flow from operations to service our indebtedness, thereby reducing the
amount of our expected cash flow available for other purposes, including
capital expenditures;
- limiting our flexibility in planning for, or reacting to, changes in our
business and the industry in which we compete;
- placing us at a possible competitive disadvantage relative to less
leveraged competitors and competitors that have better access to capital
resources; and
- making it difficult or impossible for us to pay the principal amount of
the notes at maturity or the repurchase price of the notes upon a change
of control, thereby causing an event of default under the indenture.
In addition, the notes will be our obligation exclusively. The indenture
for the notes does not limit our ability, or that of our subsidiaries, to incur
other indebtedness and liabilities. We may have difficulty paying what we owe
under the notes if we or our subsidiaries incur additional indebtedness or other
liabilities.
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THERE CURRENTLY IS NO PUBLIC MARKET FOR THE NOTES BEING OFFERED
Prior to the sale of the notes in this offering, there has been no public
market for any of the notes, and there can be no assurance as to:
- the liquidity of any such market that may develop;
- the ability of the holders to sell their notes; or
- the price at which the holders would be able to sell their notes.
If such a market were to exist, the notes could trade at prices that may be
higher or lower than the principal amount or purchase price, depending on many
factors, including prevailing interest rates, the market for similar notes, and
our financial performance. We do not presently intend to apply for the listing
of the notes on any securities exchange or for inclusion of the notes in the
automated quotation system of the National Association of Securities Dealers,
Inc.
The underwriters have advised us that they presently intend to make a
market in the notes. The underwriters are not obligated, however, to make a
market in the notes, and any such market-making may be discontinued at any time
at the sole discretion of the underwriters. In addition, such market-making
activity will be subject to the limits imposed by the Securities Act. and the
Exchange Act. Accordingly, no assurance can be given as to the development or
liquidity of any market for the notes.
FUTURE SALES OF OUR COMMON STOCK COULD DEPRESS THE PRICE OF OUR NOTES
Sales of substantial amounts of common stock by our officers, directors and
other stockholders in the public market after this offering, or the awareness
that a large number of shares is available for sale, could adversely affect the
market price of our notes and common stock. In addition to the adverse effect a
price decline would have on holders of our notes and common stock, that decline
would impede our ability to raise capital through the issuance of additional
shares of common stock or other equity or convertible debt securities.
Substantially all of the shares of our common stock currently outstanding are
eligible for resale in the public market. Furthermore, we will issue
approximately 27 million additional shares of common stock if our acquisition of
Cyras is consummated, almost all of which will be freely tradeable.
Although some of our officers and directors have agreed that for 90 days
after the date of this prospectus they will not offer, sell, contract to sell or
otherwise dispose of any shares of our common stock, Goldman, Sachs & Co. may,
in its discretion, waive this lock-up at any time for any holder.
OUR STOCK PRICE MAY EXHIBIT VOLATILITY
Our common stock price has experienced substantial volatility in the past,
and is likely to remain volatile in the future. The value of the notes will
depend, in part, on the market price of our common stock. Volatility can arise
as a result of the activities of short sellers and risk arbitrageurs, and may
have little relationship to our financial results or prospects. Volatility can
also result from any divergence between our actual or anticipated financial
results and published expectations of analysts, and announcements that we, our
competitors, or our customers may make.
Divergence between our actual results and our anticipated results, analyst
estimates and public announcements by us, our competitors, or by customers will
likely occur from time to time in the future, with resulting stock price
volatility, irrespective of our overall year-to-year performance or long-term
prospects. As long as we continue to depend on a limited customer base, and
particularly when a substantial majority of their purchases consist of
newly-introduced products like the MultiWave CoreStream, MultiWave CoreDirector
and MultiWave Metro, there is substantial risk that our quarterly results will
vary widely.
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FORWARD LOOKING STATEMENTS
Some of the statements contained, or incorporated by reference, in this
prospectus 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 throughout this prospectus.
USE OF PROCEEDS
We estimate that our net proceeds from the sale of our convertible notes
will be approximately $339.2 million, after deducting an assumed underwriting
discount and estimated offering expenses. If the underwriters' option to
purchase additional convertible notes in this offering is exercised in full, we
estimate that our net proceeds will be approximately $390.1 million.
Concurrent with the offering of convertible notes, CIENA is conducting a
separate offering of 8,000,000 shares of common stock. This offering of
convertible notes is not conditioned on the completion of the offering of our
common stock.
We may use the net proceeds for working capital, capital expenditures,
acquisitions and other general corporate purposes.
We have not determined the amounts we plan to spend on any of the uses
described above or the timing of these expenditures. Pending our use of the net
proceeds, we intend to invest them in short-term, interest-bearing, investment
grade securities.
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SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations." CIENA has a 52- or 53-week fiscal year which ends on
the Saturday nearest to the last day of October in each year. For purposes of
financial statement presentation, each fiscal year is described as having ended
on October 31. Fiscal 1997, 1998, 1999 and 2000 comprised 52 weeks and fiscal
1996 comprised 53 weeks.
YEAR ENDED OCTOBER 31,
----------------------------------------------------
1996 1997 1998 1999 2000
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenue............................... $ 88,463 $413,215 $508,087 $482,085 $858,750
Cost of goods sold.................... 47,315 166,472 256,014 299,769 477,393
-------- -------- -------- -------- --------
Gross profit........................ 41,148 246,743 252,073 182,316 381,357
-------- -------- -------- -------- --------
Operating expenses:
Research and development............ 8,922 23,773 73,756 104,641 129,069
Selling and marketing............... 5,641 22,627 47,343 61,603 90,922
General and administrative.......... 6,346 11,476 18,468 22,736 34,000
Settlement of accrued contract
obligation....................... -- -- -- -- (8,538)
Purchased research and
development...................... -- -- 9,503 -- --
Pirelli litigation.................. -- 7,500 30,579 -- --
Merger related costs................ -- -- 2,548 13,021 --
Provision for doubtful accounts..... 76 489 806 250 28,010
-------- -------- -------- -------- --------
Total operating expenses.... 20,985 65,865 183,003 202,251 273,463
-------- -------- -------- -------- --------
Income (loss) from operations......... 20,163 180,878 69,070 (19,935) 107,894
Other income (expense), net........... 653 7,178 12,830 13,944 12,680
-------- -------- -------- -------- --------
Income (loss) before income taxes..... 20,816 188,056 81,900 (5,991) 120,574
Provision (benefit) for income
taxes............................... 3,553 72,488 36,200 (2,067) 39,187
-------- -------- -------- -------- --------
Net income (loss)..................... $ 17,263 $115,568 $ 45,700 $ (3,924) $ 81,387
======== ======== ======== ======== ========
Basic net income (loss) per common
share............................... $ 0.62 $ 0.76 $ 0.19 $ (0.01) $ 0.29
======== ======== ======== ======== ========
Diluted net income (loss) per common
and dilutive potential common
share............................... $ 0.09 $ 0.55 $ 0.18 $ (0.01) $ 0.27
======== ======== ======== ======== ========
Weighted average basic common shares
outstanding......................... 27,634 151,928 235,980 267,042 281,621
======== ======== ======== ======== ========
Weighted average basic common and
dilutive potential common shares
outstanding......................... 184,814 209,686 255,788 267,042 299,662
======== ======== ======== ======== ========
OCTOBER 31,
-----------------------------------------------------
1996 1997 1998 1999 2000
------- -------- -------- -------- ----------
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents............ $24,040 $273,286 $250,714 $143,440 $ 143,187
Working capital...................... 42,240 338,078 391,305 427,471 639,675
Total assets......................... 79,676 468,247 602,809 677,835 1,027,201
Long-term obligations, excluding
current portion.................... 3,465 1,900 3,029 4,881 4,882
Mandatorily redeemable preferred
stock.............................. 40,404 -- -- -- --
Stockholders' equity................. 10,783 377,278 501,036 530,473 809,835
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Data."
OVERVIEW
CIENA is a leader in the rapidly growing intelligent optical networking
equipment market. We offer a comprehensive portfolio of products for
communications service providers worldwide. Our customers include long-distance
carriers, competitive and incumbent local exchange carriers, Internet service
providers, wireless and wholesale carriers. CIENA offers optical transport and
intelligent optical switching systems that enable service providers to
provision, manage and deliver high-bandwidth services to their customers.
CIENA's intelligent optical networking products are designed to enable carriers
to deliver any time, any size, any priority bandwidth to their customers.
CIENA has increased the number of revenue-generating optical networking
equipment customers from a total of 27 customers during fiscal 1999 to 32
customers for fiscal 2000. During fiscal 2000, three customers each represented
more than 10% of CIENA's total revenues. We intend to preserve and enhance our
market leadership and eventually build on our installed base with new and
additional products. CIENA believes that its product and service quality,
manufacturing experience, and proven track record of delivery will enable it to
endure competitive pricing pressure while concentrating on efforts to reduce
product costs and maximize production efficiencies. See "Risk Factors" in the
prospectus.
As of October 31, 2000, CIENA and its subsidiaries employed approximately
2,775 persons, which was an increase of 847 persons over the approximate 1,928
employed on October 31, 1999.
RESULTS OF OPERATIONS
FISCAL YEARS ENDED 2000, 1999 AND 1998
REVENUE. CIENA recognized $858.8 million, $482.1 million and $508.1
million in revenue for the fiscal years ended October 31, 2000, 1999 and 1998,
respectively. The approximate $376.7 million or 78.1% increase in revenue from
fiscal 1999 to fiscal 2000 was due primarily to an increase in product shipments
across all product lines. The approximate $26.0 million or 5.1% decrease in
revenue from fiscal 1998 to fiscal 1999 was largely the result of reduced
selling prices.
CIENA recognized revenues from a total of 32, 27, and 14 optical equipment
customers during fiscal 2000, 1999, and 1998, respectively. During fiscal year
2000, Sprint, Qwest Communications and GTS Network Ltd. each accounted for at
least 10% or more of CIENA's revenue and all three combined accounted for 60.9%
of CIENA's fiscal 2000 revenue. During fiscal year 1999 Sprint, WorldCom and GTS
Network Ltd. each accounted for at least 10% or more of CIENA's revenue and all
three combined accounted for 46.2% of CIENA's fiscal 1999 revenue. This compares
to fiscal 1998 in which Sprint was the only 10% customer and in total accounted
for 52.5% of CIENA's fiscal 1998 revenue. Revenue derived from foreign sales
accounted for approximately 33.0%, 44.3%, and 23.0% of CIENA's total revenues
during fiscal 2000, 1999, and 1998, respectively.
For fiscal 2000, CIENA's optical network equipment revenues were derived
from sales of the MultiWave Sentry 4000, MultiWave CoreStream configured for
both 2.5 gigabits per second ("Gbps") and 10.0 Gbps transmission rates,
MultiWave Sentry 1600, MultiWave Metro, MultiWave 1600, MultiWave CoreDirector,
MultiWave Firefly systems and MultiWave MetroOne. During fiscal 1999, CIENA
recognized revenues from sales of MultiWave Sentry 4000, MultiWave Sentry 1600,
MultiWave 1600, MultiWave Metro, MultiWave Firefly, and MultiWave CoreStream
systems. During fiscal 1998, CIENA recognized revenues from sales of MultiWave
Sentry 1600,
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MultiWave 1600, MultiWave Firefly and MultiWave Sentry 4000 systems. The
revenues for fiscal 2000 improved as compared to fiscal 1999 due to increased
sales of MultiWave Sentry 4000, MultiWave CoreStream, MultiWave Sentry 1600,
MultiWave Metro, and MultiWave Firefly systems, and also from the introduction
of revenues from MultiWave CoreDirector and MultiWave MetroOne systems. The
amount of revenue recognized from MultiWave Sentry 1600 and MultiWave 1600
declined in fiscal 1999 as compared to fiscal 1998. This decline in MultiWave
Sentry 1600 sales in fiscal 1999 was offset by the introduction of new revenues
from the MultiWave CoreStream and MultiWave Metro products in fiscal 1999.
Fiscal 1999 revenues from MultiWave Sentry 4000 and MultiWave Firefly were
comparable to the revenues recognized for these products in fiscal 1998.
Revenues derived from engineering, furnishing and installation services as a
percentage of total revenue were 8.4%, 12.1%, and 9.2% for the fiscal years
2000, 1999, and 1998, respectively.
GROSS PROFIT. Cost of goods sold consists of component costs, direct
compensation costs, warranty and other contractual obligations, royalties,
license fees, inventory obsolescence costs and overhead related to CIENA's
manufacturing and engineering, furnishing and installation operations. Gross
profit was $381.4 million, $182.3 million, and $252.1 million for fiscal years
2000, 1999, and 1998, respectively. Gross margin was 44.4%, 37.8%, and 49.6% for
fiscal 2000, 1999, and 1998, respectively. The increase in gross profit from
fiscal 1999 to fiscal 2000 was due primarily to lower component costs and
improved production efficiencies. The decrease in gross profit from fiscal 1998
to fiscal 1999 was largely attributable to lower selling prices.
CIENA's gross margins may be affected by a number of factors, including
product mix, continued competitive market pricing, outsourcing of manufacturing,
manufacturing volumes and efficiencies, competition for skilled labor, and
fluctuations in component costs. Downward pressures on our gross margins may be
further impacted by an increased percentage of engineering, furnishing and
installation revenues from services or additional service requirements. CIENA
will continue to concentrate on efforts to reduce product costs and maximize
production efficiencies and, if successful in these efforts, may be able to
improve gross margins in the future. See "Risk Factors".
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses were
$129.1 million, $104.6 million, and $73.8 million for fiscal 2000, 1999, and
1998, respectively. The approximate $24.4 million or 23.3% increase from fiscal
1999 to 2000 and the approximate $30.9 million or 41.9% increase from fiscal
1998 to 1999 in research and development expenses related to increased staffing
levels, purchases of materials used in development of new or enhanced product
prototypes, and outside consulting services in support of certain developments
and design efforts. During fiscal 2000, 1999, and 1998 research and development
expenses were 15.0%, 21.7%, and 14.5% of revenue, respectively. CIENA expects
that its research and development expenditures will continue to increase in
absolute dollars and perhaps as a percentage of revenue during fiscal 2001 to
support the continued development of CIENA's intelligent optical networking
products, the exploration of new or complementary technologies, and the pursuit
of various cost reduction strategies. CIENA has expensed research and
development costs as incurred.
SELLING AND MARKETING EXPENSES. Selling and marketing expenses were $90.9
million, $61.6 million, and $47.3 million for fiscal 2000, 1999, and 1998,
respectively. The approximate $29.3 million or 47.6% increase from fiscal 1999
to 2000 and the approximate $14.3 million or 30.1% increase from fiscal 1998 to
1999 in selling and marketing expenses was primarily the result of increased
staffing levels in the areas of sales, technical assistance and field support,
and increases in commissions earned, trade show participation and promotional
costs. During fiscal 2000, 1999, and 1998 selling and marketing expenses were
10.6%, 12.8%, and 9.3% of revenue, respectively. CIENA anticipates that its
selling and marketing expenses may increase in absolute dollars and perhaps as a
percentage of revenue during fiscal 2001 as additional personnel are hired and
additional offices are opened to allow CIENA to pursue new customers
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and market opportunities. CIENA also expects the portion of selling and
marketing expenses attributable to technical assistance and field support,
specifically in Europe, Latin America, and Asia, will increase as CIENA's
installed base of operational MultiWave systems increases.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
were $34.0 million, $22.7 million and $18.5 million for fiscal 2000, 1999, and
1998, respectively. The approximate $11.2 million or 49.5% increase from fiscal
year 1999 to 2000 and the approximate $4.3 million or 23.1% increase from fiscal
year 1998 to 1999 in general and administrative expenses was primarily the
result of increased staffing levels and outside consulting services. During
fiscal 2000, 1999, and 1998 general and administrative expenses were 4.0%, 4.7%,
and 3.6% of revenue, respectively. CIENA believes that its general and
administrative expenses will increase in absolute dollars and perhaps as a
percentage of revenue during fiscal 2001 as a result of the expansion of CIENA's
administrative staff required to support its expanding operations.
SETTLEMENT OF ACCRUED CONTRACT OBLIGATION. The $8.5 million gain from
settlement of accrued contract obligation relates to the July 2000 termination
of certain accrued contract obligations that CIENA received from iaxis Limited,
one of CIENA's European customers. In September 2000, CIENA was informed that an
administrative order had been issued by a London court against iaxis Limited. As
a result of this order, joint administrators were appointed to manage the
business of iaxis Limited while they marketed the business for sale and
formulated a reorganization. See "Provision for Doubtful Accounts" below.
PURCHASED RESEARCH AND DEVELOPMENT. Purchased research and development
costs were $9.5 million for the fiscal year 1998. These costs were for the
purchase of technology and related assets associated with the acquisition of
Terabit during the second quarter of fiscal 1998.
PIRELLI LITIGATION. The Pirelli litigation costs of $30.6 million in
fiscal 1998 were attributable to a $30.0 million payment made to Pirelli during
the third quarter of 1998 and to additional other legal and related costs
incurred in connection with the settlement of this litigation.
MERGER-RELATED COSTS. The merger costs for fiscal 1999 of approximately
$13.0 million were costs related to CIENA's acquisition of Omnia and Lightera.
These costs include an $8.1 million non-cash charge for the acceleration of
warrants based upon CIENA's common stock price on June 30, 1999 and $4.9 million
for fees, legal and accounting services and other costs. The warrants were
issued to one of Omnia's potential customers and became exercisable upon the
consummation of the merger between CIENA and Omnia. The merger-related costs for
fiscal 1998 were costs related to the contemplated merger between CIENA and
Tellabs. These costs include approximately $1.2 million in Securities and
Exchange Commission filing fees and approximately $1.3 million in legal,
accounting, and other related expenses.
PROVISION FOR DOUBTFUL ACCOUNTS. CIENA performs ongoing credit evaluations
of its customers and generally does not require collateral from its customers.
CIENA maintains an allowance for potential losses when identified. CIENA's
allowance for doubtful accounts as of October 31, 2000 was $29.6 million.
Approximately $27.8 million relates to provisions made for doubtful accounts
associated with iaxis Limited, one of CIENA's European customers. In September
2000, CIENA was informed that an administrative order had been issued by a
London court against iaxis Limited. As a result of this order, joint
administrators were appointed to manage the business of iaxis Limited while they
marketed the business for sale and formulated a reorganization. In November
2000, CIENA was notified that Dynegy Inc. and its subsidiaries had entered into
a proposed agreement to acquire the assets and stock of iaxis Limited from the
administrators. As a consequence of the terms of (a) the proposed agreement
between the administrators of iaxis Limited, Dynegy and its subsidiaries, and of
(b) a related sales agreement between CIENA and Dynegy, CIENA expects to realize
approximately $8.9 million of the gross outstanding accounts receivable balance
due from iaxis Limited as of October 31, 2000. While the proposed purchase
agreement between the administrators of iaxis Limited and Dynegy is subject to
certain administrative and judicial approvals, CIENA believes that such
approvals will be
22
65
ultimately obtained and that CIENA will be successful in collecting the net $8.9
million outstanding accounts receivable balance from the customer. However,
should such approvals not occur, additional write-offs might be required.
OTHER INCOME (EXPENSE), NET. Other income (expense), net, consists of
interest income earned on CIENA's cash, cash equivalents and marketable debt
securities, net of interest expense associated with CIENA's debt obligations.
Other income (expense), net, was $12.7 million, $13.9 million, and $12.8 million
for fiscal 2000, 1999, and 1998, respectively. The decrease in other income
(expense) from fiscal 1999 to fiscal 2000 was due to lower balances of cash,
cash equivalents and marketable debt securities in fiscal 2000 as compared to
fiscal 1999. The increase in companies other income (expense) from fiscal 1998
to fiscal 1999 was primarily the result of the investment of the net proceeds of
CIENA's stock offerings and net earnings.
PROVISION (BENEFIT) FOR INCOME TAXES. CIENA's provision (benefit) for
income taxes was 32.5%, (34.5%), and 44.2% of pre-tax earnings (loss) for fiscal
2000, 1999 and 1998, respectively. The income tax provision for 2000 was lower
than the expected 35% primarily due to benefits from research and development
tax credits. The benefit for fiscal 1999 was less than the expected statutory
benefit of 35% due to non-deductible merger costs. The income tax provision for
1998 was higher than the expected statutory rate of 35%, due primarily to
charges for purchased research and development and state tax charges related to
the Alta acquisition. Purchased research and development charges are not
deductible for tax purposes. Exclusive of the effect of these charges, CIENA's
provision for income taxes was 38.6% of income before income taxes in fiscal
1998. As of October 31, 2000, CIENA's deferred tax asset was $143.0 million. The
realization of this asset could be adversely affected if future earnings are
lower than anticipated.
QUARTERLY RESULTS OF OPERATIONS
The tables below set forth the operating results and percentage of revenue
represented by certain items in CIENA's statements of operations for each of the
eight quarters in the period ended October 31, 2000. This information is
unaudited, but in the opinion of CIENA reflects all adjustments (consisting only
of normal recurring adjustments) that CIENA considers necessary for a fair
presentation of such information in accordance with generally accepted
accounting principles. The results for any quarter are not necessarily
indicative of results for any future period.
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QUARTER ENDED
-------------------------------------------------------------------------------------
JAN. 31, APR. 30, JUL. 31, OCT. 31, JAN. 31, APR. 30, JUL. 31, OCT. 31,
1999 1999 1999 1999 2000 2000 2000 2000
-------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenue................ $100,417 $111,490 $128,826 $141,352 $152,213 $185,679 $233,268 $287,590
Cost of goods sold..... 65,778 71,238 79,361 83,392 87,003 104,205 128,172 158,013
-------- -------- -------- -------- -------- -------- -------- --------
Gross profit......... 34,639 40,252 49,465 57,960 65,210 81,474 105,096 129,577
-------- -------- -------- -------- -------- -------- -------- --------
Operating expenses:
Research and
development........ 22,218 24,094 28,402 29,927 29,742 29,965 32,697 36,665
Selling and
marketing.......... 13,608 13,092 16,839 18,064 18,122 20,331 24,375 28,094
General and
administrative..... 5,036 5,849 5,433 6,418 6,621 7,176 9,339 10,864
Settlement of accrued
contract
obligation......... -- -- -- -- -- -- (8,538) --
Merger-related
costs.............. -- 2,253 10,768 -- -- -- -- --
Provision for
doubtful
accounts........... -- -- -- 250 250 -- 8,538 19,222
-------- -------- -------- -------- -------- -------- -------- --------
Total operating
expenses..... 40,862 45,288 61,442 54,659 54,735 57,472 66,411 94,845
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) from
operations........... (6,223) (5,036) (11,977) 3,301 10,475 24,002 38,685 34,732
Other income (expense),
net.................. 3,301 3,583 3,492 3,568 2,950 3,268 3,026 3,436
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before
income taxes......... (2,922) (1,453) (8,485) 6,869 13,425 27,270 41,711 38,168
Provision (benefit) for
income taxes......... (1,041) (468) (2,928) 2,370 4,363 8,863 13,556 12,405
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss)...... $ (1,881) $ (985) $ (5,557) $ 4,499 $ 9,062 $ 18,407 $ 28,155 $ 25,763
======== ======== ======== ======== ======== ======== ======== ========
Basic net income (loss)
per common share
(1).................. $ (0.01) $ 0.00 $ (0.02) $ 0.02 $ 0.03 $ 0.07 $ 0.10 $ 0.09
======== ======== ======== ======== ======== ======== ======== ========
Diluted net income
(loss) per common
share and dilutive
potential common
share (1)............ $ (0.01) $ 0.00 $ (0.02) $ 0.02 $ 0.03 $ 0.06 $ 0.09 $ 0.09
======== ======== ======== ======== ======== ======== ======== ========
Weighted average basic
common share (1)..... 262,404 265,060 266,032 267,616 276,182 280,162 282,258 285,177
======== ======== ======== ======== ======== ======== ======== ========
Weighted average basic
common and dilutive
potential common
share (1)............ 262,404 265,060 266,032 290,604 295,806 299,126 299,790 301,582
======== ======== ======== ======== ======== ======== ======== ========
- ---------------
(1) All share and per share information has been retroactively restated to
reflect the two-for-one stock split effective September 18, 2000.
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QUARTER ENDED
-------------------------------------------------------------------------------------
JAN. 31, APR. 30, JUL. 31, OCT. 31, JAN. 31, APR. 30, JUL. 31, OCT. 31,
1999 1999 1999 1999 2000 2000 2000 2000
-------- -------- -------- -------- -------- -------- -------- --------
(AS A PERCENTAGE OF REVENUE)
Revenue................................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold...................... 65.5 63.9 61.6 59.0 57.2 56.1 54.9 54.9
----- ----- ----- ----- ----- ----- ----- -----
Gross profit.......................... 34.5 36.1 38.4 41.0 42.8 43.9 45.1 45.1
Operating expenses:
Research and development.............. 22.1 21.6 22.0 21.2 19.5 16.1 14.0 12.7
Selling and marketing................. 13.6 11.7 13.1 12.8 11.9 10.9 10.4 9.8
General and administrative............ 5.0 5.2 4.2 4.5 4.3 3.9 4.0 3.8
Settlement of accrued contract
obligation.......................... -- -- -- -- -- -- (3.7) --
Merger-related costs.................. -- 2.0 8.4 -- -- -- -- --
Provision for doubtful accounts....... -- -- -- 0.2 0.2 -- 3.7 6.7
----- ----- ----- ----- ----- ----- ----- -----
Total operating expenses........ 40.7 40.5 47.7 38.7 35.9 30.9 28.4 33.0
----- ----- ----- ----- ----- ----- ----- -----
Income (loss) from operations........... (6.2) (4.4) (9.3) 2.3 6.9 13.0 16.7 12.1
Other income (expense), net............. 3.3 3.2 2.7 2.5 1.9 1.8 1.3 1.2
----- ----- ----- ----- ----- ----- ----- -----
Income (loss) before income taxes....... (2.9) (1.2) (6.6) 4.8 8.8 14.8 18.0 13.3
Provision (benefit) for income taxes.... (1.0) (0.4) (2.3) 1.7 2.9 4.8 5.8 4.3
----- ----- ----- ----- ----- ----- ----- -----
Net income(loss)........................ (1.9)% (0.8)% (4.3)% 3.1% 5.9% 10.0% 12.2% 9.0%
===== ===== ===== ===== ===== ===== ===== =====
CIENA's quarterly operating results have varied and are expected to vary in
the future. CIENA's detailed discussion of risk factors addresses the many
factors that have caused such variation in the past, and may cause similar
variations in the future. See "Risk Factors". CIENA's revenues have increased in
each of the last eight quarters due to strong demand across existing products
and introduction of new products such as MultiWave CoreStream configured for
both 2.5 Gbps and 10.0 Gbps transmission rates. CIENA's gross margin percentage
has improved from the first quarter fiscal 1999 to the fourth quarter fiscal
2000 as a result of component cost reductions, production efficiencies, and
relative stable sales pricing. CIENA's operating expenses have increased in each
of the last eight quarters due to continued investments in research and
development, selling and marketing, and infrastructure activities. Exclusive of
provisions for doubtful accounts and merger-related costs, the Company's
operating expenses as a percentage of revenue have generally decreased each of
the last eight quarters. During fiscal 2001, CIENA's operating expenses will
continue to increase in absolute dollars and may increase as percentage of
revenue. We expect to preserve and enhance our market leadership and build on
our installed base with new and additional products in conjunction with
increased investments in selling, marketing, and customer service activities.
See "Risk Factors".
LIQUIDITY AND CAPITAL RESOURCES
At October 31, 2000, CIENA's principal source of liquidity was its cash and
cash equivalents. CIENA had $143.2 million in cash and cash equivalents, and
$95.1 million in corporate debt securities and U.S. Government obligations.
CIENA's corporate debt securities and U.S. Government obligations have
contractual maturities of six months or less.
CIENA's operating activities provided cash of $59.0 million, $28.7 million,
and $48.8 million for fiscal 2000, 1999, and 1998, respectively. Cash provided
by operations in fiscal 2000 was primarily attributable to a net gain adjusted
for the non-cash charges of depreciation, amortization, tax benefit related to
exercise of stock options, provisions for doubtful accounts, inventory
obsolescence, and warranty, increases in accounts payable, and accrued expenses,
offset by increases in accounts receivable and inventories.
Cash used in investing activities in fiscal 2000, 1999, and 1998 was $103.2
million, $149.7 million, and $107.0 million, respectively. Included in
investment activities were additions to capital equipment and leasehold
improvements in fiscal 2000, 1999, and 1998 of $123.9 million, $46.8 million,
and $88.9 million, respectively. The capital equipment expenditures were
primarily for test, manufacturing and computer equipment. CIENA expects
additional combined capital
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68
equipment and leasehold improvement expenditures of approximately $208 million
to be made during fiscal 2001 to support selling and marketing, manufacturing
and product development activities and the construction of leasehold
improvements for its facilities.
We generated $43.9 million, $13.8 million, and $35.6 million in cash from
financing activities in fiscal 2000, 1999, and 1998, respectively. During fiscal
2000, CIENA received $44.0 million from the exercise of stock options and the
sale of stock through our employee stock purchase plan. During fiscal 1999 CIENA
received $11.3 million from the exercise of stock options, the sale of stock
through our employee stock purchase plan, and from the additional capitalization
of Omnia and Lightera. During fiscal 1998, CIENA received approximately $34.3
million from the issuance of stock associated with the capitalization of Omnia
and Lightera, and from the exercise of stock options.
We believe that our existing cash balances and investments, together with
cash flow from operations, will be sufficient to meet our liquidity and capital
spending requirements at least through the end of fiscal 2001. However, possible
investments in or acquisitions of complementary businesses, products or
technologies may require additional financing prior to such time. There can be
no assurance that additional debt or equity financing will be available when
required or, if available, can be secured on terms satisfactory to us.
EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 (SFAS No. 133), "Accounting for
Derivative Instruments and Hedging Activities". This Statement requires
companies to record derivatives on the balance sheet as assets or liabilities,
measured at fair value. Gains or losses resulting from changes in the values of
those derivatives would be accounted for depending on the use of the derivative
and whether it qualifies for hedge accounting. SFAS No. 133, as amended by SFAS
No. 137 "Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date for SFAS No. 133", will be
effective for the Company's fiscal year ending October 31, 2000. The Company
believes the adoption of SFAS No. 133 and SFAS No. 137 will not have a material
effect on the consolidated financial statements.
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements," (SAB
101) which clarifies the Securities and Exchange Commission's view on revenue
recognition. Subsequently, the SEC released SAB 101B, which delayed the
implementation date of SAB 101 for registrants with fiscal years that begin
between December 16, 1999 and March 15, 2000. CIENA is required to be in
conformity with the provisions of SAB 101, as amended, no later than January 31,
2001, with the impact of such adoption being treated on a cumulative basis as of
November 1, 2000. While management will continue to assess SAB 101, CIENA
presently believes its existing revenue recognition policies and procedures are
generally in compliance with SAB 101 and, therefore, SAB 101's adoption will
have no material impact on CIENA's financial condition, results of operations or
cash flows.
In July 2000, the FASB's Emerging Issues Task Force ("EITF") reached a
final consensus that the income tax benefit realized by a company upon the
exercise of a nonqualified stock option or the disqualifying disposition of an
incentive stock option should be classified in the operating section of the
statement of cash flows. The consensus is effective for the Company's quarters
ending after July 20, 2000. All comparative cash flow statements as presented
have been restated to comply with this consensus.
In September 2000, the FASB issued SFAS No. 140, "Accounting for the
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities".
SFAS No. 140 is effective for transfers occurring after March 31, 2001 and for
disclosures relating to the securitization transactions and collateral for
fiscal years ending after December 15, 2000. The Company believes the adoption
of SFAS No. 140 will not have a material effect on the consolidated financial
statements.
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BUSINESS
OVERVIEW
CIENA is an established leader in the rapidly growing intelligent optical
networking equipment market. We offer a comprehensive portfolio of products for
communications service providers worldwide. Our customers include long-distance
carriers, competitive and incumbent local exchange carriers, Internet service
providers, wireless and wholesale carriers. CIENA offers intelligent optical
transport and optical switching systems that enable service providers to
provision, manage and deliver high-bandwidth services to their customers. We
have pursued a strategy to develop and leverage the power of our technologies to
change the fundamental economics of building carrier-class tele- and
data-communications networks, thereby providing our customers with a competitive
advantage. CIENA's intelligent optical networking products are designed to
enable carriers to deliver any time, any size, any priority bandwidth to their
customers.
Historically, the significant majority of CIENA's revenue has come from the
sale of long-distance optical transport equipment. CIENA believes it is one of
the worldwide market leaders in field deployment of open-architecture
long-distance optical transport equipment utilizing dense wavelength division
multiplexing, or DWDM, technology. The majority of CIENA's fiscal 2000 revenue
was derived from sales of its long-distance optical transport products,
including MultiWave CoreStream(TM) and MultiWave Sentry 4000(TM). During the
fiscal year 2000, CIENA also recognized revenue from the sale of seven optical
networking products including sales of its metropolitan optical transport
product, MultiWave(R) Metro and its intelligent optical core switch, MultiWave
CoreDirector(TM).
For the fiscal year ended October 31, 2000, CIENA recorded revenue from
sales of intelligent optical networking equipment to a total of 32 customers.
Our research and development efforts as well as potential future acquisition and
partnership activities are targeted at capitalizing on our installed base of
carrier customers and leveraging our position as a leader in the rapidly growing
optical networking market.
INDUSTRY BACKGROUND
The world's tele- and data-communications infrastructure is formed by
fiber-optic networks owned and operated by service providers. In recent years,
the combination of several factors, including global deregulation which fueled
competition among service providers and increased bandwidth demand resulting
from the proliferation of the Internet and the emergence of electronic commerce,
gave rise to the increased deployment of communications equipment utilizing
dense wavelength division multiplexing technology.
DWDM replaces the single beam of light that traverses fiber-optic cable in
legacy networks with multiple colors of light, each of which is capable of
carrying tens of thousands of voice conversations or data transmissions. Prior
to the emergence of DWDM, service providers could increase network capacity
either by adding new physical fibers to their network or by increasing the rate
of transmission through the fiber. In many cases DWDM has proven to be more cost
efficient than physically deploying new fibers, and it has enabled the delivery
of significantly more traffic by service providers.
The widespread adoption of DWDM enabled carriers to efficiently and
economically expand network capacity, or bandwidth, while reducing bandwidth
costs. CIENA believes that the application of products using DWDM has led to a
dramatic decline in service providers' capital cost per bit from 1995 to
present, thereby enabling pricing competition between carriers and significant
bandwidth price declines of up to 80% in some U.S. regions.
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NETWORK SCALABILITY CHALLENGES
For the past several years DWDM has been implemented by carriers to
increase capacity between discrete points in their long-distance networks. To
construct a network using DWDM equipment as its backbone, a carrier must
interconnect the point-to-point high-capacity links and manage all traffic
flowing through them. For example, an important element enabling this
interconnection in traditional architectures has been the SONET/SDH add/drop
multiplexer, or ADM. In most network architectures, a SONET ADM is used to
transmit the information-carrying signal for each DWDM optical channel. A second
ADM then is used to receive the information-carrying signal from each DWDM
optical channel. As a result, every time an additional optical channel is
deployed, two additional SONET ADMs must be purchased, installed and
maintained -- one for each end of the traffic-carrying route. For example, in
order to transmit/receive the traffic from a DWDM optical transport system with
96 channels of DWDM, a service provider would require a total of 192 SONET ADMs.
Though DWDM gave carriers the ability to solve the bandwidth problem in the
core of their networks, the technology created operational and scalability
challenges for carriers. Historically this method has been the only way
available to service providers to scale their networks. Unfortunately, this
approach creates upwardly spiraling costs. In addition to the capital equipment
costs associated with the equipment, each SONET ADM uses valuable central office
space and power. Furthermore, as the number of DWDM channels and links
increases, the carrier's management of the network grows more complex, making
manual service provisioning and network operation more difficult and costly.
ESCALATING OPERATIONAL COSTS
In addition to the problems inherent in scaling traditional network
architectures, carriers are challenged to scale their operating staff as quickly
as they can grow their networks. According to information filed by carriers with
the United States Securities and Exchange Commission, many service providers are
spending more on operating, growing, and managing their networks than they are
on capital expenditures relating to their networks. In some cases, service
providers are spending two to four dollars on network operations and support
expenses for every dollar spent on network capital equipment. In addition, in
many cases, network operations and support expenses are increasing at a
significantly faster rate than revenues.
CIENA'S SOLUTIONS
CIENA's intelligent optical networking equipment was designed to enable
service providers to transition from inefficient, legacy, voice-centric networks
to more efficient data-optimized, intelligent optical networks. CIENA's systems
address both the network scalability challenges and the escalating operational
costs faced by service providers by:
- leveraging expertise in optics, software, systems and Application
Specific Integrated Circuits, or ASICs, to develop innovative products
designed to dramatically lower the cost of constructing service provider
networks;
- replacing multiple traditional network elements such as ADMs and digital
cross-connects with fewer, more intelligent network elements, thereby
simplifying the network and lowering carriers' capital and operational
costs;
- enhancing bandwidth availability to service providers, thereby allowing
them to increase network bandwidth with growing Internet demand;
- lowering ongoing network operating costs by enabling carriers to more
efficiently manage network traffic;
- enabling carriers to shorten the time it takes to provision services, in
some cases from months to minutes, thereby accelerating the generation of
revenue; and
- enabling new, revenue-generating and differentiated optical services.
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Our optical networking product portfolio is targeted at the critical areas
of service provider networks: long-distance and metropolitan optical transport,
intelligent optical core switching and network management.
- OPTICAL TRANSPORT. CIENA's long-distance optical transport products,
MultiWave CoreStream(TM), MultiWave Sentry(TM) and MultiWave 1600, and
our short-distance products, MultiWave Metro(TM), Metro One(TM) and
MultiWave Firefly(TM), utilize DWDM technology and should enable carriers
to cost effectively add critical network bandwidth when and where they
need it. As a result, service providers should be better able to scale
their networks to meet demand.
- INTELLIGENT OPTICAL CORE SWITCHING. Our intelligent optical core
switches, MultiWave CoreDirector(TM) and MultiWave CoreDirector CI(TM),
which is currently under development, allow carriers to manage the
bandwidth created with optical transport products. CoreDirector and
CoreDirector CI help carriers solve both the issues of network
scalability and escalating operating costs by incorporating the
functionality of multiple network elements into single elements with
previously unavailable switching capabilities and management.
- NETWORK MANAGEMENT. ON-Center, CIENA's recently introduced fully
integrated family of software-based tools for comprehensive element,
network and service layer management, is designed to enable accelerated
deployment of new, differentiating optical services. ON-Center should
also reduce network operating and management costs.
CIENA calls the network architecture created by these products "CIENA
LightWorks." The components of CIENA's LightWorks can be sold together as a
complete network solution or separately as best-of-breed solutions. CIENA's
LightWorks architecture is designed to dramatically simplify a carrier's network
by reducing the number of network elements. We believe this network
simplification will enable service providers to lower capital equipment and
operating costs.
STRATEGY
CIENA's strategy is to maintain and build upon its market leadership in the
deployment of intelligent optical networking systems and to leverage its
technologies in order to provide solutions for both voice and data
communications-based network architectures. CIENA believes that the
technological, operational and cost benefits of its optical networking solutions
create competitive advantages for service providers worldwide. We believe our
solutions will become increasingly important as these service providers are
being pressed by their customers to deliver services to address the dramatic
growth in Internet and other data communications traffic. CIENA's strategy
includes the following initiatives:
- EXPAND OUR BASE OF CUSTOMERS USING OUR INTELLIGENT OPTICAL NETWORKING
SOLUTIONS. We believe that achieving early widespread operational
deployment of our systems in a particular carrier's network will provide
CIENA significant competitive advantages with respect to additional
optical networking deployments and will enhance our marketing to other
carriers as a field-proven supplier. While continuing to aggressively
serve our existing customers, we intend to actively pursue additional
optical networking deployment opportunities among fiber-optic carriers in
domestic and foreign long distance, interoffice and local exchange
markets.
- INCREASE SALES AND MARKETING EFFORTS. The nature of the target customer
base for all our product lines requires a focused sales effort on a
customer-by-customer basis. We will continue to increase our sales and
marketing efforts aimed at the worldwide market of service providers.
CIENA increased the number of revenue-generating optical networking
customers from 27 during 1999 to 32 in 2000. In addition, CIENA has a
significant international presence, particularly in Europe. Revenues from
international customers represented 33.0% of CIENA's total revenues in
fiscal 2000. CIENA plans to continue to
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strengthen its marketing programs and to increase its domestic and
international presence through both direct sales and distributor
relationships.
- CONTINUE TO EMPHASIZE TECHNICAL SUPPORT AND CUSTOMER SERVICE. CIENA
markets technically advanced systems to sophisticated customers. The
nature of CIENA's systems and market require a high level of technical
support and customer service. We believe we have a good reputation for
our technical support and customer service, and we intend to emphasize
our global service and support excellence and capabilities as
differentiating factors in our efforts to maintain and enhance our market
position. CIENA offers complete engineering, furnishing and installation
services in addition to full-time customer support from strategic
locations worldwide.
- MAINTAIN WORLD CLASS MANUFACTURING CAPABILITY. CIENA's optical
networking systems play a critical role in our customers' networks.
Quality assurance and manufacturing excellence are necessary for CIENA to
achieve success. CIENA believes it has developed a world class optical
manufacturing capability, and this capability provides CIENA with a
significant competitive advantage. CIENA achieved ISO 9001 certification
in July 1997 in further support of this element of its strategy. CIENA
expects to continue to invest in both the capital and the human resources
necessary to maintain and leverage this advantage. In addition, CIENA
expects to utilize this expertise to leverage our manufacturing
capability with contract manufacturers.
- LEVERAGE CIENA'S BANDWIDTH-OPTIMIZING TECHNOLOGY AND KNOW-HOW. We
believe the overall growth in demand for bandwidth and the need for
intelligent bandwidth-optimizing services in telecommunications networks
will lead to transmission bottlenecks in other segments of the networks
where the application of optical technologies and other high bandwidth
enabling technologies may provide solutions, either within existing
network architectures, or as part of the design and development of
alternative data communications-based network architectures. CIENA
expects to leverage the core competencies it has developed in the design,
development and manufacturing of its optical transport and intelligent
optical switching product lines and key enabling components by pursuing
new product development efforts, and strategic alliances or acquisitions,
to address these expected opportunities. CIENA intends to move
aggressively to maintain leadership in the design and development of
intelligent optical networking equipment, components and software which
will both respond to customer needs and help customers move toward newer,
higher capacity, more cost-efficient network designs for the future.
PRODUCTS
Our optical networking product portfolio is targeted at the critical areas
of service provider networks: long-distance and metropolitan optical transport,
intelligent optical core switching and network management. CIENA's open
architecture design allows its products to operate with most carriers' existing
fiber-optic transmission systems and network elements, including connecting
directly to either traditional SONET equipment, ATM switches or IP routers.
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LONG-DISTANCE OPTICAL TRANSPORT
PRODUCT FEATURES
------- --------
MULTIWAVE CORESTREAM - CIENA's fourth generation carrier-class
intelligent optical transport product.
- First commercially deployed 96-channel DWDM
system with commercial shipments beginning in
the third fiscal quarter of 1999.
- Utilizes DWDM technology to deliver up to 96
optical channels at 2.5Gbps (240 gigabits) or
up to 48 channels at 10Gbps (480 gigabits).
- Designed for in-service growth; scalable to
handle 2 terabits of traffic in the future.
- With its longer reach feature set, will
ultimately be capable of transporting signals
up to 5,000 kilometers without electrical
regeneration.
MULTIWAVE SENTRY 4000 - CIENA's third generation carrier-class
intelligent optical transport product.
- First commercially deployed 40-channel system
with commercial shipments beginning in the
second fiscal quarter of 1998.
- Utilizes DWDM technology to deliver up to 40
channels at 2.5Gbps (100 gigabits).
MULTIWAVE SENTRY 1600 - CIENA's second generation carrier-class
intelligent optical transport product.
- Utilizes DWDM technology to deliver up to 16
channels at 2.5Gbps (40 gigabits).
- Incorporated performance monitoring
capabilities, not previously available in
DWDM equipment beginning in the second half
of fiscal 1996.
MULTIWAVE 1600 - CIENA's first generation carrier-class
intelligent optical transport product.
- First commercially deployed 16-channel system
with commercial shipments beginning in the
first half of fiscal 1996.
- Utilizes DWDM technology to deliver 16
channels at 2.5Gbps (40 gigabits).
METROPOLITAN OPTICAL TRANSPORT
PRODUCT FEATURES
------- --------
MULTIWAVE METRO - A carrier-class optical transport product
designed specifically to address the
performance and economic requirements of
metropolitan markets.
- Provides up to 24 duplex channels over a
single fiber pair, enabling a service
provider to transport up to 60Gbps.
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- Supports multiple network topologies, such as
rings, hubs, and stars.
- Offers a wide range of interfaces from 100
megabits per second up to 10Gbps.
MULTIWAVE METRO ONE - Offers the same carrier-class reliability and
functionality as MultiWave Metro, but for a
single channel in a reduced size and reduced
power consumption package.
MULTIWAVE FIREFLY - MultiWave Firefly was developed specifically
for use by carriers in short-distance,
point-to-point applications.
- Multiplexes up to 24 channels at 2.5Gbps,
over a single fiber pair, allowing a carrier
to transport up to 60Gbps.
INTELLIGENT OPTICAL CORE SWITCHING
PRODUCT FEATURES
------- --------
MULTIWAVE COREDIRECTOR - Provides traffic management and switching
capability beyond current network solutions
of up to 256 ports of OC-48 or up to 640Gbps
in a single 7 foot bay.
- Designed to reduce capital equipment costs by
displacing multiple traditional devices.
- CoreDirector's intelligence is designed to
simplify service provisioning, in some cases
reducing provisioning times from months to
seconds.
- CoreDirector offers the ability to switch at
the wavelength level or at levels of
granularity down to an STS-1.
- CoreDirector should enable new revenue
opportunities for service providers through
new optical layer capabilities and services.
COREDIRECTOR CI - When available, CoreDirector CI will provide
up to 64 ports of OC-48 or up to 160Gbps in a
half bay.
- CoreDirector CI will deliver CoreDirector
functionality in a smaller package and at a
lower entry cost that is ideal for lower
capacity networks or smaller switching sites.
NETWORK MANAGEMENT
PRODUCT FEATURES
------- --------
LIGHTWORKS ON-CENTER - A fully integrated family of software-based
tools for comprehensive element, network and
service layer management across service
provider networks.
- ON-Center is designed to enable accelerated
deployment of new, differentiating optical
services, reduced network operating and
management costs, and innovative customer
service solutions.
- Designed so that service providers can select
any or all components necessary to meet their
particular network's management needs,
LightWorks ON-Center is comprised of:
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- an Optical Service Layer Management
System for cross-vendor end-to-end
service management;
- an Optical Network Management System for
integrated management across all of
CIENA's intelligent optical transport,
switching and access systems; and
- a Modeling and Planning System for
network design.
NEW OPTICAL SERVICES
In addition to allowing significant capital equipment and operational cost
savings, CIENA's intelligent optical networking equipment is designed to enable
its customers to offer new, revenue-generating optical layer services. CIENA's
LightWorks Toolkit(TM) is designed to allow carriers to offer dynamic
high-bandwidth services and handle real-time service provisioning and
prioritization. By mixing and matching CIENA's ToolKit options, carriers will be
able to offer customized services and further differentiate themselves from
their competition.
When development is completed, the breadth of options in the LightWorks
ToolKit will ultimately include:
SERVICE DESCRIPTION
------- -----------
OPTICAL PRIORITY PROVISIONING - Optical Priority Provisioning is designed to
allow carriers to turn-up optical services in
seconds, and to specify priority levels for
further differentiation of optical services.
For instance, a carrier may elect to offer
multiple levels of optical bandwidth, ranging
from "premium" to "best-effort" service, with
each level of service being priced and
delivered differently. Optical Priority
Provisioning is designed to help carriers
more easily meet service level agreements by
assigning and adjusting traffic priorities in
seconds, potentially allowing carriers to
unlock more revenue from data services.
- Optical Priority Provisioning should simplify
the delivery of differentiated optical
services by providing access to service
templates of predefined restoration
priorities, preemptability, and linear, ring
and mesh protection options. Using these
simplified templates, service provisioners
should be able to deliver optical services,
at any service level, in just a few clicks of
a mouse.
FLEXIBLE CONCATENATION - In legacy networks, bandwidth demand is
arbitrarily shoehorned into SONET/SDH-sized
transport containers where the size of the
container is fixed. For example, if a
customer requires OC-15 service, the customer
must purchase OC-48 service, even though only
a fraction of the 48 time slots in the
transport container will be filled with bits.
In this scenario, the customer is paying for
bandwidth it is not using and the carrier is
losing valuable network bandwidth. CIENA is
using a combination of silicon and software
to redefine how carriers access and deliver
bandwidth.
- When available, Flexible Concatenation will
allow carriers to access all time slots
within the SONET/SDH frame --
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even when those frames are fractionally
filled. That means carriers will be able to
create true OC-"N" services in which "N" can
be any number between 1 and 48 and in the
future will be 192 and eventually 768 instead
of the current restrictions of SONET, which
sets fixed sizes on transport containers.
Flexible concatentation is designed to enable
carriers to maximize their network bandwidth
and deliver customer-specific service.
RATE ADAPTIVE GIGABIT ETHERNET - CIENA's Rate-Adaptive Gigabit Ethernet
technology uses software and ASICs to enable
service providers to sell Gigabit Ethernet
services in customizable increments of 50Mbps
(STS-1) up to 1.25Gbps.
- When available, service providers will be
able to use Rate Adaptive Gigabit Ethernet to
create a wide range of customized optical
service options for end-users and deliver
those services over more efficient access and
core networks that leverage the economies of
Gigabit Ethernet transmission.
VSR OPTICS - For increased profitability, carriers must
continually drop their cost per bit. However,
to stay competitive, carriers must continue
to increase the value of their services. VSR
(Very Short Reach) Optics are designed to
provide lower-cost, high-capacity connections
between Internet and optical networking
systems within a service provider's central
office. VSR Optics leverage Vertical Cavity
Surface Emitting Laser (VCSEL) technology and
Gigabit Ethernet standards to make
variable-rate optical services possible and
economical -- a valuable service for
unpredictable bandwidth demands. When
available, CIENA will apply this data
rate-scalable technology to 10Gbps network
connections.
TRANSPARENT SERVICE
MULTIPLEXING - As opposed to traditional SONET/SDH
multiplexing, CIENA's "transparent"
multiplexing is designed to enable optical
services to be delivered without compromising
the SONET/SDH overheads of individual
tributaries that make up the aggregate
signal. Enabling multiple signals to be
transparently multiplexed, transported and
demultiplexed means signals are delivered as
if they were connected directly to the
destination equipment by their own unique
wavelength, maintaining the customers' signal
security and integrity. When available,
Transparent Service Multiplexing (TSM) should
be ideal for delivering IP traffic,
wavelength services and other new optical
services that CIENA's Toolkit enables. With
TSM, each end device appears to communicate
over its own unique wavelength while actually
being economically consolidated with other
signals.
WAVELENGTH BINDING - With unprecedented traffic growth and
changing traffic demands, Internet-centric
carriers are looking for ways
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to better match the changes in IP router
traffic demands with the provisioned
bandwidth capacities available within their
networks. To meet this need, CIENA is
developing Wavelength Binding.
- Wavelength Binding will leverage intellectual
property to enable a device of any speed to
be connected to a network operating at a
lower speed by building "virtual channels" of
multiple wavelengths bound together in a
single, very high-capacity bitstream. As a
result, when Wavelength Binding is available,
CIENA's customers will be able to deliver
40Gbps without changing their transport
infrastructure. Wavelength Binding will also
give carriers previously unavailable network
flexibility by enabling them to bundle and
unbundle wavelengths as network capacity
demands change.
PRODUCT DEVELOPMENT
We believe the overall growth in utilization of fiber-optic
telecommunications networks will lead to transmission bottlenecks in other
segments of the networks where the application of optical networking
technologies may provide solutions. We also believe there may be opportunities
for us to develop products and technologies complementary to existing optical
networking technologies which may broaden our ability to provide, facilitate
and/or interconnect with high-bandwidth solutions offered throughout fiber-optic
networks. CIENA intends to focus its product development efforts and possibly
pursue strategic alliances or acquisitions to address expected opportunities in
these areas, including our recently announced acquisition of Cyras Systems, Inc.
CUSTOMERS
CIENA has announced publicly relationships with the following customers:
DOMESTIC INTERNATIONAL
-------- -------------
Alltel Cable & Wireless, UK
Bell South CompleTel, France
Broadwing Crosswave Communications, Japan
Cable & Wireless Daini Deuden, Japan
Digital Teleport Dynegy, Austria
Enron ESAT Telecom, Ireland
Genuity Solutions Fibernet
Intermedia Communications Global Crossing, UK
PSINet GTS (now known as eBone), Belgium
Qwest HanseNet Telekommunikation, Germany
RCN of Pennsylvania Interoute, UK
Sprint Japan Telecom, Japan
Verizon KDD/Teleway Japan, Japan
Williams Communications Korea Telecom, Korea
WorldCom MobilCom AG, Germany
XO Communications Operadora Protel, Mexico
Telecom Developpement, France
Telia AB, Sweden
WorldCom, Europe
In addition, CIENA has a number of unannounced customer relationships.
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CUSTOMERS BY CATEGORY
INTEREXCHANGE CARRIERS (IXCS)
The initial deployments of CIENA's bandwidth enhancing optical transport
equipment occurred in the core of the U.S. long-distance network with the
interexchange carriers, or IXCs. IXCs provide connections between local
exchanges in different geographic areas. In recent years, incumbent IXCs such as
Sprint, WorldCom and AT&T have seen increased competition from emerging
long-distance carriers such as Qwest Communications, Global Crossing, Broadwing
Communications Services, Inc., and Level 3 Communications. We expect that
continued competition in long-distance call rates, as well as the carriers'
desire for market and service differentiation, will continue to drive demand for
the increased capacity and features offered by CIENA's optical networking
equipment.
INCUMBENT LOCAL EXCHANGE CARRIERS
Incumbent local exchange carriers, such as the RBOCs, are very active in
interoffice and local exchange markets and, under the Telecommunications Act of
1996, RBOCs are eligible to enter the long-distance market once they have met
certain requirements for opening their local markets to competition. CIENA
believes that over time the RBOCs will continue to gain approval to offer
long-distance services, although when and how they will offer these services is
unclear. For instance, the RBOCs' move to offering long-distance services could
occur through the establishment of owned network facilities, through the
purchase of long-distance capacity from other long-distance carriers, or through
some combination of the two. Regardless of the timing of any such move, CIENA
believes there are opportunities for in-region deployment of CIENA's
long-distance and metropolitan optical transport products at certain RBOCs.
INTERNATIONAL COMPETITIVE CARRIERS
New competitive carriers are emerging as a result of deregulation in the
international telecommunications markets. CIENA has concentrated its sales
efforts on these emerging carriers as opposed to the traditional carriers or
PTTs. During fiscal 2000, CIENA increased its announced international customer
base from fourteen to eighteen customers. In many cases, these new competitive
carriers do not have the installed fiber base of the larger carriers and
therefore are in need of the scalable bandwidth CIENA's optical transport
systems offer. In addition, because of the economies and flexibility afforded by
the application of DWDM technology, CIENA's equipment is being used on several
new projects where the service provider is physically constructing the network.
CIENA expects that in the near term, the majority of its international revenue
will come from these smaller, more aggressive competitive carriers, and CIENA
will continue to concentrate its sales efforts accordingly.
COMPETITIVE LOCAL EXCHANGE CARRIERS (CLECS)
Deregulation has fueled the growth of U.S. competitive local exchange
carriers, or CLECs. CIENA believes that in the short term, CLECs could benefit
from the hesitancy of incumbent local exchange carriers, such as the Regional
Bell Operation Companies, or RBOCs, to open their local markets to competitors,
and that these CLECs are likely to move aggressively to capitalize on
opportunities in the local area. CIENA recognized revenues from CLEC customers
in fiscal 2000 and expects that tactical CLEC applications for its long-haul
products, as well as the short-distance products, will be well suited to CLEC
network applications.
NON-TRADITIONAL TELECOMMUNICATION SERVICE PROVIDERS
The growth of the Internet has produced traffic growth substantial enough
to attract new, non-traditional telecommunication service providers to compete
in this market as well. Both domestically and internationally, companies with
rights-of-way, such as utility companies, cable TV providers, and railroads are
capitalizing on their "network", whether a pipeline, a railroad, or a highway,
and in some cases, are laying optical fiber and constructing telecommunications
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networks along those rights-of-way. The transmission capabilities of CIENA's
optical networking equipment enable these new carriers to provide competitive
services while purchasing and laying a minimal amount of fiber-optic cable.
MARKETING AND DISTRIBUTION
CIENA's intelligent optical networking systems require substantial
investment, and our target customers in the fiber-optic telecommunications
market -- where network capacity and reliability are critical -- are highly
demanding and technically sophisticated. There are only a small number of such
customers in any country or geographic market. Also, every network operator has
unique configuration requirements, which impact the integration of optical
networking systems with existing transmission equipment. The convergence of
these factors leads to a very long sales cycle for optical networking equipment,
often more than a year between initial introduction to CIENA and the customer's
commitment to purchase, and has further led CIENA to pursue sales efforts on a
focused, customer-by-customer basis. See "Management's Discussion and Analysis
of Financial Conditions and Results of Operations" and "Risk Factors".
CIENA has organized its resources for the separate but coordinated approach
to United States and international customers. In the United States market, a
sales team, comprised of an account manager, systems engineers and technical
support and training personnel, is assigned responsibility for each customer
account, and for the coordination and pursuit of sales contacts. In the
international market, CIENA pursues prospective customers through direct sales
efforts, as well as through distributors, independent marketing representatives
and independent sales consultants. Through its subsidiaries, CIENA has
established offices in the U.S., Europe and Latin America, including offices in
the U.K., Germany, France, Spain, Mexico and Brazil. CIENA has distributor or
marketing representative arrangements, including agreements with agents in
Italy, the Republic of Korea, Japan, Venezuela, Columbia and Chile.
In support of its worldwide selling efforts, CIENA conducts marketing
communications programs intended to position and promote its products within the
telecommunications industry. Marketing personnel also coordinate our
participation in trade shows and conduct media relations activities with trade
and general business publications.
MANUFACTURING
CIENA conducts most of the optical assembly, final assembly and final
component, module and system test functions for its optical transport products
at its manufacturing facilities in Maryland. We also manufacture the in-fiber
Bragg gratings used in our optical transport product lines. We expect the
majority of the manufacturing associated with our MultiWave CoreDirector and
CoreDirector CI products will be performed by third-party manufacturers, with
only final system test and assembly performed by CIENA. We also rely on
third-party manufacturers to manufacture some of our components for our products
and continue to evaluate whether additional portions of our manufacturing can be
done on a reliable and cost-effective basis by third-party manufacturers.
CIENA believes that portions of its manufacturing technologies and
processes represent a key competitive advantage. Accordingly, we have invested
significantly in automated production capabilities and manufacturing process
improvements and expect to further enhance our manufacturing process with
additional production process control systems. Some critical manufacturing
functions require a highly skilled work force, and CIENA puts significant
efforts into training and maintaining the quality of its manufacturing personnel
and in maintaining its proprietary information in this area.
CIENA's optical transport product lines utilize hundreds of individual
parts, many of which are customized for CIENA. Component suppliers in the
specialized, high technology end of the optical communications industry are
generally not as plentiful or, in some cases, as reliable, as component
suppliers in more mature industries. CIENA works closely with its strategic
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component suppliers to pursue new component technologies that could either
reduce cost or enhance the performance of our products.
COMPETITION
Competition in the telecommunications equipment industry is intense,
particularly in that portion of the industry focused on delivering higher
bandwidth and more cost effective services throughout the telecommunications
network. CIENA believes that its position as a leading supplier of open
architecture optical networking equipment and the field-tested design and
performance of its optical transport products give it a competitive advantage,
and CIENA expects to leverage that advantage in bringing its core switching
products to market. However, competition has been and will continue to be very
intense. See "Management's Discussion and Analysis of Financial Conditions and
Results of Operations" and "Risk Factors".
CIENA's competition is dominated by a small number of very large, usually
multinational, vertically integrated companies, each of which has substantially
greater financial, technical and marketing resources, and greater manufacturing
capacity as well as more established customer relationships with long distance
carriers than CIENA. Included among CIENA's competitors are Alcatel Alsthom
Group, Cisco, Fujitsu Group, Hitachi Ltd., Lucent Technologies Inc., NEC
Corporation, Nortel Networks Corporation, Siemens AG, Telefon AB LM Ericsson and
several new companies, such as ONI Systems, Sycamore Networks, Corvis Systems,
and Tellium, Inc. CIENA believes each of its major competitors is in various
stages of development, introduction or deployment of products directly
competitive with CIENA's optical transport, core switching and service delivery
systems.
In addition to optical networking equipment suppliers, traditional
TDM-based transmission equipment suppliers compete with CIENA in the market for
transmission capacity. Alcatel, Fujitsu, Hitachi, Lucent, NEC and Nortel are
already providers of a full complement of such transmission equipment. These and
other competitors have introduced or are expected to introduce equipment that
will offer 10 Gbps transmission capability.
PATENTS AND OTHER INTELLECTUAL PROPERTY RIGHTS
CIENA has licensed intellectual property from third parties, including key
enabling technologies with respect to the production of in-fiber Bragg gratings,
utilized publicly available technology associated with Erbium-doped fiber
amplifiers, and applied its design, engineering and manufacturing skills to
develop its optical transport systems. These licenses expire when the last of
the licensed patents expires or is abandoned. CIENA also licenses from third
parties some software components for its network management products. These
licenses are perpetual but will generally terminate after an uncured breach of
the agreement by CIENA. We have registered trademarks for CIENA, WaveWatcher,
MODULE SCOPE, CIENA Optical Communications, Multiwave and Multiwave Sentry.
CIENA also relies on contractual rights, trade secrets and copyrights to
establish and protect its proprietary rights in its products.
CIENA intends to enforce vigorously its intellectual property rights if
infringement or misappropriation occurs.
CIENA's practice is to require its employees and consultants to execute
non-disclosure and proprietary rights agreements upon commencement of employment
or consulting arrangements with CIENA. These agreements acknowledge CIENA's
exclusive ownership of all intellectual property developed by the individual
during the course of his or her work with CIENA, and require that all
proprietary information disclosed to the individual will remain confidential.
CIENA's employees generally also sign agreements not to compete with CIENA for a
period of twelve months following any termination of employment.
As of November 2000, CIENA had received fifty-eight United States patents,
and had one hundred sixteen pending U.S. patent applications. We also have a
number of foreign patents and patent applications. Of the United States patents
that have been issued to CIENA, the earliest
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any will expire is 2012. Pursuant to an agreement between CIENA and General
Instrument Corporation dated March 10, 1997, CIENA is a co-owner with General
Instrument Corporation of a portfolio of 27 United States and foreign patents
relating to optical communications, primarily for video-on-demand applications.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Risk Factors".
EMPLOYEES
As of October 31, 2000, CIENA and its subsidiaries employed 2,775 persons,
of whom 527 were primarily engaged in research and development activities, 1,233
in manufacturing, 412 in installation services, 372 in sales, marketing,
customer support and related activities and 231 in administration. None of
CIENA's employees are currently represented by a labor union. CIENA considers
its relations with its employees to be good.
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DESCRIPTION OF NOTES
The notes will be issued under an indenture between us and First Union
National Bank, as trustee, substantially in the form filed as an exhibit to the
registration statement of which this prospectus forms a part. The indenture and
the notes are governed by New York law. Because this section is a summary, it
does not describe every aspect of the notes and the indenture. The following
summaries of certain provisions of the indenture do not purport to be complete
and are subject to, and are qualified in their entirety by reference to, the
detailed provision of the notes and the indenture, including the definitions
therein of certain terms.
GENERAL
The notes will be senior, unsecured general obligations of CIENA. The notes
will be limited to $350.0 million aggregate principal amount or $402.5 million
if the underwriters exercise in full their right to purchase additional notes to
cover over-allotments. We are required to repay the principal amount of the
notes in full on February , 2008, unless they are redeemed or repurchased on
an earlier date. The notes will rank equally with our other senior unsecured
obligations.
The notes will bear interest at the rate per annum shown on the front cover
of this prospectus from February , 2001. We will pay interest on the notes on
February and August of each year, commencing on August , 2001. Interest
payable per $1,000 principal amount of notes for the period from February ,
2001 to August , 2001 will be $ .
You may convert the notes into shares of our common stock initially at the
conversion rate stated on the front cover of this prospectus at any time before
the close of business on February , 2008, unless the notes have been
previously redeemed or repurchased. Holders of notes called for redemption or
submitted for repurchase will be entitled to convert the notes up to and
including the business day immediately preceding the date fixed for redemption
or repurchase, as the case may be. The conversion rate may be adjusted as
described below.
We may redeem the notes at our option at any time on or after the third
business day after February , 2004, in whole or in part, at the redemption
prices set forth below under "--Optional Redemption by CIENA", plus accrued and
unpaid interest to the redemption date. If we undergo a change in control of us,
you will have the right to require us to repurchase your notes as described
below under "-- Repurchase at Option of Holders Upon a Change In Control".
FORM, DENOMINATION, TRANSFER, EXCHANGE AND BOOK-ENTRY PROCEDURES
The notes will be issued:
- only in fully registered form;
- without interest coupons; and
- in denominations of $1,000 and greater multiples.
The notes will be evidenced by one or more global notes, which will be
deposited with the trustee as custodian for the Depository Trust Company, or
DTC, and registered in the name of Cede & Co., as nominee of DTC. Except as set
forth below, record ownership of the global note may be transferred, in whole or
in part, only to another nominee of DTC or to a successor of DTC or its nominee.
The global note will not be registered in the name of any person, or
exchanged for notes that are registered in the name of any person, other than
DTC or its nominee, unless either of the following occurs:
- DTC notifies us that it is unwilling, unable or no longer qualified to
continue acting as the depositary for the global note; or
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- an event of default with respect to the notes represented by the global
note has occurred and is continuing.
In those circumstances, DTC will determine in whose names any securities
issued in exchange for the global note will be registered.
DTC or its nominee will be considered the sole owner and holder of the
global note for all purposes, and as a result:
- you cannot receive notes registered in your name if they are represented
by the global note;
- you cannot receive physical certificated notes in exchange for your
beneficial interest in the global note;
- you will not be considered to be the owner or holder of the global note
or any note it represents for any purpose; and
- all payments on the global note will be made to DTC or its nominee.
The laws of some jurisdictions require that certain kinds of purchasers,
such as insurance companies, can only own securities in definitive, certificated
form. These laws may limit your ability to transfer your beneficial interests in
the global note to these types of purchasers.
Only institutions, such as a securities broker or dealer, that have
accounts with DTC or its nominee, called "participants", and persons that may
hold beneficial interests through participants can own a beneficial interest in
the global note. The only place where the ownership of beneficial interests in
the global note will appear and the only way the transfer of those interests can
be made will be on the records kept by DTC for their participants' interests and
the records kept by those participants for interests of persons held by
participants on their behalf.
Secondary trading in bonds and notes of corporate issuers is generally
settled in clearinghouse, that is, next-day, funds. In contrast, beneficial
interests in a global note usually trade in DTC's same-day funds settlement
system, and settle in immediately available funds. We make no representations as
to the effect that settlement in immediately available funds will have on
trading activity in those beneficial interests.
We will make cash payments of interest on and principal and the redemption
or repurchase price of the global note, as well as any payment of liquidated
damages, to Cede, the nominee for DTC, as the registered owner of the global
note. We will make these payments by wire transfer of immediately available
funds on each payment date.
We have been informed that DTC's practice is to credit participants'
accounts on the payment date with payments in amounts proportionate to their
respective beneficial interests in the notes represented by the global note as
shown on DTC's records, unless DTC has reason to believe that it will not
receive payment on that payment date. Payments by participants to owners of
beneficial interests in notes represented by the global note held through
participants will be the responsibility of those participants, as is now the
case with securities held for the accounts of customers registered in street
name.
We will send any redemption notices to Cede. We understand that if less
than all the notes are being redeemed, DTC's practice is to determine by lot the
amount of the holdings of each participant to be redeemed.
We also understand that neither DTC nor Cede will consent or vote with
respect to the notes. We have been advised that under its usual procedures, DTC
will mail an "omnibus proxy" to us as soon as possible after the record date for
any vote or consent. The omnibus proxy assigns Cede's consenting or voting
rights to those participants to whose accounts the notes are credited on the
record date identified in a listing attached to the omnibus proxy.
Because DTC can only act on behalf of participants, who in turn act on
behalf of indirect participants, the ability of a person having a beneficial
interest in the principal amount
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represented by the global note to pledge the interest to persons or entities
that do not participate in the DTC book-entry system, or otherwise take actions
in respect of that interest, may be affected by the lack of a physical
certificate evidencing its interest.
DTC has advised us that it will take any action permitted to be taken by a
holder of notes, including the presentation of notes for exchange, only at the
direction of one or more participants to whose account with DTC interests in the
global note are credited and only in respect of such portion of the principal
amount of the notes represented by the global note as to which such participant
or participants has or have given such direction.
DTC has also advised us as follows:
- DTC is a limited purpose trust company organized under the laws of the
State of New York, member of the Federal Reserve System, "clearing
corporation" within the meaning of the Uniform Commercial Code and
"clearing agency" registered pursuant to the provisions of Section 17A of
the Exchange Act;
- DTC was created to hold securities for its participants and facilitate
the clearance and settlement of securities transactions between
participants through electronic book-entry changes in accounts of its
participants;
- participants include securities brokers and dealers, banks, trust
companies and clearing corporations and may include certain other
organizations;
- certain participants, or their representatives, together with other
entities, own DTC; and
- indirect access to the DTC system is available to other entities such as
banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a participant, either directly or
indirectly.
The policies and procedures of DTC, which may change periodically, will
apply to payments, transfers, exchanges and other matters relating to beneficial
interests in the global note. We and the trustee have no responsibility or
liability for any aspect of DTC's or any participant's records relating to
beneficial interests in the global note, including for payments made on the
global note. Further, we and the trustee are not responsible for maintaining,
supervising or reviewing any of those records.
CONVERSION RIGHTS
You have the option to convert any portion of the principal amount of any
note that is an integral multiple of $1,000 into shares of our common stock at
any time on or prior to the close of business on the maturity date, unless the
notes have been previously redeemed or repurchased. The conversion rate will be
equal to shares per $1,000 principal amount of notes. The conversion
rate is equivalent to a conversion price of approximately $ per share. Your
right to convert a note called for redemption or delivered for repurchase will
terminate at the close of business on the business day immediately preceding the
redemption date or repurchase date for that note, unless we default in making
the payment due upon redemption or repurchase.
You may convert all or part of any note by delivering the note at the
Corporate Trust Office of the trustee in the Borough of Manhattan, The City of
New York, accompanied by a duly signed and completed conversion notice, a copy
of which may be obtained from the trustee. The conversion date will be the date
on which the note and the duly signed and completed conversion notice are so
delivered.
As promptly as practicable on or after the conversion date, we will issue
and deliver to the trustee a certificate or certificates for the number of full
shares of our common stock issuable upon conversion, together with payment in
lieu of any fraction of a share. The certificate or certificates will then be
sent by the trustee to the conversion agent for delivery to the holder of the
note being converted. The shares of our common stock issuable upon conversion of
the
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notes will be fully paid and nonassessable and will rank equally with the other
shares of our common stock.
If you surrender a note for conversion on a date that is not an interest
payment date, you will not be entitled to receive any interest for the period
from the immediately preceding interest payment date to the conversion date,
except as described below in this paragraph. Any note surrendered for conversion
during the period from the close of business on any regular record date to the
opening of business on the next succeeding interest payment date, except notes,
or portions thereof, called for redemption on a redemption date or to be
repurchased on a repurchase date for which the right to convert would terminate
during such period, must be accompanied by payment of an amount equal to the
interest payable on such interest payment date on the principal amount of notes
being surrendered for conversion. In the case of any note that has been
converted after any regular record date but before the next succeeding interest
payment date, interest payable on such interest payment date shall be payable on
such interest payment date notwithstanding such conversion, and such interest
shall be paid to the holder of such note on such regular record date.
No other payment or adjustment for interest, or for any dividends in
respect of our common stock, will be made upon conversion. Holders of our common
stock issued upon conversion will not be entitled to receive any dividends
payable to holders of our common stock as of any record time or date before the
close of business on the conversion date. We will not issue fractional shares
upon conversion. Instead, we will pay cash based on the market price of our
common stock at the close of business on the conversion date.
You will not be required to pay any taxes or duties relating to the issue
or delivery of our common stock on conversion, but you will be required to pay
any tax or duty relating to any transfer involved in the issue or delivery of
our common stock in a name other than yours. Certificates representing shares of
our common stock will not be issued or delivered unless all taxes and duties, if
any, payable by you have been paid.
The conversion rate will be subject to adjustment for, among other things:
- dividends and other distributions payable in our common stock on shares
of our capital stock;
- the issuance to all holders of our common stock of rights, options or
warrants entitling them to subscribe for or purchase our common stock at
less than the then current market price of such common stock as of the
record date for shareholders entitled to receive such rights, options or
warrants;
- subdivisions, combinations and reclassifications of our common stock;
- distributions to all holders of our common stock of evidences of our
indebtedness, shares of capital stock, cash or assets, including
securities, but excluding:
- those dividends, rights, options, warrants and distributions
referred to above;
- dividends and distributions paid exclusively in cash; and
- distributions upon mergers or consolidations discussed below;
- distributions consisting exclusively of cash, excluding any cash portion
of distributions referred to in the bullet point immediately above, or
cash distributed upon a merger or consolidation to which the next
succeeding bullet point applies, to all holders of our common stock in an
aggregate amount that, combined together with:
- other all-cash distributions made within the preceding 365-day
period in respect of which no adjustment has been made; and
- any cash and the fair market value of other consideration payable
in connection with any tender offer by us or any of our
subsidiaries for our common stock
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concluded within the preceding 365-day period in respect of which
no adjustment has been made,
exceeds 10% of our market capitalization, being the product of the
current market price per share of our common stock on the record date for
such distribution and the number of shares of common stock then
outstanding; and
- the successful completion of a tender offer made by us or any of our
subsidiaries for our common stock which involves an aggregate
consideration that, together with:
- any cash and other consideration payable in a tender offer by us or
any of our subsidiaries for our common stock expiring within the
365-day period preceding the expiration of that tender offer in
respect of which no adjustment has been made; and
- the aggregate amount of all cash distributions referred to in the
immediately preceding bullet point above to all holders of our
common stock within the 365-day period preceding the expiration of
that tender offer in respect of which no adjustments have been
made,
exceeds 10% of our market capitalization on the expiration of such tender
offer.
We reserve the right to effect such increases in the conversion rate in
addition to those required by the foregoing provisions as we consider to be
advisable so that any event treated for United States federal income tax
purposes as a dividend of stock or stock rights will not be taxable to the
recipients. We will not be required to make any adjustment to the conversion
rate until the cumulative adjustments amount to 1.0% or more of the conversion
rate. We will compute all adjustments to the conversion rate and will give
notice by mail to holders of the registered notes of any adjustments.
If we consolidate or merge with or into another entity or another entity is
merged into us, or in case of any sale or transfer of all or substantially all
of our assets, each note then outstanding will become convertible only into the
kind and amount of securities, cash and other property receivable upon such
consolidation, merger, sale or transfer by a holder of the number of shares of
common stock into which the notes were convertible immediately prior to the
consolidation or merger or sale or transfer. The preceding sentence will not
apply to a merger that does not result in any reclassification, conversion,
exchange or cancellation of our common stock.
We may increase the conversion rate for any period of at least 20 days,
upon at least 15 days notice, if our board of directors determines that the
increase would be in our best interest. The board of directors' determination in
this regard will be conclusive. We will give holders of notes at least 15 days'
notice of such an increase in the conversion rate. No such increase, however,
will be taken into account for purposes of determining whether the closing price
of our common stock exceeds the conversion price by 105% in connection with an
event that otherwise would be a change in control as defined below.
If at any time we make a distribution of property to our stockholders that
would be taxable to such stockholders as a dividend for United States federal
income tax purposes, such as distributions of evidences of indebtedness or
assets by us, but generally not stock dividends on common stock or rights to
subscribe for common stock, and, pursuant to the anti-dilution provisions of the
indenture, the number of shares into which notes are convertible is increased,
that increase may be deemed for United States federal income tax purposes to be
the payment of a taxable dividend to holders of notes. See "Important United
States Federal Income Tax Consequences -- U.S. Holders".
OPTIONAL REDEMPTION BY CIENA
On or after the third business day after February , 2004, we may redeem
the notes in whole or in part, at our option, at the prices set forth below. If
we elect to redeem all or part of the notes, we will give at least 30, but no
more than 60, days notice to you.
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The redemption price, expressed as a percentage of principal amount, is as
follows for the following periods:
REDEMPTION
PERIOD PRICE
------ ----------
Beginning on the third business day after February , 2004
and ending on February , 2005........................... %
Beginning on February , 2005 and ending on February ,
2006...................................................... %
Beginning on February , 2006 and ending on February ,
2007...................................................... %
Beginning on February , 2007 and ending on February ,
2008...................................................... %
and thereafter is equal to 100% of the principal amount. In each case, we will
pay interest to, but excluding the redemption date.
No sinking fund is provided for the notes, which means that the indenture
does not require us to redeem or retire the notes periodically.
We may, to the extent permitted by applicable law, at any time purchase
notes in the open market, by tender at any price or by private agreement. Any
note that we purchase may, to the extent permitted by applicable law, be
re-issued or resold or may, at our option, be surrendered to the trustee for
cancellation. Any notes surrendered for cancellation may not be re-issued or
resold and will be canceled promptly.
PAYMENT AND CONVERSION
We will make all payments of principal and interest on the notes by dollar
check drawn on an account maintained at a bank in The City of New York. If you
hold registered notes with a face value greater than $2,000,000, at your request
we will make payments of principal or interest to you by wire transfer to an
account maintained by you at a bank in The City of New York. Payment of any
interest on the notes will be made to the person in whose name the note, or any
predecessor note, is registered at the close of business on February or August
, whether or not a business day, immediately preceding the relevant interest
payment date, a "regular record date". If you hold registered notes with a face
value in excess of $2,000,000 and you would like to receive payments by wire
transfer, you will be required to provide the trustee with wire transfer
instructions at least 15 days prior to the relevant payment date.
Payments on any global note registered in the name of DTC or its nominee
will be payable by the trustee to DTC or its nominee in its capacity as the
registered holder under the indenture. Under the terms of the indenture, we and
the trustee will treat the persons in whose names the notes, including any
global note, are registered as the owners for the purpose of receiving payments
and for all other purposes. Consequently, neither we, the trustee nor any of our
agents or the trustee's agents has or will have any responsibility or liability
for:
- any aspect of DTC's records or any participant's or indirect
participant's records relating to or payments made on account of
beneficial ownership interests in the global note, or for maintaining,
supervising or reviewing any of DTC's records or any participant's or
indirect participant's records relating to the beneficial ownership
interests in the global note; or
- any other matter relating to the actions and practices of DTC, or any of
its participants or indirect participants.
We will not be required to make any payment on the notes due on any day
which is not a business day until the next succeeding business day. The payment
made on the next succeeding business day will be treated as though it were paid
on the original due date and no interest will accrue on the payment for the
additional period of time.
Notes may be surrendered for conversion at the Corporate Trust Office of
the trustee in the Borough of Manhattan, New York. Notes surrendered for
conversion must be accompanied by
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appropriate notices and any payments in respect of interest or taxes, as
applicable, as described above under "-- Conversion Rights".
We have initially appointed the trustee as paying agent and conversion
agent. We may terminate the appointment of any paying agent or conversion agent
and appoint additional or other paying agents and conversion agents. However,
until the notes have been delivered to the trustee for cancellation, or moneys
sufficient to pay the principal of, premium, if any, and interest on the notes
have been made available for payment, and either paid or returned to us as
provided in the indenture, the trustee will maintain an office or agency in the
Borough of Manhattan, New York for surrender of notes for conversion. Notice of
any termination or appointment and of any change in the office through which any
paying agent or conversion agent will act will be given in accordance with
"-- Notices" below.
All moneys deposited with the trustee or any paying agent, or then held by
us, in trust for the payment of principal of, premium, if any, or interest on
any notes which remain unclaimed at the end of two years after the payment has
become due and payable will be repaid to us, and you will then look only to us
for payment.
REPURCHASE AT OPTION OF HOLDERS UPON A CHANGE IN CONTROL
If a "change in control" as defined below occurs, you will have the right,
at your option, to require us to repurchase all of your notes not previously
called for redemption, or any portion of the principal amount thereof, that is
equal to $1,000 or an integral multiple of $1,000. The price we are required to
pay is 100% of the principal amount of the notes to be repurchased, together
with interest accrued to, but excluding, the repurchase date.
At our option, instead of paying the repurchase price in cash, we may pay
the repurchase price in our common stock valued at 95% of the average of the
closing prices of our common stock for the five trading days immediately
preceding and including the third trading day prior to the repurchase date. We
may only pay the repurchase price in our common stock if we satisfy conditions
provided in the indenture.
Within 30 days after the occurrence of a change in control, we are
obligated to give to you notice of the change in control and of the repurchase
right arising as a result of the change of control. We must also deliver a copy
of this notice to the trustee. To exercise the repurchase right, you must
deliver on or before the 30th day after the date of our notice irrevocable
written notice to the trustee of your exercise of your repurchase right,
together with the notes with respect to which that right is being exercised. We
are required to repurchase the notes on the date that is 45 days after the date
of our notice.
A change in control will be deemed to have occurred at the time after the
notes are originally issued that any of the following occurs:
- any person, as defined below, acquires beneficial ownership, directly or
indirectly, through a purchase, merger or other acquisition transaction
or series of transactions, of shares of our capital stock entitling that
person to exercise 50% or more of the total voting power of all shares of
our capital stock that is entitled to vote generally in elections of
directors, other than an acquisition by us, any of our subsidiaries or
any of our employee benefit plans; or
- we merge or consolidate with or into any other person, any merger of
another person into us or we convey, sell, transfer or lease all or
substantially all of our assets to another person, other than any such
transaction:
- that does not result in any reclassification, conversion,
exchange or cancellation of outstanding shares of our capital
stock;
- pursuant to which the holders of 50% or more of the total voting
power of all shares of our capital stock entitled to vote
generally in elections of directors immediately prior to such
transaction have the entitlement to exercise, directly
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or indirectly, 50% or more of the total voting power of all
shares of capital stock entitled to vote generally in the
election of directors of the continuing or surviving corporation
immediately after such transaction; or
- which is effected solely to change our jurisdiction of
incorporation and results in a reclassification, conversion or
exchange of outstanding shares of our common stock into solely
shares of common stock of the surviving entity.
However, a change in control will not be deemed to have occurred if either:
- the closing price per share of our common stock for any five trading days
within the period of 10 consecutive trading days ending immediately after
the later of the change in control or the public announcement of the
change in control, in the case of a change in control relating to an
acquisition of capital stock, or the period of 10 consecutive trading
days ending immediately before the change in control, in the case of
change in control relating to a merger, consolidation or asset sale,
equals or exceeds 105% of the conversion price of the notes in effect on
each of those five trading days; or
- all of the consideration, excluding cash payments for fractional shares
and cash payments made pursuant to dissenters' appraisal rights, in a
merger or consolidation otherwise constituting a change of control under
the first and second bullet points in the preceding paragraph above
consists of shares of common stock traded on a national securities
exchange or quoted on the Nasdaq National Market, or will be so traded or
quoted immediately following such merger or consolidation, and as a
result of such merger or consolidation the notes become convertible
solely into such common stock.
For purposes of these provisions:
- the conversion price is equal to $1,000 divided by the conversion rate;
- whether a person is a "beneficial owner" will be determined in accordance
with Rule 13d-3 under the Exchange Act; and
- a "person" includes any syndicate or group that would be deemed to be a
person under Section 13(d)(3) of the Exchange Act.
The rules and regulations promulgated under the Exchange Act require the
dissemination of prescribed information to security holders in the event of an
issuer tender offer and may apply if the repurchase option becomes available to
you. We will comply with these rules to the extent they apply to us at that
time.
The definition of change in control includes a phrase relating to the
conveyance, transfer, sale, lease or disposition of all or substantially all of
our assets. There is no precise, established definition of the phrase
"substantially all" under applicable law. Accordingly, your ability to require
us to repurchase your notes as a result of conveyance, transfer, sale, lease or
other disposition of less than all of our assets may be uncertain.
The foregoing provisions would not necessarily provide you with the
protection if we are involved in a highly leveraged or other transaction that
may adversely affect you.
Our ability to repurchase notes upon the occurrence of a change in control
is subject to important limitations. Some of the events constituting a change in
control could result in an event of default under, or be prohibited or limited
by, the terms of our then existing borrowing arrangements. Further, although we
have the right to repurchase the notes with our common stock, subject to certain
conditions, we cannot assure you that we would have the financial resources, or
would be able to arrange financing, to pay the repurchase price in cash for all
the notes that might be delivered by holders of notes seeking to exercise the
repurchase right. If we were to fail to repurchase the notes when required
following a change in control, an event of default under the indenture would
occur, whether or not such repurchase is permitted by the terms of our then
existing borrowing arrangements. Any such default may, in turn, cause a default
under our other debt.
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MERGERS AND SALES OF ASSETS BY CIENA
We may not consolidate with or merge into any other person or convey,
transfer, sell or lease our properties and assets substantially as an entirety
to any person, and we may not permit any person to consolidate with or merge
into us or convey, transfer, sell or lease such person's properties and assets
substantially as an entirety to us unless:
- the person formed by such consolidation or into or with which we are
merged or the person to which our properties and assets are so conveyed,
transferred, sold or leased, shall be a corporation, limited liability
company, partnership or trust organized and validly existing under the
laws of the United States, any State within the United States or the
District of Columbia and, if we are not the surviving person, the
surviving person files a supplement to the indenture and expressly
assumes the payment of the principal of, premium, if any, and interest on
the notes and the performance of our other covenants under the indenture;
- immediately after giving effect to the transaction, no event of default,
and no event that, after notice or lapse of time or both, would become an
event of default, will have occurred and be continuing; and
- other requirements as described in the indenture are met.
EVENTS OF DEFAULT
The following will be events of default under the indenture:
- we fail to pay principal of or premium, if any, on any note when due;
- we fail to pay any interest on any note when due, which failure continues
for 30 days;
- we fail to provide notice of a change in control;
- we fail to perform any other covenant in the indenture, which failure
continues for 60 days after written notice as provided in the indenture;
- any indebtedness under any bonds, debentures, notes or other evidences of
indebtedness for money borrowed, or any guarantee thereof, by us or any
of our significant subsidiaries in an aggregate principal amount in
excess of $25 million is not paid when due either at its stated maturity
or upon acceleration thereof, and such indebtedness is not discharged, or
such acceleration is not rescinded or annulled, within a period of 30
days after notice as provided in the indenture; and
- certain events of bankruptcy, insolvency or reorganization involving us
or any of our significant subsidiaries.
Subject to the provisions of the indenture relating to the duties of the
trustee in case an event of default shall occur and be continuing, the trustee
will be under no obligation to exercise any of its rights or powers under the
indenture at the request or direction of any holder, unless the holder shall
have furnished reasonable indemnity to the trustee. Subject to providing
indemnification of the trustee, the holders of a majority in aggregate principal
amount of the outstanding notes will have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the trustee
or exercising any trust or power conferred on the trustee.
If an event of default other than an event of default arising from events
of insolvency, bankruptcy or reorganization occurs and is continuing, either the
trustee or the holders of at least 25% in principal amount of the outstanding
notes may accelerate the maturity of all notes. However, after such
acceleration, but before a judgment or decree based on acceleration, the holders
of a majority in aggregate principal amount of outstanding notes may, under
certain circumstances, rescind and annul the acceleration if all events of
default, other than the non-payment of principal of the notes that have become
due solely by such declaration of acceleration, have been cured or waived as
provided in the indenture. If an event of default
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arising from events of insolvency, bankruptcy or reorganization occurs, then the
principal of, and accrued interest on, all the notes will automatically become
immediately due and payable without any declaration or other act on the part of
the holders of the notes or the trustee. For information as to waiver of
defaults, see "-- Meetings, Modification and Waiver" below.
You will not have any right to institute any proceeding with respect to the
indenture, or for any remedy under the indenture, unless:
- you give the trustee written notice of a continuing event of default;
- the holders of at least 25% in aggregate principal amount of the
outstanding notes have made written request and offered reasonable
indemnity to the trustee to institute proceedings;
- the trustee has not received from the holders of a majority in aggregate
principal amount of the outstanding notes a direction inconsistent with
the written request; and
- the trustee shall have failed to institute such proceeding within 60 days
of the written request.
However, these limitations do not apply to a suit instituted by you for the
enforcement of payment of the principal of, premium, if any, or interest on your
note on or after the respective due dates expressed in your note or your right
to convert your note in accordance with the indenture.
We will be required to furnish to the trustee annually a statement as to
our performance of certain of our obligations under the indenture and as to any
default in such performance.
MEETINGS, MODIFICATION AND WAIVER
The indenture contains provisions for convening meetings of the holders of
notes to consider matters affecting their interests.
Certain limited modifications of the indenture may be made without the
necessity of obtaining the consent of the holders of the notes. Other
modifications and amendments of the indenture may be made, and certain past
defaults by us may be waived, either:
- with the written consent of the holders of not less than a majority in
aggregate principal amount of the notes at the time outstanding; or
- by the adoption of a resolution, at a meeting of holders of the notes at
which a quorum is present, by the holders of at least 66 2/3% in
aggregate principal amount of the notes represented at such meeting.
The quorum at any meeting called to adopt a resolution will be persons
holding or representing a majority in aggregate principal amount of the notes at
the time outstanding and, at any reconvened meeting adjourned for lack of a
quorum, 25% of such aggregate principal amount.
However, a modification or amendment requires the consent of the holder of
each outstanding note affected if it would:
- change the stated maturity of the principal or interest of a note;
- reduce the principal amount of, or any premium or interest on, any note;
- reduce the amount payable upon a redemption or mandatory repurchase;
- modify the provisions with respect to the repurchase rights of holders of
notes in a manner adverse to the holders;
- change the place or currency of payment on a note;
- impair the right to institute suit for the enforcement of any payment on
any note;
- modify our obligation to maintain an office or agency in New York City;
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- adversely affect the right to convert the notes;
- reduce the above-stated percentage of the principal amount of the holders
whose consent is needed to modify or amend the indenture;
- reduce the percentage of the principal amount of the holders whose
consent is needed to waive compliance with certain provisions of the
indenture or to waive certain defaults; or
- reduce the percentage required for the adoption of a resolution or the
quorum required at any meeting of holders of notes at which a resolution
is adopted.
The holders of a majority in aggregate principal amount of the outstanding
notes may waive compliance by us with certain restrictive provisions of the
indenture by written consent. Holders of at least 66 2/3% in aggregate of the
principal amount of notes represented at a meeting may also waive compliance by
us with certain restrictive provisions of the indenture by the adoption of a
resolution at the meeting if a quorum of holders are present and certain other
conditions are met. The holders of a majority in aggregate principal amount of
the outstanding notes also may waive by written consent any past default under
the indenture, except a default in the payment of principal, premium, if any, or
interest.
NOTICES
Notice to holders of the registered notes will be given by mail to the
addresses as they appear in the security register. Notices will be deemed to
have been given on the date of such mailing.
Notice of a redemption of notes will be given not less than 30 nor more
than 60 days prior to the redemption date and will specify the redemption date.
A notice of redemption of the notes will be irrevocable.
REPLACEMENT OF NOTES
We will replace any note that becomes mutilated, destroyed, stolen or lost
at the expense of the holder upon delivery to the trustee of the mutilated notes
or evidence of the loss, theft or destruction satisfactory to us and the
trustee. In the case of a lost, stolen or destroyed note, indemnity satisfactory
to the trustee and us may be required at the expense of the holder of the note
before a replacement note will be issued.
PAYMENT OF STAMP AND OTHER TAXES
We will pay all stamp and other duties, if any, that may be imposed by the
United States or any political subdivision thereof or taxing authority thereof
or therein with respect to the issuance of the notes or of shares of stock upon
conversion of the notes. We will not be required to make any payment with
respect to any other tax, assessment or governmental charge imposed by any
government or any political subdivision thereof or taxing authority thereof or
therein.
GOVERNING LAW
The indenture and the notes will be governed by and construed in accordance
with the laws of the State of New York, United States of America.
THE TRUSTEE
If an event of default occurs and is continuing, the trustee will be
required to use the degree of care of a prudent person in the conduct of his own
affairs in the exercise of its powers. Subject to such provisions, the trustee
will be under no obligation to exercise any of its rights or powers under the
indenture at the request of any of the holders of notes, unless they shall have
furnished to the trustee reasonable security or indemnity.
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IMPORTANT UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of some U.S. federal income tax considerations
relating to the purchase, ownership and disposition of the notes and common
stock into which the notes may be converted, but does not purport to be a
complete analysis of all the potential tax considerations relating to the notes.
This summary is based on laws, regulations, rulings and decisions now in effect,
all of which are subject to change or differing interpretation, possibly with
retroactive effect. This summary applies only to beneficial owners that will
hold notes and common stock into which notes may be converted as "capital
assets" within the meaning of Section 1221 of the Internal Revenue Code of 1986,
or the "Code". For purposes of this discussion, U.S. Holders are holders who,
for U.S. federal income tax purposes, are: (1) individual citizens or residents
of the U.S.; (2) corporations, partnerships or other entities created or
organized in or under the laws of the U.S. or of any political subdivision
thereof unless, in the case of a partnership, Treasury Regulations otherwise
provide; (3) estates, the incomes of which are subject to U.S. federal income
taxation regardless of the source of such income or; (4) trusts subject to the
primary supervision of a U.S. court and the control of one or more U.S. persons
(collectively, "U.S. Holders").
Persons other than U.S. Holders ("Non-U.S. Holders") are subject to special
U.S. federal income tax considerations, some of which are discussed below. This
discussion does not address tax considerations applicable to an investor's
particular circumstances or to investors that may be subject to special tax
rules, such as: banks; holders subject to the alternative minimum tax;
tax-exempt organizations; insurance companies; foreign persons or entities,
except to the extent specifically set forth below; dealers in securities or
currencies; persons that will hold notes as a position in a hedging transaction,
"straddle" or "conversion transaction" for tax purposes; or persons deemed to
sell notes or common stock under the constructive sale provisions of the Code.
This summary discusses the tax considerations applicable to initial
purchasers of the notes who purchase the notes at their "issue price" as defined
in Section 1273 of the Code and does not discuss the tax considerations
applicable to subsequent purchasers of the notes. We have not sought any ruling
from the Internal Revenue Service, or the IRS, or an opinion of counsel with
respect to the statements made and the conclusions reached in the following
summary. We cannot assure you that the IRS will agree with these statements and
conclusions. In addition, the IRS is not precluded from successfully adopting a
contrary position. This summary does not consider the effect of the federal
estate or gift tax laws, except as set forth below with respect to Non-U.S.
Holders, or of any applicable foreign, state, local or other jurisdiction.
INVESTORS CONSIDERING THE PURCHASE OF NOTES SHOULD CONSULT THEIR OWN TAX
ADVISORS WITH RESPECT TO THE APPLICATION OF THE UNITED STATES FEDERAL TAX LAWS
TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER THE
FEDERAL ESTATE OR GIFT TAX RULES OR UNDER THE LAWS OF ANY STATE, LOCAL OR
FOREIGN TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.
U.S. HOLDERS
TAXATION OF INTEREST
Interest paid on the notes will be included in the income of a U.S. Holder
as ordinary income at the time it is treated as received or accrued, in
accordance with such holder's regular method of accounting for U.S. federal
income tax purposes. Under Treasury Regulations, the possibility of differences
in the amount and/or timing of payments under a note in the event of certain
contingencies may be disregarded for purposes of determining the amount of
interest income to be recognized by a holder in respect of such note, or the
timing of such recognition, if the likelihood of the contingency, as of the date
the notes are issued, is remote. We intend to take the position that an early
redemption or repurchase of the notes by us, including a required redemption of
the notes by us at the option of the holder in the event of a change of control,
is
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remote under the Treasury Regulations, and do not intend to treat such
contingencies as affecting the yield to maturity of any note. In the event any
such contingency occurs, it would affect the amount and timing of the income
that must be recognized by a U.S. Holder of notes. We cannot assure you that the
IRS will agree with this position.
SALE, EXCHANGE OR REDEMPTION OF THE NOTES
Upon the sale, exchange, other than a conversion, or redemption of a note,
a U.S. Holder generally will recognize capital gain or loss equal to the
difference between (1) the amount of cash proceeds and the fair market value of
any property received on the sale, exchange or redemption, except to the extent
this amount is attributable to accrued interest income not previously included
in income, which will be taxable as ordinary income, or is attributable to
accrued interest that was previously included in income, which amount may be
received without generating further income, and (2) the holder's adjusted tax
basis in the note. A U.S. Holder's adjusted tax basis in a note generally will
equal the cost of the note to the holder. This capital gain or loss will be
long-term capital gain or loss if the U.S. Holder's holding period in the note
is more than one year at the time of sale, exchange or redemption. Long-term
capital gains recognized by some non-corporate U.S. Holders, including
individuals, will generally be subject to a maximum rate of tax of 20%, except
in the case of long-term capital gains from notes held more than five years, in
which case the maximum tax rate is 18%. The deductibility of capital losses is
subject to limitations.
CONVERSION OF THE NOTES
A U.S. Holder generally will not recognize any income, gain or loss upon
conversion of a note into common stock except with respect to (i) common stock
received with respect to interest that has accrued but was not included in
income and (ii) cash received in lieu of a fractional share of common stock.
Common stock received with respect to interest that has accrued but was not
included in income will be taxable to a U.S. Holder as ordinary interest income.
A U.S. Holder's tax basis in the common stock received on conversion of a note
will be the same as the holder's adjusted tax basis in the note at the time of
conversion, reduced by any basis allocable to a fractional share interest, and
the holding period for the common stock received on conversion will generally
include the holding period of the note converted. However, a U.S. Holder's tax
basis in shares of common stock considered attributable to accrued interest
generally will equal the amount of the accrued interest included in income, and
the holding period for the shares shall begin on the date of conversion.
Cash received in lieu of a fractional share of common stock upon conversion
will be treated as a payment in exchange for the fractional share of common
stock. Accordingly, the receipt of cash in lieu of a fractional share of common
stock generally will result in capital gain or loss, measured by the difference
between the cash received for the fractional share and the holder's adjusted tax
basis in the fractional share.
ADJUSTMENTS TO CONVERSION PRICE OF NOTES
Holders of convertible debt instruments such as the notes may, in some
circumstances, be deemed to have received distributions of stock if the
conversion price of these instruments is adjusted. Adjustments to the conversion
price made pursuant to a bona fide reasonable adjustment formula that has the
effect of preventing the dilution of the interest of the holders of the debt
instruments, however, will generally not be considered to result in a
constructive distribution of stock. Some of the possible adjustments provided in
the notes, including, without limitation, adjustments in respect of taxable
dividends to our stockholders, will not qualify as being pursuant to a bona fide
reasonable adjustment formula. If these adjustments are made, the U.S. Holders
of notes will be deemed to have received constructive distributions taxable as
dividends to the extent of our current and accumulated earnings and profits even
though they have not received any cash or property as a result of these
adjustments. In some circumstances, the failure to provide for an adjustment may
result in taxable dividend income to the U.S. Holders of common stock.
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DIVIDENDS ON COMMON STOCK
Distributions, if any, made on the common stock after a conversion
generally will be included in the income of a U.S. Holder as ordinary dividend
income to the extent of our current or accumulated earnings and profits.
Distributions in excess of our current and accumulated earnings and profits will
be treated as a return of capital to the extent of the U.S. Holder's basis in
the common stock and thereafter as capital gain. A dividend distribution to a
corporate U.S. Holder may qualify for a dividends received deduction.
SALE OF COMMON STOCK
Upon the sale or exchange of common stock, a U.S. Holder generally will
recognize capital gain or loss equal to the difference between (1) the amount of
cash and the fair market value of any property received on the sale or exchange
and (2) the U.S. Holder's adjusted tax basis in the common stock. This capital
gain or loss will be long-term capital gain or loss if the U.S. Holder's holding
period in common stock is more than one year at the time of the sale or
exchange. Long-term capital gains recognized by some non-corporate U.S. Holders,
including individuals, will generally be subject to a maximum rate of tax of
20%, except in the case of common stock held for more than five years, in which
case the maximum tax rate is 18%. A U.S. Holder's basis and holding period in
common stock received upon conversion of a note are determined as discussed
above under "Conversion of the Notes". The deductibility of capital losses is
subject to limitations.
SPECIAL TAX RULES APPLICABLE TO NON-U.S. HOLDERS
In general, subject to the discussion below concerning backup withholding:
(a) Payments of principal or interest on the notes by us or any paying
agent to a beneficial owner of a note that is a Non-U.S. Holder will not be
subject to U.S. withholding tax, provided that, in the case of interest,
(1) the Non-U.S. Holder does not own, actually or constructively, 10%
or more of the total combined voting power of all classes of our stock
entitled to vote within the meaning of Section 871(h)(3) of the Code,
(2) the Non-U.S. Holder is not a "controlled foreign corporation" with
respect to which we are a "related person" within the meaning of the Code,
(3) the Non-U.S. Holder is not a bank receiving interest described in
Section 881 (c)(3)(A) of the Code, and
(4) the U.S. payor of interest does not have actual knowledge or
reason to know that you are a United States person and the certification
requirements under Section 871(h) or Section 881(c) of the Code and related
Treasury Regulations, discussed below, are satisfied;
(b) A Non-U.S. Holder of a note or common stock will not be subject to U.S.
federal income tax on gains realized on the sale, exchange or other disposition
of such note or common stock unless
(1) the Non-U.S. Holder is an individual who is present in the U.S.
for 183 days or more in the taxable year of sale, exchange or other
disposition, and certain conditions are met,
(2) the gain is effectively connected with the conduct by the Non-U.S.
Holder of a trade or business in the U.S. and, if certain U.S. income tax
treaties apply, is attributable to a U.S. permanent establishment
maintained by the Non-U.S. Holder,
(3) the Non-U.S. Holder is subject to Code provisions applicable to
some U.S. expatriates, or
(4) in the case of a Non-U.S. Holder who holds more than 5% of the
notes or the common stock, we are or have been, at any time within the
shorter of the five-year period preceding the sale or other disposition or
the period such Non-U.S. Holder held the note or common stock, a U.S. real
property holding corporation, or a USRPHC for U.S. federal
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income tax purposes. We do not believe that we are currently a USRPHC or
that we will become one in the future;
(c) Interest on notes not excluded from U.S. withholding tax as described
in (a) above and dividends on common stock after conversion generally will be
subject to U.S. withholding tax at a 30% rate, except where an applicable tax
treaty provides for the reduction or elimination of such withholding tax.
The conversion price of the notes is subject to adjustment in some
circumstances. Any such adjustment could, in some circumstances, give rise to a
deemed distribution to Non-U.S. Holders of the notes. See "U.S.
Holders -- Adjustments to Conversion Price" above. In such case, the deemed
distribution would be subject to the rules described above regarding U.S.
withholding tax on dividends.
A Non-U.S. Holder generally should not be subject to U.S. federal income
tax on the conversion of a note into common stock. To the extent a non-U.S.
holder receives cash in lieu of a fractional share of common stock upon
conversion, such cash may give rise to gain that would subject to the rules
described above with respect to the sale, exchange or redemption of a note or
common stock. To the extent a Non-U.S. Holder receives upon conversion common
stock that is attributable to accrued interest not previously included in
income, such stock may give rise to income that would subject to the rules
described above with respect to the taxation of interest.
To satisfy the certification requirements referred to in (a)(4) above,
Sections 871(h) and 881(c) of the Code and the Treasury Regulations thereunder
require that either (1) the beneficial owner of a note must certify, under
penalties of perjury, to us or our paying agent, as the case may be, that the
owner is a Non-U.S. Holder and must provide the owner's name and address, and
U.S. taxpayer identification number, or TIN, if any, on Form W-8BEN, or a
suitable substitute form; or (2) an intermediary payee (such as a withholding
foreign partnership, qualified intermediary or U.S. branch of a non-U.S. bank or
of a non-U.S. insurance company) provides to us, or our paying agent, as the
case may be, a Form W-8IMY, signed under penalties of perjury and such
intermediary payee has obtained appropriate certification from the beneficial
owner on Form W-8IMY, W-8BEN or W-8ECI, as to the beneficial owners U.S. status;
or (3) a securities clearing organization, bank or other financial institution
that holds customer securities in the ordinary course of its trade or business,
which we refer to as a "Financial Institution", and holds the note on behalf of
the beneficial owner must certify, under penalties of perjury, to us or our
paying agent, as the case may be, that a Form W-8BEN or a suitable substitute
form has been received from the beneficial owner and must furnish the payor with
a copy thereof.
If a Non-U.S. Holder of a note or common stock is engaged in a trade or
business in the U.S. and if interest on the note, dividends on the common stock,
or gain realized on the sale, exchange or other disposition of the note or
common stock is effectively connected with the conduct of the trade or business
(and, if certain tax treaties apply, is attributable to a U.S. permanent
establishment maintained by the Non-U.S. Holder in the U.S.), the Non-U.S.
Holder, although exempt from U.S. withholding tax (provided that the
certification requirements discussed in the next sentence are met), will
generally be subject to U.S. federal income tax on such interest, dividends or
gain on a net income basis in the same manner as if it were a U.S. Holder. In
lieu of the certificate described above, such a Non-U.S. Holder will be required
to provide us with a properly executed IRS Form W-8ECI or successor form in
order to claim an exemption from withholding tax. In addition, if such Non-U.S.
Holder is a foreign corporation, it may be subject to a branch profits tax equal
to 30%, or any lower rate provided by an applicable treaty, of its effectively
connected earnings and profits for the taxable year, subject to adjustment.
A note held by an individual who at the time of death is not a citizen or
resident of the U.S., as specially defined for U.S. federal estate tax purposes,
will not be subject to U.S. federal estate tax if the individual did not
actually or constructively own 10% or more of the total combined voting power of
all classes of our stock and, at the time of the individual's death, payments
with respect to the note would not have been effectively connected with the
conduct by such
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individual of a trade or business in the U.S. Common stock held by an individual
who at the time of death is not a citizen or resident of the U.S., as specially
defined for U.S. federal estate tax purposes, will be included in such
individual's estate for U.S. federal estate tax purposes, unless an applicable
estate tax treaty otherwise applies.
Non-U.S. Holders should consult with their tax advisors regarding U.S. and
foreign tax consequences with respect to the notes and common stock.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Backup withholding of U.S. federal income tax at a rate of 31% may apply to
payments pursuant to the terms of a note or common stock to a U.S. Holder that
is not an "exempt recipient" and that fails to provide certain identifying
information, such as the holder's TIN, in the manner required. Generally,
individuals are not exempt recipients, whereas corporations and some other
entities are exempt recipients. Payments made in respect of a note or common
stock must be reported to the IRS, unless the U.S. holder is an exempt recipient
or otherwise establishes an exemption.
In the case of payments of interest on a note to a Non-U.S. Holder,
Treasury Regulations provide that backup withholding and information reporting
will not apply to payments with respect to which either requisite certification
has been received or an exemption has otherwise been established, provided that
neither we nor a paying agent has actual knowledge that the holder is a U.S.
Holder or that the conditions of any other exemption are not in fact satisfied.
Dividends on the common stock paid to Non-U.S. Holders that are subject to
U.S. withholding tax, as described above, generally will be exempt from U.S.
backup withholding tax.
Payments of the proceeds of the sale of a note or common stock to or
through a foreign office of a U.S. broker or a foreign office of a broker that
is a U.S. related person are currently subject to certain information reporting
requirements, unless the payee is an exempt recipient or the broker has the
requisite certification or documentary evidence in its records that the payee is
a Non-U.S. Holder and no actual knowledge that the evidence is false and certain
other conditions are met. Temporary Treasury Regulations indicate that these
payments are not currently subject to backup withholding.
Under current Treasury Regulations, payments of the proceeds of a sale of a
note or common stock to or through the U.S. office of a broker will be subject
to information reporting and backup withholding unless the payee certifies under
penalties of perjury as to his or her status as a Non-U.S. Holder and satisfies
certain other qualifications (and no agent of the broker who is responsible for
receiving or viewing such statement has actual knowledge that it is incorrect)
and provides his or her name and address or the payee otherwise establishes an
exemption.
Any amounts withheld under the backup withholding rules from a payment to a
holder of a note or common stock will be allowed as a refund or credit against
such holder's U.S. federal income tax provided that the required information is
furnished to the IRS in a timely manner. THE PRECEDING DISCUSSION OF CERTAIN
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS IS FOR GENERAL INFORMATION ONLY
AND IS NOT TAX ADVICE. ACCORDINGLY, EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS
OWN TAX ADVISOR AS TO THE PARTICULAR U.S. FEDERAL, STATE AND LOCAL TAX
CONSEQUENCES OF PURCHASING, HOLDING AND DISPOSING OF THE NOTES AND COMMON STOCK
OF CIENA. TAX ADVISORS SHOULD ALSO BE CONSULTED AS TO THE U.S. ESTATE AND GIFT
TAX CONSEQUENCES AND THE FOREIGN TAX CONSEQUENCES OF PURCHASING, HOLDING AND
DISPOSING OF THE NOTES AND COMMON STOCK OF CIENA, AS WELL AS THE CONSEQUENCES OF
ANY PROPOSED CHANGE IN APPLICABLE LAWS.
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UNDERWRITING
CIENA and the underwriters named below have entered into an underwriting
agreement with respect to the notes being offered. Subject to certain
conditions, each underwriter has severally agreed to purchase the aggregate
principal amount at maturity of notes indicated in the following table. Goldman,
Sachs & Co., Morgan Stanley & Co. Incorporated, Banc of America Securities LLC
and Robertson Stephens, Inc. are the representatives of the underwriters.
AGGREGATE PRINCIPAL
AMOUNT AT MATURITY
UNDERWRITERS OF NOTES
------------ -------------------
Goldman, Sachs & Co. ....................................... $
Morgan Stanley & Co. Incorporated...........................
Banc of America Securities LLC..............................
Robertson Stephens, Inc. ...................................
------------
Total.................................................. $350,000,000
============
If the underwriters sell more notes than the total principal amount set
forth in the table above, the underwriters have an option to buy up to an
additional $52.5 million principal amount of notes from CIENA to cover such
sales. They may exercise that option for 30 days. If any notes are purchased
pursuant to this option, the underwriters will severally purchase notes in
approximately the same proportion as set forth in the table above.
Notes sold by the underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus. Any
notes sold by the underwriters to securities dealers may be sold at a discount
from the initial public offering price of up to $ per note. Any such
securities dealers may resell any notes purchased from the underwriters to
certain other brokers or dealers at a discount from the initial public offering
price of up to $ per note. If all the notes are not sold at the initial
public offering price, the underwriters may change the offering price and the
other selling terms.
CIENA and some of its officers and directors have agreed with the
underwriters not to dispose of or hedge any of our common stock or securities
convertible into or exchangeable for shares of common stock during the period
from the date of this prospectus continuing through the date 90 days after the
date of this prospectus, except with the prior written consent of Goldman, Sachs
& Co. CIENA's agreement does not apply to any securities issued: (i) under
employee benefit plans or dividend reinvestment plans, (ii) upon exercise of
currently outstanding stock options, (iii) upon conversion or exchange of
currently outstanding convertible or exchangeable securities, (iv) in connection
with the acquisition of Cyras Systems, Inc. or (v) in connection with other
mergers, acquisitions or similar transactions so long as the parties agree to be
bound by the terms of the lock-up. This agreement does not restrict us from
filing a shelf registration statement which includes equity securities. CIENA
will issue approximately 27 million shares of common stock if the Cyras
acquisition is consummated, almost all of which shares will be freely tradeable.
The notes are a new issue of securities with no established trading market.
CIENA has been advised by the underwriters that the underwriters intend to make
a market in the notes but are not obligated to do so and may discontinue market
making at any time without notice. No assurance can be given as to the liquidity
of the trading market for the notes.
In connection with the offering, the underwriters may purchase and sell
notes in the open market. These transactions may include short sales,
stabilizing transactions and purchases to cover positions created by short
sales. Short sales involve the sale by the underwriters of a greater number of
notes than they are required to purchase in the offering. Stabilizing
transactions consist of certain bids or purchases made for the purpose of
preventing or retarding a decline in the market price of the notes while the
offering is in progress.
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The underwriters may also impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the other underwriters have repurchased notes
sold by or for the account of such underwriter in stabilizing or short covering
transactions.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the notes. As a result, the price of the notes may be
higher than the price that otherwise might exist in the open market. If these
activities are commenced, they may be discontinued by the underwriters at any
time. These transactions may be effected in the over-the-counter market or
otherwise.
CIENA has agreed to indemnify the several underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
CIENA estimates that its share of the total expenses of the offering,
excluding underwriting discounts and commissions, will be approximately
$305,000.
Some of the underwriters have from time to time performed, and may in the
future perform, certain investment banking and advisory services for CIENA for
which they have received, and may in the future receive, customary fees and
expenses.
Lawton W. Fitt, a director of CIENA, is a Managing Director of Goldman,
Sachs & Co., one of the underwriters in this offering.
LEGAL MATTERS
Hogan & Hartson L.L.P., Baltimore, Maryland, will provide CIENA with an
opinion as to legal matters in connection with the notes and common stock
issuable upon conversion of the notes offered by this prospectus. Certain legal
matters in connection with this offering will be passed on for the underwriters
by Hale and Dorr LLP, Reston, Virginia.
EXPERTS
The consolidated financial statements of CIENA Corporation as of October
31, 2000 and 1999 and for each of the three years in the period ended October
31, 2000 incorporated in this prospectus by reference to CIENA's Annual Report
on Form 10-K for the year ended October 31, 2000, as amended January 18, 2001,
have been so incorporated in reliance on the report of PricewaterhouseCoopers
LLP, given on the authority of said firm as experts in auditing and accounting.
The financial statements of Cyras Systems, Inc. as of December 31, 1998 and
1999 and for the period from July 24, 1998 (inception) to December 31, 1998 and
for the year ended December 31, 1999, incorporated in this prospectus by
reference to the current report on Form 8-K of CIENA Corporation filed January
18, 2001, have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report, which is incorporated herein by reference, and have been
so incorporated by reference in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC under the Securities Act a registration
statement on Form S-3. This prospectus does not contain all of the information
contained in the registration statement, certain portions of which have been
omitted under the rules of the SEC. We also file annual, quarterly and special
reports, proxy statements and other information with the SEC under the Exchange
Act. The Exchange Act file number for our SEC filings is 000-21969. You may read
and
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copy the registration statement and any other document we file at the following
SEC public reference rooms:
Judiciary Plaza 500 West Madison Street 7 World Trade Center
450 Fifth Street, N.W. 14th Floor Suite 1300
Rm. 1024 Chicago, Illinois 60661 New York, New York 10048
Washington, D.C. 20549
You may obtain information on the operation of the public reference room in
Washington, D.C. by calling the SEC at 1-800-SEC-0330. We file information
electronically with the SEC. Our SEC filings are available from the SEC's
Internet site at http://www.sec.gov, which contains reports, proxy and
information statements and other information regarding issuers that file
electronically. You may read and copy our SEC filings and other information at
the offices of Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006.
INCORPORATION BY REFERENCE
The SEC allows us to "incorporate by reference" the documents we file with
it, which means that we can disclose important information to you by referring
you to those documents instead of reproducing that information in this
prospectus. The information incorporated by reference is considered to be part
of this prospectus, and information in documents that we file later with the SEC
will automatically update and supersede information in this prospectus. We
incorporate by reference the documents listed below:
- Our Annual Report on Form 10-K for the fiscal year ended October 31,
2000, as amended on January 18, 2001;
- Our Form 8-K filed on January 18, 2001;
- All documents filed by us pursuant to Section 13(a), 13(c), 14 or 15(d)
of the Securities Exchange Act of 1934 after the date of this prospectus
and before the termination of the offering; and
- The description of common stock contained in our Form 8-A filed on
January 13, 1997, as amended.
We will provide a copy of the documents we incorporate by reference, at no
cost, to any person who receives this prospectus. To request a copy of any or
all of these documents, you should write or telephone us at: 1201 Winterson
Road, Linthicum, MD, (410) 865-8500, Attention: Director, Investor Relations.
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================================================================================
No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus. You must
not rely on any unauthorized information or representations. This Prospectus is
an offer to sell only the notes offered hereby, but only under circumstances and
in jurisdictions where it is lawful to do so. The information contained in this
prospectus is current only as of its date.
------------------------
TABLE OF CONTENTS
Page
----
Prospectus Summary....................... 3
Risk Factors............................. 8
Forward Looking Statements............... 18
Use of Proceeds.......................... 18
Selected Consolidated Financial Data..... 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................. 20
Business................................. 27
Description of Notes..................... 40
Important United States Federal Income
Tax Consequences....................... 51
Underwriting............................. 56
Legal Matters............................ 57
Experts.................................. 57
Where You Can Find More Information...... 57
Incorporation by Reference............... 58
$350,000,000
CIENA CORPORATION
% Convertible
Notes due , 2008
------------------------
[CIENA LOGO]
------------------------
GOLDMAN, SACHS & CO.
MORGAN STANLEY DEAN WITTER
BANC OF AMERICA SECURITIES LLC
ROBERTSON STEPHENS
================================================================================
102
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the fees and expenses in connection with the
issuance and distribution of the securities being registered. Except for the SEC
registration fee, all amounts are estimates.
Securities and Exchange Commission registration fee......... $375,000
Transfer agent's and trustee's fees and expenses............ 25,000
Printing and engraving expenses............................. 50,000
Legal fees and expenses..................................... 100,000
Accounting fees and expenses................................ 35,000
Miscellaneous expenses...................................... 25,000
--------
Total............................................. $610,000
========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law, as amended ("DGCL")
authorizes a court to award, or a corporation's board of directors to grant
indemnity to directors and officers under some circumstances for liabilities
incurred in connection with their activities in such capacities (including
reimbursement for expenses incurred). The Registrant's Third Amended and
Restated Certificate of Incorporation provides that no director of the
Registrant will be personally liable to the Registrant or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the Registrant
or to its stockholders, (ii) for acts or omissions not made in good faith or
which involved intentional misconduct or a knowing violation of the law, (iii)
under Section 174 of the DGCL, or (iv) for any transactions from which the
director derives an improper personal benefit. In addition, the Registrant's
Amended and Restated Bylaws provide that any director or officer who was or is a
party or is threatened to be made a party to any action or proceeding by reason
of his or her services to the Registrant will be indemnified to the fullest
extent permitted by the DGCL.
The Registrant has entered into agreements with each of its executive
officers and directors under which the Registrant has agreed to indemnify each
of them against expenses and losses incurred for claims brought against them by
reason of their being an officer or director of the Registrant. There is no
pending litigation or proceeding involving a director or officer of the
Registrant as to which indemnification is being sought, nor is the Registrant
aware of any pending or threatened litigation that may result in claims for
indemnification by any director or executive officer.
The form of Underwriting Agreements to be entered into by the Registrant
and one or more underwriters will provide for indemnification and rights of
contribution that would inure to the benefit of the underwriters and their
controlling persons for liabilities under the federal securities laws arising
from misstatements in and omissions from the registration statement, and the
related prospectus and prospectus supplements. These provisions may inure to the
benefit of Lawton W. Fitt, a managing director of Goldman, Sachs & Co. and a
director of the Registrant.
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103
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
1.1 Form of Underwriting Agreement for Common Stock (filed
herewith)
1.2 Form of Underwriting Agreement for % Convertible Notes
due , 2008 (filed herewith)
3.1* Certificate of Amendment to Third Restated Certificate of
Incorporation of the Registrant
3.2* Third Restated Certificate of Incorporation
3.3* Amended and Restated Bylaws of the Registrant
3.5**** Certificate of Amendment to Third Restated Certificate of
Incorporation dated March 23, 1998
3.6**** Certificate of Amendment to Third Restated Certificate of
Incorporation dated March 16, 2000
4.1** Rights Agreement dated December 29, 1997
4.2*** Amendment to Rights Agreement
4.3* Form of Common Stock Certificate
4.4 Form of Indenture for % Convertible Notes due ,
2008 (filed herewith)
5.1 Opinion of Hogan & Hartson L.L.P. (filed herewith)
5.2 Opinion of Hogan & Hartson L.L.P. (filed herewith)
12.1 Statement of Computation of Ratio of Earnings to Fixed
Charges (previously filed)
23.1 Consent of PricewaterhouseCoopers LLP (filed herewith)
23.2 Consent of Hogan & Hartson L.L.P. (included in Exhibits 5.1
and 5.2)
23.3 Consent of Deloitte & Touche LLP (filed herewith)
24.1 Powers of Attorney (previously filed)
25.1 Form T-1 Statement of Eligibility under the Trust Indenture
Act of 1939 ( % Convertible Notes due , 2008)
(filed herewith)
- ---------------
* Incorporated by reference to the Company's Registration Statement on Form
S-1 (333-17729).
** Incorporated by reference from the Company's Form 8-K dated December 29,
1997.
*** Incorporated by reference from the Company's Form 8-K dated October 14,
1998.
**** Incorporated by reference from the Company's Form 10-Q dated May 18, 2000.
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104
ITEM 17. UNDERTAKINGS.
(a) 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 Section 15(d) of the
Securities Exchange Act (and, where applicable, each filing of an employee
benefit plan's annual report pursuant to Section 15(d) of the Exchange Act) that
is incorporated by reference in the registration statement shall be deemed to be
a new registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(b) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance under Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act of 1933 shall be deemed to be part
of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the 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 of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
II-3
105
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Linthicum, State of Maryland, on February 5, 2001.
CIENA CORPORATION
By: /s/ MICHAEL O. MCCARTHY III
-----------------------------------
Michael O. McCarthy III
Senior Vice President, General
Counsel and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
By: /s/ PATRICK H. NETTLES, PH.D.* Chairman and Chief Date: February 5, 2001
------------------------------------------------ Executive Officer
Patrick H. Nettles, Ph.D. (Principal Executive
Officer)
By: /s/ GARY B. SMITH* President and Date: February 5, 2001
------------------------------------------------ Director
Gary B. Smith
By: /s/ JOSEPH R. CHINNICI* Sr. Vice President, Date: February 5, 2001
------------------------------------------------ Chief Financial
Joseph R. Chinnici Officer (Principal
Financial Officer)
By: /s/ ANDREW C. PETRIK* Vice President, Date: February 5, 2001
------------------------------------------------ Controller and
Andrew C. Petrik Treasurer (Principal
Accounting Officer)
By: /s/ STEPHEN P. BRADLEY* Director Date: February 5, 2001
------------------------------------------------
Stephen P. Bradley
By: /s/ HARVEY B. CASH* Director Date: February 5, 2001
------------------------------------------------
Harvey B. Cash
By: /s/ JOHN R. DILLON* Director Date: February 5, 2001
------------------------------------------------
John R. Dillon
By: /s/ LAWTON W. FITT* Director Date: February 5, 2001
------------------------------------------------
Lawton W. Fitt
By: /s/ JUDITH M. O'BRIEN* Director Date: February 5, 2001
------------------------------------------------
Judith M. O'Brien
By: /s/ GERALD H. TAYLOR* Director Date: February 5, 2001
------------------------------------------------
Gerald H. Taylor
*pursuant to power of attorney
By: /s/ MICHAEL O. MCCARTHY III
------------------------------------------------
Michael O. McCarthy III
II-4
106
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
1.1 Form of Underwriting Agreement for Common Stock (filed
herewith)
1.2 Form of Underwriting Agreement for % Convertible Notes
due , 2008 (filed herewith)
3.1* Certificate of Amendment to Third Restated Certificate of
Incorporation of the Registrant
3.2* Third Restated Certificate of Incorporation
3.3* Amended and Restated Bylaws of the Registrant
3.5**** Certificate of Amendment to Third Restated Certificate of
Incorporation dated March 23, 1998
3.6**** Certificate of Amendment to Third Restated Certificate of
Incorporation dated March 16, 2000
4.1** Rights Agreement dated December 29, 1997
4.2*** Amendment to Rights Agreement
4.3* Form of Common Stock Certificate
4.4 Form of Indenture for % Convertible Notes due ,
2008 (filed herewith)
5.1 Opinion of Hogan & Hartson L.L.P. (filed herewith)
5.2 Opinion of Hogan & Hartson L.L.P. (filed herewith)
12.1 Statement of Computation of Ratio of Earnings to Fixed
Charges (previously filed)
23.1 Consent of PricewaterhouseCoopers LLP (filed herewith)
23.2 Consent of Hogan & Hartson L.L.P. (included in Exhibits 5.1
and 5.2)
23.3 Consent of Deloitte & Touche LLP (filed herewith)
24.1 Powers of Attorney (previously filed)
25.1 Form T-1 Statement of Eligibility under the Trust Indenture
Act of 1939 ( % Convertible Notes due , 2008)
(filed herewith)
- ---------------
* Incorporated by reference to the Company's Registration Statement on Form
S-1 (333-17729).
** Incorporated by reference from the Company's Form 8-K dated December 29,
1997.
*** Incorporated by reference from the Company's Form 8-K dated October 14,
1998.
**** Incorporated by reference from the Company's Form 10-Q dated May 18, 2000.
1
EXHIBIT 1.1
CIENA CORPORATION
COMMON STOCK, PAR VALUE $.01 PER SHARE
----------
UNDERWRITING AGREEMENT
----------------------
February __, 2001
Goldman, Sachs & Co.
Morgan Stanley & Co. Incorporated
Banc of America Securities LLC
Robertson Stephens, Inc.
As representatives of the several
Underwriters named in Schedule I hereto,
c/o Goldman, Sachs & Co.,
85 Broad Street, New York, New York 10004.
Ladies and Gentlemen:
CIENA Corporation, a Delaware corporation (the "Company"), proposes,
subject to the terms and conditions stated herein, to issue and sell to the
Underwriters named in Schedule I hereto (the "Underwriters") an aggregate of
8,000,000 shares (the "Firm Shares") and, at the election of the Underwriters,
up to 1,200,000 additional shares (the "Optional Shares") of Common Stock, par
value $.01 per share ("Stock") of the Company (the Firm Shares and the Optional
Shares that the Underwriters elect to purchase pursuant to Section 2 hereof are
herein collectively called the "Shares").
1. The Company represents and warrants to, and agrees with, each of
the Underwriters that:
(a) A registration statement on Form S-3 (File No.
333-53922) (the "Initial Registration Statement") in respect of the Shares and
the Company's __% Convertible Notes Due _____, 2008 (the "Notes") has been filed
with the Securities and Exchange Commission (the "Commission"); the Initial
Registration Statement and any post-effective amendment thereto, each in the
form heretofore delivered to you, and, excluding exhibits thereto but including
all documents incorporated by reference in the prospectus contained therein, to
you for each of the other Underwriters, have been declared effective by the
Commission in such form; other than a registration statement, if any, increasing
the size of the offering (a "Rule 462(b) Registration Statement"), filed
pursuant to Rule 462(b) under the Securities Act of 1933, as amended (the
"Act"), which became effective upon filing, no other document with respect to
the Initial Registration Statement or document incorporated by reference therein
has heretofore been filed with the Commission; and no stop order suspending the
effectiveness of the Initial Registration Statement, any post-effective
amendment thereto or the Rule 462(b) Registration Statement, if any, has been
issued and no proceeding for that purpose has been initiated or threatened by
the Commission (any preliminary prospectus included in the Initial Registration
Statement or filed with the Commission pursuant to Rule 424(a) of the rules and
regulations of the Commission under the Act, is hereinafter called a
"Preliminary Prospectus"; the various parts of the Initial Registration
Statement and the Rule 462(b) Registration Statement, if any,
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including all exhibits thereto and including (i) the information contained in
the form of final prospectus filed with the Commission pursuant to Rule 424(b)
under the Act in accordance with Section 5(a) hereof and deemed by virtue of
Rule 430A under the Act to be part of the Initial Registration Statement at the
time it was declared effective and (ii) the documents incorporated by reference
in the prospectus contained in the Initial Registration Statement at the time
such part of the Initial Registration Statement became effective, each as
amended at the time such part of the Initial Registration Statement became
effective or such part of the Rule 462(b) Registration Statement, if any, became
or hereafter becomes effective, are hereinafter collectively called the
"Registration Statement"; such final prospectus, in the form first filed
pursuant to Rule 424(b) under the Act, is hereinafter called the "Prospectus";
and any reference herein to any Preliminary Prospectus or the Prospectus shall
be deemed to refer to and include the documents incorporated by reference
therein pursuant to Item 12 of Form S-3 under the Act, as of the date of such
Preliminary Prospectus or Prospectus, as the case may be; and any reference to
any amendment or supplement to any Preliminary Prospectus or the Prospectus
shall be deemed to refer to and include any documents filed after the date of
such Preliminary Prospectus or Prospectus, as the case may be, under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
incorporated by reference in such Preliminary Prospectus or Prospectus, as the
case may be; and any reference to any amendment to the Registration Statement
shall be deemed to refer to and include any annual report of the Company filed
pursuant to Section 13(a) or 15(d) of the Exchange Act after the effective date
of the Initial Registration Statement that is incorporated by reference in the
Registration Statement.)
(b) No order preventing or suspending the use of any
Preliminary Prospectus has been issued by the Commission, and each Preliminary
Prospectus, at the time of filing thereof, conformed in all material respects to
the requirements of the Act and the rules and regulations of the Commission
thereunder, and did not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that this representation and warranty
shall not apply to any statements or omissions made in reliance upon and in
conformity with information furnished in writing to the Company by an
Underwriter through Goldman, Sachs & Co. expressly for use therein;
(c) The documents incorporated by reference in the
Prospectus, when they became effective or were filed with the Commission, as the
case may be, conformed in all material respects to the requirements of the Act
or the Exchange Act, as applicable, and the rules and regulations of the
Commission thereunder, and none of such documents contained an untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading; and any
further documents so filed and incorporated by reference in the Prospectus or
any further amendment or supplement thereto, when such documents become
effective or are filed with the Commission, as the case may be, will conform in
all material respects to the requirements of the Act or the Exchange Act, as
applicable, and the rules and regulations of the Commission thereunder and will
not contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading; provided, however, that this representation and warranty shall
not apply to any statements or omissions made in reliance upon and in conformity
with information furnished in writing to the Company by an Underwriter through
Goldman, Sachs & Co. expressly for use therein
(d) The Registration Statement conforms, and the Prospectus
and any further amendments or supplements to the Registration Statement or the
Prospectus will
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conform, in all material respects to the requirements of the Act and the rules
and regulations of the Commission thereunder and do not and will not, as of the
applicable effective date as to the Registration Statement and any amendment
thereto and as of the applicable filing date as to the Prospectus and any
amendment or supplement thereto, contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading; provided, however, that this
representation and warranty shall not apply to any statements or omissions made
in reliance upon and in conformity with information furnished in writing to the
Company by an Underwriter through Goldman, Sachs & Co. expressly for use
therein;
(e) Neither the Company nor any of its subsidiaries has
sustained since the date of the latest audited financial statements included or
incorporated by reference in the Prospectus any material loss or interference
with its business from fire, explosion, flood or other calamity, whether or not
covered by insurance, or from any labor dispute or court or governmental action,
order or decree, otherwise than as set forth or contemplated in the Prospectus;
and, since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there has not been any change in the
capital stock or long-term debt of the Company or any of its subsidiaries or any
material adverse change, or any development reasonably likely to result in a
prospective material adverse change, in or affecting the general affairs,
management, financial position, stockholders' equity or results of operations of
the Company and its subsidiaries, otherwise than as set forth or contemplated in
the Prospectus;
(f) The Company and its subsidiaries have good and
marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them, in each case free and clear of all
liens, encumbrances and defects except such as are described in the Prospectus
or such as do not materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by the
Company and its subsidiaries; and any real property and buildings held under
lease by the Company and its subsidiaries are held by them under valid leases
with such exceptions as are not material and do not interfere with the use made
and proposed to be made of such property and buildings by the Company and its
subsidiaries;
(g) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware, with power and authority (corporate and other) to own its properties
and conduct its business as described in the Prospectus, and has been duly
qualified as a foreign corporation for the transaction of business and is in
good standing under the laws of each other jurisdiction in which it owns or
leases properties or conducts any business so as to require such qualification,
or is subject to no material liability or disability by reason of the failure to
be so qualified in any such jurisdiction; and each subsidiary of the Company has
been duly incorporated and is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation;
(h) The Company has an authorized capitalization as set
forth in the Prospectus, and all of the issued shares of capital stock of the
Company have been duly and validly authorized and issued, are fully paid and
non-assessable and conform to the description of the Stock contained in the
Prospectus; and all of the issued shares of capital stock of each subsidiary of
the Company have been duly and validly authorized and issued, are fully paid and
non-assessable and conform to the description of the Stock contained in the
Prospectus;
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(i) The unissued Shares to be issued and sold by the Company
to the Underwriters hereunder have been duly and validly authorized and, when
issued and delivered against payment therefor as provided herein, will be duly
and validly issued and fully paid and non-assessable and will conform to the
description of the Stock contained in the Prospectus;
(j) The issue and sale of the Shares to be sold by the
Company hereunder and the compliance by the Company with all of the provisions
of this Agreement and the consummation of the transactions herein contemplated
will not conflict with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument to which the Company or
any of its subsidiaries is a party or by which the Company or any of its
subsidiaries is bound or to which any of the property or assets of the Company
or any of its subsidiaries is subject, nor will such action result in any
violation of the provisions of the Certificate of Incorporation or By-laws of
the Company or any of its subsidiaries or any statute or any order, rule or
regulation of any court or governmental agency or body having jurisdiction over
the Company or any of its subsidiaries or any of their properties; and no
consent, approval, authorization, order, registration or qualification of or
with any such court or governmental agency or body is required for the issue and
sale of the Shares or the consummation by the Company of the transactions
contemplated by this Agreement, except the registration under the Act of the
Shares and such consents, approvals, authorizations, registrations or
qualifications as may be required under state or foreign securities or Blue Sky
laws in connection with the purchase and distribution of the Shares by the
Underwriters;
(k) Neither the Company nor any of its subsidiaries is in
violation of its Certificate of Incorporation or By-laws or in default in the
performance or observance of any material obligation, agreement, covenant or
condition contained in any indenture, mortgage, deed of trust, loan agreement
lease or other agreement or instrument to which it is a party or by which it or
any of its properties may be bound;
(l) The statements set forth in the Prospectus under the
caption "Description of Common Stock and Preferred Stock", insofar as they
purport to constitute a summary of the terms of the Stock, are accurate and
complete in all material respects.
(m) Other than as set forth or contemplated in the
Prospectus, there are no legal or governmental proceedings pending to which the
Company or any of its subsidiaries is a party or of which any property of the
Company or any of its subsidiaries is the subject which, if determined adversely
to the Company or any of its subsidiaries, would individually or in the
aggregate have a material adverse effect on the current or future consolidated
financial position, stockholders' equity or results of operations of the Company
and its subsidiaries; and, other than as set forth or contemplated in the
Prospectus, to the best of the Company's knowledge, no such proceedings are
threatened or contemplated by governmental authorities or threatened by others;
(n) The Company is not and, after giving effect to the
offering and sale of the Shares, will not be an "investment company" or an
entity "controlled" by an "investment company", as such terms are defined in the
Investment Company Act of 1940, as amended (the "Investment Company Act");
(o) PricewaterhouseCoopers LLP, who have certified certain
financial statements of the Company and its subsidiaries, and Deloitte & Touche,
LLP, who have certified certain financial statements of Cyras Systems, Inc., are
each independent public
4
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accountants as required by the Act and the rules and regulations of the
Commission thereunder;
(p) Other than as set forth or contemplated in the
Prospectus, the Company and its subsidiaries have sufficient interests or rights
in all patents, patent licenses, trademarks, servicemarks, trade names,
copyrights, trade secrets, information proprietary rights and processes
("Intellectual Property") necessary for their business as now conducted and, to
the Company's knowledge, necessary in connection with the products and services
under development and described in the Prospectus, without any conflict with or
infringement of the interests or rights of others in each case, except where
there would not be any material adverse effect on the results of operations or
financial condition of the Company and its subsidiaries, taken as a whole;
except as disclosed in the Prospectus, the Company is not aware of material
outstanding options, licenses or agreements of any kind relating to the
Intellectual Property, neither the Company nor any of its subsidiaries is a
party to or bound by any material options, licenses or agreements with respect
to the Intellectual Property of any other person or entity; none of the
technology employed by the Company or any of its subsidiaries has been obtained
or is being used by the Company or its subsidiaries in violation of any
contractual fiduciary obligation binding on the Company of any of its
subsidiaries or, to the Company's knowledge, any of its employees or otherwise
in violation of the rights of any person, except where such violation would not
have a material adverse effect on the results of operations or financial
condition of the Company and its subsidiaries, taken as a whole; except as
disclosed in the Prospectus, neither the Company nor any of its subsidiaries
have received any written or, to the Company's knowledge, oral communications
alleging that the Company or any of its subsidiaries has violated, infringed or
conflicted with (and knows of no such violation, infringement or conflict) or,
by conducting its business as proposed, would violate, infringe or conflict with
(and knows of no such violation, infringement or conflict) any of the
Intellectual Property of any other person or entity, except for such violations,
infringements or conflicts that would not reasonably be expected to have a
material adverse effect on the results of operations or financial condition of
the Company and its subsidiaries, taken as a whole; and the Company and its
subsidiaries have taken and will maintain reasonable measures to prevent the
unauthorized dissemination or publication of their confidential information and,
to the extent contractually required to do so, the confidential information of
third parties in their possession;
(q) The Company maintains insurance of the types and in the
amounts generally deemed adequate for its business, including, but not limited
to, insurance covering real and personal property owned or leased by the Company
against theft, damage, destruction, acts of vandalism and all other risks
customarily insured against, all of which insurance is in full force and effect;
(r) There are no contracts, other documents or other
agreements required to be described in the Registration Statement or to be filed
as exhibits to the Registration Statement by the Act or by the rules and
regulations thereunder which have not been described or filed as required; the
contracts so described in the Prospectus are in full force and effect on the
date hereof; and neither the Company nor, to the best of the Company's
knowledge, any other party is in breach of or default in any material respect
under any of such contracts;
(s) The Company has not been advised, and has no reason to
believe, that it is not conducting business in compliance with all applicable
laws, rules and regulations of the jurisdictions in which it is conducting
business, including, without limitation, all applicable local, state and federal
environmental laws and regulations; except where failure to be so in
5
6
compliance would not materially adversely affect the condition (financial or
otherwise), business, results of operations or prospects of the Company; and
(t) The Stock has been authorized for quotation on the
Nasdaq National Market System ("Nasdaq"), and the Company has received no notice
of, and there is no basis for, any proceedings to delist the Stock from Nasdaq.
2. Subject to the terms and conditions herein set forth, (a) the
Company agrees to issue and sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the Company, at
a purchase price per share of $__.__, the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule I hereto and (b) in the event
and to the extent that the Underwriters shall exercise the election to purchase
Optional Shares as provided below, the Company agrees to issue and sell to each
of the Underwriters, and each of the Underwriters agrees, severally and not
jointly, to purchase from the Company, at the purchase price per share set forth
in clause (a) of this Section 2, that portion of the number of Optional Shares
as to which such election shall have been exercised (to be adjusted by you so as
to eliminate fractional shares) determined by multiplying such number of
Optional Shares by a fraction the numerator of which is the maximum number of
Optional Shares which such Underwriter is entitled to purchase as set forth
opposite the name of such Underwriter in Schedule I hereto and the denominator
of which is the maximum number of Optional Shares that all of the Underwriters
are entitled to purchase hereunder.
The Company hereby grants to the Underwriters the right to purchase at
their election up to 1,200,000 Optional Shares, at the purchase price per share
set forth in clause (a) of the first paragraph of this Section 2, for the sole
purpose of covering over-allotments in the sale of the Firm Shares. Any such
election to purchase Optional Shares may be exercised by written notice from you
to the Company, given within a period of 30 calendar days after the date of this
Agreement, setting forth the aggregate number of Optional Shares to be purchased
and the date on which such Optional Shares are to be delivered, as determined by
you but in no event earlier than the First Time of Delivery (as defined in
Section 4 hereof) or, unless you and the Company otherwise agree in writing,
earlier than two or later than ten business days after the date of such notice.
3. Upon the authorization by you of the release of the Firm Shares,
the several Underwriters propose to offer the Firm Shares for sale upon the
terms and conditions set forth in the Prospectus.
4. (a) The Shares to be purchased by each Underwriter
hereunder, in definitive form, and in such authorized denominations and
registered in such names as Goldman, Sachs & Co., through the facilities of
Depository Trust Company ("DTC") may request upon at least forty-eight hours'
prior notice to the Company shall be delivered by or on behalf of the Company to
Goldman, Sachs & Co., for the account of such Underwriter, against payment by or
on behalf of such Underwriter of the purchase price therefor by wire transfer of
Federal (same-day) funds to the account specified by the Company to Goldman,
Sachs & Co. at least forty-eight hours in advance. The Company will cause the
certificates representing the Shares to be made available for checking and
packaging at least twenty-four hours prior to the Time of Delivery (as defined
below) with respect thereto at the office of DTC or its designated custodian
(the "Designated Office"). The time and date of such delivery and payment shall
be, with respect to the Firm Shares, 9:30 a.m., New York City time, on February
__, 2001 or such other time and date as Goldman, Sachs & Co. and the Company may
agree upon in writing, and, with respect to the Optional Shares, 9:30 a.m., New
York City time, on the date specified by Goldman, Sachs &
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Co. in the written notice given by Goldman, Sachs & Co. of the Underwriters'
election to purchase such Optional Shares, or such other time and date as
Goldman, Sachs & Co. and the Company may agree upon in writing. Such time and
date for delivery of the Firm Shares is herein called the "First Time of
Delivery", such time and date for delivery of the Firm Optional Shares, if not
the First Time of Delivery, is herein called the "Second Time of Delivery", and
each such time and date for delivery is herein called a "Time of Delivery".
(b) The documents to be delivered at each Time of Delivery
by or on behalf of the parties hereto pursuant to Section 7 hereof, including
the cross-receipt for the Shares and any additional documents requested by the
Underwriters pursuant to Section 7(j) hereof, will be delivered at the offices
of Hogan & Hartson L.L.P., 111 South Calvert Street, Baltimore, Maryland 21202
(the "Closing Location"), and the Shares will be delivered at the Designated
Office, all at each Time of Delivery. A meeting will be held at the Closing
Location at 4:00 p.m., New York City time, on the New York Business Day next
preceding each Time of Delivery, at which meeting the final drafts of the
documents to be delivered pursuant to the preceding sentence will be available
for review by the parties hereto. For the purposes of this Section 4, "New York
Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in New York are generally
authorized or obligated by law or executive order to close.
5. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and
to file such Prospectus pursuant to Rule 424(b) under the Act not later than the
Commission's close of business on the second business day following the
execution and delivery of this Agreement, or, if applicable, such earlier time
as may be required by Rule 430A(a)(3) under the Act; to make no further
amendment or any supplement to the Registration Statement or Prospectus prior to
the last Time of Delivery which shall be disapproved by you promptly after
reasonable notice thereof; to file promptly all reports and any definitive proxy
or information statements required to be filed by the Company with the
Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
subsequent to the date of the Prospectus and for so long as the delivery of a
prospectus is required in connection with the offering or sale of the Shares; to
advise you, promptly after it receives notice thereof, of the time when any
amendment to the Registration Statement has been filed or becomes effective or
any supplement to the Prospectus or any amended Prospectus has been filed and to
furnish you copies thereof; to advise you, promptly after it receives notice
thereof, of the issuance by the Commission of any stop order or of any order
preventing or suspending the use of any Preliminary Prospectus or prospectus, of
the suspension of the qualification of the Shares for offering or sale in any
jurisdiction, of the initiation or threatening of any proceeding for any such
purpose, or of any request by the Commission for the amending or supplementing
of the Registration Statement or Prospectus or for additional information; and,
in the event of the issuance of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or prospectus or suspending any
such qualification, promptly to use its best efforts to obtain the withdrawal of
such order;
(b) Promptly from time to time to take such action as you
may reasonably request to qualify the Shares for offering and sale under the
securities laws of such jurisdictions as you may request and to comply with such
laws so as to permit the continuance of sales and dealings therein in such
jurisdictions for as long as may be necessary to complete the distribution of
the Shares, provided that in connection therewith the Company shall not be
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8
required to qualify as a foreign corporation or to file a general consent to
service of process in any jurisdiction;
(c) Prior to 10:00 a.m., New York time, on the New York
Business Day next succeeding the date of this Agreement and from time to time,
to furnish the Underwriters with written and electronic copies of the Prospectus
in New York City in such quantities as you may reasonably request, and, if the
delivery of a prospectus is required at any time prior to the expiration of nine
months after the time of issue of the Prospectus in connection with the offering
or sale of the Shares and if at such time any event shall have occurred as a
result of which the Prospectus as then amended or supplemented would include an
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements therein, in light of the circumstances under
which they were made when such Prospectus is delivered, not misleading, or, if
for any other reason it shall be necessary during such period to amend or
supplement the Prospectus or to file under the Exchange Act any document
incorporated by reference in the Prospectus in order to comply with the Act or
the Exchange Act, to notify you and upon your request to file such document and
to prepare and furnish without charge to each Underwriter and to any dealer in
securities as many copies as you may from time to time reasonably request of an
amended Prospectus or a supplement to the Prospectus which will correct such
statement or omission or effect such compliance, and in case any Underwriter is
required to deliver a prospectus in connection with sales of any of the Shares
at any time nine months or more after the time of issue of the Prospectus, upon
your request but at the expense of such Underwriter, to prepare and deliver to
such Underwriter as many written and electronic copies as you may request of an
amended or supplemented Prospectus complying with Section 10(a)(3) of the Act;
(d) To make generally available to its securityholders as
soon as practicable, but in any event not later than eighteen months after the
effective date of the Registration Statement (as defined in Rule 158(c) under
the Act), an earnings statement of the Company and its subsidiaries (which need
not be audited) complying with Section 11 (a) of the Act and the rules and
regulations of the Commission thereunder (including, at the option of the
Company, Rule 158);
(e) During the period beginning from the date hereof and
continuing to and including the date which is 90 days after the date of the
Prospectus, not to offer, sell, contract to sell or otherwise dispose of, except
as provided hereunder, any securities of the Company that are substantially
similar to the Shares, including but not limited to any securities that are
convertible into or exchangeable for, or that represent the right to receive,
Stock or any such substantially similar securities (other than (i) pursuant to
employee benefit plans and similar plans or arrangements in respect of directors
and consultants existing on the date of this Agreement, (ii) upon the
conversion, exercise or exchange of convertible, exercisable or exchangeable
securities outstanding as of, the date of this Agreement, (iii) upon conversion
of the Notes, (iv) issued in connection with the Company's acquisition of Cyras
Systems, Inc. or (v) issued in connection with other mergers, acquisitions or
similar transactions so long as the parties to whom such securities are issued
agree they will not, without your prior written consent, sell, contract to sell
or otherwise dispose of such securities until the date which is 90 days after
the date of the Prospectus), without your prior written consent;
(f) To furnish to its stockholders as soon as practicable
after the end of each fiscal year an annual report (including a balance sheet
and statements of income, stockholders' equity and cash flows of the Company and
its consolidated subsidiaries certified by independent public accountants) and,
as soon as practicable after the end of each of the first
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three quarters of each fiscal year (beginning with the fiscal quarter ending
after the effective date of the Registration Statement), consolidated summary
financial information of the Company and its subsidiaries for such quarter in
reasonable detail;
(g) During a period of five years from the effective date of
the Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) furnished to stockholders, and to deliver to
you (i) as soon as they are available, copies of any reports and financial
statements furnished to or filed with the Commission or any national securities
exchange on which any class of securities of the Company is listed; and (ii)
such additional information concerning the business and financial condition of
the Company as you may from time to time reasonably request (such financial
statements to be on a consolidated basis to the extent the accounts of the
Company and its subsidiaries are consolidated in reports furnished to its
stockholders generally or to the Commission); and
(h) To use the net proceeds received by it from the sale of
the Shares pursuant to this Agreement in the manner specified in the Prospectus
under the caption "Use of Proceeds".
(i) To use its best efforts to list for quotation the Shares
on Nasdaq;
(j) If the Company elects to rely upon Rule 462(b), the
Company shall file a Rule 462(b) Registration Statement with the Commission in
compliance with Rule 462(b) by 10:00 P.M., Washington, D.C. time, on the date of
this Agreement, and the Company shall at the time of filing either pay to the
Commission the filing fee for the Rule 462(b) Registration Statement or give
irrevocable instructions for the payment of such fee pursuant to Rule 111(b)
under the Act; and
(k) Upon request of any Underwriter, to furnish, or cause to
be furnished, to such Underwriter an electronic version of the Company's
trademarks, servicemarks and corporate logo for use on the website, if any,
operated by such Underwriter for the purpose of facilitating the on-line
offering of the Shares (the "License"); provided, however, that the License
shall be used solely for the purpose described above, is granted without any fee
and may not be assigned or transferred.
6. The Company covenants and agrees with the several Underwriters
that the Company will pay or cause to be paid the following: (i) the fees,
disbursements and expenses of the Company's counsel and accountants in
connection with the registration of the Shares under the Act and all other
expenses in connection with the preparation, printing and filing of the
Registration Statement, any Preliminary Prospectus and the Prospectus and
amendments and supplements thereto and the mailing and delivering of copies
thereof to the Underwriters and dealers; (ii) the cost of printing or producing
any Agreement among Underwriters, this Agreement, any Blue Sky and Legal
Investment Memoranda, the Selling Agreements, closing documents (including any
compilations thereof) and any other documents in connection with the offering,
purchase, sale and delivery of the Shares; (iii) all expenses in connection with
the qualification of the Shares for offering and sale under state securities
laws as provided in Section 5(b) hereof, including the fees and disbursements of
counsel for the Underwriters in connection with such qualification and in
connection with any Blue Sky and legal investment surveys; (iv) all fees and
expenses in connection with listing the Shares on Nasdaq; (v) the cost of
preparing stock certificates; (vi) the cost and charges of any transfer agent or
registrar; and (vii) all other costs and expenses incident to the performance of
its obligations hereunder which are not otherwise specifically provided for in
this Section. It is understood, however, that except as provided in this
Section, and Sections 8 and 11 hereof, the Underwriters will pay all of their
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own costs and expenses, including the fees of their counsel, stock transfer
taxes on resale of any of the Shares by them, and any advertising expenses
connected with any offers they may make.
7. The obligations of the Underwriters hereunder shall be subject,
in their discretion, to the condition that all representations and warranties
and other statements of the Company herein are, at and as of such Time of
Delivery, true and correct, the condition that the Company shall have performed
all of its obligations hereunder theretofore to be performed, and the following
additional conditions:
(a) The Prospectus shall have been filed with the Commission
pursuant to Rule 424(b) within the applicable time period prescribed for such
filing by the rules and regulations under the Act and in accordance with Section
5(a) hereof; no stop order suspending the effectiveness of the Registration
Statement or any part thereof shall have been issued and no proceeding for that
purpose shall have been initiated or threatened by the Commission; and all
requests for additional information on the part of the Commission shall have
been complied with to your reasonable satisfaction; if the Company has elected
to rely upon Rule 462(b), the Rule 462(b) Registration Statement shall have
become effective by 10:00 p.m., Washington, D.C. time, on the date of this
Agreement;
(b) Hale and Dorr LLP, counsel for the Underwriters, shall
have furnished to you such opinion or opinions, dated such Time of Delivery,
with respect to the matters covered in paragraphs (i), (ii) (but only with
respect to the due authorization, valid issuance, full payment and
non-assessability of the Shares), (vi), (ix) and (xiii) of subsection (c) below
as well as such other related matters as you may reasonably request, and such
counsel shall have received such papers and information as they may reasonably
request to enable them to pass upon such matters;
(c) Hogan & Hartson L.L.P., counsel for the Company, shall
have furnished to you their written opinion, dated such Time of Delivery, in
form and substance satisfactory to you, to the effect that:
(i) The Company was incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware, with corporate power and corporate authority to own its properties and
conduct its business as described in the Prospectus;
(ii) The Company has authorized capital stock as set
forth in the Prospectus, and all of the issued shares of capital stock of the
Company (including the Shares being delivered at such Time of Delivery) have
been duly and validly authorized and issued and are fully paid and
non-assessable; and the Shares in all material respects conform to the
description of the Stock contained in the Prospectus;
(iii) The Company has been duly qualified as a foreign
corporation for the transaction of business and is in good standing under the
laws of the State of Maryland;
(iv) Each subsidiary of the Company has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation; and all of the issued shares of
capital stock of each such subsidiary have been duly and validly authorized and
issued, are fully paid and non-assessable, and (except for directors' qualifying
shares) are owned directly or indirectly by the Company, free and clear of
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all liens, encumbrances, equities or claims (such counsel being entitled to rely
in respect of the opinion in this clause upon opinions of local counsel and in
respect of matters of fact upon certificates of officers of the Company or its
subsidiaries, provided that such counsel shall state that they believe that both
you and they are justified in relying upon such opinions and certificates);
(v) Nothing has come to the attention of such
counsel that causes it to believe real property and buildings held under lease
by the Company and its subsidiaries are not held by them under valid leases with
such exceptions as are not material and do not interfere with the use made and
proposed to be made of such property and buildings by the Company and its
subsidiaries and each such lease identified in such opinion is enforceable
against the Company (subject to normal exceptions);
(vi) This Agreement has been duly authorized,
executed and delivered by the Company;
(vii) The issue and sale of the Shares being delivered
at such Time of Delivery to be sold by the Company and the compliance by the
Company with all of the provisions of this Agreement as of such Time of Delivery
and the consummation of the transactions herein and therein contemplated do not
conflict with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any agreement or instrument filed
as an exhibit to the Registration Statement, nor will such action result in any
violation of the provisions of the Certificate of Incorporation or By-laws of
the Company or any of its subsidiaries or any statute, order, rule or regulation
known to such counsel of any court or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries or any of their
properties;
(viii) No consent, approval, authorization, order,
registration or qualification of or with any such court or governmental agency
or body having jurisdiction over the Company or any of its subsidiaries or any
of their properties is required for the issue and sale of the Shares or the
consummation by the Company of the transactions contemplated by this Agreement
as of the Time of Delivery, except the registration under the Act of the Shares,
and such consents, approvals, authorizations, registrations or qualifications as
may be required under state or foreign securities or Blue Sky laws in connection
with the purchase and distribution of the Shares by the Underwriters;
(ix) The statements set forth in the Prospectus under
the caption "Description of Common Stock and Preferred Stock," insofar as they
purport to constitute a summary of the terms of the Stock, are accurate in all
material respects;
(x) The Company is not an "investment company" or an
entity "controlled" by an "investment company," as such terms are defined in the
Investment Company Act;
(xi) To the best of such counsel's knowledge, the
Company has not issued any outstanding securities convertible into or
exchangeable for, or outstanding options, warrants or other rights to purchase
or to subscribe for any shares or other securities of the Company, except as
described in the Prospectus;
(xii) No holder of outstanding shares of capital stock
of the Company has (i) any statutory preemptive right under Delaware General
Corporation Law or, (ii) to such
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counsel's knowledge and except as has been waived, any contractual right to
subscribe for any shares of capital stock of the Company (including the Shares
being delivered at such Time of Delivery) or to have any common stock or other
securities of the Company included in the Registration Statement or the right,
as a result of the filing of the Registration Statement, to require registration
of any shares of Common Stock or other securities of the Company; and
(xiii) The Registration Statement and the Prospectus
and any further amendments and supplements thereto made by the Company prior to
such Time of Delivery (other than the financial statements and related schedules
therein, as to which such counsel need express no opinion) comply as to form in
all material respects with the requirements of the Act and the rules and
regulations thereunder.
(xiv) The documents incorporated by reference in the
Prospectus or any further amendment or supplement thereto made by the Company
prior to such Time of Delivery (other than the financial statements and other
financial data and related schedules therein, as to which such counsel need
express no opinion), when they became effective or were filed with the
Commission, as the case may be, complied as to form in all material respects
with the requirements of the Exchange Act and the rules and regulations of the
Commission thereunder.
In addition to the matters set forth above, such letter shall also
contain statement of such counsel to the effect that (i) to such counsel's
knowledge and other than as set forth in the Prospectus, there are no legal or
governmental proceedings pending to which the Company or any of its subsidiaries
is a party or of which any property of the Company or any of its subsidiaries is
the subject of which, if determined adversely to the Company, could reasonably
be expected individually or in the aggregate to have a material adverse effect
on the financial condition or results of operations of the Company and its
subsidiaries, and, to such counsel's knowledge, no such proceedings are
threatened by governmental authorities or threatened by others; (ii) while such
counsel are not passing upon and do not assume responsibility for, the accuracy,
completeness or fairness of the Registration Statement or the Prospectus, based
upon the procedures referred to in such letter no facts have come to the
attention of such counsel which lead them to believe that, as of its effective
date, the Registration Statement or any further amendment thereto made by the
Company prior to such Time of Delivery (other than the financial statements and
notes thereto, financial schedules and other financial data included therein, as
to which such counsel need express no opinion) contained an untrue statement of
a material fact or omitted to state a material fact necessary to make the
statements therein not misleading or that, as of its date and as of such Time of
Delivery, the Prospectus or any further amendment or supplement thereto made by
the Company (other than the financial statements and notes thereto, schedules
and other financial data included therein, as to which such counsel need express
no opinion) contained or contains an untrue statement of a material fact or
omitted or omits to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; and (iii) they do not know of any amendment to the Registration
Statement required to be filed or of any contracts or other documents of a
character required to be filed as an exhibit to the Registration Statement or
required to be incorporated by reference into the Prospectus or required to be
described in the Registration Statement or the Prospectus, which are not filed,
incorporated by reference or described as required.
In rendering such opinion, such counsel may state that they express no
opinion as to the laws of any jurisdiction other than the Federal laws of the
United States, the laws of the
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State of Maryland, the contract law of the State of New York and the General
Corporation Law of the State of Delaware.
(d) The Senior Vice President and General Counsel of the
Company shall have furnished to you his written opinion (a draft of such opinion
is attached as Annex III hereto), dated such Time of Delivery, in form and
substance satisfactory to you, to the effect that (i) neither the Company nor
any of its subsidiaries is in violation of its Certificate of Incorporation or,
in any material respect, its By-Laws, and (ii) to such counsel's knowledge and
other than as described in the Prospectus, there are no legal or governmental
proceedings pending to which the Company or any of its subsidiaries is the
subject; and, to such counsel's knowledge, no such proceedings are threatened by
governmental authorities or by others.
(e) On the date of the Prospectus at a time prior to the
execution of this Agreement, at 9:30 a.m., New York City time, on the effective
date of any post-effective amendment to the Registration Statement filed
subsequent to the date of this Agreement and also at each Time of Delivery,
PricewaterhouseCoopers LLP and Deloitte & Touche LLP shall each have furnished
to you a letter or letters, dated the respective dates of delivery thereof, in
form and substance satisfactory to you, to the effect set forth in Annexes I and
II hereto respectively (the executed copies of the letters delivered prior to
the execution of this Agreement are attached as Annexes I(a) and II(a) hereto
and drafts of the forms of letter to be delivered on the effective date of any
post-effective amendment to the Registration Statement and as of each Time of
Delivery are attached as Annex I(b) and II(b) hereto;
(f) (i) Neither the Company nor any of its subsidiaries
shall have sustained since the date of the latest audited financial statements
included or incorporated by reference in the Prospectus any loss or interference
with its business from fire, explosion, flood or other calamity, whether or not
covered by insurance, or from any labor dispute or court or governmental action,
order or decree, otherwise than as set forth or contemplated in the Prospectus,
and (ii) since the respective dates as of which information is given in the
Prospectus there shall not have been any change in the capital stock or
long-term debt of the Company or any of its subsidiaries or any change, or any
development reasonably likely to result in a prospective change, in or affecting
the general affairs, management, financial position, stockholders' equity or
results of operations of the Company, otherwise than as set forth or
contemplated in the Prospectus, the effect of which, in any such case described
in clause (i) or (ii), is in the judgment of the Representatives so material and
adverse as to make it impracticable or inadvisable to proceed with the public
offering or the delivery of the Shares being delivered at such Time of Delivery
on the terms and in the manner contemplated in the Prospectus;
(g) On or after the date hereof (i) no downgrading shall
have occurred in the rating accorded the Company's debt securities by any
"nationally recognized statistical rating organization", as that term is defined
by the Commission for purposes of Rule 436(g)(2) under the Act, and (ii) no such
organization shall have publicly announced that it has under surveillance or
review, with possible negative implications, its rating of any of the Company's
debt securities;
(h) On or after the date hereof there shall not have
occurred any of the following: (i) a suspension or material limitation in
trading in securities generally on Nasdaq; (ii) a suspension or material
limitation in trading in the Company's securities on Nasdaq; (iii) a general
moratorium on commercial banking activities declared by either Federal, New York
State or District of Columbia authorities; or (iv) the outbreak or escalation of
hostilities involving
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the United States or the declaration by the United States of a national
emergency or war, if the effect of any such event specified in this clause (iv)
in the judgment of the Representatives makes it impracticable or inadvisable to
proceed with the public offering or the delivery of the Shares being delivered
at such Time of Delivery on the terms and in the manner contemplated in the
Prospectus;
(i) The Company shall have complied with the provisions of
Section 5(c) hereof with respect to furnishing of Prospectuses on the New York
Business Day next succeeding the date of this Agreement; and
(j) The Company shall have furnished or caused to be
furnished to you at such Time of Delivery certificates of officers of the
Company, satisfactory to you as to the accuracy of the representations and
warranties of the Company herein at and as of such Time of Delivery, as to the
performance by the Company of all of its respective obligations hereunder to be
performed at or prior to such Time of Delivery, and as to such other matters as
you may reasonably request, and the Company shall have furnished or caused to be
furnished certificates as to the matters set forth in subsections (a) and (g) of
this Section, and as to such other matters as you may reasonably request.
8. (a) The Company will indemnify and hold harmless each
Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse each Underwriter for
any legal or other expenses reasonably incurred by such Underwriter in
connection with investigating or defending any such action or claim as such
expenses are incurred; provided, however, that the Company shall not be liable
in any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in any Preliminary Prospectus, the
Registration Statement or the Prospectus or any such amendment or supplement in
reliance upon and in conformity with written information furnished to the
Company by any Underwriter through Goldman, Sachs & Co. expressly for use
therein.
(b) Each Underwriter will indemnify and hold harmless the
Company against any losses, claims, damages or liabilities to which the Company
may become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, the Registration Statement or the
Prospectus, or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
in each case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in any
Preliminary Prospectus, the Registration Statement or the Prospectus or any such
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by such Underwriter through Goldman, Sachs
& Co. expressly for use therein; and will reimburse the Company for any legal or
other expenses reasonably incurred by the Company in connection with
investigating or defending any such action or claim as such expenses are
incurred.
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(c) Promptly after receipt by an indemnified party under
subsection (a) or (b) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against an
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under such subsection. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party (who shall not,
except with the consent of the indemnified party, be counsel to the indemnifying
party), and, after notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof, the indemnifying party shall
not be liable to such indemnified party under such subsection for any legal
expenses of other counsel or any other expenses, in each case subsequently
incurred by such indemnified party, in connection with the defense thereof other
than reasonable costs of investigation. No indemnifying party shall, without the
written consent of the indemnified party, effect the settlement or compromise
of, or consent to the entry of any judgment with respect to, any pending or
threatened action or claim in respect of which indemnification or contribution
may be sought hereunder (whether or not the indemnified party is an actual or
potential party to such action or claim) unless such settlement, compromise or
judgment (i) includes an unconditional release of the indemnified party from all
liability arising out of such action or claim and (ii) does not include a
statement as to or an admission of fault, culpability or a failure to act, by or
on behalf of any indemnified party.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Underwriters
on the other from the offering of the Shares. If, however, the allocation
provided by the immediately preceding sentence is not permitted by applicable
law or if the indemnified party failed to give the notice required under
subsection (c) above, then each indemnifying party shall contribute to such
amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions in respect thereof), as well as any
other relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Underwriters on the other shall be deemed to be
in the same proportion as the total net proceeds from the offering of the Shares
purchased under this Agreement (before deducting expenses) received by the
Company bear to the total underwriting discounts and commissions received by the
Underwriters with respect to the Shares purchased under this Agreement, in each
case as set forth in the table on the cover page of the Prospectus. The relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
on the one hand or the Underwriters on the other and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Company and the Underwriters agree that it would
not be just and equitable if contributions pursuant to this subsection (d) were
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation
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which does not take account of the equitable considerations referred to above in
this subsection (d). The amount paid or payable by an indemnified party as a
result of the losses, claims, damages or liabilities (or actions in respect
thereof) referred to above in this subsection (e) shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (d), no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such Underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11 (f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) The obligations of the Company under this Section 8
shall be in addition to any liability which the Company may otherwise have and
shall extend, upon the same terms and conditions, to each person, if any, who
controls any Underwriter within the meaning of the Act; and the obligations of
the Underwriters under this Section 8 shall be in addition to any liability
which the respective Underwriters may otherwise have and shall extend, upon the
same terms and conditions, to each officer and director of the Company and to
each person, if any, who controls the Company within the meaning of the Act.
9. (a) If any Underwriter shall default in its obligation to
purchase the Shares which it has agreed to purchase hereunder at a Time of
Delivery, you may in your discretion arrange for you or another party or other
parties to purchase such Shares on the terms contained herein. If within
thirty-six hours after such default by any Underwriter you do not arrange for
the purchase of such Shares, then the Company shall be entitled to a further
period of thirty-six hours within which to procure another party or other
parties satisfactory to you to purchase such Shares on such terms. In the event
that, within the respective prescribed periods, you notify the Company that you
have so arranged for the purchase of such Shares, or the Company notifies you
that it has so arranged for the purchase of such Shares, you or the Company
shall have the right to postpone such Time of Delivery for a period of not more
than seven days, in order to effect whatever changes may thereby be made
necessary in the Registration Statement or the Prospectus, or in any other
documents or arrangements, and the Company agrees to file promptly any
amendments to the Registration Statement or the Prospectus which in your opinion
may thereby be made necessary. The term "Underwriter" as used in this Agreement
shall include any person substituted under this Section with like effect as if
such person had originally been a party to this Agreement with respect to such
Shares.
(b) If, after giving effect to any arrangements for the
purchase of the Shares of a defaulting Underwriter or Underwriters by you and
the Company as provided in subsection (a) above, the aggregate number of such
Shares which remains unpurchased does not exceed [one-eleventh] of the aggregate
number of all of the Shares to be purchased at such Time of Delivery, then the
Company shall have the right to require each non-defaulting Underwriter to
purchase the number of Shares which such Underwriter agreed to purchase
hereunder at such Time of Delivery and, in addition, to require each
non-defaulting Underwriter to purchase its pro rata share (based on the number
of Shares which such Underwriter agreed to purchase hereunder) of the Shares of
such defaulting Underwriter or Underwriters for which such arrangements have not
been made; but nothing herein shall relieve a defaulting Underwriter from
liability for its default.
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(c) If, after giving effect to any arrangements for the
purchase of the Shares of a defaulting Underwriter or Underwriters by you and
the Company as provided in subsection (a) above, the aggregate number of such
Shares which remains unpurchased exceeds one-eleventh of the aggregate number of
all of the Shares to be purchased at such Time of Delivery, or if the Company
shall not exercise the right described in subsection (b) above to require
non-defaulting Underwriters to purchase Shares of a defaulting Underwriter or
Underwriters, then this Agreement (or, with respect to the Second Time of
Delivery, the obligation of the Underwriters to purchase and of the Company to
sell the Optional Shares) shall thereupon terminate, without liability on the
part of any non-defaulting Underwriter or the Company, except for the expenses
to be borne by the Company and the Underwriters as provided in Section 6 hereof
and the indemnity and contribution agreements in Section 8 hereof; but nothing
herein shall relieve a defaulting Underwriter from liability for its default.
10. The respective indemnities, agreements, representations,
warranties and other statements of the Company and the several Underwriters, as
set forth in this Agreement or made by or on behalf of them, respectively,
pursuant to this Agreement, shall remain in full force and effect, regardless of
any investigation (or any statement as to the results thereof) made by or on
behalf of any Underwriter or any controlling person of any Underwriter, or the
Company, or any officer or director or controlling person of the Company, and
shall survive delivery of and payment for the Shares.
Anything herein to the contrary notwithstanding, the indemnity agreement
of the Company in subsection (a) of Section 8 hereof, the representations and
warranties in subsections (b), (c) and (d) of Section 1 hereof and any
representation or warranty as to the accuracy of the Registration Statement or
the Prospectus contained in any certificate furnished by the Company pursuant to
Section 7 hereof, insofar as they may constitute a basis for indemnification for
liabilities (other than payment by the Company of expenses incurred or paid in
the successful defense of any action, suit or proceeding) arising under the Act,
shall not extend to the extent of any interest therein of a controlling person
or partner of an Underwriter who is a director, officer or controlling person of
the Company when the Registration Statement has become effective, except in each
case to the extent that an interest of such character shall have been determined
by a court of appropriate jurisdiction as not against public policy as expressed
in the Act. Unless in the opinion of counsel for the Company the matter has been
settled by controlling precedent, the Company will, if a claim for such
indemnification is asserted, submit to a court of appropriate jurisdiction the
question of whether such interest is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.
11. If this Agreement shall be terminated pursuant to Section 9
hereof, the Company shall not then be under any liability to any Underwriter
except as provided in Sections 6 and 8 hereof; but, if for any other reason any
Shares are not delivered by or on behalf of the Company as provided herein, the
Company will reimburse the Underwriters through you for all out-of-pocket
expenses approved in writing by you, including fees and disbursements of
counsel, reasonably incurred by the Underwriters in making preparations for the
purchase, sale and delivery of the Shares not so delivered, but the Company
shall then be under no further liability to any Underwriter in respect of the
Shares not so delivered except as provided in Sections 6 and 8 hereof.
12. In all dealings hereunder, you shall act on behalf of each of
the Underwriters, and the parties hereto shall be entitled to act and rely upon
any statement, request, notice or
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agreement on behalf of any Underwriter made or given by you jointly or by
Goldman, Sachs & Co. on behalf of you as the representatives.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to you as the representatives in care of Goldman, Sachs &
Co., 1 Liberty Plaza, 7th Floor, New York, New York 10006, Attention:
Registration Department; and if to the Company shall be delivered or sent by
mail, telex or facsimile transmission to the address of the Company set forth in
the Registration Statement, Attention: Secretary; provided, however, that any
notice to an Underwriter pursuant to Section 8(d) hereof shall be delivered or
sent by mail, telex or facsimile transmission to such Underwriter at its address
set forth in its Underwriters' Questionnaire or telex constituting such
Questionnaire, which address will be supplied to the Company by you upon
request. Any such statements, requests, notices or agreements shall take effect
upon receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the
benefit of, the Underwriters and the Company and, to the extent provided in
Sections 8 and 10 hereof, the officers and directors of the Company and each
person who controls the Company or any Underwriter, and their respective heirs,
executors, administrators, successors and assigns, and no other person shall
acquire or have any right under or by virtue of this Agreement. No purchaser of
any of the Shares from any Underwriter shall be deemed a successor or assign by
reason merely of such purchase.
14. Time shall be of the essence of this Agreement. As used herein,
the term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
15. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York.
16. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such respective counterparts shall together constitute one and
the same instrument.
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If the foregoing is in accordance with your understanding, please sign
and return to us one for the Company and for each of the Representatives plus
one for each counsel, counterparts hereof, and upon the acceptance hereof by
you, on behalf of each of the Underwriters, this letter and such acceptance
hereof shall constitute a binding agreement between each of the Underwriters and
the Company. It is understood that your acceptance of this letter on behalf of
each of the Underwriters is pursuant to the authority set forth in a form of
Agreement among Underwriters, the form of which shall be submitted to the
Company for examination upon request, but without warranty on your part as to
the authority of the signers thereof.
Very truly yours,
CIENA CORPORATION
By: ..............................
Name:
Title:
Accepted as of the date hereof:
GOLDMAN, SACHS & CO.
MORGAN STANLEY & CO. INCORPORATED
BANC OF AMERICA SECURITIES LLC
ROBERTSON STEPHENS, INC.
By: ...........................................
(Goldman, Sachs & Co.)
On behalf of each of the Underwriters
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SCHEDULE I
NUMBER OF OPTIONAL
TOTAL NUMBER SHARES TO BE
OF FIRM SHARES PURCHASED IF
TO BE MAXIMUM OPTION
UNDERWRITER PURCHASED EXERCISED
----------- --------- ---------
Goldman, Sachs & Co....................................................
Morgan Stanley & Co. Incorporated......................................
Banc of America Securities LLC ........................................
Robertson Stephens, Inc................................................
-------------- ------------------
Total................................................ ============== ==================
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ANNEX I(a)
PRICEWATERHOUSECOOPERS COMFORT LETTER
22
ANNEX I(b)
PRICEWATERHOUSECOOPERS COMFORT LETTER BRING-DOWN
23
ANNEX II(a)
DELOITTE & TOUCHE COMFORT LETTER
24
ANNEX II(b)
DELOITTE & TOUCHE COMFORT LETTER BRING-DOWN
25
ANNEX III
OPINION OF COMPANY COUNSEL
1
EXHIBIT 1.2
CIENA CORPORATION
__% CONVERTIBLE NOTES DUE ________ 2008
----------
UNDERWRITING AGREEMENT
February __, 2001
Goldman, Sachs & Co.
Morgan Stanley & Co. Incorporated
Banc of America Securities LLC
Robertson Stephens, Inc.
As representatives of the several
Underwriters named in Schedule I hereto,
c/o Goldman, Sachs & Co.,
85 Broad Street,
New York, New York 10004
Ladies and Gentlemen:
CIENA Corporation, a Delaware corporation (the "Company"), proposes,
subject to the terms and conditions stated herein, to issue and sell to the
Underwriters named in Schedule I hereto (the "Underwriters") an aggregate of
$350,000,000 principal amount of its ___% Convertible Notes Due _____ 2008,
convertible into Common Stock ("Stock") of the Company, specified above (the
"Firm Securities") and, at the election of the Underwriters, up to an aggregate
of $52,500,000 additional aggregate principal amount (the "Optional Securities")
(the Firm Securities and the Optional Securities which the Underwriters elect to
purchase pursuant to Section 2 hereof are herein collectively called the
"Securities").
1. The Company represents and warrants to, and agrees with, each of
the Underwriters that:
(a) A registration statement on Form S-3 (File No. 333-53922)
(the "Initial Registration Statement") in respect of the Securities and shares
of the Stock issuable upon conversion thereof has been filed with the Securities
and Exchange Commission (the "Commission"); the Initial Registration Statement
and any post-effective amendment thereto, each in the form heretofore delivered
to you, and, excluding exhibits thereto but including all documents incorporated
by reference in the prospectus contained therein, to you for each of the other
Underwriters, have been declared effective by the Commission in such form; other
than a registration statement, if any, increasing the size of the offering (a
"Rule 462(b) Registration Statement"), filed pursuant to Rule 462(b) under the
Securities Act of 1933, as amended (the "Act"), which became effective upon
filing, no other document with respect to the Initial Registration Statement or
document incorporated by reference therein has heretofore been filed with the
Commission; and no stop order suspending the effectiveness of the Initial
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Registration Statement, any post-effective amendment thereto or the Rule 462(b)
Registration Statement, if any, has been issued and no proceeding for that
purpose has been initiated or threatened by the Commission (any preliminary
prospectus included in the Initial Registration Statement or filed with the
Commission pursuant to Rule 424(a) of the rules and regulations of the
Commission under the Act, is hereinafter called a "Preliminary Prospectus"; the
various parts of the Initial Registration Statement and the Rule 462(b)
Registration Statement, if any, including all exhibits thereto but excluding
Form T-1 and including (i) the information contained in the form of final
prospectus filed with the Commission pursuant to Rule 424(b) under the Act in
accordance with Section 5(a) hereof and deemed by virtue of Rule 430A under the
Act to be part of the Initial Registration Statement at the time it was declared
effective and (ii) the documents incorporated by reference in the prospectus
contained in the Initial Registration Statement at the time such part of the
Initial Registration Statement became effective, each as amended at the time
such part of the Initial Registration Statement became effective or such part of
the Rule 462(b) Registration Statement, if any, became or hereafter becomes
effective, are hereinafter collectively called the "Registration Statement"; and
such final prospectus, in the form first filed pursuant to Rule 424(b) under the
Act, is hereinafter called the "Prospectus"; and any reference herein to any
Preliminary Prospectus or the Prospectus shall be deemed to refer to and include
the documents incorporated by reference therein pursuant to Item 12 of Form S-3
under the Act, as of the date of such Preliminary Prospectus or Prospectus, as
the case may be; and any reference to any amendment or supplement to any
Preliminary Prospectus or the Prospectus shall be deemed to refer to and include
any documents filed after the date of such Preliminary Prospectus or Prospectus,
as the case may be, under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and incorporated by reference in such Preliminary Prospectus or
Prospectus, as the case may be; and any reference to any amendment to the
Registration Statement shall be deemed to refer to and include any annual report
of the Company filed pursuant to Section 13(a) or 15(d) of the Exchange Act
after the effective date of the Initial Registration Statement that is
incorporated by reference in the Registration Statement.)
(b) No order preventing or suspending the use of any
Preliminary Prospectus has been issued by the Commission, and each Preliminary
Prospectus, at the time of filing thereof, conformed in all material respects to
the requirements of the Act and the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act"), and the rules and regulations of the Commission
thereunder, and did not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that this representation and warranty
shall not apply to any statements or omissions made in reliance upon and in
conformity with information furnished in writing to the Company by an
Underwriter through Goldman, Sachs & Co. expressly for use therein;
(c) The documents incorporated by reference in the Prospectus,
when they became effective or were filed with the Commission, as the case may
be, conformed in all material respects to the requirements of the Act or the
Exchange Act, as applicable, and the rules and regulations of the Commission
thereunder, and none of such documents contained an untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading; and any further
documents so filed and incorporated by reference in the Prospectus or any
further amendment or supplement thereto, when such documents become effective or
are filed with the Commission, as the case may be, will conform in all material
respects to the requirements of the Act or the Exchange Act, as applicable, and
the rules and regulations of the Commission thereunder and will not contain an
untrue statement of a material fact or omit to state a material fact required to
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be stated therein or necessary to make the statements therein not misleading;
provided, however, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with information
furnished in writing to the Company by an Underwriter through Goldman, Sachs &
Co. expressly for use therein;
(d) The Registration Statement conforms, and the Prospectus and
any further amendments or supplements to the Registration Statement or the
Prospectus will conform, in all material respects to the requirements of the Act
and the Trust Indenture Act and the rules and regulations of the Commission
thereunder and do not and will not, as of the applicable effective date as to
the Registration Statement and any amendment thereto and as of the applicable
filing date as to the Prospectus and any amendment or supplement thereto,
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading; provided, however, that this representation and warranty shall not
apply to any statements or omissions made in reliance upon and in conformity
with information furnished in writing to the Company by an Underwriter through
Goldman, Sachs & Co. expressly for use therein;
(e) Neither the Company nor any of its subsidiaries has
sustained since the date of the latest audited financial statements included or
incorporated by reference in the Prospectus any material loss or interference
with its business from fire, explosion, flood or other calamity, whether or not
covered by insurance, or from any labor dispute or court or governmental action,
order or decree, otherwise than as set forth or contemplated in the Prospectus;
and, since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there has not been any change in the
capital stock or long-term debt of the Company or any of its subsidiaries or any
material adverse change, or any development reasonably likely to result in a
prospective material adverse change, in or affecting the general affairs,
management, financial position, stockholders' equity or results of operations of
the Company and its subsidiaries, otherwise than as set forth or contemplated in
the Prospectus;
(f) The Company and its subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title to all
personal property owned by them, in each case free and clear of all liens,
encumbrances and defects except such as are described in the Prospectus or such
as do not materially affect the value of such property and do not interfere with
the use made and proposed to be made of such property by the Company and its
subsidiaries; and any real property and buildings held under lease by the
Company and its subsidiaries are held by them under valid leases with such
exceptions as are not material and do not interfere with the use made and
proposed to be made of such property and buildings by the Company and its
subsidiaries;
(g) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware, with power and authority (corporate and other) to own its properties
and conduct its business as described in the Prospectus, and has been duly
qualified as a foreign corporation for the transaction of business and is in
good standing under the laws of each other jurisdiction in which it owns or
leases properties or conducts any business so as to require such qualification,
or is subject to no material liability or disability by reason of the failure to
be so qualified in any such jurisdiction; and each subsidiary of the Company has
been duly incorporated and is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation;
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(h) The Company has an authorized capitalization as set forth
in the Prospectus, and all of the issued shares of capital stock of the Company
have been duly and validly authorized and issued and are fully paid and
non-assessable; the shares of Stock initially issuable upon conversion of the
Securities have been duly and validly authorized and reserved for issuance and,
when issued and delivered in accordance with the provisions of the Securities
and the Indenture referred to below, will be duly and validly issued, fully paid
and non-assessable and will conform to the description of the Stock contained in
the Prospectus; and all of the issued shares of capital stock of each subsidiary
of the Company have been duly and validly authorized and issued, are fully paid
and non-assessable and conform to the description of the Stock contained in the
Prospectus;
(i) The Securities have been duly authorized and, when issued
and delivered pursuant to this Agreement, will have been duly executed,
authenticated, issued and delivered and will constitute valid and legally
binding obligations of the Company entitled to the benefits provided by the
indenture to be dated as of February __, 2001 (the "Indenture") between the
Company and............, as Trustee (the "Trustee"), under which they are to be
issued, which will be substantially in the form filed as an exhibit to the
Registration Statement; the Indenture has been duly authorized and duly
qualified under the Trust Indenture Act and, when executed and delivered by the
Company and the Trustee, will constitute a valid and legally binding instrument,
enforceable in accordance with its terms, subject, as to enforcement, to
bankruptcy, insolvency, reorganization and other laws of general applicability
relating to or affecting creditors' rights and to general equity principles; and
the Securities and the Indenture will conform to the descriptions thereof in the
Prospectus;
(j) The issue and sale of the Securities and the compliance by
the Company with all of the provisions of the Securities, the Indenture and this
Agreement and the consummation of the transactions herein and therein
contemplated will not conflict with or result in a breach or violation of any of
the terms or provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement or other agreement or instrument to
which the Company or any of its subsidiaries is a party or by which the Company
or any of its subsidiaries is bound or to which any of the property or assets of
the Company or any of its subsidiaries is subject, nor will such action result
in any violation of the provisions of the Certificate of Incorporation or
By-laws of the Company or any of its subsidiaries or any statute or any order,
rule or regulation of any court or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries or any of their
properties; and no consent, approval, authorization, order, registration or
qualification of or with any such court or governmental agency or body is
required for the issue and sale of the Securities or the consummation by the
Company of the transactions contemplated by this Agreement or the Indenture,
except the registration under the Act of the Securities and the shares of Stock
issuable upon conversion thereof, such as have been obtained under the Trust
Indenture Act and such consents, approvals, authorizations, registrations or
qualifications as may be required under state or foreign securities or Blue Sky
laws in connection with the purchase and distribution of the Securities by the
Underwriters;
(k) Neither the Company nor any of its subsidiaries is in
violation of its Certificate of Incorporation or By-laws or in default in the
performance or observance of any material obligation, agreement, covenant or
condition contained in any indenture, mortgage, deed of trust, loan agreement,
lease or other agreement or instrument to which it is a party or by which it or
any of its properties may be bound;
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(l) The statements set forth in the Prospectus under the
caption "Description of Notes", insofar as they purport to constitute a summary
of the terms of the Securities, under the caption "Description of Common Stock
and Preferred Stock", insofar as they purport to constitute a summary of the
terms of the Stock, and under the caption "Important United States Federal
Income Tax Consequences", insofar as they purport to describe the provisions of
the laws and documents referred to therein, are accurate and complete in all
material respects;
(m) Other than as set forth or contemplated in the Prospectus,
there are no legal or governmental proceedings pending to which the Company or
any of its subsidiaries is a party or of which any property of the Company or
any of its subsidiaries is the subject which, if determined adversely to the
Company or any of its subsidiaries, would individually or in the aggregate have
a material adverse effect on the current or future consolidated financial
position, stockholders' equity or results of operations of the Company and its
subsidiaries; and, other than as set forth or contemplated in the Prospectus, to
the best of the Company's knowledge, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others;
(n) The Company is not and, after giving effect to the offering
and sale of the Securities, will not be an "investment company" or an entity
"controlled" by an "investment company", as such terms are defined in the
Investment Company Act of 1940, as amended (the "Investment Company Act");
(o) PricewaterhouseCoopers LLP, who have certified certain
financial statements of the Company and its subsidiaries, and Deloitte & Touche,
LLP, who have certified certain financial statements of Cyras Systems, Inc., are
each independent public accountants as required by the Act and the rules and
regulations of the Commission thereunder;
(p) Other than as set forth or contemplated in the
Prospectus, the Company and its subsidiaries have sufficient interests or rights
in all patents, patent licenses, trademarks, servicemarks, trade names,
copyrights, trade secrets, information proprietary rights and processes
("Intellectual Property") necessary for their business as now conducted and, to
the Company's knowledge, necessary in connection with the products and services
under development and described in the Prospectus, without any conflict with or
infringement of the interests or rights of others in each case, except where
there would not be any material adverse effect on the results of
operations or financial condition of the Company and its subsidiaries, taken
as a whole; except as disclosed in the Prospectus, the Company is not aware of
material outstanding options, licenses or agreements of any kind relating to the
Intellectual Property, neither the Company nor any of its subsidiaries is a
party to or bound by any material options, licenses or agreements with respect
to the Intellectual Property of any other person or entity; none of the
technology employed by the Company or any of its subsidiaries has been obtained
or is being used by the Company or its subsidiaries, in violation of any
contractual fiduciary obligation binding on the Company of any of its
subsidiaries or, to the Company's knowledge, any of its employees or otherwise
in violation of the rights of any person, except where such violation would not
have a material adverse effect on the results of operations or financial
condition of the Company and its subsidiaries, taken as a whole; except as
disclosed in the Prospectus, neither the Company nor any of its subsidiaries
have received any written or, to the Company's knowledge, oral communications
alleging that the Company or any of its subsidiaries has violated, infringed or
conflicted with (and knows of no such violation, infringement or conflict) or,
by conducting its business as proposed, would violate, infringe or conflict with
(and knows of no such violation, infringement or conflict) any of the
Intellectual Property of any other person or entity, except for such violations,
infringements or conflicts that would not reasonably be expected to have a
material adverse effect on the results of operations or financial condition of
the Company and its subsidiaries, taken as a whole; and the Company and its
subsidiaries have taken and will maintain reasonable measures to prevent the
unauthorized dissemination or publication of their confidential information and,
to the extent contractually required to do so, the confidential information of
third parties in their possession;
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(q) The Company maintains insurance of the types and in the
amounts generally deemed adequate for its business, including, but not limited
to, insurance covering real and personal property owned or leased by the Company
against theft, damage, destruction, acts of vandalism and all other risks
customarily insured against, all of which insurance is in full force and effect;
(r) There are no contracts, other documents or other agreements
required to be described in the Registration Statement or to be filed as
exhibits to the Registration Statement by the Act or by the rules and
regulations thereunder which have not been described or filed as required; the
contracts so described in the Prospectus are in full force and effect on the
date hereof; and neither the Company nor, to the best of the Company's
knowledge, any other party is in breach of or default in any material respect
under any of such contracts;
(s) The Company has not been advised, and has no reason to
believe, that it is not conducting business in compliance with all applicable
laws, rules and regulations of the jurisdictions in which it is conducting
business, including, without limitation, all applicable local, state and federal
environmental laws and regulations; except where failure to be so in compliance
would not materially adversely affect the condition (financial or otherwise),
business, results of operations or prospects of the Company;
(t) The Stock has been authorized for quotation on the Nasdaq
National Market System ("Nasdaq"), and the Company has received no notice of,
and there is no basis for, any proceedings to delist the Stock from Nasdaq.
2. Subject to the terms and conditions herein set forth, (a) the
Company agrees to issue and sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the Company, at
a purchase price of .....% of the principal amount thereof, plus accrued
interest, if any, from February __, 2001 to the First Time of Delivery
hereunder, the principal amount of Securities set forth opposite the name of
such Underwriter in Schedule I hereto, and (b) in the event and to the extent
that the Underwriters shall exercise the election to purchase Optional
Securities as provided below, the Company agrees to issue and sell to each of
the Underwriters, and each of the Underwriters agrees, severally and not
jointly, to purchase from the Company, at the same purchase price set forth in
clause (a) of this Section 2, that portion of the aggregate principal amount of
the Optional Securities as to which such election shall have been exercised (to
be adjusted by you so as to eliminate fractions of $1,000) determined by
multiplying such aggregate principal amount of Optional Securities by a
fraction, the numerator of which is the maximum aggregate principal amount of
Optional Securities which such Underwriter is entitled to purchase as set forth
opposite the name of such Underwriter in Schedule I hereto and the denominator
of which is the maximum aggregate principal amount of Optional Securities which
all of the Underwriters are entitled to purchase hereunder.
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The Company hereby grants to the Underwriters the right to purchase at
their election up to ........ aggregate principal amount of Optional Securities,
at the purchase price set forth in clause (a) of the first paragraph of this
Section 2, for the sole purpose of covering sales of securities in excess of the
aggregate principal amount of Firm Securities. Any such election to purchase
Optional Securities may be exercised by written notice from you to the Company,
given within a period of 30 calendar days after the date of this Agreement,
setting forth the aggregate principal amount of Optional Securities to be
purchased and the date on which such Optional Securities are to be delivered, as
determined by you but in no event earlier than the First Time of Delivery (as
defined in Section (4) hereof) or, unless you and the Company otherwise agree in
writing, earlier than two or later than ten business days after the date of such
notice.
3. Upon the authorization by you of the release of the Firm
Securities, the several Underwriters propose to offer the Firm Securities for
sale upon the terms and conditions set forth in the Prospectus.
4. (a) The Securities to be purchased by each Underwriter hereunder,
in definitive form, and in such authorized denominations and registered in such
names as Goldman, Sachs & Co. may request upon at least forty-eight hours' prior
notice to the Company, shall be delivered by or on behalf of the Company to
Goldman, Sachs & Co., through the facilities of The Depository Trust Company
("DTC"), for the account of such Underwriter, against payment by or on behalf of
such Underwriter of the purchase price therefor by wire transfer of Federal
(same-day) funds to the account specified by the Company to Goldman, Sachs & Co.
at least forty-eight hours in advance. The Company will cause the certificates
representing the Securities to be made available for checking and packaging at
least twenty-four hours prior to the Time of Delivery (as defined below) with
respect thereto at the office of DTC or its designated custodian (the
"Designated Office"). The Securities to be purchased by each Underwriter
hereunder will be represented by one or more definitive global Securities in
book-entry form which will be deposited by or on behalf of the Company with The
Depository Trust Company ("DTC") or its designated custodian. The Company will
deliver the Securities to Goldman, Sachs & Co., for the account of each
Underwriter, against payment by or on behalf of such Underwriter of the purchase
price therefor by wire transfer of Federal (same-day) funds to the account
specified by the Company to Goldman, Sachs & Co. at least forty-eight hours in
advance, by causing DTC to credit the Securities to the account of Goldman,
Sachs & Co. at DTC. The Company will cause a global certificate representing the
Securities to be made available to Goldman, Sachs & Co. for checking at least
twenty-four hours prior to the Time of Delivery (as defined below) at the
Designated Office. The time and date of such delivery and payment shall be, with
respect to the Firm Securities, 9:30 a.m., New York City time, on February __,
2001 or such other time and date as Goldman, Sachs & Co. and the Company may
agree upon in writing, and, with respect to the Optional Securities, 9:30 a.m.,
New York City time, on the date specified by Goldman, Sachs & Co. in the written
notice given by Goldman, Sachs & Co. of the Underwriters' election to purchase
such Optional Securities, or such other time and date as Goldman, Sachs & Co.
and the Company may agree upon in writing. Such time and date for delivery of
the Firm Securities is herein called the "First Time of Delivery", such time and
date for delivery of the Optional Securities, if not the First Time of Delivery,
is herein called the "Second Time of Delivery", and each such time and date for
delivery is herein called a "Time of Delivery".
(b) The documents to be delivered at the Time of Delivery by or on
behalf of the parties hereto pursuant to Section 7 hereof, including the
cross-receipt for the Securities and any additional documents requested by the
Underwriters pursuant to Section 7(k) hereof, will be
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delivered at the offices of Hogan & Hartson L.L.P., 111 South Calvert Street,
Baltimore, Maryland 21202 (the "Closing Location"), and the Securities will be
delivered at the Designated Office, all at each Time of Delivery. A meeting will
be held at the Closing Location on or before 4:00 p.m., New York City time, on
the New York Business Day next preceding the Time of Delivery, at which meeting
the final drafts of the documents to be delivered pursuant to the preceding
sentence will be available for review by the parties hereto. For the purposes of
this Section 4, "New York Business Day" shall mean each Monday, Tuesday,
Wednesday, Thursday and Friday which is not a day on which banking institutions
in New York City are generally authorized or obligated by law or executive order
to close.
5. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to file
such Prospectus pursuant to Rule 424(b) under the Act not later than the
Commission's close of business on the second business day following the
execution and delivery of this Agreement, or, if applicable, such earlier time
as may be required by Rule 430A(a)(3) under the Act; to make no further
amendment or any supplement to the Registration Statement or Prospectus prior to
such Time of Delivery which shall be disapproved by you promptly after
reasonable notice thereof; to advise you, promptly after it receives notice
thereof, of the time when any amendment to the Registration Statement has been
filed or becomes effective or any supplement to the Prospectus or any amended
Prospectus has been filed and to furnish you with copies thereof; to file
promptly all reports and any definitive proxy or information statements required
to be filed by the Company with the Commission pursuant to Section 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of the Prospectus and for
so long as the delivery of a prospectus is required in connection with the
offering or sale of the Securities; to advise you, promptly after it receives
notice thereof, of the issuance by the Commission of any stop order or of any
order preventing or suspending the use of any Preliminary Prospectus or
prospectus, of the suspension of the qualification of the Securities or the
shares of Stock issuable upon conversion of the Securities for offering or sale
in any jurisdiction, of the initiation or threatening of any proceeding for any
such purpose, or of any request by the Commission for the amending or
supplementing of the Registration Statement or Prospectus or for additional
information; and, in the event of the issuance of any stop order or of any order
preventing or suspending the use of any Preliminary Prospectus or prospectus or
suspending any such qualification, to promptly use its best efforts to obtain
the withdrawal of such order;
(b) Promptly from time to time to take such action as you may
reasonably request to qualify the Securities and the shares of Stock issuable
upon conversion of the Securities for offering and sale under the securities
laws of such jurisdictions as you may request and to comply with such laws so as
to permit the continuance of sales and dealings therein in such jurisdictions
for as long as may be necessary to complete the distribution of the Securities,
provided that in connection therewith the Company shall not be required to
qualify as a foreign corporation or to file a general consent to service of
process in any jurisdiction;
(c) Prior to 10:00 a.m., New York City time, on the New York Business
Day next succeeding the date of this Agreement and from time to time, to furnish
the Underwriters with written and electronic copies of the Prospectus in New
York City in such quantities as you may reasonably request, and, if the delivery
of a prospectus is required at any time prior to the expiration of nine months
after the time of issue of the Prospectus in connection with the offering or
sale of the Securities and if at such time any event shall have occurred as a
result of which the Prospectus as then amended or supplemented would include an
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements
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therein, in light of the circumstances under which they were made when such
Prospectus is delivered, not misleading, or, if for any other reason it shall be
necessary during such period to amend or supplement the Prospectus or to file
under the Exchange Act any document incorporated by reference in the Prospectus
in order to comply with the Act, the Exchange Act or the Trust Indenture Act, to
notify you and upon your request to file such document and to prepare and
furnish without charge to each Underwriter and to any dealer in securities as
many written and electronic copies as you may from time to time reasonably
request of an amended Prospectus or a supplement to the Prospectus which will
correct such statement or omission or effect such compliance; and in case any
Underwriter is required to deliver a prospectus in connection with sales of any
of the Securities and the shares of Stock issuable upon conversion of the
Securities at any time nine months or more after the time of issue of the
Prospectus, upon your request but at the expense of such Underwriter, to prepare
and deliver to such Underwriter as many written and electronic copies as you may
request of an amended or supplemented Prospectus complying with Section 10(a)(3)
of the Act;
(d) To make generally available to its securityholders as soon as
practicable, but in any event not later than eighteen months after the effective
date of the Registration Statement (as defined in Rule 158(c) under the Act), an
earnings statement of the Company and its subsidiaries (which need not be
audited) complying with Section 11(a) of the Act and the rules and regulations
of the Commission thereunder (including, at the option of the Company, Rule
158);
(e) During the period beginning from the date hereof and continuing to
and including the date which is 90 days after the date of the Prospectus, not to
offer, sell, contract to sell or otherwise dispose of, except as provided
hereunder any securities of the Company that are substantially similar to the
Securities or the Stock, including but not limited to any securities that are
convertible into or exchangeable for, or that represent the right to receive,
Stock or any such substantially similar securities (other than (i) pursuant to
employee benefit plans and similar plans or arrangements in respect of directors
and consultants existing on the date of this Agreement, (ii) upon the
conversion, exercise or exchange of convertible, exercisable or exchangeable
securities outstanding as of, the date of this Agreement (iii) upon conversion
of the Notes, (iv) issued in connection with the Company's acquisition of Cyras
Systems, Inc. or (v) issued in connection with other mergers, acquisitions or
similar transactions so long as the parties to whom such securities are issued
agree they will not, without your prior written consent, sell, contract to sell
or otherwise dispose of such securities until the date which is 90 days after
the date of the Prospectus), without your prior written consent;
(f) To furnish to the holders of the Securities as soon as practicable
after the end of each fiscal year an annual report (including a balance sheet
and statements of income, stockholders' equity and cash flows of the Company and
its consolidated subsidiaries certified by independent public accountants) and,
as soon as practicable after the end of each of the first three quarters of each
fiscal year (beginning with the fiscal quarter ending after the effective date
of the Registration Statement), consolidated summary financial information of
the Company and its subsidiaries for such quarter in reasonable detail;
(g) During a period of five years from the effective date of the
Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) furnished to stockholders, and to deliver to
you (i) as soon as they are available, copies of any reports and financial
statements furnished to or filed with the Commission or any national securities
exchange on which the Securities or any class of securities of the Company is
listed; and (ii) such additional information concerning the business and
financial condition of the Company as
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you may from time to time reasonably request (such financial statements to be on
a consolidated basis to the extent the accounts of the Company and its
subsidiaries are consolidated in reports furnished to its stockholders generally
or to the Commission);
(h) To use the net proceeds received by it from the sale of the
Securities pursuant to this Agreement in the manner specified in the Prospectus
under the caption "Use of Proceeds";
(i) If the Company elects to rely upon Rule 462(b), the Company shall
file a Rule 462(b) Registration Statement with the Commission in compliance with
Rule 462(b) by 10:00 P.M., Washington, D.C. time, on the date of this Agreement,
and the Company shall at the time of filing either pay to the Commission the
filing fee for the Rule 462(b) Registration Statement or give irrevocable
instructions for the payment of such fee pursuant to Rule 111(b) under the Act;
(j) To reserve and keep available at all times, free of preemptive
rights, shares of Stock for the purpose of enabling the Company to satisfy any
obligations to issue shares of its Stock upon conversion of the Securities; and
(k) To give all required notices and to use its best efforts to take
all other actions necessary to list and maintain the listing of the shares of
Stock issuable upon conversion of the Securities on Nasdaq.
(l) Upon request of any Underwriter, to furnish, or cause to be
furnished, to such Underwriter an electronic version of the Company's
trademarks, servicemarks and corporate logo for use on the website, if any,
operated by such Underwriter for the purpose of facilitating the on-line
offering of the Shares (the "License"); provided, however, that the License
shall be used solely for the purpose described above, is granted without any fee
and may not be assigned or transferred.
6. The Company covenants and agrees with the several Underwriters
that the Company will pay or cause to be paid the following: (i) the fees,
disbursements and expenses of the Company's counsel and accountants in
connection with the registration of the Securities and the shares of Stock
issuable upon conversion of the Securities under the Act and all other expenses
in connection with the preparation, printing and filing of the Registration
Statement, any Preliminary Prospectus and the Prospectus and amendments and
supplements thereto and the mailing and delivering of copies thereof to the
Underwriters and dealers; (ii) the cost of printing or producing any Agreement
among Underwriters, this Agreement, the Indenture, any Blue Sky and Legal
Investment Memoranda, the Selling Agreements, closing documents (including any
compilations thereof) and any other documents in connection with the offering,
purchase, sale and delivery of the Securities; (iii) all expenses in connection
with the qualification of the Securities and the shares of Stock issuable upon
conversion of the Securities for offering and sale under state securities laws
as provided in Section 5(b) hereof, including the fees and disbursements of
counsel for the Underwriters in connection with such qualification and in
connection with any Blue Sky and legal investment surveys; (iv) any fees charged
by securities rating services for rating the Securities; (v) the cost of
preparing the Securities; (vi) the fees and expenses of the Trustee and any
agent of the Trustee and the fees and disbursements of counsel for the Trustee
in connection with the Indenture and the Securities; and (vii) all other costs
and expenses incident to the performance of its obligations hereunder which are
not otherwise specifically provided for in this Section. It is understood,
however, that, except as provided in this Section, and Sections 8 and 11 hereof,
the Underwriters will pay all of their own costs and expenses, including the
fees of their counsel,
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transfer taxes on resale of any of the Securities by them, and any advertising
expenses connected with any offers they may make.
7. The obligations of the Underwriters hereunder shall be subject, in
their discretion, to the condition that all representations and warranties and
other statements of the Company herein are, at and as of such Time of Delivery,
true and correct, the condition that the Company shall have performed all of its
obligations hereunder theretofore to be performed, and the following additional
conditions:
(a) The Prospectus shall have been filed with the Commission pursuant
to Rule 424(b) within the applicable time period prescribed for such filing by
the rules and regulations under the Act and in accordance with Section 5(a)
hereof; if the Company has elected to rely upon Rule 462(b), the Rule 462(b)
Registration Statement shall have become effective by 10:00 P.M., Washington,
D.C. time, on the date of this Agreement; no stop order suspending the
effectiveness of the Registration Statement or any part thereof shall have been
issued and no proceeding for that purpose shall have been initiated or
threatened by the Commission; and all requests for additional information on the
part of the Commission shall have been complied with to your reasonable
satisfaction;
(b) Hale and Dorr LLP, counsel for the Underwriters, shall have
furnished to you such opinion or opinions, dated such Time of Delivery, with
respect to the matters covered in paragraphs (i), (ii) (but only with respect to
the due authorization, valid issuance, full payment and non-assessability of the
shares of stock issued upon conversion of the Securities), (vi), (xi) and (xv)
of subsection (c) below as well as such other related matters as you may
reasonably request, and such counsel shall have received such papers and
information as they may reasonably request to enable them to pass upon such
matters;
(c) Hogan & Hartson L.L.P., counsel for the Company, shall have
furnished to you their written opinion, dated such Time of Delivery, in form and
substance satisfactory to you, to the effect that:
(i) The Company was incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware,
with corporate power and corporate authority to own its properties and
conduct its business as described in the Prospectus;
(ii) The Company has an authorized capitalization as set forth
in the Prospectus, and all of the issued shares of capital stock of the
Company have been duly and validly authorized and issued and are fully
paid and non-assessable; and the shares of Stock initially issuable upon
conversion of the Securities have been duly and validly authorized and
reserved for issuance and, when issued and delivered in accordance with
the provisions of the Securities and the Indenture, will be duly and
validly issued and fully paid and non-assessable, and will conform to the
description of the Stock contained in the Prospectus;
(iii) The Company has been duly qualified as a foreign
corporation for the transaction of business and is in good standing under
the laws of the State of Maryland;
(iv) Each subsidiary of the Company has been duly incorporated
and is validly existing as a corporation in good standing under the laws
of its jurisdiction of incorporation; and all of the issued shares of
capital stock of each such subsidiary have
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been duly and validly authorized and issued, are fully paid and
non-assessable, and (except for directors' qualifying shares) are owned
directly or indirectly by the Company, free and clear of all liens,
encumbrances, equities or claims (such counsel being entitled to rely in
respect of the opinion in this clause upon opinions of local counsel and
in respect of matters of fact upon certificates of officers of the
Company or its subsidiaries, provided that such counsel shall state that
they believe that both you and they are justified in relying upon such
opinions and certificates);
(v) Nothing has come to the attention of such counsel that
causes it to believe real property and buildings held under lease by the
Company and its subsidiaries are not held by them under valid leases with
such exceptions as are not material and do not interfere with the use
made and proposed to be made of such property and buildings by the
Company and its subsidiaries and each such lease identified in such
opinion is enforceable against the Company (subject to normal
exceptions);
(vi) This Agreement has been duly authorized, executed and
delivered by the Company;
(vii) The Securities have been duly authorized, executed,
authenticated, issued and delivered and constitute valid and legally
binding obligations of the Company entitled to the benefits provided by
the Indenture, subject to bankruptcy, insolvency, reorganization and
other laws of general applicability relating to or affecting creditors'
rights and to general equity principles; and the Securities and the
Indenture conform to the descriptions thereof in the Prospectus;
(viii) The Indenture has been duly authorized, executed and
delivered by the Company and constitutes a valid and legally binding
instrument, enforceable in accordance with its terms, subject to
bankruptcy, insolvency, reorganization and other laws of general
applicability relating to or affecting creditors' rights and to general
equity principles; and the Indenture has been duly qualified under the
Trust Indenture Act;
(ix) The issue and sale of the Securities being delivered at
such Time of Delivery and the compliance by the Company with all of the
provisions of the Securities, the Indenture and this Agreement as of such
Time of Delivery and the consummation of the transactions herein and
therein contemplated do not conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute a default
under, any agreement or instrument filed as an exhibit to the
Registration Statement, nor do such actions result in any violation of
the provisions of the Certificate of Incorporation or By-laws of the
Company or any of its subsidiaries or any statute or any order, rule or
regulation known to such counsel of any court or governmental agency or
body having jurisdiction over the Company or any of its subsidiaries or
any of their properties;
(x) No consent, approval, authorization, order, registration or
qualification of or with any such court or governmental agency or body
having jurisdiction over the Company or any of its subsidiaries or any of
their properties is required for the issue and sale of the Securities
being issued at such Time of Delivery or the consummation by the Company
of the transactions contemplated by this Agreement or the Indenture,
except such as have been obtained under the Act and the Trust Indenture
Act, such as may be required under the Act in connection with the shares
of Stock issuable upon conversion of the Securities and such consents,
approvals, authorizations, registrations or
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qualifications as may be required under state or foreign securities or
Blue Sky laws in connection with the purchase and distribution of the
Securities by the Underwriters;
(xi) The statements set forth in the Prospectus under the
caption "Description of Notes", insofar as they purport to constitute a
summary of the terms of the Securities, under the caption "Description of
Common Stock and Preferred Stock", insofar as they purport to constitute
a summary of the terms of the Stock, and under the caption "Important
United States Federal Income Tax Consequences", insofar as they purport
to describe the provisions of the laws and documents referred to therein,
are accurate in all material respects;
(xii) The Company is not an "investment company" or an entity
"controlled" by an "investment company", as such terms are defined in the
Investment Company Act;
(xiii) To the best of such counsel's knowledge, the Company has
not issued any outstanding securities convertible into or exchangeable
for, or outstanding options, warrants or other rights to purchase or to
subscribe for any shares or other securities of the Company, except as
described in the Prospectus;
(xiv) No holder of outstanding shares of capital stock of the
Company has (i) any statutory preemptive right under Delaware General
Corporation Law or, (ii) to such counsel's knowledge and except as has
been waived, any contractual right to subscribe for any shares of capital
stock of the Company (including the Shares issuable on conversion of the
Securities) or to have any common stock or other securities of the
Company included in the Registration Statement or the right, as a result
of the filing of the Registration Statement, to require registration of
any shares of Common Stock or other securities of the Company; and
(xv) The Registration Statement and the Prospectus and any
further amendments and supplements thereto made by the Company prior to
such Time of Delivery (other than the financial statements and related
schedules therein, as to which such counsel need express no opinion)
comply as to form in all material respects with the requirements of the
Act and the Trust Indenture Act and the rules and regulations thereunder.
(xvi) The documents incorporated by reference in the Prospectus
or any further amendment or supplement thereto made by the Company prior
to such Time of Delivery (other than the financial statements and other
financial data and related schedules therein, as to which such counsel
need express no opinion), when they became effective or were filed with
the Commission, as the case may be, complied as to form in all material
respects with the requirements of the Exchange Act and the rules and
regulations of the Commission thereunder.
In addition to the matters set forth above, such letter shall also
contain statement of such counsel to the effect that (i) to such
counsel's knowledge and other than as set forth in the Prospectus, there
are no legal or governmental proceedings pending to which the Company or
any of its subsidiaries is a party or of which any property of the
Company or any of its subsidiaries is the subject of which, if determined
adversely to the Company, could reasonably be expected individually or in
the aggregate to have a material adverse effect on the financial
condition or results of operations of the Company and its subsidiaries,
and, to such counsel's knowledge, no such proceedings
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are threatened by governmental authorities or threatened by others; (ii)
while such counsel are not passing upon and do not assume responsibility
for, the accuracy, completeness or fairness of the Registration Statement
or the Prospectus, based upon the procedures referred to in such letter
no facts have come to the attention of such counsel which lead them to
believe that, as of its effective date, the Registration Statement or any
further amendment thereto made by the Company prior to such Time of
Delivery (other than the financial statements and notes thereto,
financial schedules and other financial data included therein, as to
which such counsel need express no opinion) contained an untrue statement
of a material fact or omitted to state a material fact necessary to make
the statements therein not misleading or that, as of its date and as of
such Time of Delivery, the Prospectus or any further amendment or
supplement thereto made by the Company (other than the financial
statements and notes thereto, schedules and other financial data included
therein, as to which such counsel need express no opinion) contained or
contains an untrue statement of a material fact or omitted or omits to
state a material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
and (iii) they do not know of any amendment to the Registration Statement
required to be filed or of any contracts or other documents of a
character required to be filed as an exhibit to the Registration
Statement or required to be incorporated by reference into the Prospectus
or required to be described in the Registration Statement or the
Prospectus, which are not filed, incorporated by reference or described
as required.
In rendering such opinion, such counsel may state that they
express no opinion as to the laws of any jurisdiction other than the
Federal laws of the United States, the laws of the State of Maryland, the
contract law of the State of New York and the General Corporation Law of
the State of Delaware.
(d) The Senior Vice President and General Counsel of the Company shall
have furnished to you his written opinion (a draft of such opinion is attached
as Annex III hereto), dated such Time of Delivery, in form and substance
satisfactory to you, to the effect that (i) neither the Company nor any of its
subsidiaries is in violation of its Certificate of Incorporation or, in any
material respect, its By-Laws; and (ii) to such counsel's knowledge and other
than as described in the Prospectus, there are no legal or governmental
proceedings pending to which the Company or any of its subsidiaries is the
subject; and, to such counsel's knowledge, no such proceedings are threatened by
governmental authorities or by others.
(e) On the date of the Prospectus at a time prior to the execution of
this Agreement, at 9:30 a.m., New York City time, on the effective date of any
post-effective amendment to the Registration Statement filed subsequent to the
date of this Agreement and also at each Time of Delivery, Pricewaterhouse
Coopers LLP and Deloitte & Touche LLP shall each have furnished to you a letter
or letters, dated the respective dates of delivery thereof, in form and
substance satisfactory to you, to the effect set forth in Annexes I and II
hereto, respectively (the executed copies of the letters delivered prior to the
execution of this Agreement are attached as Annexes I(a) and II(a) hereto
respectively, and drafts of the forms of letter to be delivered on the effective
date of any post-effective amendment to the Registration Statement and as of
each Time of Delivery are attached as Annex I(b) and II(b) hereto);
(f) (i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements included or
incorporated by reference in the Prospectus any loss or interference with its
business from fire, explosion, flood or other calamity, whether or not covered
by insurance, or from any labor dispute or court or
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governmental action, order or decree, otherwise than as set forth or
contemplated in the Prospectus, and (ii) since the respective dates as of which
information is given in the Prospectus there shall not have been any change in
the capital stock or long-term debt of the Company or any of its subsidiaries or
any change, or any development reasonably likely to result in a prospective
change, in or affecting the general affairs, management, financial position,
stockholders' equity or results of operations of the Company, otherwise than as
set forth or contemplated in the Prospectus, the effect of which, in any such
case described in clause (i) or (ii), is in the judgment of the Representatives
so material and adverse as to make it impracticable or inadvisable to proceed
with the public offering or the delivery of the Securities being delivered at
such Time of Delivery on the terms and in the manner contemplated in the
Prospectus;
(g) On or after the date hereof (i) no downgrading shall have occurred
in the rating accorded the Company's debt securities by any "nationally
recognized statistical rating organization", as that term is defined by the
Commission for purposes of Rule 436(g)(2) under the Act, and (ii) no such
organization shall have publicly announced that it has under surveillance or
review, with possible negative implications, its rating of any of the Company's
debt securities;
(h) On or after the date hereof there shall not have occurred any of
the following: (i) a suspension or material limitation in trading in securities
generally on Nasdaq; (ii) a suspension or material limitation in trading in the
Company's securities on Nasdaq; (iii) a general moratorium on commercial banking
activities declared by either Federal, New York State or District of Columbia
authorities; or (iv) the outbreak or escalation of hostilities involving the
United States or the declaration by the United States of a national emergency or
war, if the effect of any such event specified in this clause (iv) in the
judgment of the Representatives makes it impracticable or inadvisable to proceed
with the public offering or the delivery of the Securities being issued at such
Time of Delivery on the terms and in the manner contemplated in the Prospectus;
(i) The Company shall have given all required notices and taken any
other required actions with respect to the listing of the shares of Stock
issuable upon conversion of the Securities on Nasdaq;
(j) The Company shall have complied with the provisions of Section
5(c) hereof with respect to the furnishing of Prospectuses on the New York
Business Day next succeeding the date of this Agreement; and
(k) The Company shall have furnished or caused to be furnished to you
at such Time of Delivery certificates of officers of the Company satisfactory to
you as to the accuracy of the representations and warranties of the Company
herein at and as of such Time of Delivery, as to the performance by the Company
of all of its respective obligations hereunder to be performed at or prior to
such Time of Delivery, and as to such other matters as you may reasonably
request, and the Company shall have furnished or caused to be furnished
certificates as to the matters set forth in subsections (a) and (g) of this
Section, and as to such other matters as you may reasonably request.
8. (a) The Company will indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to which
such Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon an untrue statement or alleged untrue
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statement of a material fact contained in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse each Underwriter for
any legal or other expenses reasonably incurred by such Underwriter in
connection with investigating or defending any such action or claim as such
expenses are incurred; provided, however, that the Company shall not be liable
in any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in any Preliminary Prospectus, the
Registration Statement or the Prospectus or any such amendment or supplement in
reliance upon and in conformity with written information furnished to the
Company by any Underwriter through Goldman, Sachs & Co. expressly for use
therein.
(b) Each Underwriter will indemnify and hold harmless the Company
against any losses, claims, damages or liabilities to which the Company may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, the Registration Statement or the
Prospectus, or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
in each case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in any
Preliminary Prospectus, the Registration Statement or the Prospectus or any such
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by such Underwriter through Goldman, Sachs
& Co. expressly for use therein; and will reimburse the Company for any legal or
other expenses reasonably incurred by the Company in connection with
investigating or defending any such action or claim as such expenses are
incurred.
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under such subsection. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party (who shall not,
except with the consent of the indemnified party, be counsel to the indemnifying
party), and, after notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof, the indemnifying party shall
not be liable to such indemnified party under such subsection for any legal
expenses of other counsel or any other expenses, in each case subsequently
incurred by such indemnified party, in connection with the defense thereof other
than reasonable costs of investigation. No indemnifying party shall, without the
written consent of the indemnified party, effect the settlement or compromise
of, or consent to the entry of any judgment with respect to, any pending or
threatened action or claim in respect of which indemnification or contribution
may be sought hereunder (whether or not the indemnified party is an actual or
potential party to such action or claim) unless such settlement, compromise or
judgment (i) includes an unconditional release of the indemnified party from all
liability arising out of such action or claim
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and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act, by or on behalf of any indemnified party.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Underwriters
on the other from the offering of the Securities. If, however, the allocation
provided by the immediately preceding sentence is not permitted by applicable
law or if the indemnified party failed to give the notice required under
subsection (c) above, then each indemnifying party shall contribute to such
amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions in respect thereof), as well as any
other relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Underwriters on the other shall be deemed to be
in the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company bear to the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover page of the Prospectus. The relative fault shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company on the one hand
or the Underwriters on the other and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this subsection (d) were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this subsection (d). The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages or liabilities (or actions in respect thereof) referred to above in this
subsection (d) shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any such action or claim. Notwithstanding the provisions of this subsection (d),
no Underwriter shall be required to contribute any amount in excess of the
amount by which the total price at which the Securities underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations in
this subsection (d) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(e) The obligations of the Company under this Section 8 shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls any
Underwriter within the meaning of the Act; and the obligations of the
Underwriters under this Section 8 shall be in addition to any liability which
the respective Underwriters may otherwise have and shall extend, upon the same
terms and conditions, to each officer and director of the Company and to each
person, if any, who controls the Company within the meaning of the Act.
17
18
9. (a) If any Underwriter shall default in its obligation to purchase
the Securities which it has agreed to purchase hereunder, you may in your
discretion arrange for you or another party or other parties to purchase such
Securities on the terms contained herein at a Time of Delivery. If within
thirty-six hours after such default by any Underwriter you do not arrange for
the purchase of such Securities, then the Company shall be entitled to a further
period of thirty-six hours within which to procure another party or other
parties satisfactory to you to purchase such Securities on such terms. In the
event that, within the respective prescribed periods, you notify the Company
that you have so arranged for the purchase of such Securities, or the Company
notifies you that it has so arranged for the purchase of such Securities, you or
the Company shall have the right to postpone such Time of Delivery for a period
of not more than seven days, in order to effect whatever changes may thereby be
made necessary in the Registration Statement or the Prospectus, or in any other
documents or arrangements, and the Company agrees to file promptly any
amendments to the Registration Statement or the Prospectus which in your opinion
may thereby be made necessary. The term "Underwriter" as used in this Agreement
shall include any person substituted under this Section with like effect as if
such person had originally been a party to this Agreement with respect to such
Securities.
(b) If, after giving effect to any arrangements for the purchase of
the Securities of a defaulting Underwriter or Underwriters by you and the
Company as provided in subsection (a) above, the aggregate principal amount of
such Securities which remains unpurchased does not exceed one-eleventh of the
aggregate principal amount of all the Securities to be purchased at such Time of
Delivery, then the Company shall have the right to require each non-defaulting
Underwriter to purchase the principal amount of Securities which such
Underwriter agreed to purchase hereunder at such Time of Delivery and, in
addition, to require each non-defaulting Underwriter to purchase its pro rata
share (based on the principal amount of Securities which such Underwriter agreed
to purchase hereunder) of the Securities of such defaulting Underwriter or
Underwriters for which such arrangements have not been made; but nothing herein
shall relieve a defaulting Underwriter from liability for its default.
(c) If, after giving effect to any arrangements for the purchase of
the Securities of a defaulting Underwriter or Underwriters by you and the
Company as provided in subsection (a) above, the aggregate principal amount of
Securities which remains unpurchased exceeds one-eleventh of the aggregate
principal amount of all the Securities to be purchased at such Time of Delivery,
or if the Company shall not exercise the right described in subsection (b) above
to require non-defaulting Underwriters to purchase Securities of a defaulting
Underwriter or Underwriters, then this Agreement (or, with respect to the Second
Time of Delivery, the obligation of the Underwriters to purchase and of the
Company to sell the Optional Securities) shall thereupon terminate, without
liability on the part of any non-defaulting Underwriter or the Company, except
for the expenses to be borne by the Company and the Underwriters as provided in
Section 6 hereof and the indemnity and contribution agreements in Section 8
hereof; but nothing herein shall relieve a defaulting Underwriter from liability
for its default.
10. The respective indemnities, agreements, representations,
warranties and other statements of the Company and the several Underwriters, as
set forth in this Agreement or made by or on behalf of them, respectively,
pursuant to this Agreement, shall remain in full force and effect, regardless of
any investigation (or any statement as to the results thereof) made by or on
behalf of any Underwriter or any controlling person of any Underwriter, or the
Company, or any officer or director or controlling person of the Company, and
shall survive delivery of and payment for the Securities.
18
19
Anything herein to the contrary notwithstanding, the indemnity agreement
of the Company in subsection (a) of Section 8 hereof, the representations and
warranties in subsections (b), (c) and (d) of Section 1 hereof and any
representation or warranty as to the accuracy of the Registration Statement or
the Prospectus contained in any certificate furnished by the Company pursuant to
Section 7 hereof, insofar as they may constitute a basis for indemnification for
liabilities (other than payment by the Company of expenses incurred or paid in
the successful defense of any action, suit or proceeding) arising under the Act,
shall not extend to the extent of any interest therein of a controlling person
or partner of an Underwriter who is a director, officer or controlling person of
the Company when the Registration Statement has become effective, except in each
case to the extent that an interest of such character shall have been determined
by a court of appropriate jurisdiction as not against public policy as expressed
in the Act. Unless in the opinion of counsel for the Company the matter has been
settled by controlling precedent, the Company will, if a claim for such
indemnification is asserted, submit to a court of appropriate jurisdiction the
question of whether such interest is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.
11. If this Agreement shall be terminated pursuant to Section 9
hereof, the Company shall not then be under any liability to any Underwriter
except as provided in Sections 6 and 8 hereof; but, if for any other reason, any
Securities are not delivered by or on behalf of the Company as provided herein,
the Company will reimburse the Underwriters through you for all out-of-pocket
expenses approved in writing by you, including fees and disbursements of
counsel, reasonably incurred by the Underwriters in making preparations for the
purchase, sale and delivery of the Securities not so delivered, but the Company
shall then be under no further liability to any Underwriter in respect of the
Securities not so delivered except as provided in Sections 6 and 8 hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by Goldman, Sachs & Co. on behalf of you as the
representatives.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to you as the representatives in care of Goldman, Sachs &
Co., 1 Liberty Plaza, 7th Floor, New York, New York 10006, Attention:
Registration Department; and if to the Company shall be delivered or sent by
mail, telex or facsimile transmission to the address of the Company set forth in
the Registration Statement, Attention: Secretary; provided, however, that any
notice to an Underwriter pursuant to Section 8(c) hereof shall be delivered or
sent by mail, telex or facsimile transmission to such Underwriter at its address
set forth in its Underwriters' Questionnaire, or telex constituting such
Questionnaire, which address will be supplied to the Company by you upon
request. Any such statements, requests, notices or agreements shall take effect
upon receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the
benefit of, the Underwriters, the Company and, to the extent provided in
Sections 8 and 10 hereof, the officers and directors of the Company and each
person who controls the Company or any Underwriter, and their respective heirs,
executors, administrators, successors and assigns, and no other person shall
acquire or have any right under or by virtue of this Agreement. No purchaser of
any of the Securities from any Underwriter shall be deemed a successor or assign
by reason merely of such purchase.
19
20
14. Time shall be of the essence of this Agreement. As used herein,
the term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
15. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York.
16. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such respective counterparts shall together constitute one and
the same instrument.
20
21
If the foregoing is in accordance with your understanding, please sign
and return to us one for the Company and for each of the Representatives plus
one for each counsel, counterparts hereof, and upon the acceptance hereof by
you, on behalf of each of the Underwriters, this letter and such acceptance
hereof shall constitute a binding agreement between each of the Underwriters and
the Company. It is understood that your acceptance of this letter on behalf of
each of the Underwriters is pursuant to the authority set forth in a form of
Agreement among Underwriters, the form of which shall be submitted to the
Company for examination upon request, but without warranty on your part as to
the authority of the signers thereof.
Very truly yours,
CIENA CORPORATION
By: ...............................
Name:
Title:
Accepted as of the date hereof:
GOLDMAN, SACHS & CO.
MORGAN STANLEY & CO. INCORPORATED
BANC OF AMERICA SECURITIES LLC
ROBERTSON STEPHENS, INC.
By: ...................................
(Goldman, Sachs & Co.)
On behalf of each of the Underwriters
21
22
SCHEDULE I
PRINCIPAL
PRINCIPAL AMOUNT OF
AMOUNT OF OPTIONAL SECURITIES
FIRM SECURITIES TO BE PURCHASED
TO BE IF MAXIMUM OPTION
UNDERWRITER PURCHASED EXERCISED
----------- --------- ---------
Goldman, Sachs & Co........................................ $ $
Morgan Stanley & Co. Incorporated..........................
Banc of America Securities LLC.............................
Robertson Stephens, Inc....................................
------------- ----------------
Total....................................... $ $
============= ================
22
23
ANNEX I(a)
PRICEWATERHOUSECOOPERS COMFORT LETTER
24
ANNEX I(b)
PRICEWATERHOUSECOOPERS COMFORT LETTER BRING-DOWN
25
ANNEX II(a)
DELOITTE & TOUCHE COMFORT LETTER
26
ANNEX II(b)
DELOITTE & TOUCHE COMFORT LETTER BRING-DOWN
27
ANNEX III
OPINION OF COMPANY COUNSEL
1
EXHIBIT 4.4
================================================================================
CIENA CORPORATION
ISSUER
AND
[ ]
TRUSTEE
-----------------------------------
INDENTURE
DATED AS OF [ ], [ ]
-----------------------------------
SENIOR DEBT SECURITIES
================================================================================
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CROSS-REFERENCE TABLE (1)
Section of Trust Indenture Act of 1939, as Amended Indenture
310(a).........................................................7.10
310(b).........................................................7.09; 7.11
310(c).........................................................Inapplicable
311(a).........................................................7.14(a)
311(b).........................................................7.14(b)
311(c).........................................................Inapplicable
312(a).........................................................5.02(a)
312(b).........................................................5.02(c)
312(c).........................................................5.02(c)
313(a).........................................................5.04(a)
313(b).........................................................5.04(b)
313(c).........................................................5.04(a); 5.04(b)
313(d).........................................................5.04(c)
314(a).........................................................5.03; 4.06
314(b).........................................................Inapplicable
314(c).........................................................13.07
314(d).........................................................Inapplicable
314(e).........................................................13.07
314(f).........................................................Inapplicable
315(a).........................................................7.01(a); 7.03
315(b).........................................................7.02
315(c).........................................................7.01
315(d).........................................................7.01(b); 7.01(c)
315(e).........................................................6.07; 7.07
316(a).........................................................6.06 8.04
316(b).........................................................6.04
316(c).........................................................8.01
317(a).........................................................6.02
317(b).........................................................4.03
318(a).........................................................13.08
- --------
(1) This Cross-Reference Table does not constitute part of the Indenture
and shall not have any bearing on the interpretation of any of its terms or
provisions.
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TABLE OF CONTENTS(2)
ARTICLE I DEFINITIONS
SECTION 1.01 DEFINITIONS OF TERMS.......................................................... 6
ARTICLE II ISSUE, DESCRIPTION, TERMS, EXECUTION, REGISTRATION AND EXCHANGE OF SECURITIES
SECTION 2.01 DESIGNATION AND TERMS OF SECURITIES........................................... 9
SECTION 2.02 FORM OF SECURITIES AND TRUSTEE'S CERTIFICATE.................................. 10
SECTION 2.03 DENOMINATIONS: PROVISIONS FOR PAYMENT......................................... 10
SECTION 2.04 EXECUTION AND AUTHENTICATION.................................................. 11
SECTION 2.05 REGISTRATION OF TRANSFER AND EXCHANGE......................................... 11
SECTION 2.06 TEMPORARY SECURITIES.......................................................... 12
SECTION 2.07 MUTILATED, DESTROYED, LOST OR STOLEN SECURITIES............................... 12
SECTION 2.08 CANCELLATION.................................................................. 13
SECTION 2.09 BENEFITS OF INDENTURE......................................................... 13
SECTION 2.10 AUTHENTICATING AGENT.......................................................... 13
SECTION 2.11 GLOBAL SECURITIES............................................................. 13
ARTICLE III REDEMPTION OF SECURITIES AND SINKING FUND PROVISIONS
SECTION 3.01 REDEMPTION.................................................................... 14
SECTION 3.02 NOTICE OF REDEMPTION.......................................................... 14
SECTION 3.03 PAYMENT UPON REDEMPTION....................................................... 15
SECTION 3.04 SINKING FUND.................................................................. 15
SECTION 3.05 SATISFACTION OF SINKING FUND PAYMENTS WITH
SECURITIES.............................................................................. 15
SECTION 3.06 REDEMPTION OF SECURITIES FOR SINKING FUND..................................... 15
ARTICLE IV COVENANTS
SECTION 4.01 PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST.................................... 16
SECTION 4.02 MAINTENANCE OF OFFICE OR AGENCY............................................... 16
SECTION 4.03 PAYING AGENTS................................................................. 16
SECTION 4.04 APPOINTMENT TO FILL VACANCY IN OFFICE OF TRUSTEE.............................. 17
SECTION 4.05 COMPLIANCE WITH CONSOLIDATION PROVISIONS...................................... 17
SECTION 4.06 STATEMENT BY OFFICERS AS TO DEFAULT........................................... 17
ARTICLE V SECURITYHOLDERS' LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE
SECTION 5.01 COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES
OF SECURITYHOLDERS...................................................................... 17
SECTION 5.02 PRESERVATION OF INFORMATION; COMMUNICATIONS
WITH SECURITYHOLDERS.................................................................... 18
SECTION 5.03 REPORTS BY THE COMPANY........................................................ 18
SECTION 5.04 REPORTS BY THE TRUSTEE........................................................ 18
ARTICLE VI REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS ON EVENT OF DEFAULT
SECTION 6.01 EVENTS OF DEFAULT............................................................. 18
SECTION 6.02 COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT
BY TRUSTEE.............................................................................. 20
SECTION 6.03 APPLICATION OF MONEYS COLLECTED............................................... 20
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SECTION 6.04 LIMITATION ON SUITS........................................................... 21
SECTION 6.05 RIGHTS AND REMEDIES CUMULATIVE; DELAY OR OMISSION
NOT WAIVER.............................................................................. 21
SECTION 6.06 CONTROL BY SECURITYHOLDERS.................................................... 22
SECTION 6.07 UNDERTAKING TO PAY COSTS...................................................... 22
ARTICLE VII CONCERNING THE TRUSTEE
SECTION 7.01 CERTAIN DUTIES AND RESPONSIBILITIES OF TRUSTEE................................ 22
SECTION 7.02 NOTICE OF DEFAULTS............................................................ 23
SECTION 7.03 CERTAIN RIGHTS OF TRUSTEE..................................................... 23
SECTION 7.04 TRUSTEE NOT RESPONSIBLE FOR RECITALS OR ISSUANCE
OR SECURITIES........................................................................... 24
SECTION 7.05 MAY HOLD SECURITIES........................................................... 24
SECTION 7.06 MONEYS HELD IN TRUST.......................................................... 24
SECTION 7.07 COMPENSATION AND REIMBURSEMENT................................................ 24
SECTION 7.08 RELIANCE ON OFFICERS' CERTIFICATE............................................. 24
SECTION 7.09 DISQUALIFICATION; CONFLICTING INTERESTS....................................... 24
SECTION 7.10 CORPORATE TRUSTEE REQUIRED; ELIGIBILITY....................................... 25
SECTION 7.11 RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR............................. 25
SECTION 7.12 ACCEPTANCE OF APPOINTMENT BY SUCCESSOR........................................ 26
SECTION 7.13 MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION
TO BUSINESS............................................................................. 26
SECTION 7.14 PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE
COMPANY................................................................................. 27
ARTICLE VIII CONCERNING THE SECURITYHOLDERS
SECTION 8.01 EVIDENCE OF ACTION BY SECURITYHOLDERS......................................... 27
SECTION 8.02 PROOF OF EXECUTION BY SECURITYHOLDERS......................................... 27
SECTION 8.03 WHO MAY BE DEEMED OWNERS...................................................... 27
SECTION 8.04 CERTAIN SECURITIES OWNED BY COMPANY DISREGARDED............................... 27
SECTION 8.05 ACTIONS BINDING ON FUTURE SECURITYHOLDERS..................................... 28
ARTICLE IX SUPPLEMENTAL INDENTURES
SECTION 9.01 SUPPLEMENTAL INDENTURES WITHOUT THE CONSENT OF
SECURITYHOLDERS......................................................................... 28
SECTION 9.02 SUPPLEMENTAL INDENTURES WITH CONSENT OF
SECURITYHOLDERS......................................................................... 29
SECTION 9.03 EFFECT OF SUPPLEMENTAL INDENTURES............................................. 29
SECTION 9.04 SECURITIES AFFECTED BY SUPPLEMENTAL INDENTURES................................ 29
SECTION 9.05 EXECUTION OF SUPPLEMENTAL INDENTURES.......................................... 30
ARTICLE X SUCCESSOR ENTITY
SECTION 10.01 COMPANY MAY CONSOLIDATE, ETC................................................. 30
SECTION 10.02 SUCCESSOR ENTITY SUBSTITUTED................................................. 30
SECTION 10.03 EVIDENCE OF CONSOLIDATION, ETC. TO TRUSTEE................................... 31
ARTICLE XI SATISFACTION AND DISCHARGE; DEFEASANCE
SECTION 11.01 SATISFACTION AND DISCHARGE................................................... 31
SECTION 11.02 DEFEASANCE................................................................... 31
SECTION 11.03 DEPOSITED MONEYS TO BE HELD IN TRUST......................................... 32
SECTION 11.04 PAYMENT OF MONEYS HELD BY PAYING AGENTS...................................... 32
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SECTION 11.05 REPAYMENT TO COMPANY......................................................... 32
ARTICLE XII IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS
SECTION 12.01 NO RECOURSE.................................................................. 32
ARTICLE XIII MISCELLANEOUS PROVISIONS
SECTION 13.01 EFFECT ON SUCCESSORS AND ASSIGNS............................................. 33
SECTION 13.02 ACTIONS BY SUCCESSOR......................................................... 33
SECTION 13.03 SURRENDER OF COMPANY POWERS.................................................. 33
SECTION 13.04 NOTICES...................................................................... 33
SECTION 13.05 GOVERNING LAW................................................................ 33
SECTION 13.06 TREATMENT OF SECURITIES AS DEBT.............................................. 33
SECTION 13.07 COMPLIANCE CERTIFICATES AND OPINIONS......................................... 33
SECTION 13.08 PAYMENTS ON BUSINESS DAYS.................................................... 34
SECTION 13.09 CONFLICT WITH TRUST INDENTURE ACT............................................ 34
SECTION 13.10 COUNTERPARTS................................................................. 34
SECTION 13.11 SEPARABILITY................................................................. 34
SECTION 13.12 ASSIGNMENT................................................................... 34
(2) This Table of Contents does not constitute part of the Indenture and
shall not have any bearing on the interpretation of any of its terms or
provisions.
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INDENTURE, dated as of [ ], [ ], between CIENA Corporation,
a Delaware corporation (the "Company"), and [ ], as trustee (the "Trustee"):
WHEREAS, for its lawful corporate purposes, the Company has duly
authorized the execution and delivery of this Indenture to provide for the
issuance of unsecured debt securities (hereinafter referred to as the
"Securities"), in an unlimited aggregate principal amount to be issued from time
to time in one or more series as in this Indenture provided, as registered
Securities without coupons, to be authenticated by the certificate of the
Trustee;
WHEREAS, to provide the terms and conditions upon which the Securities
are to be authenticated, issued and delivered, the Company has duly authorized
the execution of this Indenture; and
WHEREAS, all things necessary to make this Indenture a valid agreement
of the Company, in accordance with its terms, have been done.
NOW, THEREFORE, in consideration of the premises and the purchase of the
Securities by the holders thereof, it is mutually covenanted and agreed as
follows for the equal and ratable benefit of the holders of Securities or of
series thereof.
ARTICLE I
DEFINITIONS
SECTION 1.01 DEFINITIONS OF TERMS.
The terms defined in this Section (except as in this Indenture otherwise
expressly provided or unless the context otherwise requires) for all purposes of
this Indenture and of any indenture supplemental hereto shall have the
respective meanings specified in this Section and shall include the plural as
well as the singular. All other terms used in this Indenture that are defined in
the Trust Indenture Act of 1939, as amended, or that are by reference in said
Trust Indenture Act defined in the Securities Act of 1933, as amended (except as
herein otherwise expressly provided or unless the context otherwise requires),
shall have the meanings assigned to such terms in said Trust Indenture Act and
in said Securities Act as in force at the date of the execution of this
instrument.
"AUTHENTICATING AGENT" means an authenticating agent with respect to all
or any of the series of Securities appointed with respect to all or any series
of the Securities by the Trustee pursuant to Section 2.10.
"BANKRUPTCY LAW" means Title 11, U.S. Code, or any similar federal or
state law for the relief of debtors.
"BOARD OF DIRECTORS" means the Board of Directors of the Company or any
duly authorized committee of such Board.
"BOARD RESOLUTION" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification.
"BUSINESS DAY" means, with respect to any series of Securities, any day
other than a day on which Federal or State banking institutions in the Borough
of Manhattan, The City of New York, are authorized or obligated by law,
executive order or regulation to close.
"CERTIFICATE" means a certificate signed by the principal executive
officer, the principal financial officer or the principal accounting officer of
the Company. The Certificate need not comply with the provisions of Section
13.07.
"COMPANY" means CIENA Corporation, a corporation duly organized and
existing under the laws of the State of Delaware, and, subject to the provisions
of Article X, shall also include its successors and assigns.
"CORPORATE TRUST OFFICE" means the office of the Trustee at which, at
any particular time, its corporate trust business shall be principally
administered, which office at the date hereof is located at [ ], except that
whenever a provision herein refers to an office or agency of the Trustee in the
Borough of Manhattan, The City of New York, such office is located, at the date
hereof, at [ ].
"COVENANT DEFEASANCE" has the meaning given in Section 11.02.
"CUSTODIAN" means any receiver, trustee, assignee, liquidator or similar
official under any Bankruptcy Law.
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"DEFAULT" means any event, act or condition that with notice or lapse of
time, or both, would constitute an Event of Default.
"DEFAULTED INTEREST" has the meaning given in Section 2.03.
"DEPOSITARY" means, with respect to Securities of any series, for which
the Company shall determine that such Securities will be issued as a Global
Security, The Depository Trust Company, New York, New York, another clearing
agency, or any successor registered as a clearing agency under the Securities
and Exchange Act of 1934, as amended (the "Exchange Act"), or other applicable
statute or regulation, which, in each case, shall be designated by the Company
pursuant to either Section 2.01 or 2.11.
"EVENT OF DEFAULT" means, with respect to Securities of a particular
series any event specified in Section 6.01, continued for the period of time, if
any, therein designated.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, or
any successor statute or statutes thereto.
"GLOBAL SECURITY" means, with respect to any series of Securities, a
Security executed by the Company and delivered by the Trustee to the Depositary
or pursuant to the Depositary's instruction, all in accordance with the
Indenture, which shall be registered in the name of the Depositary or its
nominee.
"GOVERNMENTAL OBLIGATIONS" means securities that are (i) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America, the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America that, in either case, are not
callable or redeemable at the option of the issuer thereof, and shall also
include a depositary receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities Act of 1933, as amended) as custodian with respect to any such
Governmental Obligation or a specific payment of principal of or interest on any
such Governmental Obligation held by such custodian for the account of the
holder of such depositary receipt; provided, however, that (except as required
by law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depositary receipt from any amount received by the
custodian in respect of the Governmental Obligation or the specific payment of
principal of or interest on the Governmental Obligation evidenced by such
depositary receipt.
"HEREIN", "HEREOF" and "HEREUNDER", and other words of similar import,
refer to this Indenture as a whole and not to any particular Article, Section or
other subdivision.
"INDENTURE" means this instrument as originally executed or as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into in accordance with the terms hereof, including,
for all purposes of this instrument and any such supplemental indenture, the
provisions of the Trust Indenture Act that are deemed to be a part of and govern
this instrument and any such supplemental indenture, respectively. The term
"Indenture" shall also include the terms of particular series of Securities
established as contemplated by Section 2.01.
"INTEREST PAYMENT DATE", when used with respect to any installment of
interest on a Security of a particular series, means the date specified in such
Security or in a Board Resolution or in an indenture supplemental hereto with
respect to such series as the fixed date on which an installment of interest
with respect to Securities of that series is due and payable.
"LEGAL DEFEASANCE" has the meaning given in Section 11.02.
"OFFICERS' CERTIFICATE" means a certificate signed by the President or a
Vice President and by the Treasurer or an Assistant Treasurer or the Controller
or an Assistant Controller or the Secretary or an Assistant Secretary of the
Company that is delivered to the Trustee in accordance with the terms hereof.
Each such certificate shall include the statements provided for in Section
13.07, if and to the extent required by the provisions thereof.
"OPINION OF COUNSEL" means an opinion in writing of legal counsel, who
may be an employee of or counsel for the Company that is delivered to the
Trustee in accordance with the terms hereof. Each such opinion shall include the
statements provided for in Section 13.07, if and to the extent required by the
provisions thereof.
"ORIGINAL ISSUE DISCOUNT SECURITY" means any Security which provides for
an amount less than the principal amount thereof to be due and payable upon a
declaration of acceleration of the maturity thereof pursuant to Section 6.01.
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"OUTSTANDING", when used with reference to Securities of any series,
means, subject to the provisions of Section 8.04, as of any particular time, all
Securities of that series theretofore authenticated and delivered by the Trustee
under this Indenture, except (a) Securities theretofore canceled by the Trustee
or any paying agent, or delivered to the Trustee or any paying agent for
cancellation or that have previously been canceled; (b) Securities or portions
thereof for the payment or redemption of which moneys or Governmental
Obligations in the necessary amount shall have been deposited in trust with the
Trustee or with any paying agent (other than the Company) or shall have been set
aside and segregated in trust by the Company (if the Company shall act as its
own paying agent); provided, however, that if such Securities or portions of
such Securities are to be redeemed prior to the maturity thereof, notice of such
redemption shall have been given as in Article III or provision satisfactory to
the Trustee shall have been made for giving such notice; and (c) Securities in
lieu of or in substitution for which other Securities shall have been
authenticated and delivered pursuant to the terms of Section 2.07; provided,
however, that in determining whether the holders of the requisite principal
amount of the Outstanding Securities have given, made or taken any request,
demand, authorization, direction, notice, consent, waiver or other action
hereunder as of any date, the principal amount of an Original Issue Discount
Security which shall be deemed to be Outstanding shall be the amount of the
principal thereof which would be due and payable as of such date upon
acceleration of the maturity thereof to such date pursuant to Section 6.01.
"PERSON" means any individual, corporation, limited liability company,
partnership, joint-venture, joint-stock company, unincorporated organization or
government or any agency or political subdivision thereof.
"PREDECESSOR SECURITY" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 2.07 in lieu of a lost, destroyed or
stolen Security shall be deemed to evidence the same debt as the lost, destroyed
or stolen Security.
"RESPONSIBLE OFFICER" when used with respect to the Trustee means the
Chairman of the Board of Directors, the President, any Vice President, the
Secretary, the Treasurer, any trust officer, any corporate trust officer or any
other officer or assistant officer of the Trustee customarily performing
functions similar to those performed by the Persons who at the time shall be
such officers, respectively, or to whom any corporate trust matter is referred
because of his or her knowledge of and familiarity with the particular subject.
"SECURITIES" means the debt Securities authenticated and delivered under
this Indenture.
"SECURITYHOLDER", "HOLDER of SECURITIES", "REGISTERED HOLDER", or other
similar term, means the Person or Persons in whose name or names a particular
Security shall be registered on the books of the Company kept for that purpose
in accordance with the terms of this Indenture.
"SECURITY REGISTER" has the meaning given in Section 2.05.
"SECURITY REGISTRAR" has the meaning given in Section 2.05.
"SUBSIDIARY" means, with respect to any Person, (i) any corporation at
least a majority of whose outstanding Voting Stock shall at the time be owned,
directly or indirectly, by such Person or by one or more of its Subsidiaries or
by such Person and one or more of its Subsidiaries, (ii) any general
partnership, limited liability company, joint venture or similar entity, at
least a majority of whose outstanding partnership or similar interests shall at
the time be owned by such Person, or by one or more of its Subsidiaries, or by
such Person and one or more of its Subsidiaries and (iii) any limited
partnership of which such Person or any of its Subsidiaries is a general
partner.
"TRUSTEE" means [ ], and, subject to the provisions of Article VII,
shall also include its successors and assigns, and, if at any time there is more
than one Person acting in such capacity hereunder, "Trustee" shall mean each
such Person. The term "Trustee" as used with respect to a particular series of
the Securities shall mean the trustee with respect to that series.
"TRUST INDENTURE ACT" means the Trust Indenture Act of 1939, as amended,
subject to the provisions of Sections 9.01, 9.02, and 10.01, as in effect at the
date of execution of this instrument.
"VOTING STOCK", as applied to stock of any Person, means shares,
interests, participations or other equivalents in the equity interest (however
designated) in such Person having ordinary voting power for the election of a
majority of the directors (or the equivalent) of such Person, other than shares,
interests, participations or other equivalents having such power only by reason
of the occurrence of a contingency.
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ARTICLE II
ISSUE, DESCRIPTION, TERMS, EXECUTION, REGISTRATION AND EXCHANGE OF SECURITIES
SECTION 2.01 DESIGNATION AND TERMS OF SECURITIES.
The aggregate principal amount of Securities that may be authenticated
and delivered under this Indenture is unlimited. The Securities may be issued in
one or more series up to the aggregate principal amount of Securities of that
series from time to time authorized by or pursuant to a Board Resolution or
pursuant to one or more indentures supplemental hereto. Prior to the initial
issuance of Securities of any series, there shall be established in or pursuant
to a Board Resolution, and set forth in an Officers' Certificate, or established
in one or more indentures supplemental hereto:
(1) the title of the Security of the series (which shall distinguish
the Securities of the series from all other Securities);
(2) any limit upon the aggregate principal amount of the Securities
of that series that may be authenticated and delivered under this Indenture
(except for Securities authenticated and delivered upon registration of transfer
of, or in exchange for, or in lieu of, other Securities of that series);
(3) the date or dates on which the principal of the Securities of
the series is payable and the place(s) of payment;
(4) the rate or rates at which the Securities of the series shall
bear interest or the manner of calculation of such rate or rates, if any;
(5) the date or dates from which such interest shall accrue, the
Interest Payment Dates on which such interest will be payable or the manner of
determination of such Interest Payment Dates, the place(s) of payment, and the
record date or other method for the determination of holders to whom interest is
payable on any such Interest Payment Dates;
(6) the right, if any, to extend the interest payment periods and
the duration of such extension;
(7) the period or periods within which, the price or prices at which
and the terms and conditions upon which, Securities of the series may be
redeemed, in whole or in part, at the option of the Company;
(8) the obligation, if any, of the Company to redeem or purchase
Securities of the series pursuant to any sinking fund or analogous provisions
(including payments made in cash in satisfaction of future sinking fund
obligations) or at the option of a holder thereof and the period or periods
within which, the price or prices at which, and the terms and conditions upon
which, Securities of the series shall be redeemed or purchased, in whole or in
part, pursuant to such obligation;
(9) the form of the Securities of the series including the form of
the Trustee's certificate of authentication for such series;
(10) if other than denominations of one thousand U.S. dollars
($1,000) or any integral multiple thereof, the denominations in which the
Securities of the series shall be issuable;
(11) any and all other terms with respect to such series (which terms
shall not be inconsistent with the terms of this Indenture, as amended by any
supplemental indenture) including any terms which may be required by or
advisable under United States laws or regulations or advisable in connection
with the marketing of Securities of that series;
(12) whether the Securities are issuable as a Global Security and, in
such case, the identity of the Depositary for such series;
(13) whether the Securities will be convertible into shares of common
stock or other securities of the Company and, if so, the terms and conditions
upon which such Securities will be so convertible, including the conversion
price and the conversion period;
(14) if other than the principal amount thereof, the portion of the
principal amount of Securities of the series which shall be payable upon
declaration of acceleration of the maturity thereof pursuant to Section 6.01;
(15) any additional or different Events of Default or restrictive
covenants provided for with respect to the Securities of the series;
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(16) if applicable, that the Securities of the series, in whole or in
specified part, shall be defeasible pursuant to Section 11.02 and, if other than
by a Board Resolution, the manner in which any election by the Company to
defease such Securities shall be evidenced; and
(17) if other than the currency of the United States of America, the
currency, currencies or currency units in which the principal of or any premium
or interest on any Securities of the series shall be payable and the manner of
determining the equivalent thereof in the currency of the United States of
America for any purpose, including for purposes of the definition of
"Outstanding" in Section 1.01. All Securities of any one series shall be
substantially identical except as to denomination and except as may otherwise be
provided in or pursuant to any such Board Resolution or in any indentures
supplemental hereto. If any of the terms of the series are established by action
taken pursuant to a Board Resolution, a copy of an appropriate record of such
action shall be certified by the Secretary or an Assistant Secretary of the
Company and delivered to the Trustee at or prior to the delivery of the
Officers' Certificate setting forth the terms of the series. Securities of any
particular series may be issued at various times, with different dates on which
the principal or any installment of principal is payable, with different rates
of interest, if any, or different methods by which rates of interest may be
determined, with different dates on which such interest may be payable and with
different redemption dates. Notwithstanding Section 2.01(2) and unless otherwise
expressly provided with respect to a series of Securities, the aggregate
principal amount of a series of Securities may be increased and additional
Securities of such series may be issued up to the maximum aggregate principal
amount authorized with respect to such series as increased.
SECTION 2.02 FORM OF SECURITIES AND TRUSTEE'S CERTIFICATE.
The Securities of any series and the Trustee's certificate of
authentication to be borne by such Securities shall be substantially of the
tenor and purport as set forth in one or more indentures supplemental hereto or
as provided in a Board Resolution and as set forth in an Officers' Certificate.
The Securities may have such letters, numbers or other marks of identification
or designation and such legends or endorsements printed, lithographed or
engraved thereon as the Company may deem appropriate and as are not inconsistent
with the provisions of this Indenture, or as may be required to comply with any
law or with any rule or regulation made pursuant thereto or with any rule or
regulation of any stock exchange on which Securities of that series may be
listed, or to conform to usage.
SECTION 2.03 DENOMINATIONS: PROVISIONS FOR PAYMENT.
The Securities shall be issuable as registered Securities and in the
denominations of one thousand U.S. dollars ($1,000) or any integral multiple
thereof, subject to Section 2.01(10). The Securities of a particular series
shall bear interest payable on the dates and at the rates specified or provided
for with respect to that series. Except as contemplated by Section 2.01(17), the
principal of and the interest on the Securities of any series, as well as any
premium thereon in case of redemption thereof prior to maturity, shall be
payable in the coin or currency of the United States of America that at the time
is legal tender for public and private debt, at the office or agency of the
Company maintained for that purpose in the Borough of Manhattan, the City and
State of New York; provided, however, that at the option of the Company payment
of interest may be made by check mailed to the address of the Person entitled
thereto as such address shall appear in the Security Register. Each Security
shall be dated the date of its authentication by the Trustee. Except as
contemplated by Section 2.01(4), interest on the Securities shall be computed on
the basis of a 360-day year composed of twelve 30-day months. Except as
contemplated by Section 2.01(5), the interest installment on any Security that
is payable, and is punctually paid or duly provided for, on any Interest Payment
Date for Securities of that series shall be paid to the Person in whose name
said Security (or one or more Predecessor Securities) is registered at the close
of business on the regular record date for such interest installment. In the
event that any Security of a particular series or portion thereof is called for
redemption and the redemption date is subsequent to a regular record date with
respect to any Interest Payment Date and prior to such Interest Payment Date,
interest on such Security will be paid upon presentation and surrender of such
Security as provided in Section 3.03. Any interest on any Security that is
payable, but is not punctually paid or duly provided for, on any Interest
Payment Date for Securities of the same series (herein called "Defaulted
Interest") shall forthwith cease to be payable to the registered holder on the
relevant regular record date by virtue of having been such holder; and such
Defaulted Interest shall be paid by the Company, at its election, as provided in
clause (1) or clause (2) below:
(1) The Company may make payment of any Defaulted Interest on
Securities to the Persons in whose names such Securities (or their respective
Predecessor Securities) are registered at the close of business on a special
record date for the payment of such Defaulted Interest, which shall be fixed in
the following manner: the Company shall notify the Trustee in writing of the
amount of Defaulted Interest proposed to be paid on each such Security and the
date of the proposed payment, and at the same time the Company shall deposit
with the Trustee an amount of money equal to the aggregate amount proposed to be
paid in respect of such Defaulted Interest or shall make arrangements
satisfactory to the Trustee for such deposit prior to the date of the proposed
payment, such money when deposited to be held in trust for the benefit of the
Persons entitled to such Defaulted Interest as in this clause provided.
Thereupon the Trustee shall fix a special record date for the payment of such
Defaulted Interest which shall not be more than 15 nor less than 10 days prior
to the date of the proposed payment and not less than 10 days
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after the receipt by the Trustee of the notice of the proposed payment. The
Trustee shall promptly notify the Company of such special record date and, in
the name and at the expense of the Company, shall cause notice of the proposed
payment of such Defaulted Interest and the special record date therefor to be
mailed, first class postage prepaid, to each Securityholder at his or her
address as it appears in the Security Register (as hereinafter defined), not
less than 10 days prior to such special record date. Notice of the proposed
payment of such Defaulted Interest and the special record date therefor having
been mailed as aforesaid, such Defaulted Interest shall be paid to the Persons
in whose names such Securities (or their respective Predecessor Securities) are
registered on such special record date.
(2) The Company may make payment of any Defaulted Interest on any
Securities in any other lawful manner not inconsistent with the requirements of
any securities exchange on which such Securities may be listed, and upon such
notice as may be required by such exchange, if, after notice given by the
Company to the Trustee of the proposed payment pursuant to this clause, such
manner of payment shall be deemed practicable by the Trustee. Unless otherwise
set forth in a Board Resolution or one or more indentures supplemental hereto
establishing the terms of any series of Securities pursuant to Section 2.01
hereof, the term "regular record date" as used in this Section with respect to a
series of Securities with respect to any Interest Payment Date for such series
shall mean either the fifteenth day of the month immediately preceding the month
in which an Interest Payment Date established for such series pursuant to
Section 2.01 hereof shall occur, if such Interest Payment Date is the first day
of a month, or the last day of the month immediately preceding the month in
which an Interest Payment Date established for such series pursuant to Section
2.01 hereof shall occur, if such Interest Payment Date is the fifteenth day of a
month, whether or not such date is a Business Day. Subject to the foregoing
provisions of this Section, each Security of a series delivered under this
Indenture upon transfer of or in exchange for or in lieu of any other Security
of such series shall carry the rights to interest accrued and unpaid, and to
accrue, that were carried by such other Security.
SECTION 2.04 EXECUTION AND AUTHENTICATION.
The Securities shall be signed on behalf of the Company by its
President, or one of its Vice Presidents, or its Treasurer, or one of its
Assistant Treasurers, under its corporate seal attested by its Secretary or one
of its Assistant Secretaries. Signatures may be in the form of a manual or
facsimile signature. The Company may use the facsimile signature of any Person
who shall have been a President or Vice President thereof, or of any Person who
shall have been the Treasurer, an Assistant Treasurer, the Secretary or an
Assistant Secretary thereof, notwithstanding the fact that at the time the
Securities shall be authenticated and delivered or disposed of such Person shall
have ceased to be the President or a Vice President, or the Treasurer, an
Assistant Treasurer, the Secretary or an Assistant Secretary, of the Company.
The seal of the Company may be in the form of a facsimile of such seal and may
be impressed, affixed, imprinted or otherwise reproduced on the Securities. The
Securities may contain such notations, legends or endorsements required by law,
stock exchange rule or usage. A Security shall not be valid until authenticated
manually by an authorized signatory of the Trustee, or by an Authenticating
Agent. Such signature shall be conclusive evidence that the Security so
authenticated has been duly authenticated and delivered hereunder and that the
holder is entitled to the benefits of this Indenture. At any time and from time
to time after the execution and delivery of this Indenture, the Company may
deliver Securities of any series executed by the Company to the Trustee for
authentication, together with a written order of the Company for the
authentication and delivery of such Securities, signed by its President or any
Vice President and its Secretary or any Assistant Secretary, and the Trustee in
accordance with such written order shall authenticate and deliver such
Securities. In authenticating such Securities and accepting the additional
responsibilities under this Indenture in relation to such Securities, the
Trustee shall be entitled to receive, and (subject to Section 7.01) shall be
fully protected in relying upon, an Opinion of Counsel stating that the form and
terms thereof have been established in conformity with the provisions of this
Indenture and that such Securities, when authenticated and delivered by the
Trustee and issued by the Company in the manner and subject to any conditions
specified in such Opinion of Counsel, will constitute valid and legally binding
obligations of the Company enforceable in accordance with their terms, subject
to any Bankruptcy Law or other insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles. The Trustee shall not be
required to authenticate such Securities if the issue of such Securities
pursuant to this Indenture will affect the Trustee's own rights, duties or
immunities under the Securities and this Indenture or otherwise in a manner that
is not reasonably acceptable to the Trustee.
SECTION 2.05 REGISTRATION OF TRANSFER AND EXCHANGE.
(a) Securities of any series may be exchanged upon presentation
thereof at the office or agency of the Company designated for such purpose in
the Borough of Manhattan, the City and State of New York, for other Securities
of such series of authorized denominations, and for a like aggregate principal
amount, upon payment of a sum sufficient to cover any tax or other governmental
charge in relation thereto, all as provided in this Section. In respect of any
Securities so surrendered for exchange, the Company shall execute, the Trustee
shall authenticate and such office or agency shall deliver in exchange therefor
the Security or Securities of the same series that the Securityholder making the
exchange shall be entitled to receive, bearing numbers not contemporaneously
outstanding.
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(b) The Company shall keep, or cause to be kept, at its office or
agency designated for such purpose in the Borough of Manhattan, the City and
State of New York, or such other location designated by the Company a register
or registers (herein referred to as the "Security Register") in which, subject
to such reasonable regulations as it may prescribe, the Company shall register
the Securities and the transfers of Securities as in this Article provided and
which at all reasonable times shall be open for inspection by the Trustee. The
registrar for the purpose of registering Securities and transfer of Securities
as herein provided shall be appointed as authorized by Board Resolution (the
"Security Registrar"). Upon surrender for transfer of any Security at the office
or agency of the Company designated for such purpose, the Company shall execute,
the Trustee shall authenticate and such office or agency shall deliver in the
name of the transferee or transferees a new Security or Securities of the same
series as the Security presented for a like aggregate principal amount. All
Securities presented or surrendered for exchange or registration of transfer, as
provided in this Section, shall be accompanied (if so required by the Company or
the Security Registrar) by a written instrument or instruments of transfer, in
form satisfactory to the Company or the Security Registrar, duly executed by the
registered holder or by such holder's duly authorized attorney in writing.
(c) No service charge shall be made for any exchange or registration
of transfer of Securities, or issue of new Securities in case of partial
redemption of any series, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge in relation thereto,
other than exchanges pursuant to Section 2.06, Section 3.03(b) and Section 9.04
not involving any transfer. The Company shall not be required (i) to issue,
exchange or register the transfer of any Securities during a period beginning at
the opening of business 15 days before the day of the mailing of a notice of
redemption of less than all the Outstanding Securities of the same series and
ending at the close of business on the day of such mailing, nor (ii) to register
the transfer of or exchange any Securities of any series or portions thereof
called for redemption. The provisions of this Section 2.05 are, with respect to
any Global Security, subject to Section 2.11 hereof.
SECTION 2.06 TEMPORARY SECURITIES.
Pending the preparation of definitive Securities of any series, the
Company may execute, and the Trustee shall authenticate and deliver, temporary
Securities (printed, lithographed or typewritten) of any authorized
denomination. Such temporary Securities shall be substantially in the form of
the definitive Securities in lieu of which they are issued, but with such
omissions, insertions and variations as may be appropriate for temporary
Securities, all as may be determined by the Company. Every temporary Security of
any series shall be executed by the Company and be authenticated by the Trustee
upon the same conditions and in substantially the same manner, and with like
effect, as the definitive Securities of such series. Without unnecessary delay
the Company will execute and will furnish definitive Securities of such series
and thereupon any or all temporary Securities of such series may be surrendered
in exchange therefor (without charge to the holders), at the office or agency of
the Company designated for the purpose in the Borough of Manhattan, the City and
State of New York, and the Trustee shall authenticate and such office or agency
shall deliver in exchange for such temporary Securities an equal aggregate
principal amount of definitive Securities of such series, unless the Company
advises the Trustee to the effect that definitive Securities need not be
executed and furnished until further notice from the Company. Until so
exchanged, the temporary Securities of such series shall be entitled to the same
benefits under this Indenture as definitive Securities of such series
authenticated and delivered hereunder.
SECTION 2.07 MUTILATED, DESTROYED, LOST OR STOLEN SECURITIES.
In case any temporary or definitive Security shall become mutilated or
be destroyed, lost or stolen, the Company (subject to the next succeeding
sentence) shall execute, and upon the Company's request the Trustee (subject as
aforesaid) shall authenticate and deliver, a new Security of the same series,
bearing a number not contemporaneously outstanding, in exchange and substitution
for the mutilated Security, or in lieu of and in substitution for the Security
so destroyed, lost or stolen. In every case the applicant for a substituted
Security shall furnish to the Company and the Trustee such security or indemnity
as may be required by them to save each of them harmless, and, in every case of
destruction, loss or theft, the applicant shall also furnish to the Company and
the Trustee evidence to their satisfaction of the destruction, loss or theft of
the applicant's Security and of the ownership thereof. The Trustee may
authenticate any such substituted Security and deliver the same upon the written
request or authorization of any officer of the Company. Upon the issuance of any
substituted Security, the Company may require the payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in relation
thereto and any other expenses (including the fees and expenses of the Trustee)
connected therewith. In case any Security that has matured or is about to mature
shall become mutilated or be destroyed, lost or stolen, the Company may, instead
of issuing a substitute Security, pay or authorize the payment of the same
(without surrender thereof except in the case of a mutilated Security) if the
applicant for such payment shall furnish to the Company and the Trustee such
security or indemnity as they may require to save them harmless, and, in case of
destruction, loss or theft, evidence to the satisfaction of the Company and the
Trustee of the destruction, loss or theft of such Security and of the ownership
thereof. Every replacement Security issued pursuant to the provisions of this
Section shall constitute an additional contractual obligation of the Company
whether or not the mutilated, destroyed, lost or stolen Security shall be found
at any time, or be enforceable by anyone, and shall be entitled to all the
benefits of this Indenture equally and proportionately with any and all other
Securities of the same series duly issued hereunder. All Securities shall be
held and owned upon the express condition that the foregoing provisions are
exclusive with respect to the replacement or payment of mutilated, destroyed,
lost or stolen Securities, and shall preclude (to the extent lawful) any and all
other rights or remedies,
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notwithstanding any law or statute existing or hereafter enacted to the contrary
with respect to the replacement or payment of negotiable instruments or other
securities without their surrender.
SECTION 2.08 CANCELLATION.
All Securities surrendered for the purpose of payment, redemption,
exchange or registration of transfer shall, if surrendered to the Company or any
paying agent, be delivered to the Trustee for cancellation, or, if surrendered
to the Trustee, shall be cancelled by it, and no Securities shall be issued in
lieu thereof except as expressly required or permitted by any of the provisions
of this Indenture. On request of the Company at the time of such surrender, the
Trustee shall deliver to the Company canceled Securities held by the Trustee. In
the absence of such request the Trustee may dispose of canceled Securities in
accordance with its standard procedures and deliver a certificate of disposition
to the Company. If the Company shall otherwise acquire any of the Securities,
however, such acquisition shall not operate as a redemption or satisfaction of
the indebtedness represented by such Securities unless and until the same are
delivered to the Trustee for cancellation.
SECTION 2.09 BENEFITS OF INDENTURE.
Nothing in this Indenture or in the Securities, express or implied,
shall give or be construed to give to any Person, other than the parties hereto
and the holders of the Securities any legal or equitable right, remedy or claim
under or in respect of this Indenture, or under any covenant, condition or
provision herein contained; all such covenants, conditions and provisions being
for the sole benefit of the parties hereto and of the holders of the Securities.
SECTION 2.10 AUTHENTICATING AGENT.
So long as any of the Securities of any series remain Outstanding there
may be an Authenticating Agent for any or all such series of Securities which
the Trustee shall have the right to appoint. Said Authenticating Agent shall be
authorized to act on behalf of the Trustee to authenticate Securities of such
series issued upon exchange, transfer or partial redemption thereof, and
Securities so authenticated shall be entitled to the benefits of this Indenture
and shall be valid and obligatory for all purposes as if authenticated by the
Trustee hereunder. All references in this Indenture to the authentication of
Securities by the Trustee shall be deemed to include authentication by an
Authenticating Agent for such series. Each Authenticating Agent shall be
acceptable to the Company and shall be a corporation that has a combined capital
and surplus, as most recently reported or determined by it, sufficient under the
laws of any jurisdiction under which it is organized or in which it is doing
business to conduct a trust business, and that is otherwise authorized under
such laws to conduct such business and is subject to supervision or examination
by Federal or State authorities. If at any time any Authenticating Agent shall
cease to be eligible in accordance with these provisions, it shall resign
immediately. Any Authenticating Agent may at any time resign by giving written
notice of resignation to the Trustee and to the Company. The Trustee may at any
time (and upon request by the Company shall) terminate the agency of any
Authenticating Agent by giving written notice of termination to such
Authenticating Agent and to the Company. Upon resignation, termination or
cessation of eligibility of any Authenticating Agent, the Trustee may appoint an
eligible successor Authenticating Agent acceptable to the Company. Any successor
Authenticating Agent, upon acceptance of its appointment hereunder, shall become
vested with all the rights, powers and duties of its predecessor hereunder as if
originally named as an Authenticating Agent pursuant hereto.
Any corporation into which an Authenticating Agent may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which such Authenticating Agent shall be a party,
or any corporation succeeding to the corporate agency or corporate trust
business of an Authenticating Agent, shall continue to be an Authenticating
Agent, provided that such corporation shall be otherwise eligible under this
Section, without the execution or filing of any paper or any further act on the
part of the Trustee or the Authenticating Agent.
SECTION 2.11 GLOBAL SECURITIES.
(a) If the Company shall establish pursuant to Section 2.01 that the
Securities of a particular series are to be issued as a Global Security, then
the Company shall execute and the Trustee shall, in accordance with Section
2.04, authenticate and deliver, a Global Security that
(1) shall represent, and shall be denominated in an amount
equal to the aggregate principal amount of, all or a portion of the Outstanding
Securities of such series,
(2) shall be registered in the name of the Depositary or its
nominee,
(3) shall be delivered by the Trustee to the Depositary or
pursuant to the Depositary's instruction and
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(4) shall bear a legend substantially to the following
effect: "Except as otherwise provided in Section 2.11 of the Indenture, this
Security may be transferred, in whole but not in part, only to the Depositary,
another nominee of the Depositary or to a successor Depositary or to a nominee
of such successor Depositary."
(b) Notwithstanding the provisions of Section 2.05, the Global
Security of a series may be transferred, in whole but not in part and in the
manner provided in Section 2.05, only to the Depositary for such series, another
nominee of the Depositary for such series, or to a successor Depositary for such
series selected or approved by the Company or to a nominee of such successor
Depositary.
(c) If at any time the Depositary for a series of the Securities
notifies the Company that it is unwilling or unable to continue as Depositary
for such series or if at any time the Depositary for such series shall no longer
be registered or in good standing under the Exchange Act, or other applicable
statute or regulation, and a successor Depositary for such series is not
appointed by the Company within 90 days after the Company receives such notice
or becomes aware of such condition, as the case may be, this Section 2.11 shall
no longer be applicable to the Securities of such series and the Company will
execute, and subject to Section 2.05, the Trustee will authenticate and deliver
the Securities of such series in definitive registered form without coupons, in
authorized denominations, and in an aggregate principal amount equal to the
principal amount of the Global Security of such series in exchange for such
Global Security. In addition, the Company may at any time determine that the
Securities of any series shall no longer be represented by a Global Security and
that the provisions of this Section 2.11 shall no longer apply to the Securities
of such series. In such event the Company will execute and subject to Section
2.05, the Trustee, upon receipt of an Officers' Certificate evidencing such
determination by the Company, will authenticate and deliver the Securities of
such series in definitive registered form without coupons, in authorized
denominations, and in an aggregate principal amount equal to the principal
amount of the Global Security of such series in exchange for such Global
Security. Upon the exchange of the Global Security for such Securities in
definitive registered form without coupons, in authorized denominations, the
Global Security shall be canceled by the Trustee. Such Securities in definitive
registered form issued in exchange for the Global Security pursuant to this
Section 2.11(c) shall be registered in such names and in such authorized
denominations as the Depositary, pursuant to instructions from its direct or
indirect participants or otherwise, shall instruct the Trustee. The Trustee
shall deliver such Securities to the Depositary for delivery to the Persons in
whose names such Securities are so registered.
ARTICLE III
REDEMPTION OF SECURITIES AND SINKING FUND PROVISIONS
SECTION 3.01 REDEMPTION.
The Company may redeem the Securities of any series issued hereunder on
and after the dates and in accordance with the terms established for such series
pursuant to Section 2.01 hereof.
SECTION 3.02 NOTICE OF REDEMPTION.
(a) In case the Company shall desire to exercise such right to
redeem all or, as the case may be, a portion of the Securities of any series in
accordance with the right reserved so to do, the Company shall, or shall cause
the Trustee to, give notice of such redemption to holders of the Securities of
such series to be redeemed by mailing, first class postage prepaid, a notice of
such redemption not less than 30 days and not more than 90 days before the date
fixed for redemption of that series to such holders at their last addresses as
they shall appear upon the Security Register unless a shorter period is
specified in the Securities to be redeemed. Any notice that is mailed in the
manner herein provided shall be conclusively presumed to have been duly given,
whether or not the registered holder receives the notice. In any case, failure
duly to give such notice to the holder of any Security of any series designated
for redemption in whole or in part, or any defect in the notice, shall not
affect the validity of the proceedings for the redemption of any other
Securities of such series or any other series. In the case of any redemption of
Securities prior to the expiration of any restriction on such redemption
provided in the terms of such Securities or elsewhere in this Indenture, the
Company shall furnish the Trustee with an Officers' Certificate evidencing
compliance with any such restriction. Each such notice of redemption shall
specify the date fixed for redemption and the redemption price at which
Securities of that series are to be redeemed, and shall state that payment of
the redemption price of such Securities to be redeemed will be made at the
office or agency of the Company in the Borough of Manhattan, the City and State
of New York, upon presentation and surrender of such Securities, that interest
accrued to the date fixed for redemption will be paid as specified in said
notice, that from and after said date interest will cease to accrue and that the
redemption is for a sinking fund, if such is the case. If less than all the
Securities of a series are to be redeemed, the notice to the holders of
Securities of that series to be redeemed in whole or in part shall specify the
particular Securities to be so redeemed. In case any Security is to be redeemed
in part only, the notice that relates to such Security shall state the portion
of the principal amount thereof to be redeemed, and shall state that on and
after the redemption date, upon surrender of such Security, a new Security or
Securities of such series in principal amount equal to the unredeemed portion
thereof will be issued.
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(b) If less than all the Securities of a series are to be redeemed,
the Company shall give the Trustee at least 45 days' notice in advance of the
date fixed for redemption as to the aggregate principal amount of Securities of
the series to be redeemed, and thereupon the Trustee shall select, by lot or in
such other manner as it shall deem appropriate and fair in its discretion and
that may provide for the selection of a portion or portions (equal to one
thousand U.S. dollars ($1,000) or any integral multiple thereof) of the
principal amount of such Securities of a denomination larger than $1,000, the
Securities to be redeemed and shall thereafter promptly notify the Company in
writing of the numbers of the Securities to be redeemed, in whole or in part.
The Company may, if and whenever it shall so elect, by delivery of instructions
signed on its behalf by its President or any Vice President, instruct the
Trustee or any paying agent to call all or any part of the Securities of a
particular series for redemption and to give notice of redemption in the manner
set forth in this Section, such notice to be in the name of the Company or its
own name as the Trustee or such paying agent as it may deem advisable. In any
case in which notice of redemption is to be given by the Trustee or any such
paying agent, the Company shall deliver or cause to be delivered to, or permit
to remain with, the Trustee or such paying agent, as the case may be, such
Security Register, transfer books or other records, or suitable copies or
extracts therefrom, sufficient to enable the Trustee or such paying agent to
give any notice by mail that may be required under the provisions of this
Section.
SECTION 3.03 PAYMENT UPON REDEMPTION.
(a) If the giving of notice of redemption shall have been completed
as above provided, the Securities or portions of Securities of the series to be
redeemed specified in such notice shall become due and payable on the date and
at the place stated in such notice at the applicable redemption price, together
with interest accrued to the date fixed for redemption and interest on such
Securities or portions of Securities shall cease to accrue on and after the date
fixed for redemption, unless the Company shall default in the payment of such
redemption price and accrued interest with respect to any such Security or
portion thereof. On presentation and surrender of such Securities on or after
the date fixed for redemption at the place of payment specified in the notice,
said Securities shall be paid and redeemed at the applicable redemption price
for such series, together with interest accrued thereon to the date fixed for
redemption (but if the date fixed for redemption is an Interest Payment Date,
the interest installment payable on such date shall be payable to the registered
holder at the close of business on the applicable record date pursuant to
Section 2.03).
(b) Upon presentation of any Security of such series that is to be
redeemed in part only, the Company shall execute and the Trustee shall
authenticate and the office or agency where the Security is presented shall
deliver to the holder thereof, at the expense of the Company, a new Security of
the same series of authorized denominations in principal amount equal to the
unredeemed portion of the Security so presented.
SECTION 3.04 SINKING FUND.
The provisions of Sections 3.04, 3.05 and 3.06 shall be applicable to
any sinking fund for the retirement of Securities of a series, except as
otherwise specified as contemplated by Section 2.01 for Securities of such
series. The minimum amount of any sinking fund payment provided for by the terms
of Securities of any series is herein referred to as a "mandatory sinking fund
payment," and any payment in excess of such minimum amount provided for by the
terms of Securities of any series is herein referred to as an "optional sinking
fund payment". If provided for by the terms of Securities of any series, the
cash amount of any sinking fund payment may be subject to reduction as provided
in Section 3.05. Each sinking fund payment shall be applied to the redemption of
Securities of any series as provided for by the terms of Securities of such
series.
SECTION 3.05 SATISFACTION OF SINKING FUND PAYMENTS WITH SECURITIES.
The Company,
(1) may deliver Outstanding Securities of a series (other than any
Securities previously called for redemption) and
(2) may apply as a credit Securities of a series that have been
redeemed either at the election of the Company pursuant to the terms of such
Securities or through the application of permitted optional sinking fund
payments pursuant to the terms of such Securities, in each case in satisfaction
of all or any part of any sinking fund payment with respect to the Securities of
such series required to be made pursuant to the terms of such Securities as
provided for by the terms of such series, provided that such Securities have not
been previously so credited. Such Securities shall be received and credited for
such purpose by the Trustee at the redemption price specified in such Securities
for redemption through operation of the sinking fund and the amount of such
sinking fund payment shall be reduced accordingly.
SECTION 3.06 REDEMPTION OF SECURITIES FOR SINKING FUND.
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Not less than 45 days prior to each sinking fund payment date for any
series of Securities, the Company will deliver to the Trustee an Officers'
Certificate specifying the amount of the next ensuing sinking fund payment for
that series pursuant to the terms of the series, the portion thereof, if any,
that is to be satisfied by delivering and crediting Securities of that series
pursuant to Section 3.05 and the basis for such credit and will, together with
such Officers' Certificate, deliver to the Trustee any Securities to be so
delivered. Not less than 30 days before each such sinking fund payment date the
Trustee shall select the Securities to be redeemed upon such sinking fund
payment date in the manner specified in Section 3.02 and cause notice of the
redemption thereof to be given in the name of and at the expense of the Company
in the manner provided in Section 3.02. Such notice having been duly given, the
redemption of such Securities shall be made upon the terms and in the manner
stated in Section 3.03.
ARTICLE IV
COVENANTS
SECTION 4.01 PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST.
The Company will duly and punctually pay or cause to be paid the
principal of (and premium, if any) and interest on the Securities of each series
at the time and place and in the manner provided herein and established with
respect to such Securities.
SECTION 4.02 MAINTENANCE OF OFFICE OR AGENCY.
So long as any series of the Securities remain Outstanding, the Company
agrees to maintain an office or agency in the Borough of Manhattan, the City and
State of New York, with respect to each such series and at such other location
or locations as may be designated as provided in this Section 4.02, where (i)
Securities of that series may be presented for payment, (ii) Securities of that
series may be presented as herein above authorized for registration of transfer
and exchange, and (iii) notices and demands to or upon the Company in respect of
the Securities of that series and this Indenture may be given or served, such
designation to continue with respect to such office or agency until the Company
shall, by written notice signed by its President or a Vice President and
delivered to the Trustee, designate some other office or agency in the Borough
of Manhattan, the City and State of New York for such purposes or any of them.
If at any time the Company shall fail to maintain any such required office or
agency or shall fail to furnish the Trustee with the address thereof, such
presentations, notices and demands may be made or served at the Corporate Trust
Office of the Trustee, and the Company hereby appoints the Trustee as its agent
to receive all such presentations, notices and demands.
The Company may also from time to time designate one or more other
offices or agencies where the Securities of one or more series may be presented
or surrendered for any or all such purposes and may from time to time rescind
such designations; provided, however, that no such designation or rescission
shall in any manner relieve the Company of its obligation to maintain an office
or agency in the Borough of Manhattan, the City and State of New York for
Securities of any series for such purposes. The Company will give prompt written
notice to the Trustee of any such designation or rescission and of any change in
the location of any such other office or agency.
SECTION 4.03 PAYING AGENTS.
(a) If the Company shall appoint one or more paying agents for all
or any series of the Securities, other than the Trustee, the Company will cause
each such paying agent to execute and deliver to the Trustee an instrument in
which such agent shall agree with the Trustee, subject to the provisions of this
Section:
(1) that it will hold all sums held by it as such agent for
the payment of the principal of (and premium, if any) or interest on the
Securities of that series (whether such sums have been paid to it by the Company
or by any other obligor of such Securities) in trust for the benefit of the
Persons entitled thereto;
(2) that it will give the Trustee notice of any failure by
the Company (or by any other obligor of such Securities) to make any payment of
the principal of (and premium, if any) or interest on the Securities of that
series when the same shall be due and payable;
(3) that it will, at any time during the continuance of any
failure referred to in the preceding paragraph (a)(2) above, upon the written
request of the Trustee, forthwith pay to the Trustee all sums so held in trust
by such paying agent; and
(4) that it will perform all other duties of paying agent as
set forth in this Indenture.
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(b) If the Company shall act as its own paying agent with respect to
any series of the Securities, it will on or before each due date of the
principal of (and premium, if any) or interest on Securities of that series, set
aside, segregate and hold in trust for the benefit of the Persons entitled
thereto a sum sufficient to pay such principal (and premium, if any) or interest
so becoming due on Securities of that series until such sums shall be paid to
such Persons or otherwise disposed of as herein provided and will promptly
notify the Trustee of such action, or any failure (by it or any other obligor on
such Securities) to take such action. Whenever the Company shall have one or
more paying agents for any series of Securities, it will, prior to each due date
of the principal of (and premium, if any) or interest on any Securities of that
series, deposit with the paying agent a sum sufficient to pay the principal (and
premium, if any) or interest so becoming due, such sum to be held in trust for
the benefit of the Persons entitled to such principal, premium or interest, and
(unless such paying agent is the Trustee) the Company will promptly notify the
Trustee of this action or failure so to act.
(c) Notwithstanding anything in this Section to the contrary,
(1) the agreement to hold sums in trust as provided in this
Section is subject to the provisions of Section 11.05, and
(2) the Company may at any time, for the purpose of
obtaining the satisfaction and discharge of this Indenture or for any other
purpose, pay, or direct any paying agent to pay, to the Trustee all sums held in
trust by the Company or such paying agent, such sums to be held by the Trustee
upon the same terms and conditions as those upon which such sums were held by
the Company or such paying agent; and, upon such payment by any paying agent to
the Trustee, such paying agent shall be released from all further liability with
respect to such money.
SECTION 4.04 APPOINTMENT TO FILL VACANCY IN OFFICE OF TRUSTEE.
The Company, whenever necessary to avoid or fill a vacancy in the office
of Trustee, will appoint, in the manner provided in Section 7.11, a Trustee, so
that there shall at all times be a Trustee hereunder.
SECTION 4.05 COMPLIANCE WITH CONSOLIDATION PROVISIONS.
The Company will not, while any of the Securities remain Outstanding,
consolidate with or merge into any other Person, in either case where the
Company is not the survivor of such transaction, or sell, convey, transfer or
otherwise dispose of its property as an entirety or substantially as an entirety
to any other Person unless the provisions of Article X hereof are complied with.
SECTION 4.06 STATEMENT BY OFFICERS AS TO DEFAULT.
The Company will deliver to the Trustee, within 120 days after the end
of each fiscal year of the Company, an Officers' Certificate, stating whether or
not to the best knowledge of the signer thereof the Company is in default in the
performance and observance of any of the terms, provisions and conditions of
this Indenture (without regard to any period of grace or requirement of notice
provided hereunder) and, if the Company shall be in default, specifying all such
defaults and the nature and status thereof of which such signer may have
knowledge.
ARTICLE V
SECURITYHOLDERS' LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE
SECTION 5.01 COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF SECURITYHOLDERS.
The Company will furnish or cause to be furnished to the Trustee
(1) not more than 15 days after each regular record date (as defined
in Section 2.03) a list, in such form as the Trustee may reasonably require, of
the names and addresses of the holders of each series of Securities as of such
regular record date, provided that the Company shall not be obligated to furnish
or cause to furnish such list at any time that the list shall not differ in any
respect from the most recent list furnished to the Trustee by the Company and
(2) at such other times as the Trustee may request in writing within
30 days after the receipt by the Company of any such request, a list of similar
form and content as of a date not more than 15 days prior to the time such list
is furnished;
provided, however, that, in either case, no such list need be furnished for any
series for which the Trustee shall be the Security Registrar.
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SECTION 5.02 PRESERVATION OF INFORMATION; COMMUNICATIONS WITH SECURITYHOLDERS.
(a) The Trustee shall preserve, in as current a form as is
reasonably practicable, all information as to the names and addresses of the
holders of Securities contained in the most recent list furnished to it as
provided in Section 5.01 and as to the names and addresses of holders of
Securities received by the Trustee in its capacity as Security Registrar (if
acting in such capacity).
(b) The Trustee may destroy any list furnished to it as provided in
Section 5.01 upon receipt of a new list so furnished.
(c) Securityholders may communicate as provided in Section 312(b) of
the Trust Indenture Act with other Securityholders with respect to their rights
under this Indenture or under the Securities.
SECTION 5.03 REPORTS BY THE COMPANY.
(a) The Company covenants and agrees to file with the Trustee,
within 15 days after the Company is required to file the same with the
Commission, copies of the annual reports and of the information, documents and
other reports (or copies of such portions of any of the foregoing as the
Commission may from time to time by rules and regulations prescribe) that the
Company may be required to file with the Commission pursuant to Section 13 or
Section 15(d) of the Exchange Act; or, if the Company is not required to file
information, documents or reports pursuant to either of such sections, then to
file with the Trustee and the Commission, in accordance with the rules and
regulations prescribed from time to time by the Commission, such of the
supplementary and periodic information, documents and reports that may be
required pursuant to Section 13 of the Exchange Act, in respect of a security
listed and registered on a national securities exchange as may be prescribed
from time to time in such rules and regulations.
(b) The Company covenants and agrees to file with the Trustee and
the Commission, in accordance with the rules and regulations prescribed from to
time by the Commission, such additional information, documents and reports with
respect to compliance by the Company with the conditions and covenants provided
for in this Indenture as may be required from time to time by such rules and
regulations.
(c) The Company covenants and agrees to transmit by mail, first
class postage prepaid, or reputable overnight delivery service that provides for
evidence of receipt, to the Securityholders, as their names and addresses appear
upon the Security Register, within 30 days after the filing thereof with the
Trustee, such summaries of any information, documents and reports required to be
filed by the Company pursuant to subsections (a) and (b) of this Section as may
be required by rules and regulations prescribed from time to time by the
Commission.
SECTION 5.04 REPORTS BY THE TRUSTEE.
(a) On or before [ ] in each year in which any of the Securities are
Outstanding, the Trustee shall transmit by mail, first class postage prepaid, to
the Securityholders, as their names and addresses appear upon the Security
Register, a brief report dated as of the preceding [ ], if and to the extent
required under Section 313(a) of the Trust Indenture Act.
(b) The Trustee shall comply with Section 313(b) and 313(c) of the
Trust Indenture Act.
(c) A copy of each such report shall, at the time of such
transmission to Securityholders, be filed by the Trustee with the Company, with
each stock exchange upon which any Securities are listed (if so listed) and also
with the Commission. The Company agrees to notify the Trustee when any
Securities become listed on any stock exchange.
ARTICLE VI
REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS ON EVENT OF DEFAULT
SECTION 6.01 EVENTS OF DEFAULT.
(a) Whenever used herein with respect to Securities of a particular
series, "Event of Default" means any one or more of the following events that
has occurred and is continuing (whatever the reason for such Event of Default
and whether it shall be voluntary or involuntary or be effected by operation of
law or pursuant to any judgment, decree or order of any court or any order, rule
or regulation of any administrative or governmental body):
(1) the Company defaults in the payment of any installment
of interest upon any of the Securities of that series, as and when the same
shall become due and payable, and continuance of such default for a period of 90
days;
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provided, however, that a valid extension of an interest payment period by the
Company in accordance with the terms of any indenture supplemental hereto shall
not constitute a default in the payment of interest for this purpose;
(2) the Company defaults in the payment of the principal of
(or premium, if any, on) any of the Securities of that series as and when the
same shall become due and payable whether at maturity, upon redemption, by
declaration or otherwise, or in any payment required by any sinking or analogous
fund established with respect to that series; provided, however, that a valid
extension of the maturity of such Securities in accordance with the terms of any
indenture supplemental hereto shall not constitute a default in the payment of
principal or premium, if any;
(3) the Company fails to observe or perform any other of its
covenants or agreements with respect to that series contained in this Indenture
or otherwise established with respect to that series of Securities pursuant to
Section 2.01 hereof (other than a covenant or agreement that has been expressly
included in this Indenture solely for the benefit of one or more series of
Securities other than such series) for a period of 90 days after the date on
which written notice of such failure, requiring the same to be remedied and
stating that such notice is a "Notice of Default" hereunder, shall have been
given to the Company by the Trustee, by registered or certified mail, or to the
Company and the Trustee by the holders of at least 25% in principal amount of
the Securities of that series at the time Outstanding;
(4) the Company pursuant to or within the meaning of any
Bankruptcy Law
(i) commences a voluntary case,
(ii) consents to the entry of an order for relief
against it in an involuntary case,
(iii) consents to the appointment of a Custodian of it
or for all or substantially all of its property or
(iv) makes a general assignment for the benefit of
its creditors; or
(5) a court of competent jurisdiction enters an order under
any Bankruptcy Law that
(i) is for relief against the Company in an
involuntary case,
(ii) appoints a Custodian of the Company for all or
substantially all of its property, or
(iii) orders the liquidation of the Company, and the
order remains unstayed and in effect for 90 days.
(b) In each and every such case, unless the principal of all
the Securities of that series shall have already become due and payable, either
the Trustee or the holders of not less than 25% in aggregate principal amount of
the Securities of that series then Outstanding hereunder, by notice in writing
to the Company (and to the Trustee if given by such Securityholders), may
declare the principal of all the Securities of that series to be due and payable
immediately, and upon any such declaration the same shall become and shall be
immediately due and payable, notwithstanding anything contained in this
Indenture or in the Securities of that series or established with respect to
that series pursuant to Section 2.01 to the contrary.
(c) At any time after the principal of the Securities of
that series shall have been so declared due and payable, and before any judgment
or decree for the payment of the moneys due shall have been obtained or entered
as hereinafter provided, the holders of a majority in aggregate principal amount
of the Securities of that series then Outstanding hereunder, by written notice
to the Company and the Trustee, may rescind and annul such declaration and its
consequences if:
(1) the Company has paid or deposited with the
Trustee a sum sufficient to pay all matured installments of interest upon all
the Securities of that series and the principal of (and premium, if any, on) any
and all Securities of that series that shall have become due otherwise than by
acceleration (with interest upon such principal and premium, if any, and, to the
extent that such payment is enforceable under applicable law, upon overdue
installments of interest, at the rate per annum expressed in the Securities of
that series to the date of such payment or deposit) and the amount payable to
the Trustee under Section 7.07, and
(2) any and all Events of Default under the
Indenture with respect to such series, other than the nonpayment of principal on
Securities of that series that shall not have become due by their terms, shall
have been remedied or waived as provided in Section 6.06. No such rescission and
annulment shall extend to or shall affect any subsequent default or impair any
right consequent thereon.
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(d) In case the Trustee shall have proceeded to enforce any
right with respect to Securities of that series under this Indenture and such
proceedings shall have been discontinued or abandoned because of such rescission
or annulment or for any other reason or shall have been determined adversely to
the Trustee, then and in every such case, subject to any determination in such
proceedings, the Company, and the Trustee shall be restored respectively to
their former positions and rights hereunder, and all rights, remedies and powers
of the Company and the Trustee shall continue as though no such proceedings had
been taken.
SECTION 6.02 COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE.
(a) The Company covenants that
(1) in case it shall default in the payment of any
installment of interest on any of the Securities of a series, as and when the
same shall have become due and payable, and such default shall have continued
for a period of 90 days, or
(2) in case it shall default in the payment of the principal
of (or premium, if any, on) any of the Securities of a series when the same
shall have become due and payable, whether upon maturity of the Securities of a
series or upon redemption or upon declaration, pursuant to any sinking or
analogous fund established with respect to that series or otherwise,
then, upon demand of the Trustee, the Company will pay to the Trustee, for the
benefit of the holders of the Securities of that series, the whole amount that
then shall have been become due and payable on all such Securities for principal
(and premium, if any) or interest, or both, as the case may be, with interest
upon the overdue principal (and premium, if any) and (to the extent that payment
of such interest is enforceable under applicable law) upon overdue installments
of interest at the rate per annum expressed in the Securities of that series;
and, in addition thereto, such further amount as shall be sufficient to cover
the costs and expenses of collection, and the amount payable to the Trustee
under Section 7.07.
(b) If the Company shall fail to pay such amounts forthwith upon
such demand, the Trustee, in its own name and as trustee of an express trust,
shall be entitled and empowered to institute any action or proceedings at law or
in equity for the collection of the sums so due and unpaid, and may prosecute
any such action or proceeding to judgment or final decree, and may enforce any
such judgment or final decree against the Company or other obligor upon the
Securities of that series and collect the moneys adjudged or decreed to be
payable in the manner provided by law out of the property of the Company or
other obligor upon the Securities of that series, wherever situated.
(c) In case of any receivership, insolvency, liquidation,
bankruptcy, reorganization, readjustment, arrangement, composition or judicial
proceedings affecting the Company, or its creditors or property, the Trustee
shall have power to intervene in such proceedings and take any action therein
that may be permitted by the court and shall (except as may be otherwise
provided by law) be entitled to file such proofs of claim and other papers and
documents as may be necessary or advisable in order to have the claims of the
Trustee and of the holders of Securities of such series allowed for the entire
amount due and payable by the Company under the Indenture at the date of
institution of such proceedings and for any additional amount that may become
due and payable by the Company after such date, and to collect and receive any
moneys or other property payable or deliverable on any such claim, and to
distribute the same after the deduction of the amount payable to the Trustee
under Section 7.07; and any receiver, assignee or trustee in bankruptcy or
reorganization is hereby authorized by each of the holders of Securities of such
series to make such payments to the Trustee, and, in the event that the Trustee
shall consent to the making of such payments directly to such Securityholders,
to pay to the Trustee any amount due it under Section 7.07.
(d) All rights of action and of asserting claims under this
Indenture, or under any of the terms established with respect to Securities of
that series, may be enforced by the Trustee without the possession of any of
such Securities, or the production thereof at any trial or other proceeding
relative thereto, and any such suit or proceeding instituted by the Trustee
shall be brought in its own name as trustee of an express trust, and any
recovery of judgment shall, after provision for payment to the Trustee of any
amounts due under Section 7.07, be for the ratable benefit of the holders of the
Securities of such series. In case of an Event of Default hereunder, the Trustee
may in its discretion proceed to protect and enforce the rights vested in it by
this Indenture by such appropriate judicial proceedings as the Trustee shall
deem most effectual to protect and enforce any of such rights, either at law or
in equity or in bankruptcy or otherwise, whether for the specific enforcement of
any covenant or agreement contained in the Indenture or in aid of the exercise
of any power granted in this Indenture, or to enforce any other legal or
equitable right vested in the Trustee by this Indenture or by law. Nothing
contained herein shall be deemed to authorize the Trustee to authorize or
consent to or accept or adopt on behalf of any Securityholder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
of that series or the rights of any holder thereof or to authorize the Trustee
to vote in respect of the claim of any Securityholder in any such proceeding.
SECTION 6.03 APPLICATION OF MONEYS COLLECTED.
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Any moneys collected by the Trustee pursuant to this Article with
respect to a particular series of Securities shall be applied in the following
order, at the date or dates fixed by the Trustee and, in case of the
distribution of such moneys on account of principal (or premium, if any) or
interest, upon presentation of the Securities of that series, and notation
thereon of the payment, if only partially paid, and upon surrender thereof if
fully paid:
FIRST: To the payment of costs and expenses of collection and of all
amounts payable to the Trustee under Section 7.07;
SECOND: To the payment of the amounts then due and unpaid upon
Securities of such series for principal (and premium, if any) and interest, in
respect of which or for the benefit of which such money has been collected,
ratably, without preference or priority of any kind, according to the amounts
due and payable on such Securities for principal (and premium, if any) and
interest, respectively.
SECTION 6.04 LIMITATION ON SUITS.
No holder of any Security of any series shall have any right by virtue
or by availing of any provision of this Indenture to institute any suit, action
or proceeding in equity or at law upon or under or with respect to this
Indenture or for the appointment of a receiver or trustee, or for any other
remedy hereunder, unless
(1) such holder previously shall have given to the Trustee written
notice of an Event of Default and of the continuance thereof with respect to the
Securities of such series specifying such Event of Default, as hereinbefore
provided;
(2) the holders of not less than 25% in aggregate principal amount
of the Securities of such series then Outstanding shall have made written
request upon the Trustee to institute such action, suit or proceeding in its own
name as trustee hereunder;
(3) such holder or holders shall have offered to the Trustee such
reasonable indemnity as it may require against the costs, expenses and
liabilities to be incurred therein or thereby; and
(4) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity, shall have failed to institute any such action,
suit or proceeding and
(5) during such 60 day period, the holders of a majority in
principal amount of the Securities of that series do not give the Trustee a
direction inconsistent with the request. Notwithstanding anything contained
herein to the contrary, the right of any holder of any Security to receive
payment of the principal of (and premium, if any) and interest on such Security,
as therein provided, on the respective due dates expressed in such Security (or
in the case of redemption, on the redemption date), or to institute suit for the
enforcement of any such payment on or after such respective dates or redemption
date, shall not be impaired or affected without the consent of such holder and
by accepting a Security hereunder it is expressly understood, intended and
covenanted by the taker and holder of every Security of such series with every
other such taker and holder and the Trustee, that no one or more holders of
Securities of such series shall have any right in any manner whatsoever by
virtue or by availing of any provision of this Indenture to affect, disturb or
prejudice the rights of the holders of any other of such Securities, or to
obtain or seek to obtain priority over or preference to any other such holder,
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal, ratable and common benefit of all holders of
Securities of such series. For the protection and enforcement of the provisions
of this Section, each and every Securityholder and the Trustee shall be entitled
to such relief as can be given either at law or in equity.
SECTION 6.05 RIGHTS AND REMEDIES CUMULATIVE; DELAY OR OMISSION NOT WAIVER.
(a) Except as otherwise provided in Section 2.07, all powers and
remedies given by this Article to the Trustee or to the Securityholders shall,
to the extent permitted by law, be deemed cumulative and not exclusive of any
other powers and remedies available to the Trustee or the holders of the
Securities, by judicial proceedings or otherwise, to enforce the performance or
observance of the covenants and agreements contained in this Indenture or
otherwise established with respect to such Securities.
(b) No delay or omission of the Trustee or of any holder of any of
the Securities to exercise any right or power accruing upon any Event of Default
occurring and continuing as aforesaid shall impair any such right or power, or
shall be construed to be a waiver of any such default or on acquiescence
therein; and, subject to the provisions of Section 6.04, every power and remedy
given by this Article or by law to the Trustee or the Securityholders may be
exercised from time to time, and as often as shall be deemed expedient, by the
Trustee or by the Securityholders.
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SECTION 6.06 CONTROL BY SECURITYHOLDERS.
The holders of a majority in aggregate principal amount of the
Securities of any series at the time Outstanding, determined in accordance with
Section 8.01, shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or exercising
any trust or power conferred on the Trustee with respect to such series;
provided, however, that such direction shall not be in conflict with any rule of
law or with this Indenture or be unduly prejudicial to the rights of holders of
Securities of any other series at the time Outstanding determined in accordance
with Section 8.01. Subject to the provisions of Section 7.01, the Trustee shall
have the right to decline to follow any such direction if the Trustee in good
faith shall, by a Responsible Officer or Officers of the Trustee, determine that
the proceeding so directed would involve the Trustee in personal liability. The
holders of a majority in aggregate principal amount of the Securities of any
series at the time Outstanding affected thereby, determined in accordance with
Section 8.01, may on behalf of the holders of all of the Securities of such
series waive any past default in the performance of any of the covenants
contained herein or established pursuant to Section 2.01 with respect to such
series and its consequences, except a default in the payment of the principal of
(or premium, if any) or interest on, any of the Securities of that series as and
when the same shall become due by the terms of such Securities otherwise than by
acceleration (unless such default has been cured and a sum sufficient to pay all
matured installments of interest and principal and any premium has been
deposited with the Trustee (in accordance with Section 6.01(c)) or in respect of
a covenant or provision hereof which under Article IX cannot be modified or
amended without the consent of the holder of each Outstanding Security affected.
Upon any such waiver, the default covered thereby shall be deemed to be cured
for all purposes of this Indenture and the Company, the Trustee and the holders
of the Securities of such series shall be restored to their former positions and
rights hereunder, respectively; but no such waiver shall extend to any
subsequent or other default or impair any right consequent thereon.
SECTION 6.07 UNDERTAKING TO PAY COSTS.
All parties to this Indenture agree, and each holder of any Securities
by such holder's acceptance thereof shall be deemed to have agreed, that any
court may in its discretion require, in any suit for the enforcement of any
right or remedy under this Indenture, or in any suit against the Trustee for any
action taken or omitted by it as Trustee, the filing by any party litigant in
such suit of an undertaking to pay the costs of such suit, and that such court
may in its discretion assess reasonable costs, including reasonable attorneys'
fees, against any party litigant in such suit, having due regard to the merits
and good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to any suit instituted by the
Trustee, to any suit instituted by any Securityholder, or group of
Securityholders, holding more than 10% in aggregate principal amount of the
Outstanding Securities of any series, or to any suit instituted by any
Securityholder for the enforcement of the payment of the principal of (or
premium, if any) or interest on any Security of such series, on or after the
respective due dates expressed in such Security or established pursuant to this
Indenture.
ARTICLE VII
CONCERNING THE TRUSTEE
SECTION 7.01 CERTAIN DUTIES AND RESPONSIBILITIES OF TRUSTEE.
(a) The Trustee, prior to the occurrence of an Event of Default with
respect to the Securities of a series and after the curing of all Events of
Default with respect to the Securities of that series that may have occurred,
shall undertake to perform with respect to the Securities of such series such
duties and only such duties as are specifically set forth in this Indenture, and
no implied covenants shall be read into this Indenture against the Trustee. In
case an Event of Default with respect to the Securities of a series has occurred
(that has not been cured or waived), the Trustee shall exercise with respect to
Securities of that series such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise, as a
prudent man would exercise or use under the circumstances in the conduct of his
own affairs.
(b) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own willful misconduct, except that:
(1) prior to the occurrence of an Event of Default with
respect to the Securities of a series and after the curing or waiving of all
such Events of Default with respect to that series that may have occurred: the
duties and obligations of the Trustee shall with respect to the Securities of
such series be determined solely by the express provisions of this Indenture,
and the Trustee shall not be liable with respect to the Securities of such
series except for the performance of such duties and obligations as are
specifically set forth in this Indenture, and no implied covenants or
obligations shall be read into this Indenture against the Trustee; and in the
absence of bad faith on the part of the Trustee, the Trustee may with respect to
the Securities of such series conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed therein, upon any
certificates or opinions furnished to the Trustee and conforming to the
requirements of this Indenture; but in the case of any such certificates or
opinions that by any provision hereof are specifically required to be furnished
to the Trustee, the Trustee shall be under a duty to examine the same to
determine whether or not they conform to the requirement of this Indenture;
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(2) the Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer or Responsible Officers of
the Trustee, unless it shall be proved that the Trustee, was negligent in
ascertaining the pertinent facts;
(3) the Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in accordance with the
direction of the holders of not less than a majority in principal amount of the
Securities of any series at the time Outstanding relating to the time, method
and place of conducting any proceeding for any remedy available to the Trustee,
or exercising any trust or power conferred upon the Trustee under this Indenture
with respect to the Securities of that series; and
(4) None of the provisions contained in this Indenture shall
require the Trustee to expend or risk its own funds or otherwise incur personal
financial liability in the performance of any of its duties or in the exercise
of any of its rights or powers, if there is reasonable ground for believing that
the repayment of such funds or liability is not reasonably assured to it under
the terms of this Indenture or adequate indemnity against such risk is not
reasonably assured to it.
SECTION 7.02 NOTICE OF DEFAULTS.
If a Default occurs hereunder with respect to Securities of any series
and is known to a Responsible Officer of the Trustee, the Trustee shall give the
holders of Securities of such series notice of such Default as and to the extent
provided by the Trust Indenture Act; provided, however, that in the case of any
Default of the character specified in clause (3) of Section 6.01(a) with respect
to Securities of such series, no such notice to holders shall be given until at
least 30 days after the occurrence thereof.
SECTION 7.03 CERTAIN RIGHTS OF TRUSTEE.
Except as otherwise provided in Section 7.01:
(a) The Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, approval, bond, security or
other paper or document believed by it to be genuine and to have been signed or
presented by the proper party or parties;
(b) Any request, direction, order or demand of the Company mentioned
herein shall be sufficiently evidenced by a Board Resolution or an instrument
signed in the name of the Company, by the President or any Vice President and by
the Secretary or an Assistant Secretary or the Treasurer or an Assistant
Treasurer thereof (unless other evidence in respect thereof is specifically
prescribed herein);
(c) The Trustee may consult with counsel and the written advice of
such counsel or any Opinion of Counsel shall be full and complete authorization
and protection in respect of any action taken or suffered or omitted hereunder
in good faith and in reliance thereon;
(d) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request, order or
direction of any of the Securityholders, pursuant to the provisions of this
Indenture, unless such Securityholders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
that may be incurred therein or thereby; nothing contained herein shall,
however, relieve the Trustee of the obligation, upon the occurrence of an Event
of Default with respect to a series of the Securities (that has not been cured
or waived) to exercise with respect to Securities of that series such of the
rights and powers vested in it by this Indenture, and to use the same degree of
care and skill in their exercise, as a prudent man would exercise or use under
the circumstances in the conduct of his own affairs;
(e) The Trustee shall not be liable for any action taken or omitted
to be taken by it in good faith and believed by it to be authorized or within
the discretion or rights or powers conferred upon it by this Indenture;
(f) The Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, approval, bond,
security, or other papers or documents, unless requested in writing so to do by
the holders of not less than a majority in principal amount of the Outstanding
Securities of the particular series affected thereby (determined as provided in
Section 8.04); provided, however, that if the payment within a reasonable time
to the Trustee of the costs, expenses or liabilities likely to be incurred by it
in the making of such investigation is, in the opinion of the Trustee, not
reasonably assured to the Trustee by the security afforded to it by the terms of
this Indenture, the Trustee may require reasonable indemnity against such costs,
expenses or liabilities as a condition to so proceeding. The reasonable expense
of every such examination shall be paid by the Company or, if paid by the
Trustee, shall be repaid by the Company upon demand; and
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(g) The Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by it
hereunder.
SECTION 7.04 TRUSTEE NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OR SECURITIES.
(a) The recitals contained herein and in the Securities shall be
taken as the statements of the Company, and the Trustee assumes no
responsibility for the correctness of the same.
(b) The Trustee makes no representations as to the validity or
sufficiency of this Indenture or of the Securities.
(c) The Trustee shall not be accountable for the use or application
by the Company of any of the Securities or of the proceeds of such Securities,
or for the use or application of any moneys paid over by the Trustee in
accordance with any provision of this Indenture or established pursuant to
Section 2.01, or for the use or application of any moneys received by any paying
agent other than the Trustee.
SECTION 7.05 MAY HOLD SECURITIES.
The Trustee or any paying agent or Security Registrar, in its individual
or any other capacity, may become the owner or pledgee of Securities with the
same rights it would have if it were not Trustee, paying agent or Security
Registrar.
SECTION 7.06 MONEYS HELD IN TRUST.
Subject to the provisions of Section 11.05, all moneys received by the
Trustee shall, until used or applied as herein provided, be held in trust for
the purposes for which they were received, but need not be segregated from other
funds except to the extent required by law. The Trustee shall be under no
liability for interest on any moneys received by it hereunder except such as it
may agree with the Company to pay thereon.
SECTION 7.07 COMPENSATION AND REIMBURSEMENT.
(a) The Company covenants and agrees to pay to the Trustee, and the
Trustee shall be entitled to, such reasonable compensation (which shall not be
limited by any provision of law in regard to the compensation of a trustee of an
express trust), as the Company, and the Trustee may from time to time agree in
writing, for all services rendered by it in the execution of the trusts hereby
created and in the exercise and performance of any of the powers and duties
hereunder of the Trustee, and, except as otherwise expressly provided herein,
the Company will pay or reimburse the Trustee upon its request for all
reasonable expenses, disbursements and advances incurred or made by the Trustee
in accordance with any of the provisions of this Indenture (including the
reasonable compensation and the expenses and disbursements of its counsel and of
all Persons not regularly in its employ) except any such expense, disbursement
or advance as may arise from its negligence or bad faith. The Company also
covenants to indemnify the Trustee (and its officers, agents, directors and
employees) for, and to hold it harmless against, any loss, liability or expense
incurred without negligence or bad faith on the part of the Trustee and arising
out of or in connection with the acceptance or administration of this trust,
including the costs and expenses of defending itself against any claim of
liability in the premises.
(b) The obligations of the Company under this Section to compensate
and indemnify the Trustee and to pay or reimburse the Trustee for expenses,
disbursements and advances shall constitute additional indebtedness hereunder.
Such additional indebtedness shall be secured by a lien prior to that of the
Securities upon all property and funds held or collected by the Trustee as such,
except funds held in trust for the benefit of the holders of particular
Securities.
SECTION 7.08 RELIANCE ON OFFICERS' CERTIFICATE.
Except as otherwise provided in Section 7.01, whenever in the
administration of the provisions of this Indenture the Trustee shall deem it
necessary or desirable that a matter be proved or established prior to taking or
suffering or omitting to take any action hereunder, such matter (unless other
evidence in respect thereof be herein specifically prescribed) may, in the
absence of negligence or bad faith on the part of the Trustee, be deemed to be
conclusively proved and established by an Officers' Certificate delivered to the
Trustee and such certificate, in the absence of negligence or bad faith on the
part of the Trustee, shall be full warrant to the Trustee for any action taken,
suffered or omitted to be taken by it under the provisions of this Indenture
upon the faith thereof.
SECTION 7.09 DISQUALIFICATION; CONFLICTING INTERESTS.
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If the Trustee has or shall acquire any "conflicting interest" within
the meaning of Section 310(b) of the Trust Indenture Act, the Trustee and the
Company shall in all respects comply with the provisions of Section 310(b) of
the Trust Indenture Act, subject to the penultimate paragraph thereof.
SECTION 7.10 CORPORATE TRUSTEE REQUIRED; ELIGIBILITY.
There shall at all times be a Trustee with respect to the Securities
issued hereunder which shall at all times be a corporation organized and doing
business under the laws of the United States of America or any State or
Territory thereof or of the District of Columbia, or a corporation or other
Person permitted to act as trustee by the Commission, authorized under such laws
to exercise corporate trust powers, having a combined capital and surplus of at
least 50 million U.S. dollars ($50,000,000), and subject to supervision or
examination by Federal, State, Territorial, or District of Columbia authority.
If such corporation publishes reports of condition at least annually, pursuant
to law or to the requirements of the aforesaid supervising or examining
authority, then for the purposes of this Section, the combined capital and
surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. The
Company may not, nor may any Person directly or indirectly controlling,
controlled by, or under common control with the Company, serve as Trustee. In
case at any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section, the Trustee shall resign immediately in the manner
and with the effect specified in Section 7.11.
SECTION 7.11 RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
(a) The Trustee or any successor hereafter appointed, may at any
time resign with respect to the Securities of one or more series by giving
written notice thereof to the Company and by transmitting notice of resignation
by mail, first class postage prepaid, to the Securityholders of such series, as
their names and addresses appear upon the Security Register. Upon receiving such
notice of resignation, the Company shall promptly appoint a successor trustee
with respect to Securities of such series by written instrument, in duplicate,
executed by order of the Board of Directors, one copy of which instrument shall
be delivered to the resigning Trustee and one copy to the successor trustee. If
no successor trustee shall have been so appointed and have accepted appointment
within 30 days after the mailing of such notice of resignation, the resigning
Trustee may petition any court of competent jurisdiction for the appointment of
a successor trustee with respect to Securities of such series, or any
Securityholder of that series who has been a bona fide holder of a Security or
Securities for at least six months may on behalf of himself and all others
similarly situated, petition any such court for the appointment of a successor
trustee. Such court may thereupon after such notice, if any, as it may deem
proper and prescribe, appoint a successor trustee.
(b) In case at any time any one of the following shall occur:
(1) the Trustee shall fail to comply with the provisions of
Section 7.09 after written request therefor by the Company or by any
Securityholder who has been a bona fide holder of a Security or Securities for
at least six months; or
(2) the Trustee shall cease to be eligible in accordance
with the provisions of Section 7.10 and shall fail to resign after written
request therefor by the Company or by any such Securityholder; or
(3) the Trustee shall become incapable of acting, or shall
be adjudged a bankrupt or insolvent, or commence a voluntary bankruptcy
proceeding, or a receiver of the Trustee or of its property shall be appointed
or consented to, or any public officer shall take charge or control of the
Trustee or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation, then, in any such case, the Company may remove the
Trustee with respect to all Securities and appoint a successor trustee by
written instrument, in duplicate, executed by order of the Board of Directors,
one copy of which instrument shall be delivered to the Trustee so removed and
one copy to the successor trustee, or, unless, in the case of a failure to
comply with Section 7.09, the Trustee's duty to resign is stayed as provided in
the penultimate paragraph of Section 310(b) of the Trust Indenture Act, any
Securityholder who has been a bona fide holder of a Security or Securities for
at least six months may, on behalf of that holder and all others similarly
situated, petition any court of competent jurisdiction for the removal of the
Trustee and the appointment of a successor trustee. Such court may thereupon
after such notice, if any, as it may deem proper and prescribe, remove the
Trustee and appoint a successor trustee.
(c) The holders of a majority in aggregate principal amount of the
Securities of any series at the time Outstanding may at any time remove the
Trustee with respect to such series by so notifying the Trustee and the Company
and may appoint a successor Trustee for such series with the consent of the
Company.
(d) Any resignation or removal of the Trustee and appointment of a
successor trustee with respect to the Securities of a series pursuant to any of
the provisions of this Section shall become effective upon acceptance of
appointment by the successor trustee as provided in Section 7.12.
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(e) Any successor trustee appointed pursuant to this Section may be
appointed with respect to the Securities of one or more series or all of such
series, and at any time there shall be only one Trustee with respect to the
Securities of any particular series.
SECTION 7.12 ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
(a) In case of the appointment hereunder of a successor trustee with
respect to all Securities, every such successor trustee so appointed shall
execute, acknowledge and deliver to the Company and to the retiring Trustee an
instrument accepting such appointment, and thereupon the resignation or removal
of the retiring Trustee shall become effective and such successor trustee,
without any further act, deed or conveyance, shall become vested with all the
rights, powers, trusts and duties of the retiring Trustee; but, on the request
of the Company or the successor trustee, such retiring Trustee shall, upon
payment of its charges, execute and deliver an instrument transferring to such
successor trustee all the rights, powers, and trusts of the retiring Trustee and
shall duly assign, transfer and deliver to such successor trustee all property
and money held by such retiring Trustee hereunder.
(b) In case of the appointment hereunder of a successor trustee with
respect to the Securities of one or more (but not all) series, the Company, the
retiring Trustee and each successor trustee with respect to the Securities of
one or more series shall execute and deliver an indenture supplemental hereto
wherein each successor trustee shall accept such appointment and which
(1) shall contain such provisions as shall be necessary or
desirable to transfer and confirm to, and to vest in, each successor trustee all
the rights, powers, trusts and duties of the retiring Trustee with respect to
the Securities of that or those series to which the appointment of such
successor trustee relates,
(2) shall contain such provisions as shall be deemed
necessary or desirable to confirm that all the rights, powers, trusts and duties
of the retiring Trustee with respect to the Securities of that or those series
as to which the retiring Trustee is not retiring shall continue to be vested in
the retiring Trustee, and
(3) shall add to or change any of the provisions of this
Indenture as shall be necessary to provide for or facilitate the administration
of the trusts hereunder by more than one Trustee, it being understood that
nothing herein or in such supplemental indenture shall constitute such Trustees
co-trustees of the same trust, that each such Trustee shall be trustee of a
trust or trusts hereunder separate and apart from any trust or trusts hereunder
administered by any other such Trustee and that no Trustee shall be responsible
for any act or failure to act on the part of any other Trustee hereunder; and
upon the execution and delivery of such supplemental indenture the resignation
or removal of the retiring Trustee shall become effective to the extent provided
therein, such retiring Trustee shall with respect to the Securities of that or
those series to which the appointment of such successor trustee relates have no
further responsibility for the exercise of rights and powers or for the
performance of the duties and obligations vested in the Trustee under this
Indenture, and each such successor trustee, without any further act, deed or
conveyance, shall become vested with all the rights, powers, trusts and duties
of the retiring Trustee with respect to the Securities of that or those series
to which the appointment of such successor trustee relates; but, on request of
the Company or any successor trustee, such retiring Trustee shall duly assign,
transfer and deliver to such successor trustee, to the extent contemplated by
such supplemental indenture, the property and money held by such retiring
Trustee hereunder with respect to the Securities of that or those series to
which the appointment of such successor trustee relates.
(c) Upon request of any such successor trustee, the Company shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor trustee all such rights, powers and trusts referred
to in paragraph (a) or (b) of this Section, as the case may be.
(d) No successor trustee shall accept its appointment unless at the
time of such acceptance such successor trustee shall be qualified and eligible
under this Article.
(e) Upon acceptance of appointment by a successor trustee as
provided in this Section, the Company shall transmit notice of the succession of
such trustee hereunder by mail, first class postage prepaid, to the
Securityholders, as their names and addresses appear upon the Security Register.
If the Company fails to transmit such notice within ten days after acceptance of
appointment by the successor trustee, the successor trustee shall cause such
notice to be transmitted at the expense of the Company.
SECTION 7.13 MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS.
Any corporation into which the Trustee 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 Trustee shall be a party, or any
corporation succeeding to the corporate trust business of the Trustee, shall be
the successor of the Trustee hereunder, provided that such
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corporation shall be qualified under the provisions of Section 7.09 and eligible
under the provisions of Section 7.10, without the execution or filing of any
paper or any further act on the part of any of the parties hereto, anything
herein to the contrary notwithstanding. In case any Securities shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Securities so authenticated with the same
effect as if such successor Trustee had itself authenticated such Securities.
SECTION 7.14 PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE COMPANY.
The Trustee shall comply with Section 311(a) of the Trust Indenture Act,
excluding any creditor relationship described in Section 311(b) of the Trust
Indenture Act. A Trustee who has resigned or been removed shall be subject to
Section 311(a) of the Trust Indenture Act to the extent included therein.
ARTICLE VIII
CONCERNING THE SECURITYHOLDERS
SECTION 8.01 EVIDENCE OF ACTION BY SECURITYHOLDERS.
Whenever in this Indenture it is provided that the holders of a majority
or specified percentage in aggregate principal amount of the Securities of a
particular series may take any action (including the making of any demand or
request, the giving of any notice, consent or waiver or the taking of any other
action), the fact that at the time of taking any such action the holders of such
majority or specified percentage of that series have joined therein may be
evidenced by any instrument or any number of instruments of similar tenor
executed by such holders of Securities of that series in Person or by agent or
proxy appointed in writing. If the Company shall solicit from the
Securityholders of any series any request, demand, authorization, direction,
notice, consent, waiver or other action, the Company may, at its option, as
evidenced by an Officers' Certificate, fix in advance a record date for such
series for the determination of Securityholders entitled to give such request,
demand, authorization, direction, notice, consent, waiver or other action, but
the Company shall have no obligation to do so. If such a record date is fixed,
such request, demand, authorization, direction, notice, consent, waiver or other
action may be given before or after the record date, but only the
Securityholders of record at the close of business on the record date shall be
deemed to be Securityholders for the purposes of determining whether
Securityholders of the requisite proportion of Outstanding Securities of that
series have authorized or agreed or consented to such request, demand,
authorization, direction, notice, consent, waiver or other action, and for that
purpose the Outstanding Securities of that series shall be computed as of the
record date; provided, however, that no such authorization, agreement or consent
by such Securityholders on the record date shall be deemed effective unless it
shall become effective pursuant to the provisions of this Indenture not later
than six months after the record date.
SECTION 8.02 PROOF OF EXECUTION BY SECURITYHOLDERS.
Subject to the provisions of Section 7.01, proof of the execution of any
instrument by a Securityholder (such proof will not require notarization) or his
agent or proxy and proof of the holding by any Person of any of the Securities
shall be sufficient if made in the following manner:
(a) The fact and date of the execution by any such Person of any
instrument may be proved in any reasonable manner acceptable to the Trustee.
(b) The ownership of Securities shall be proved by the Security
Register of such Securities or by a certificate of the Security Registrar
thereof.
(c) The Trustee may require such additional proof of any matter
referred to in this Section as it shall deem necessary.
SECTION 8.03 WHO MAY BE DEEMED OWNERS.
Prior to the due presentment for registration of transfer of any
Security, the Company, the Trustee, any paying agent and any Security Registrar
may deem and treat the Person in whose name such Security shall be registered
upon the books of the Company as the absolute owner of such Security (whether or
not such Security shall be overdue and notwithstanding any notice of ownership
or writing thereon made by anyone other than the Security Registrar) for the
purpose of receiving payment of or on account of the principal of (and premium,
if any) and (subject to Section 2.03) interest on such Security and for all
other purposes; and neither the Company nor the Trustee nor any paying agent nor
any Security Registrar shall be affected by any notice to the contrary.
SECTION 8.04 CERTAIN SECURITIES OWNED BY COMPANY DISREGARDED.
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In determining whether the holders of the requisite aggregate principal
amount of Securities of a particular series have concurred in any direction,
consent of waiver under this Indenture, the Securities of that series that are
owned by the Company or any other obligor on the Securities of that series or by
any Person directly or indirectly controlling or controlled by or under common
control with the Company or any other obligor on the Securities of that series
shall be disregarded and deemed not to be Outstanding for the purpose of any
such determination, except that for the purpose of determining whether the
Trustee shall be protected in relying on any such direction, consent or waiver,
only Securities of such series that the Trustee actually knows are so owned
shall be so disregarded. The Securities so owned that have been pledged in good
faith may be regarded as Outstanding for the purposes of this Section, if the
pledgee shall establish to the satisfaction of the Trustee the pledgee's right
so to act with respect to such Securities and that the pledgee is not a Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with the Company or any such other obligor. In case of a dispute
as to such right, any decision by the Trustee taken upon the advice of counsel
shall be full protection to the Trustee.
SECTION 8.05 ACTIONS BINDING ON FUTURE SECURITYHOLDERS.
At any time prior to (but not after) the evidencing to the Trustee, as
provided in Section 8.01, of the taking of any action by the holders of the
majority or percentage in aggregate principal amount of the Securities of a
particular series specified in this Indenture in connection with such action,
any holder of a Security of that series that is shown by the evidence to be
included in the Securities the holders of which have consented to such action
may, by filing written notice with the Trustee, and upon proof of holding as
provided in Section 8.02, revoke such action so far as concerns such Security.
Except as aforesaid any such action taken by the holder of any Security shall be
conclusive and binding upon such holder and upon all future holders and owners
of such Security, and of any Security issued in exchange therefor, on
registration of transfer thereof or in place thereof, irrespective of whether or
not any notation in regard thereto is made upon such Security. Any action taken
by the holders of the majority or percentage in aggregate principal amount of
the Securities of a particular series specified in this Indenture in connection
with such action shall be conclusively binding upon the Company, the Trustee and
the holders of all the Securities of that series.
ARTICLE IX
SUPPLEMENTAL INDENTURES
SECTION 9.01 SUPPLEMENTAL INDENTURES WITHOUT THE CONSENT OF SECURITYHOLDERS.
In addition to any supplemental indenture otherwise authorized by this
Indenture, the Company and the Trustee may from time to time and at any time
enter into an indenture or indentures supplemental hereto (which shall conform
to the provisions of the Trust Indenture Act as then in effect), without the
consent of the Securityholders, for one or more of the following purposes:
(1) to cure any ambiguity, defect, or inconsistency herein, in the
Securities of any series;
(2) to comply with Article X;
(3) to provide for uncertificated Securities in addition to or in
place of certificated Securities;
(4) to add to the covenants of the Company for the benefit of the
holders of all or any series of Securities (and if such covenants are to be for
the benefit of less than all series of Securities, stating that such covenants
are expressly being included solely for the benefit of such series) or to
surrender any right or power herein conferred upon the Company or to add any
additional Events of Default for the benefit of the holders of all or any series
of Securities (and if such additional Events of Default are to be for the
benefit of less than all series of Securities, stating that such additional
Events of Default are expressly being included solely for the benefit of such
series);
(5) to add to, delete from, or revise the conditions, limitations,
and restrictions on the authorized amount, terms, or purposes of issue,
authentication, and delivery of Securities (prior to the issuance thereof), as
herein set forth;
(6) to make any change that does not adversely affect the rights of
any Securityholder in any material respect;
(7) to provide for the issuance of and establish the form and terms
and conditions of the Securities of any series as provided in Section 2.01, to
establish the form of any certifications required to be furnished pursuant to
the terms of this Indenture or any series of Securities, or to add to the rights
of the holders of any series of Securities; or
(8) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee with respect to the Securities of one or more
series and to add to or change any of the provisions of this Indenture as shall
be necessary to
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provide for or facilitate the administration of the trusts hereunder by more
than one Trustee, pursuant to the requirements of Section 7.12.
The Trustee is hereby authorized to join with the Company in the
execution of any such supplemental indenture, and to make any further
appropriate agreements and stipulations that may be therein contained, but the
Trustee shall not be obligated to enter into any such supplemental indenture
that affects the Trustee's own rights, duties or immunities under this Indenture
or otherwise.
Any supplemental indenture authorized by the provisions of this Section
may be executed by the Company and the Trustee without the consent of the
holders of any of the Securities at the time Outstanding, notwithstanding any of
the provisions of Section 9.02.
SECTION 9.02 SUPPLEMENTAL INDENTURES WITH CONSENT OF SECURITYHOLDERS.
With the consent (evidenced as provided in Section 8.01) of the holders
of not less than a majority in aggregate principal amount of the Securities of
each series affected by such supplemental indenture or indentures at the time
Outstanding, the Company, when authorized by a Board Resolution, and the Trustee
may from time to time and at any time enter into an indenture or indentures
supplemental hereto (which shall conform to the provisions of the Trust
Indenture Act as then in effect) for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Indenture or
of any supplemental indenture or of modifying in any manner not covered by
Section 9.01 the rights of the holders of the Securities of such series under
this Indenture; provided, however, that no such supplemental indenture shall,
without the consent of the holders of each Security then Outstanding and
affected thereby:
(1) change the maturity of the principal of, or any installment of
principal of or interest on, any Security, or reduce the principal amount
thereof or the rate of interest thereon or any premium payable upon the
redemption thereof, or reduce the amount of the principal of an Original Issue
Discount Security or any other Security which would be due and payable upon a
declaration of acceleration of the maturity thereof pursuant to Section 6.01 or
change the coin or currency in which any Security or any premium or interest
thereon is payable, or impair the right to institute suit for the enforcement of
any such payment on or after the maturity thereof (or, in the case of
redemption, on or after the redemption date), or
(2) reduce the percentage in principal amount of the Outstanding
Securities of any series, the consent of whose holders is required for any such
supplemental indenture, or the consent of whose holders is required for any
waiver of certain defaults hereunder and their consequences provided for in this
Indenture, or
(3) modify any of the provisions of this Section or Section 6.06
relating to waivers of default, except to increase any such percentage or to
provide that certain other provisions of this Indenture cannot be modified or
waived without the consent of the holder of each Outstanding Security affected
thereby; provided, however, that this clause shall not be deemed to require the
consent of any holder with respect to changes in the references to "the Trustee"
and concomitant changes in this Section, or the deletion of this proviso, in
accordance with the requirements of Sections 7.12 and 9.01(8).
A supplemental indenture which changes or eliminates any covenant or
other provision of this Indenture which has expressly been included solely for
the benefit of one or more particular series of Securities, or which modifies
the rights of the holders of Securities of such series with respect to such
covenant or other provision, shall be deemed not to affect the rights under this
Indenture of the holders of Securities of any other series. It shall not be
necessary for the consent of the Securityholders of any series affected thereby
under this Section to approve the particular form of any proposed supplemental
indenture, but it shall be sufficient if such consent shall approve the
substance thereof.
SECTION 9.03 EFFECT OF SUPPLEMENTAL INDENTURES.
Upon the execution of any supplemental indenture pursuant to the
provisions of this Article or of Section 10.01, this Indenture shall, with
respect to such series, be and be deemed to be modified and amended in
accordance therewith and the respective rights, limitations of rights,
obligations, duties and immunities under this Indenture of the Trustee, the
Company and the holders of Securities of the series affected thereby shall
thereafter be determined, exercised and enforced hereunder subject in all
respects to such modifications and amendments, and all the terms and conditions
of any such supplemental indenture shall be and be deemed to be part of the
terms and conditions of this Indenture for any and all purposes.
SECTION 9.04 SECURITIES AFFECTED BY SUPPLEMENTAL INDENTURES.
Securities of any series, affected by a supplemental indenture,
authenticated and delivered after the execution of such supplemental indenture
pursuant to the provisions of this Article or of Section 10.01, may bear a
notation in form approved by the Company, provided such form meets the
requirements of any exchange upon which such series may be listed, as to any
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matter provided for in such supplemental indenture. If the Company shall so
determine, new Securities of that series so modified as to conform, in the
opinion of the Board of Directors of the Company, to any modification of this
Indenture contained in any such supplemental indenture may be prepared by the
Company, authenticated by the Trustee and delivered in exchange for the
Securities of that series then Outstanding.
SECTION 9.05 EXECUTION OF SUPPLEMENTAL INDENTURES.
Upon the request of the Company, accompanied by its Board Resolutions
authorizing the execution of any such supplemental indenture, and upon the
filing with the Trustee of evidence of the consent of Securityholders required
to consent thereto as aforesaid, the Trustee shall join with the Company in the
execution of such supplemental indenture unless such supplemental indenture
affects the Trustee's own rights, duties or immunities under this Indenture or
otherwise, in which case the Trustee may in its discretion but shall not be
obligated to enter into such supplemental indenture. The Trustee, subject to the
provisions of Section 7.01, may receive an Opinion of Counsel as conclusive
evidence that any supplemental indenture executed pursuant to this Article is
authorized or permitted by, and conforms to, the terms of this Article and that
it is proper for the Trustee under the provisions of this Article to join in the
execution thereof; provided, however, that such Opinion of Counsel need not be
provided in connection with the execution of a supplemental indenture that
establishes the terms of a series of Securities pursuant to Section 2.01 hereof.
Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of this Section, the Trustee
shall transmit by mail, first class postage prepaid, a notice, setting forth in
general terms the substance of such supplemental indenture, to the
Securityholders of all series affected thereby as their names and addresses
appear upon the Security Register. Any failure of the Trustee to mail such
notice, or any defect therein, shall not, however, in any way impair or affect
the validity of any such supplemental indenture.
ARTICLE X
SUCCESSOR ENTITY
SECTION 10.01 COMPANY MAY CONSOLIDATE, ETC.
Nothing contained in this Indenture or in any of the Securities shall
prevent any consolidation or merger of the Company with or into any other Person
(whether or not affiliated with the Company) or successive consolidations or
mergers in which the Company or its successor or successors shall be a party or
parties, or shall prevent any sale, conveyance, transfer or other disposition of
the property of the Company or its successor or successors as an entirety, or
substantially as an entirety, to any other Person (whether or not affiliated
with the Company or its successor or successors) authorized to acquire and
operate the same; provided, however, the Company hereby covenants and agrees
that, upon any such consolidation or merger (in each case, if the Company is not
the survivor of such transaction), sale, conveyance, transfer or other
disposition, the due and punctual payment of the principal of (and premium, if
any) and interest on all of the Securities of all series in accordance with the
terms of each series, according to their tenor and the due and punctual
performance and observance of all the covenants and conditions of this Indenture
or established with respect to each series of Securities pursuant to Section
2.01 to be kept or performed by the Company shall be expressly assumed, by
supplemental indenture (which shall conform to the provisions of the Trust
Indenture Act, as then in effect) satisfactory in form to the Trustee executed
and delivered to the Trustee by the entity formed by such consolidation, or into
which the Company shall have been merged, or by the entity which shall have
acquired such property.
SECTION 10.02 SUCCESSOR ENTITY SUBSTITUTED.
(a) In case of any such consolidation, merger, sale, conveyance,
transfer or other disposition and upon the assumption by the successor entity by
supplemental indenture, executed and delivered to the Trustee and satisfactory
in form to the Trustee, of the due and punctual payment of the principal of (and
premium, if any) and interest on all of the Securities of all series Outstanding
and the due and punctual performance of all of the covenants and conditions of
this Indenture or established with respect to each series of the Securities
pursuant to Section 2.01 to be performed by the Company, such successor entity
shall succeed to and be substituted for the Company with the same effect as if
it had been named as the Company herein, and thereupon the predecessor
corporation shall be relieved of all obligations and covenants under this
Indenture and the Securities.
(b) In case of any such consolidation, merger, sale, conveyance,
transfer or other disposition such changes in phraseology and form (but not in
substance) may be made in the Securities thereafter to be issued as may be
appropriate.
(c) Nothing contained in this Article shall require any action by
the Company in the case of a consolidation or merger of any Person into the
Company where the Company is the survivor of such transaction, or the
acquisition by the Company, by purchase or otherwise, of all or any part of the
property of any other Person (whether or not affiliated with the Company).
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SECTION 10.03 EVIDENCE OF CONSOLIDATION, ETC. TO TRUSTEE.
The Trustee, subject to the provisions of Section 7.01, may receive an
Opinion of Counsel as conclusive evidence that any such consolidation, merger,
sale, conveyance, transfer or other disposition, and any such assumption, comply
with the provisions of this Article.
ARTICLE XI
SATISFACTION AND DISCHARGE; DEFEASANCE
SECTION 11.01 SATISFACTION AND DISCHARGE.
This Indenture will be discharged and will cease to be of further effect
with respect to a series of Securities (except as to any surviving rights of
registration of transfer or exchange of such series of Securities herein
expressly provided for), and the Trustee, at the expense of the Company, shall
execute proper instruments acknowledging satisfaction and discharge of this
Indenture with respect to such series, when:
(1) either (A) all Securities of that series theretofore
authenticated and delivered (other than (i) any Securities that shall have been
destroyed, lost or stolen and that shall have been replaced or paid as provided
in Section 2.07 and (ii) Securities for whose payment money or noncallable
Governmental Obligations have theretofore been deposited in trust or segregated
and held in trust by the Company and thereafter repaid to the Company or
discharged from such trust, as provided in Section 11.05) have been delivered to
the Trustee for cancellation; or (B) all Securities of such series not
theretofore delivered to the Trustee for cancellation (i) have become due and
payable, or (ii) will by their terms become due and payable within one year or
(iii) are to be called for redemption within one year under arrangements
satisfactory to the Trustee for the giving of notice of redemption, and the
Company shall deposit or cause to be deposited with the Trustee as trust funds
in trust for the purpose (x) moneys in an amount, or (y) noncallable
Governmental Obligations the scheduled principal of and interest on which in
accordance with their terms will provide, not later than the due date of any
payment, money in an amount, or (z) a combination thereof, sufficient, in the
case of (y) or (z), in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, to pay and discharge, at maturity or upon redemption,
all Securities of that series not theretofore delivered to the Trustee for
cancellation, including principal (and premium, if any) and interest due or to
become due to such date of maturity or date fixed for redemption, as the case
may be;
(2) the Company has paid or caused to be paid all other sums payable
hereunder with respect to such series by the Company; and
(3) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all the conditions
precedent herein provided for relating to the satisfaction and discharge of this
Indenture with respect to such series of Securities have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture with respect to
a series of Securities, the obligations of the Trustee under Section 7.07 and,
if money shall have been deposited with the Trustee pursuant to subclause (y) of
clause (1) of this Section, the obligations of the Trustee under Sections 11.03
and 11.05 shall survive.
SECTION 11.02 DEFEASANCE.
The Company may, at its option and at any time (including
notwithstanding the exercise by the Company of a Covenant Defeasance (as defined
herein)), elect to have its obligations discharged with respect to a series of
the Securities ("Legal Defeasance"). Such Legal Defeasance means that the
Company shall be deemed to have paid and discharged the entire indebtedness
represented by such series of Securities, except for (a) the rights of holders
to receive payments in respect of the principal of (and premium, if any) and
interest on the Securities when such payments are due solely from the trust fund
described in this Section, (b) the Company's obligations with respect to such
series of Securities concerning issuing temporary Securities, registration of
transfer or exchange of such series of Securities, mutilated, destroyed, lost or
stolen Securities of such series and the maintenance of an office or agency for
payments, (c) the rights, powers, trust, duties and immunities of the Trustee
and the Company's obligations in connection therewith and (d) the Legal
Defeasance provisions of this Indenture. In addition, the Company may, at its
option and at any time, elect to have the obligations of the Company released
with respect to covenants provided with respect to such series of Securities
under Section 2.01(15), 9.01(4) and 9.01(7) of this Indenture ("Covenant
Defeasance") and thereafter any omission to comply with such obligations shall
not constitute a Default or Event of Default with respect to such series of
Securities. In the event of Covenant Defeasance, those events described under
Section 6.01(a) with respect to the foregoing covenants will no longer
constitute an Event of Default with respect to such series of Securities.
In order to exercise either Legal Defeasance or Covenant Defeasance:
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(1) the Company must irrevocably deposit with the Trustee, in trust,
for the benefit of the holders of such series, (A) moneys in an amount, or (B)
noncallable Governmental Obligations the scheduled principal of and interest on
which in accordance with their terms will provide, not later than the due date
of any payment, money in an amount, or (C) a combination thereof, sufficient, in
the case of (B) or (C), in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, to pay and discharge, at maturity or upon redemption,
the principal of (and premium, if any) and interest on such series of Securities
on the stated date for payment thereof or on the applicable redemption date, as
the case may be;
(2) in the case of Legal Defeasance, the Company shall have
delivered to the Trustee an Opinion of Counsel confirming that (A) the Company
has received from, or there has been published by, the Internal Revenue Service
a ruling or (B) since the date of this Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and based
thereon such Opinion of Counsel shall confirm that, the holders of such series
of Securities will not recognize income, gain or loss for federal income tax
purposes as a result of such Legal Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Legal Defeasance had not occurred;
(3) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an Opinion of Counsel confirming that the holders of
such series of Securities will not recognize income, gain or loss for federal
income tax purposes as a result of such Covenant Defeasance and will be subject
to federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit or insofar as Events of Default under
clauses (4) and (5) of Section 6.01(a) with respect to the Securities of such
series are concerned, at any time in the period ending on the 91st day after the
date of deposit;
(5) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for or relating to the Legal Defeasance or the Covenant
Defeasance, as the case may be, have been complied with; and
(6) if such series of Securities are to be redeemed prior to final
maturity (other than from mandatory sinking fund payments or analogous
payments), notice of such redemption shall have been duly given pursuant to this
Indenture or provision therefor satisfactory to the Trustee shall have been
made.
SECTION 11.03 DEPOSITED MONEYS TO BE HELD IN TRUST.
All moneys or Governmental Obligations deposited with the Trustee
pursuant to Sections 11.01 or 11.02 shall be held in trust and shall be
available for payment as due, either directly or through any paying agent
(including the Company acting as its own paying agent), to the holders of the
particular series of Securities for the payment or redemption of which such
moneys or Governmental Obligations have been deposited with the Trustee.
SECTION 11.04 PAYMENT OF MONEYS HELD BY PAYING AGENTS.
In connection with the satisfaction and discharge of this Indenture all
moneys or Governmental Obligations then held by any paying agent under the
provisions of this Indenture shall, upon demand of the Company, be paid to the
Trustee and thereupon such paying agent shall be released from all further
liability with respect to such moneys or Governmental Obligations.
SECTION 11.05 REPAYMENT TO COMPANY.
Any moneys or Governmental Obligations deposited with any paying agent
or the Trustee, or then held by the Company, in trust for payment of principal
of (or premium, if any) or interest on the Securities of a particular series
that are not applied but remain unclaimed by the holders of such Securities for
at least two years after the date upon which the principal of (and premium, if
any) or interest on such Securities shall have respectively become due and
payable, shall be repaid to the Company on May 31 of each year or (if then held
by the Company) shall be discharged from such trust; and thereupon the paying
agent and the Trustee shall be released from all further liability with respect
to such moneys or Governmental Obligations, and the holder of any of the
Securities entitled to receive such payment shall thereafter, as an unsecured
general creditor, look only to the Company for the payment thereof.
ARTICLE XII
IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS
SECTION 12.01 NO RECOURSE.
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No recourse under or upon any obligation, covenant or agreement of this
Indenture, or of any Security, or for any claim based thereon or otherwise in
respect thereof, shall be had against any incorporator, stockholder, officer or
director, past, present or future as such, of the Company or of any predecessor
or successor corporation, either directly or through the Company or any such
predecessor or successor corporation, whether by virtue of any constitution,
statute or rule of law, or by the enforcement of any assessment or penalty or
otherwise; it being expressly understood that this Indenture and the obligations
issued hereunder are solely corporate obligations, and that no such personal
liability whatever shall attach to, or is or shall be incurred by, the
incorporators, stockholders, officers or directors as such, of the Company or of
any predecessor or successor corporation, or any of them, because of the
creation of the indebtedness hereby authorized, or under or by reason of the
obligations, covenants or agreements contained in this Indenture or in any of
the Securities or implied therefrom; and that any and all such personal
liability of every name and nature, either at common law or in equity or by
constitution or statute, of, and any and all such rights and claims against,
every such incorporator, stockholder, officer or director as such, because of
the creation of the indebtedness hereby authorized, or under or by reason of the
obligations, covenants or agreements contained in this Indenture or in any of
the Securities or implied therefrom, are hereby expressly waived and released as
a condition of, and as a consideration for, the execution of this Indenture and
the issuance of such Securities.
ARTICLE XIII
MISCELLANEOUS PROVISIONS
SECTION 13.01 EFFECT ON SUCCESSORS AND ASSIGNS.
All the covenants, stipulations, promises and agreements in this
Indenture contained by or on behalf of the Company shall bind its successors and
assigns, whether so expressed or not.
SECTION 13.02 ACTIONS BY SUCCESSOR.
Any act or proceeding by any provision of this Indenture authorized or
required to be done or performed by any board, committee or officer of the
Company shall and may be done and performed with like force and effect by the
corresponding board, committee or officer of any corporation that shall at the
time be the lawful successor of the Company.
SECTION 13.03 SURRENDER OF COMPANY POWERS.
The Company by instrument in writing executed by authority of its Board
of Directors and delivered to the Trustee may surrender any of the powers
reserved to the Company, and thereupon such power so surrendered shall terminate
both as to the Company and as to any successor corporation.
SECTION 13.04 NOTICES.
Except as otherwise expressly provided herein any notice or demand that
by any provision of this Indenture is required or permitted to be given or
served by the Trustee or by the holders of Securities to or on the Company may
be given or served by being deposited first class postage prepaid in a
post-office letterbox addressed (until another address is filed in writing by
the Company with the Trustee), as follows: [______________]. Any notice,
election, request or demand by the Company or any Securityholder to or upon the
Trustee shall be deemed to have been sufficiently given or made, for all
purposes, if given or made in writing at the Corporate Trust Office of the
Trustee.
SECTION 13.05 GOVERNING LAW.
This Indenture and each Security shall be deemed to be a contract made
under the internal laws of the State of New York, and for all purposes shall be
construed in accordance with the laws of said State.
SECTION 13.06 TREATMENT OF SECURITIES AS DEBT.
It is intended that the Securities will be treated as indebtedness and
not as equity for federal income tax purposes. The provisions of this Indenture
shall be interpreted to further this intention.
SECTION 13.07 COMPLIANCE CERTIFICATES AND OPINIONS.
(a) Upon any application or demand by the Company to the Trustee
to take any action under any of the provisions of this Indenture, the Company,
shall furnish to the Trustee an Officers' Certificate stating that all
conditions precedent provided for in this Indenture relating to the proposed
action have been complied with and an Opinion of Counsel stating that in the
opinion of such counsel all such conditions precedent have been complied with,
except that in the case of any such application or demand as to which the
furnishing of such documents is specifically required by any provision of this
Indenture relating to such particular application or demand, no additional
certificate or opinion need be furnished.
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(b) Each certificate or opinion provided for in this Indenture and
delivered to the Trustee with respect to compliance with a condition or covenant
in this Indenture shall include
(1) a statement that the Person making such certificate or
opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained in
such certificate or opinion are based;
(3) a statement that, in the opinion of such Person, he has
made such examination or investigation as is necessary to enable him to express
an informed opinion as to whether or not such covenant or condition has been
complied with; and
(4) a statement as to whether or not, in the opinion of such
Person, such condition or covenant has been complied with.
SECTION 13.08 PAYMENTS ON BUSINESS DAYS.
Except as provided pursuant to Section 2.01 pursuant to a Board
Resolution, and as set forth in an Officers' Certificate, or established in one
or more indentures supplemental to this Indenture, in any case where the date of
maturity of interest or principal of any Security or the date of redemption of
any Security shall not be a Business Day, then payment of interest or principal
(and premium, if any) may be made on the next succeeding Business Day with the
same force and effect as if made on the nominal date of maturity or redemption,
and no interest shall accrue for the period after such nominal date.
SECTION 13.09 CONFLICT WITH TRUST INDENTURE ACT.
If and to the extent that any provision of this Indenture limits,
qualifies or conflicts with the duties imposed by Sections 310 to 317,
inclusive, of the Trust Indenture Act, such imposed duties shall control. If any
provision of this Indenture modifies or excludes any provision of the Trust
Indenture Act which may be so modified or excluded, the latter provision shall
be deemed to apply to this Indenture as so modified or to be excluded, as the
case may be.
SECTION 13.10 COUNTERPARTS.
This Indenture may be executed in any number of counterparts, each of
which shall be an original, but such counterparts shall together constitute but
one and the same instrument.
SECTION 13.11 SEPARABILITY.
In case any one or more of the provisions contained in this Indenture or
in the Securities of any series shall for any reason be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions of this Indenture or of
such Securities, but this Indenture and such Securities shall be construed as if
such invalid or illegal or unenforceable provision had never been contained
herein or therein.
SECTION 13.12 ASSIGNMENT.
The Company will have the right at all times to assign any of its rights
or obligations under this Indenture to a direct or indirect wholly-owned
Subsidiary of the Company, provided that, in the event of any such assignment,
the Company, will remain liable for all such obligations. Subject to the
foregoing, the Indenture is binding upon and inures to the benefit of the
parties thereto and their respective successors and assigns. This Indenture may
not otherwise be assigned by the parties thereto.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed all as of the day and year first above written.
CIENA CORPORATION
By:
-----------------------------------
Name:
------------------------------
Title:
-----------------------------
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, as Trustee
----------------------------
By:
-----------------------------------
Name:
------------------------------
Title:
-----------------------------
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EXHIBIT 5.1
February 5, 2001
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-3, as amended (the "REGISTRATION STATEMENT"), filed with the Securities
and Exchange Commission, relating to the proposed public offering of shares of
the Company's common stock, par value $.01 per share. 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 January 29, 2001 and by the
Secretary of the Company on the date hereof as then
being complete, accurate, and in effect.
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3. The Amended and Restated Bylaws of the Company, as
certified by the Secretary of the Company on the date
hereof as then being complete, accurate, and in effect.
4. Resolutions of the Board of Directors of the Company
adopted by the written consent on January 14, 2001 and
at a board meeting on February 4, 2001, as certified
by the Secretary of the Company on the date hereof as
being complete, accurate and in effect, relating to the
filing by the Company of the Registration Statement and
related matters, and resolutions of the 2001 Pricing
Committee of the Board of Directors (the "PRICING
COMMITTEE") of the Company adopted on February 1, 2001
and February 5, 2001, 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 up to 11,500,000 shares of common stock (the
"SHARES") and arrangements in connection therewith.
5. The proposed form of Underwriting Agreement among the
Company and Goldman, Sachs & Co., Morgan Stanley Dean
Witter, Banc of America Securities LLC and Robertson
Stephens, filed as Exhibit 1.01 to the Registration
Statement (the "UNDERWRITING AGREEMENT").
In our examination of the aforesaid documents, we have assumed
the genuineness of all signatures, the legal capacity of all natural persons,
the 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 the
Delaware General Corporation Law, as amended. We express no opinion herein as to
any other laws, statutes, ordinances, rules, or regulations. As used herein, the
term "Delaware General Corporation Law, as amended" includes the statutory
provisions contained therein, all applicable provisions of the Delaware
Constitution and reported judicial decisions interpreting these laws.
Based upon, subject to and limited by the foregoing, we are of
the opinion that following: (i) execution and delivery by the Company of the
Underwriting Agreement, (ii) effectiveness of the Registration Statement, (iii)
issuance of the Shares pursuant to the terms of the Underwriting Agreement, and
(iv) receipt by the Company of the consideration for the Shares as specified in
the resolutions adopted by the Pricing Committee, the Shares to be issued will
be validly issued, fully paid and nonassessable.
This opinion letter has been prepared for your use in connection
with the Prospectus Supplement 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 relating to the Shares
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.
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EXHIBIT 5.2
February 5, 2001
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-3, as amended (the "Registration Statement"), filed with the Securities
and Exchange Commission relating to the proposed public offering of the
Company's ___% covertible notes due __________, 2008 (the "convertible debt
securities") and the underlying common stock, par value $.01 per share (the
"SHARES"). 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. The form of convertible debt securities.
2. An executed copy of the Registration Statement.
3. The Third Restated Certificate of Incorporation of the
Company, as certified by the Secretary of the State of
the State of Delaware on January 29, 2001 and by the
Secretary of the Company on the date hereof as then
being complete, accurate, and in effect.
2
4. The Amended and Restated Bylaws of the Company, as
certified by the Secretary of the Company on the date
hereof as then being complete, accurate, and in effect.
5. Resolutions of the Board of Directors of the Company
adopted by the written consent on January 14, 2001 and
at a board meeting on February 4, 2001, as certified by
the Secretary of the Company on the date hereof as
being complete, accurate and in effect, relating to the
filing by the Company of the Registration Statement and
related matters, and resolutions of the 2001 Pricing
Committee of the Board of Directors (the "PRICING
COMMITTEE") of the Company adopted on February 1, 2001
and February 5, 2001, 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 up to $525,000,000 of the convertible debt
securities as well as the underlying Shares and
arrangements in connection therewith.
6. The proposed form of Indenture under which the
convertible debt securities will be issued by and
between First Union National Bank (the "Trustee") and
the Company (the "INDENTURE").
7. The proposed form of Underwriting Agreement among the
Company and Goldman, Sachs & Co., Morgan Stanley Dean
Witter, Banc of America Securities LLC and Robertson
Stephens, filed as Exhibit 1.02 to the Registration
Statement (the "UNDERWRITING AGREEMENT").
In our examination of the aforesaid documents, we have assumed
the genuineness of all signatures, the legal capacity of all natural persons,
the 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 the
Delaware General Corporation Law, as amended. We express no opinion herein as to
any other laws, statutes, ordinances, rules, or regulations. As used herein, the
term "Delaware General Corporation Law, as amended" includes the statutory
provisions contained therein, all applicable provisions of the Delaware
Constitution and reported judicial decisions interpreting these laws.
Based upon, subject to and limited by the foregoing, we are of
the opinion that following (i) execution and delivery by the Company of the
Underwriting Agreement and the Indenture, (ii) effectiveness of the
Registration Statement, (iii) due authentication of the convertible debt
securities by the Trustee and (iv) due execution and delivery of the
convertible debt securities on behalf of the Company upon receipt by the
Company of the consideration for the convertible debt securities in accordance
with the terms of the Underwriting Agreement, the convertible debt securities
will constitute valid and binding obligations of the Company and will be
enforceable against the Company in accordance with their terms.
In addition to the qualifications, exceptions and limitations
elsewhere set forth in this opinion letter, our opinions expressed above are
also subject to the effect of: (i) bankruptcy, insolvency, reorganization,
receivership, moratorium or other laws affecting creditors' rights (including,
without limitation, the effect of statutory and other law regarding fraudulent
conveyances, fraudulent transfers and preferential transfers); and (ii) the
exercise of judicial discretion and the application of principles of equity
including, without limitation, requirements of good faith, fair dealing,
reasonableness, conscionability and materiality (regardless of whether the
applicable agreements are considered in a proceeding in equity or at law).
Based upon, subject to and limited by the foregoing, we are also
of the opinion that following (i) execution and delivery by the Company of the
Underwriting Agreement and the Indenture, (ii) effectiveness of the
Registration Statement and (iii) issuance of the Shares upon conversion of the
convertible debt securities, the Shares will be validly issued, fully paid and
nonassessable.
This opinion letter has been prepared for your use in connection
with the Registration Statement and speaks as of the date hereof. We assume no
3
obligation to advise you of any changes in the foregoing subsequent to the
delivery of this opinion letter.
The opinions expressed above shall be understood to mean only
that if there is a default in performance of an obligation, (i) if a failure to
pay or other damage can be shown and (ii) if the defaulting party can be brought
into a court which will hear the case and apply the governing law, then, subject
to the availability of defenses, and to the exceptions elsewhere set forth in
this opinion letter, the court will provide a money damage (or perhaps
injunctive or specific performance) remedy.
We hereby consent to the filing of this opinion letter as
Exhibit 5.2 to the Registration Statement and to the reference to this firm
under the caption "Legal Matters" in the prospectus relating to the convertible
debt securities 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.
1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-3 (No. 333-53922) of our reports dated December 6, 2000
relating to the consolidated financial statements and financial statement
schedule, which appear in CIENA Corporation's Annual Report on Form 10-K for the
year ended October 31, 2000, as amended. We also consent to the reference to us
under the heading "Experts" in such Registration Statement.
/s/PricewaterhouseCoopers LLP
McLean, VA
February 5, 2001
1
EXHIBIT 23.3
Consent of Deloitte & Touche LLP
We consent to the incorporation by reference in this Pre-Effective Amendment No.
2 to Registration Statement No. 333-53922 of CIENA Corporation on Form S-3 of
our report dated August 2, 2000 (December 18, 2000 as to Note 12) related to the
financial statements of Cyras Systems, Inc. as of December 31, 1998 and 1999,
and for the period from July 24, 1998 (inception) through December 31, 1998 and
for the year ended December 31, 1999, appearing in the Current Report on Form
8-K of CIENA Corporation filed January 18, 2001, and to the reference to us
under the heading "Experts" in the Prospectus, which is part of such
Registration Statement.
/s/ Deloitte & Touche LLP
San Jose, California
February 1, 2001
1
EXHIBIT 25.1
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM T-1
---------------------
STATEMENT OF ELIGIBILITY AND QUALIFICATION
UNDER THE TRUST INDENTURE ACT OF 1939, AS AMENDED,
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an application to determine eligibility of a trustee pursuant to
Section 305(b) (2)
------
---------------------
FIRST UNION NATIONAL BANK
(Exact name of Trustee as specified in its charter)
230 SOUTH TRYON STREET, 9TH FL.
CHARLOTTE, NC 28288-1179 22-1147033
(Address of principal executive office) (Zip Code) (I.R.S. Employer Identification No.)
Monique L. Green (804) 343-6068
800 East Main Street, Richmond, Virginia 23219
---------------------
CIENA CORPORATION
(Exact name of obligor as specified in its charter)
Delaware 23-2725311
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
1201 Winterson Road
Linthicum, MD 21090
(Address of principal executive offices) (Zip Code)
---------------------
% Convertible Notes due 2008
(Title of the indenture securities)
===============================================================================
2
1. GENERAL INFORMATION.
(a) The following are the names and addresses of each examining or
supervising authority to which the Trustee is subject:
The Comptroller of the Currency, Washington, D.C.
Federal Reserve Bank of Richmond, Richmond, Virginia.
Federal Deposit Insurance Corporation, Washington, D.C.
Securities and Exchange Commission, Division of Market Regulation, Washington, D.C.
(b) The Trustee is authorized to exercise corporate trust powers.
2. AFFILIATIONS WITH OBLIGOR.
The obligor is not an affiliate of the Trustee.
3. VOTING SECURITIES OF THE TRUSTEE.
Response not required.
(See answer to Item 13)
4. TRUSTEESHIPS UNDER OTHER INDENTURES.
Response not required.
(See answer to Item 13)
5. INTERLOCKING DIRECTORATES AND SIMILAR RELATIONSHIPS WITH THE OBLIGOR OR UNDERWRITERS.
Response not required.
(See answer to Item 13)
6. VOTING SECURITIES OF THE TRUSTEE OWNED BY THE OBLIGOR OR ITS OFFICIALS.
Response not required.
(See answer to Item 13)
7. VOTING SECURITIES OF THE TRUSTEE OWNED BY UNDERWRITERS OR THEIR OFFICIALS.
Response not required.
(See answer to Item 13)
8. SECURITIES OF THE OBLIGOR OWNED OR HELD BY THE TRUSTEE.
Response not required.
(See answer to Item 13)
9. SECURITIES OF UNDERWRITERS OWNED OR HELD BY THE TRUSTEE.
2
3
Response not required.
(See answer to Item 13)
10. OWNERSHIP OR HOLDINGS BY THE TRUSTEE OF VOTING SECURITIES OF CERTAIN AFFILIATES OR
SECURITY HOLDERS OF THE OBLIGOR.
Response not required.
(See answer to Item 13)
11. OWNERSHIP OR HOLDINGS BY THE TRUSTEE OF ANY SECURITIES OF A PERSON OWNING 50 PERCENT
OR MORE OF THE VOTING SECURITIES OF THE OBLIGOR.
Response not required.
(See answer to Item 13)
12. INDEBTEDNESS OF THE OBLIGOR TO THE TRUSTEE.
Response not required.
(See answer to Item 13)
13. DEFAULTS BY THE OBLIGOR.
A. None
B. None
14. AFFILIATIONS WITH THE UNDERWRITERS.
Response not required.
(See answer to Item 13)
15. FOREIGN TRUSTEE.
Trustee is a national banking association organized under the laws of the United States.
16. LIST OF EXHIBITS.
(1) *Articles of Incorporation.
(2) Certificate of Authority of the Trustee to conduct business. No
Certificate of Authority of the Trustee to commence business is
furnished since this authority is continued in the Articles of
Association of the Trustee.
(3) *Certificate of Authority of the Trustee to exercise corporate trust powers.
(4) *By-Laws.
3
4
(5) Inapplicable.
(6) Consent by the Trustee required by Section 321(b) of the Trust
Indenture Act of 1939 as amended. Included at Page 5 of this Form
T-1 Statement.
(7) Report of condition of Trustee. Included at Page 6 of this Form T-1 Statement
(8) Inapplicable.
(9) Inapplicable.
* Exhibits thus designated have heretofore been filed with the
Securities and Exchange Commission, have not been amended since filing
are incorporated herein by reference (See Exhibit T-1 Registration
Number 333- 76965).
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the Trustee, FIRST UNION NATIONAL BANK, a national banking
association organized and existing under the laws of the United States of
America, has duly caused this Statement of Eligibility and Qualification to be
signed on its behalf by the undersigned,
4
5
thereunto duly authorized, all in the City of Richmond, and in the Commonwealth
of Virginia on the 2nd day of February, 2001.
FIRST UNION NATIONAL BANK
(Trustee)
BY:
-----------------------
EXHIBIT T-1 (6)
CONSENT OF TRUSTEE
Under Section 321(b) of the Trust Indenture Act of 1939 and in
connection with the issuance by Ciena Corporation % Convertible Notes due
2006, First Union National Bank, as the Trustee herein named, hereby consents
that reports of examinations of said Trustee by Federal, State, Territorial or
District authorities may be furnished by such authorities to the Securities
and Exchange Commission upon requests therefor.
FIRST UNION NATIONAL BANK
BY:
-----------------------
Dated: February 2, 2001
5
6
R E P O R T OF C O N D I T I O N
Consolidating domestic subsidiaries of the
First Union National Bank Charlotte
Name of Bank City
in the state of North Carolina, at the close of business on September
30, 2000, published in response to call made by Comptroller of the
Currency, under title 12, United States Code, Section 161. Charter
Number 02737 Comptroller of the Currency Southeastern District
Statement of Resources and Liabilities
ASSETS
Thousands of dollars
1 Cash and balances due from depository institutions:
a. Noninterest-bearing balances and currency and coin............................................. 7,814,000
b. Interest-bearing balances...................................................................... 4,091,000
2 Securities:
a. Held-to-maturity securities...................................................................... 1,556,000
b. Available-for-sale securities.................................................................... 48,764,000
3 Federal funds sold and securities purchased under agmts to resell: 2,165,000
4 Loans and lease financing receivables:
a. Loans and leases, net of unearned income................................. 132,642,000
b. LESS: Allowance for loan and lease losses................................. 1,900,000
c. LESS: Allocated transfer risk reserve..................................... 0
d. Loans and leases, net of unearned income, allowance, and reserve................................. 130,742,000
5 Assets held in trading accounts..................................................................... 12,912,000
6 Premises and fixed assets (including capitalized leases)............................................ 2,928,000
7 Other real estate owned............................................................................. 107,000
8 Investments in unconsolidated subsidiaries and associated companies................................. 250,000
9 Customers' liability to this bank on acceptances outstanding........................................ 967,000
10 Intangible assets................................................................................... 2,889,000
11 Other assets........................................................................................ 12,662,000
12 Total assets........................................................................................ 227,847,000
LIABILITIES
13 Deposits:
a. In domestic offices............................................................................. 130,675,000
(1) Noninterest-bearing........................................................20,065,000
(2) Interest-bearing........................................................110,610,000
b. In foreign offices, Edge and Agmt subsidiaries, and IBFs......................................... 12,305,000
(1) Noninterest-bearing.......................................................................... 39,000
(2) Interest-bearing............................................................................. 12,266,000
14 Federal funds purchased and securities sold under agmts to repurchase: 23,476,000
15 a. Demand notes issued to the U.S. Treasury......................................................... 2,077,000
b.Trading liabilities............................................................................... 6,979,000
16 Other borrowed money:
6
7
a. With a remaining maturity of one year or less................................................... 16,205,000
b. With a remaining maturity of more than one year through three years............................. 4,039,000
c. With a remaining maturity of more than three years 2,075,000
17 Not applicable
18 Bank's liability on acceptances executed and outstanding............................................ 975,000
19 Subordinated notes and debentures................................................................... 5,993,000
20 Other liabilities................................................................................... 7,567,000
21 Total liabilities................................................................................... 212,366,000
22 Not applicable
EQUITY CAPITAL
23 Perpetual preferred stock and related surplus....................................................... 161,000
24 Common stock........................................................................................ 455,000
25 Surplus............................................................................................. 13,306,000
26 a. Undivided profits and capital reserves........................................................... 2,381,000
b. Net unrealized holding gains (losses) on available-for-sale securities........................... (817,000)
27 Cumulative foreign currency translation adjustments................................................. (5,000)
28 Total equity capital................................................................................ 15,481,000
29 Total liabilities, limited-life preferred stock, and equity capital
(sum of items 21and 28)............................................................................ 227,847,000
We, the undersigned directors, attest to the correctness of this
statement of resources and liabilities. We declare that it has been
examined by us, and to the best of our knowledge and belief has been
prepared in conformance with the instructions and is true and correct.
Directors I, Gary R. Sessions
----------------------
G. Kennedy Thompson Name
-------------------
Mark C. Treanor Vice President
--------------- ---------------
Robert Atwood Title
-------------
of the above-named bank do hereby
declare that this Report of Condition
is true and correct to the best of my
knowledge and belief.
report.condition 9/30/00
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