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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 12, 1996
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CIENA CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 3661 23-2725311
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
8530 CORRIDOR ROAD
SAVAGE, MD 20763
(301) 317-5800
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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G. ERIC GEORGATOS
VICE PRESIDENT, GENERAL COUNSEL
AND SECRETARY
CIENA CORPORATION
8530 CORRIDOR ROAD
SAVAGE, MD 20763
(301) 317-5800
(NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
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Copies to:
MARK G. BORDEN
MICHAEL J. SILVER DAVID SYLVESTER
HOGAN & HARTSON L.L.P. HALE AND DORR
111 SOUTH CALVERT STREET 1455 PENNSYLVANIA AVE., N.W.
BALTIMORE, MARYLAND 21202 WASHINGTON, D.C. 20004
(410) 659-2700 (202) 942-8400
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable on or after the effective date of this Registration
Statement.
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, 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, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(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. [ ]
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 OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(2) REGISTRATION FEE
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Common Stock, $.01 par value(1)...................... $109,250,000 $33,107
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(1) The shares of Common Stock are not being registered for the purpose of sales
outside the United States.
(2) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457(o) under the Securities Act of 1933, as amended (the "Securities
Act").
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities
in any State in which such offer, solicitation or sale would be unlawful
prior to registration or qualification under the securities laws of any
such State.
SUBJECT TO COMPLETION, DATED DECEMBER 12, 1996
5,000,000 SHARES
[LOGO]
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
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Of the 5,000,000 shares of Common Stock offered, 4,000,000 shares are being
offered hereby in the United States and 1,000,000 shares are being offered in a
concurrent international offering outside the United States. The initial public
offering price and the aggregate underwriting discount per share will be
identical for both offerings. See "Underwriting".
Prior to this offering, there has been no public market for the Common
Stock of CIENA Corporation. It is currently estimated that the initial public
offering price per share will be between $17.00 and $19.00. For factors to be
considered in determining the initial public offering price, see "Underwriting".
SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE COMMON STOCK.
Application will be made for quotation of the Common Stock on the Nasdaq
National Market under the symbol "CIEN".
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
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INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE DISCOUNT(1) COMPANY(2)
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Per Share...................................... $ $ $
Total (3)...................................... $ $ $
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(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. See
"Underwriting".
(2) Before deducting estimated expenses of $1,100,000 payable by the Company.
(3) The Company has granted the U.S. Underwriters an option for 30 days to
purchase up to an additional 600,000 shares at the initial public offering
price per share, less the underwriting discount, solely to cover
over-allotments. Additionally, the Company has granted the International
Underwriters a similar option with respect to an additional 150,000 shares
as part of the concurrent international offering. If such options are
exercised in full, the total initial public offering price, underwriting
discount and proceeds to the Company will be $ , $ and
$ , respectively. See "Underwriting".
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The shares offered hereby are offered severally by the U.S. Underwriters,
as specified herein, subject to receipt and acceptance by them and subject to
their right to reject any order in whole or in part. It is
expected that certificates for the shares will be ready for delivery in New
York, New York, on or about , 1997, against payment therefor in
immediately available funds.
GOLDMAN, SACHS & CO.
ALEX. BROWN & SONS
INCORPORATED
WESSELS, ARNOLD & HENDERSON
WILLIAM K. WOODRUFF & COMPANY
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The date of this Prospectus is , 1997.
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This diagram shows the
CIENA MultiWave 1600 system.
The Company intends to furnish to its stockholders annual reports
containing audited financial statements and quarterly reports containing
unaudited interim financial information for the first three fiscal quarters of
each fiscal year of the Company.
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CIENA(TM), the CIENA logo(TM), MultiWave(TM) and WaveWatcher(TM) are
trademarks of the Company. All other brand names or trademarks appearing in this
Prospectus are the property of their respective owners.
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IN CONNECTION WITH THE OFFERINGS, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements and
notes thereto appearing elsewhere in this Prospectus. Unless otherwise
indicated, all information in this Prospectus assumes no exercise of the
over-allotment options granted to the Underwriters and has been adjusted to
reflect a five-for-one split of the Company's Common Stock effective on December
9, 1996 and the conversion of the Company's mandatorily redeemable convertible
preferred stock (the "Convertible Preferred Stock") into 73,315,740 shares of
Common Stock and the exercise of certain warrants to purchase 300,000 shares of
Convertible Preferred Stock which are convertible into 1,500,000 shares of
Common Stock upon the closing of the Offerings.
THE COMPANY
CIENA Corporation ("CIENA" or the "Company") designs, manufactures and
sells dense wavelength division multiplexing ("DWDM") systems for long distance
fiberoptic telecommunications networks. CIENA's DWDM solution, the MultiWave
1600 system, alleviates capacity, or bandwidth, constraints in high traffic
fiberoptic routes without requiring the installation of new fiber. In addition,
the MultiWave 1600 system enables flexible provisioning of additional bandwidth
without requiring an upgrade of existing network transmission equipment. The
MultiWave 1600 system can increase the carrying capacity of a single optical
fiber 16 fold by allowing simultaneous transmission of up to 16 optical channels
per fiber. This permits fiber currently carrying signals at transmission speeds
of up to 2.5 gigabits per second ("Gb/s") to carry up to 40 Gb/s. CIENA's
MultiWave 1600 system includes optical transmission terminals, optical
amplifiers and network management software. CIENA's system is designed with an
open architecture that allows the MultiWave 1600 system to interoperate with
carriers' existing fiberoptic transmission systems having a broad range of
transmission speeds and signal formats.
The Company believes it is a worldwide market leader in field deployment of
open architecture DWDM systems. CIENA's MultiWave 1600 system was introduced
into field trials in the long distance network of Sprint Corporation ("Sprint")
in May 1996 and LDDS WorldCom ("WorldCom") in August 1996. The MultiWave 1600
system began carrying live traffic in the Sprint network in October 1996. The
Company has a three-year non-exclusive supply agreement with Sprint which
expires in December 1998, a supply agreement with WorldCom which, subject to
certain conditions, is exclusive through December 1997 and an agreement to
supply Teleway Japan Corporation ("Teleway") with the Company's MultiWave 1600
system. Through October 31, 1996, the Company recorded $54.8 million in revenue,
all of which was derived from sales of the MultiWave 1600 system to Sprint. The
Company is actively seeking additional customers among other long distance
carriers in the worldwide telecommunications market.
The Company was incorporated in Delaware in November 1992. The Company's
principal executive offices are located at 8530 Corridor Road, Savage, Maryland
20763, and its telephone number is (301) 317-5800.
THE OFFERINGS
The offering of 4,000,000 shares of Common Stock initially being offered in
the United States (the "U.S. Offering") and the concurrent offering of 1,000,000
shares of Common Stock initially being offered outside the United States (the
"International Offering") are collectively referred to herein as the
"Offerings". The closing of the International Offering is conditioned upon the
closing of the U.S. Offering and vice versa. See "Underwriting".
Common Stock offered by the Company
U.S. Offering................................................... 4,000,000 shares
International Offering.......................................... 1,000,000 shares
Common Stock to be outstanding after the Offerings(1)............. 93,007,325 shares
Proposed Nasdaq National Market Symbol............................ "CIEN"
Use of Proceeds................................................... General corporate
purposes. See "Use of
Proceeds".
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(1) Excludes 11,707,960 shares of Common Stock issuable upon exercise of options
and certain warrants outstanding on October 31, 1996, at a weighted average
exercise price of $.95 per share. See "Capitalization" and
"Management -- Stock Plans".
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SUMMARY FINANCIAL INFORMATION(1)
(in thousands, except per share data)
FOR THE PERIOD
FROM INCEPTION
(NOVEMBER 2, 1992) YEAR ENDED OCTOBER 31,
THROUGH --------------------------------
OCTOBER 31, 1993 1994 1995 1996
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STATEMENT OF OPERATIONS DATA:
Revenue................................... $ -- $ -- $ -- $ 54,838
Gross profit.............................. -- -- -- 32,994
Operating expenses
Research and development............. -- 1,287 6,361 8,922
Selling and marketing................ -- 295 481 3,780
General and administrative........... 123 787 896 3,905
Income (loss) from operations............. (123) (2,369) (7,738) 16,387
Net income (loss)......................... $ (123) $(2,407) $(7,629) $ 14,718
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Pro forma net income per common and common
equivalent share(2)..................... $ .15
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OCTOBER 31, 1996
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PRO FORMA
ACTUAL AS ADJUSTED(3)
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(UNAUDITED)
BALANCE SHEET DATA:
Cash and cash equivalents........................................... $22,557 $105,757
Working capital..................................................... 35,856 119,056
Total assets........................................................ 67,301 150,501
Long-term debt, excluding current portion........................... 2,673 2,673
Mandatorily redeemable preferred stock.............................. 40,404 --
Stockholders' equity................................................ 4,970 128,574
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(1) During the period from November 2, 1992 to October 31, 1995, CIENA was a
development stage company. Planned principal operations commenced during
fiscal year 1996.
(2) The pro forma weighted average common and common equivalent shares
outstanding for the year ended October 31, 1996 was 99,107,000. Pro forma
net income per common and common equivalent share is computed using the
weighted average number of common and common equivalent shares outstanding.
Weighted average common and common equivalent shares include Common Stock,
stock options and warrants using the modified treasury stock method and the
assumed conversion of all outstanding shares of Convertible Preferred Stock
into Common Stock. See Note 1 of Notes to Financial Statements.
(3) As adjusted to reflect the exercise of certain outstanding warrants to
purchase 300,000 shares of Convertible Preferred Stock which are convertible
into 1,500,000 shares of Common Stock of the Company, the conversion upon
the closing of the Offerings of all outstanding shares of Convertible
Preferred Stock into 73,315,740 shares of Common Stock and the sale of
Common Stock offered by the Company hereby (assuming an initial public
offering price of $18.00) and the application of the estimated net proceeds
therefrom.
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RISK FACTORS
In addition to the other information in this Prospectus, prospective
investors should consider carefully the following risk factors in evaluating the
Company and its business before purchasing Common Stock in the Offerings.
CONCENTRATION OF POTENTIAL CUSTOMERS; DEPENDENCE ON MAJOR CUSTOMERS
The Company has only three current customers and few potential customers,
consisting almost exclusively of long distance telecommunications carriers.
There are only a small number of long distance telecommunications carriers, and
the substantial capital requirements involved in the establishment of long
distance fiberoptic networks significantly limit additional entrants into this
market. The Company's business will for the foreseeable future be dependent on
this small number of existing and potential customers, and that number may
decrease if and as customers merge with or acquire one another. All of the
Company's revenue for the fiscal year ended October 31, 1996 was derived from
Sprint, and substantially all of the Company's revenue for fiscal 1997 is
expected to be derived from Sprint and WorldCom. WorldCom may terminate all or
any part of an outstanding purchase order upon the payment of a termination fee,
and the Company's agreements with WorldCom and Sprint do not require minimum
purchase commitments. There can be no assurance the Company will be able to
develop additional customers in the long distance telecommunications market.
Accordingly, the loss of any one of the Company's customers, or the reduction,
delay or cancellation of orders or a delay in shipment of the Company's products
to such customers, could materially and adversely affect the Company's business,
financial condition and results of operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
The Company's dependence on sizable orders from very few customers makes
the relationship between the Company and each customer critically important to
the Company's business. While each customer relationship is typically structured
around a detailed, heavily negotiated contract, as the relationship evolves over
time, adjustments to such items as product specifications, laboratory and field
testing plans, customer forecasts and delivery timetables, and installation and
field support requirements may be required in response to customer demands and
expectations. The inability of the Company to manage its customer relationships
successfully would have a material adverse effect on the Company's business,
financial condition and results of operations.
RECENT PRODUCT INTRODUCTION
The Company first began commercial shipments of its MultiWave 1600 system
in May 1996. The Company's first operational systems only began carrying live
traffic in October 1996 and therefore do not have a history of live traffic
operation over an extended period of time. If reliability, quality or network
monitoring problems should develop a number of material and adverse effects
could result, including manufacturing rework costs, high service and warranty
expense, high levels of product returns, delays in collecting accounts
receivable, reduced orders from existing customers and declining level of
interest from potential customers. The Company is aware of instances in which
installation and activation of certain MultiWave 1600 systems have been delayed
due to faulty components found in certain portions of these systems. Although
the Company maintains accruals for product warranties, there can be no assurance
that actual costs will not exceed these amounts. There is limited operating
history of open architecture wavelength division multiplexing technology in
fiberoptic networks, and in particular of MultiWave 1600 systems, and the
equipment must be handled with care by trained installers. Accordingly, the
Company expects there will be interruptions or delays from time to time in the
activation of the systems, particularly because the Company does not control all
aspects of the customer's installation and activation activities. If significant
interruptions or delays occur, or if their cause is not promptly identified,
diagnosed and resolved, confidence in the MultiWave 1600 system could be
undermined. An undermining of confidence in the MultiWave 1600 system would
materially and adversely affect the Company's customer relationships, business,
financial condition and results of operations.
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MANAGEMENT OF EXPANSION
The Company is experiencing rapid expansion in all areas of its operations,
particularly in manufacturing, and the Company anticipates that this expansion
will continue in the near future. Total personnel has grown from 49 on October
31, 1995 to 225 on October 31, 1996, with 125 of the 176 new employees devoted
to manufacturing. This expansion has placed strains on the managerial, financial
and personnel resources of the Company and will continue to do so. The rapid
pace and volume of new hiring could adversely affect the efficiency of the
Company's manufacturing process. Any delays or difficulties in the Company's
manufacturing process caused by these factors or others could make it difficult
for the Company to meet its customers' requirements. The Company is in the
process of substantially increasing its flow of materials, manufacturing
capacity, optical assembly, final assembly and final component module and system
test functions to respond to customer demand. The pace of the Company's
expansion, in combination with the complexity of the technology involved in the
manufacture of the Company's systems, demands an unusually high level of
managerial effectiveness in anticipating, planning, coordinating and meeting the
operational needs of the Company and the needs of the Company's customers for
quality, reliability, timely delivery and post-installation field support. Given
the small number of potential customers for the Company's systems, the adverse
effect on the Company resulting from a lack of effective management in any of
these areas will be magnified. The Company's key management employees have not
had previous experience in managing companies undergoing such rapid expansion.
Inability to manage the expansion of the Company's business could have a
material adverse effect on its business, financial condition and results of
operations. In addition, the Company's manufacturing expansion and related
capital expenditures are being made in anticipation of a level of customer
orders that has not been historically experienced by the Company and that may
not be achieved. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
DEPENDENCE ON A SINGLE PRODUCT -- THE MULTIWAVE 1600 SYSTEM
The MultiWave 1600 system is the Company's only product and is focused
exclusively on providing additional bandwidth to long distance
telecommunications carriers. Accordingly, a softening or slowdown in demand for
the Company's product or for additional bandwidth by long distance
telecommunications carriers would materially and adversely affect the Company's
business, financial condition and results of operations. There can be no
assurance that the Company will be successful in developing any other products
or taking other steps to reduce the risk associated with any softening or
slowdown in the demand for additional bandwidth, nor is there any assurance the
Company will be able to leverage successfully its DWDM technology into other
network applications. Conversely, if the demand for additional bandwidth
accelerates, there is no assurance that the Company's MultiWave 1600 system will
deliver sufficient capacity as rapidly as needed, or that competing DWDM
products from other vendors offering higher capacity would not displace or
render obsolete the MultiWave 1600 system.
FLUCTUATION IN QUARTERLY AND ANNUAL RESULTS
The Company's revenue and operating results may vary significantly from
quarter to quarter and from year to year as a result of a number of factors,
including the size and timing of orders, product mix and shipments of systems.
The timing of order placement, size of orders, satisfaction of contractual
customer acceptance criteria, as well as order delays or deferrals and shipment
delays and deferrals, may cause material fluctuations in revenue. Delivery of
new equipment for installation is also likely to be deferred during the high
telecommunications traffic periods in November and December so as not to risk
network reliability problems. The Company's expense levels in the future will be
partially based on its expectations of long term future revenue and as a result
net income in any quarterly period in which material orders are shipped or
delayed could vary significantly. Due to this likelihood of significant
quarterly fluctuation in operating results, the Company believes quarter-
to-quarter comparisons of its results of operations, particularly during the
next two to three years of
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operations, may not necessarily be meaningful indicators of year-to-year
performance. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations".
LONG AND UNPREDICTABLE SALES CYCLES
The Company expects that the period of time between initial customer
contact and an actual purchase order may span a year or more. In addition, even
when committed to proceed with deployment of equipment, long distance
telecommunications carriers typically undertake extensive and lengthy product
evaluation and factory acceptance and field testing of new equipment before
purchasing and installing any of it in their networks. Additionally, the
purchase of network equipment such as DWDM equipment is typically carried out by
network operators pursuant to multiyear purchasing programs which may increase
or decrease annually as the operators adjust their capital equipment budgets and
purchasing priorities. The Company's customers do not typically share
information on the duration or magnitude of planned purchasing programs, nor do
they consistently provide to the Company advance notice of contemplated changes
in their capital equipment budgets and purchasing priorities. These
uncertainties substantially complicate the Company's manufacturing planning.
Curtailment or termination of customer purchasing programs, decreases in
customer capital budgets or reduction in the purchasing priority assigned to
equipment such as DWDM equipment, particularly if significant and unanticipated
by the Company, could have a material adverse effect on the Company's business,
financial condition and results of operations. Long distance carriers may also
encounter delays in their build out of new routes or in their installation of
new equipment in existing routes, with the result that orders for the MultiWave
1600 system may be delayed or deferred. Any delay or deferral of orders for the
MultiWave 1600 system would have a material adverse effect on the Company's
business, financial condition and results of operations.
COMPETITION
The competition to achieve higher and more cost-effective bandwidth in the
global telecommunications industry is intense and is dominated by a small number
of very large companies with greater financial, technical and marketing
resources, greater manufacturing capacity and more established customer
relationships with network operators than the Company. Each of Lucent
Technologies Inc., formerly part of AT&T Corporation ("Lucent"), Alcatel Alsthom
Group ("Alcatel"), Northern Telecom Inc. ("Nortel"), NEC Corporation ("NEC"),
Pirelli SpA ("Pirelli"), Siemens AG ("Siemens") and ECI Telecom Ltd. ("ECI")
offer various forms of alternative transmission enhancing equipment and in some
cases are offering or have announced an intention to offer DWDM equipment. Such
competitors use their advantages in resources and alternative equipment in
different ways. For example, Lucent, Alcatel, Nortel, NEC and Siemens are
already providers of a full complement of switches, fiberoptic transmission
terminals and fiberoptic signal regenerators and thereby can position themselves
as vertically integrated, "one-stop shopping" solution providers to potential
customers. Further, in certain cases, competitors have offered the Company's
target customers, on an immediate delivery basis, off-the-shelf time division
multiplexing ("TDM") transmission equipment at comparatively lower prices, with
a promise to upgrade to DWDM or other improved equipment in the future. The
substantial system integration resources and manufacturing capability of the TDM
suppliers, in combination with any difference in timeliness of delivery, can be
important to long distance network operators. Finally, as and when these
competitors are able to offer DWDM systems in combination with their own
fiberoptic transmission terminals, they can be expected to press further on the
attractiveness of a "one-stop shopping" solution. The Company expects
competition in general to intensify substantially, especially over the next few
quarters, and further expects competition to be broadly based on varying
combinations of price, manufacturing capacity, timely delivery, system
reliability, service commitment and installed customer base, as well as on the
comprehensiveness of the system solution in meeting immediate network needs and
foreseeable scaleability requirements. There can be no assurance that the
Company will be able to compete successfully with its existing or new
competitors or that competitive pressures faced by the Company will not result
in lower prices for the Company's
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products and otherwise materially and adversely affect its business, financial
condition and results of operations.
TECHNOLOGICAL CHANGE AND NEW PRODUCTS
The Company expects that new technologies will emerge as competition in the
telecommunications industry increases and the need for higher and more cost
efficient bandwidth expands. The Company's ability to anticipate changes in
technology, industry standards, customer requirements and product offerings and
to develop and introduce new and enhanced products will be significant factors
in the Company's ability to remain a leader in the deployment of open
architecture DWDM systems. The market for telecommunications equipment is
characterized by substantial capital investment and diverse and competing
technologies such as fiberoptic, cable, wireless and satellite technologies. The
accelerating pace of deregulation in the telecommunications industry will likely
intensify the competition for improved technology. Many of the Company's
competitors have substantially greater financial, technical and marketing
resources and manufacturing capacity with which to compete for new technologies
and for market acceptance of their products. The introduction of new products
embodying new technologies or the emergence of new industry standards could
render the Company's existing product uncompetitive from a pricing standpoint,
obsolete or unmarketable. Any of these outcomes would have a material and
adverse effect on the Company's business, financial condition and results of
operations.
PROPRIETARY RIGHTS
The Company relies on patents, contractual rights, trade secrets,
trademarks and copyrights to establish and protect its proprietary rights in its
product. While the Company does not expect that its proprietary rights in its
technology will prevent competitors from developing technologies and products
functionally similar to the Company's, the Company believes many aspects of its
DWDM technologies and know-how are proprietary, and intends to monitor closely
the DWDM products introduced by competitors for any infringement of the
Company's proprietary rights. Additionally, the Company expects that DWDM
technologies and know-how in general will become increasingly valuable
intellectual properties as the competition to achieve higher and more cost
effective bandwidth intensifies. The Company believes this increasing value in
an industry marked by a few very large competing suppliers represents a
competitive environment where intellectual property disputes are likely. Such
disputes may be initiated by competitors against the Company for tactical
purposes to gain competitive advantage or overcome competitive disadvantage,
even if the merits of a specific dispute are doubtful. As a result, in the
future, litigation may be necessary to enforce any patents issued or assigned to
the Company, to protect trademarks, trade secrets and other intellectual
property rights owned by the Company, to defend the Company against claimed
infringement of the rights of others and to determine the scope and validity of
the proprietary rights of others. Any litigation could be costly and a diversion
of management's attention, which could have a material adverse effect on the
Company's business, financial condition and results of operations. Adverse
determinations in litigation could result in the loss of the Company's
proprietary rights, subject the Company to significant liabilities, require the
Company to seek licenses from third parties or prevent the Company from
manufacturing or selling its products, any of which could have a material
adverse effect on the Company's business, financial condition and results of
operations.
The Company has received, and may receive in the future, notices from
holders of patents in the optical technology field that raise issues as to
possible infringement by the Company's products. Pirelli sent a notice in
December 1995 identifying eleven patents it possesses in the field of optical
communications. The Company believes the MultiWave 1600 system does not infringe
the patents cited in the notices received. However, questions of infringement in
the field of DWDM technologies involve highly technical and subjective analyses.
There can be no assurance that any such patent holders or others will not in the
future initiate legal proceedings against the Company or that, if any such
proceedings were initiated, the Company would be successful in defending against
these actions. Even if the Company is successful in defending against any such
actions, these actions
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could have an adverse effect on existing and potential customer relationships
and therefore could have a material adverse effect on the Company's business,
financial condition and results of operations. The Company has agreed to
indemnify Sprint, WorldCom and Teleway for liability that may be incurred in
connection with the infringement of a third party's intellectual property rights
and expects that it will be requested to agree to indemnify other potential
customers in the future. There can be no assurance that such indemnification
against alleged liability will not be required from the Company in the future.
Patent applications in the United States are not publicly disclosed until
the patent issues. The Company anticipates that several competitors may have
patent applications in progress that, if issued, could relate to the Company's
products. If such patents were to issue, there can be no assurance that the
patent holders or licensees will not assert infringement claims against the
Company or that such claims will not be successful. The Company could incur
substantial costs in defending itself and its customers against any such claims,
regardless of the merits of such claims. Parties making such claims may be able
to obtain injunctive or other equitable relief which could effectively block the
Company's ability to sell its products, and each claim could result in an award
of substantial damages. In the event of a successful claim of infringement, the
Company and its customers may be required to obtain one or more licenses from
third parties. There can be no assurance that the Company or its customers could
obtain necessary licenses from third parties at a reasonable or acceptable cost
or at all.
Substantial inventories of intellectual property are held by a few industry
participants, such as Bell Laboratories (now owned by Lucent) and major
universities and research laboratories. This concentration of intellectual
property in the hands of a few major entities also poses certain risks to the
Company in seeking to hire qualified personnel. The Company has on a few
occasions recruited such personnel from competitors. The Company has in the past
received letters from counsel to Lucent asserting that the hiring of their
personnel compromises Lucent's intellectual property. There can be no assurance
that other companies will not claim the misappropriation or infringement of
their intellectual property, particularly when and if employees of these
companies leave to work for the Company. To date, the Company has not
experienced litigation concerning the assertions by Lucent, and believes there
is no basis for claims against the Company. Nevertheless, there can be no
assurance that the Company will be able to avoid litigation in the future,
particularly if new employees join the Company after having worked for a
competing company. Such litigation could be very expensive to defend, regardless
of the merits of the claims.
DEPENDENCE ON SUPPLIERS
Suppliers in the specialized, high technology sector of the optical
communications industry are generally not as plentiful or, in some cases, as
reliable, as suppliers in more mature industries. The Company is dependent on a
limited number of suppliers for components of the MultiWave 1600 system as well
as equipment used to manufacture the MultiWave 1600 system. The MultiWave 1600
system has over 600 components, and certain key optical and electronic
components are currently available only from a sole source, where the Company
has identified no other supplier for the component. While alternative suppliers
have been identified for certain other key optical and electronic components,
those alternative sources have not been qualified by the Company. The Company
has to date conducted its business with suppliers through the issuance of
conventional purchase orders against the Company's forecasted requirements. The
Company is seeking to negotiate long term supply agreements with key suppliers,
but currently has no such agreements. The Company has from time to time
experienced minor delays in the receipt of key components, and any future
difficulty in obtaining sufficient and timely delivery of them could result in
delays or reductions in product shipments which, in turn, could have a material
adverse effect on the Company's business, financial condition and results of
operations. In addition, the Company's strategy to have portions of its final
product assembled and, in certain cases, tested, by third parties involves
certain risks, including the potential absence of adequate capacity, the
unavailability of or interruptions in access to certain process technologies,
and reduced control over delivery sched-
9
11
ules, manufacturing yields, quality and costs. In the event that any significant
supplier or subcontractor were to become unable or unwilling to continue to
manufacture and/or test the Company's systems in required volumes, the Company
would have to identify and qualify acceptable replacements. This process could
also be lengthy and no assurance can be given that any additional sources would
become available to the Company on a timely basis. A key item of equipment used
to manufacture the MultiWave 1600 system is available only from a sole source. A
delay or reduction in component or equipment shipments, an increase in component
or equipment costs or a delay or increase in costs in the assembly and testing
of products by third party subcontractors could materially and adversely affect
the Company's business, financial condition and results of operations.
COMPETITORS AS SUPPLIERS
Certain of the Company's component suppliers are both primary sources for
such components and major competitors in the market for system equipment. For
example, the Company buys certain key components from Lucent, Alcatel, Nortel,
NEC and Siemens, each of which offers optical communications systems and
equipment which are competitive with the Company's MultiWave 1600 system. Lucent
is the sole source of two integrated circuits and is one of two suppliers of
Erbium-doped fiber. Alcatel and Nortel are suppliers of lasers used in the
MultiWave 1600 system. NEC is a supplier of certain testing equipment. The
Company's business, financial condition and results of operations could be
materially and adversely affected if these supply relationships were to decline
in reliability or otherwise change in any manner adverse to the Company.
LIMITED OPERATING HISTORY; HISTORY OF LOSSES
The Company was founded in November 1992 and introduced its MultiWave 1600
system in field trials in May 1996. Accordingly, the Company has only a limited
operating history upon which an evaluation of the Company, its product and
prospects can be based. The Company's prospects must be considered in light of
the risks, expenses and difficulties frequently encountered by companies in
their early stage of development, particularly companies in new and rapidly
evolving markets and companies experiencing rapid expansion in their operations.
To address these risks, the Company must, among other things, respond to
competitive developments, continue to attract, retain and motivate qualified
management and other employees, continue to upgrade its technologies and
commercialize products and services which incorporate such technologies and
achieve market acceptance for its MultiWave 1600 system. There can be no
assurance that the Company will be successful in addressing such risks. The
Company incurred net losses in each quarter from inception through the second
quarter of fiscal 1996. While the Company reported net income for fiscal 1996,
there can be no assurance that the Company will sustain profitability. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a significant extent upon a number of key
technical and management employees. The loss of the services of any of the
Company's key employees, none of whom is bound to a term of employment by an
employment agreement, would have a material adverse effect on the Company. The
Company generally does not maintain insurance policies on the lives of such
employees. The Company's success will also depend in large part upon its ability
to attract and retain highly-skilled technical, managerial, sales and marketing
personnel, particularly those skilled and experienced with optical
communications equipment. Competition for such personnel is intense and there
can be no assurance that the Company will be successful in retaining its
existing key personnel and in attracting and retaining the personnel it
requires. Failure to attract and retain key personnel will have a material
adverse effect on the Company's business, financial condition and results of
operations.
10
12
DISCRETIONARY USE OF PROCEEDS
The net proceeds to the Company from the Offerings, estimated at
approximately $82.6 million, will be used for general corporate purposes and
have not been designated for any particular purpose. Accordingly, the Company
will have broad discretion as to the application of such proceeds. See "Use of
Proceeds".
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market after the
Offerings could adversely affect prevailing market prices for the Common Stock.
The 5,000,000 shares of Common Stock offered hereby will be freely tradeable
without restriction in the public market as of the date of this Prospectus.
Beginning 90 days after the date of this Prospectus, approximately shares
will become eligible for sale in the public market, subject in some cases to the
volume and other restrictions of Rule 144 under the Securities Act of 1933, as
amended (the "Securities Act"). Of these shares, holders of shares and
options and warrants to purchase shares are subject to lock-up
agreements. Shares covered by these lock-up agreements are subject to
restrictions on resale in the public market for a period of 180 days following
the date of this Prospectus, subject to release, directly or indirectly at the
discretion of the Representatives of the Underwriters. Upon the expiration of
the lock-up period, approximately shares will become eligible for sale in
the public market subject in some cases to the volume and other restrictions of
Rule 144 under the Securities Act. The holders of approximately 74,815,680
shares of Common Stock are entitled to certain registration rights with respect
to such shares under the Securities Act. In addition, the Company intends to
file a registration statement under the Securities Act promptly following the
effective date of this Registration Statement to register all of the shares of
Common Stock issued or reserved for issuance upon the exercise of options issued
or that may be issued under the Company's Amended and Restated 1994 Stock Option
Plan and 1996 Outside Directors Stock Option Plan. As of October 31, 1996, there
were outstanding options for the purchase of 11,032,960 shares, of which options
for approximately 2,684,355 shares were vested. See "Management -- Stock Plans,"
"Underwriting" and "Shares Eligible for Future Sale".
NO PRIOR MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offerings, there has been no public market for the Common
Stock of the Company. The initial public offering price will be determined by
negotiations among the Company and the Representatives of the Underwriters. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price. There can be no assurance that an active
public market will develop or be sustained after the Offerings or that the
market price of the Common Stock will not decline below the public offering
price. Future announcements concerning the Company or its competitors, quarterly
variations in operating results, announcements of technological innovations, the
introduction of new products or changes in product pricing policies by the
Company or its competitors, proprietary rights or product liability litigation
or changes in earnings estimates by analysts could cause the market price of the
Common Stock to fluctuate substantially. In addition, stock prices for many
technology companies fluctuate widely for reasons which may be unrelated to
operating results. These fluctuations, as well as general economic, political
and market conditions such as recessions, international instabilities or
military conflicts, may materially and adversely affect the market price of the
Common Stock.
CONTROL BY EXISTING STOCKHOLDERS
The Company's officers, directors and their affiliates will, in the
aggregate, beneficially own approximately 54.7% of the Company's outstanding
shares after the Offerings. As a result, these stockholders, if acting together,
would be able effectively to control substantially all matters requiring
approval by the stockholders of the Company, including the election of
directors. This ability may have the effect of delaying or preventing a change
in control of the Company, or causing
11
13
a change in control of the Company which may not be favored by the Company's
other stockholders.
EFFECT OF CERTAIN CHARTER, BYLAW AND OTHER PROVISIONS
Certain provisions of the Company's Third Amended and Restated Certificate
of Incorporation, as amended (the "Certificate of Incorporation"), and bylaws
and certain other contractual provisions could have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
attempting to acquire, control of the Company. Such provisions could limit the
price that certain investors might be willing to pay in the future for shares of
the Company's Common Stock. Certain of these provisions allow the Company to
issue preferred stock with rights senior to those of the Common Stock without
any further vote or action by the stockholders, provide for a classified board
of directors, eliminate the right of the stockholders to call a special meeting
of stockholders, eliminate the right of stockholders to act by written consent,
and impose various procedural and other requirements which could make it
difficult for stockholders to effect certain corporate actions.
LITIGATION
The Company and certain directors are defendants in a lawsuit recently
brought by entities controlled by a stockholder of the Company concerning
alleged entitlement to additional shares of Convertible Preferred Stock. See
"Business -- Legal Proceedings". No assurance can be given that this lawsuit
will not result in an adverse effect on the Company's business, financial
condition or results of operations.
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of the Common Stock offered hereby will suffer immediate and
substantial dilution of $16.62 per share in the net tangible book value of the
Common Stock from the initial public offering price (at an assumed initial
public offering price of $18.00 per share). To the extent outstanding options to
purchase the Company's Common Stock are exercised, there will be further
dilution. See "Dilution".
12
14
USE OF PROCEEDS
The principal purpose of the Offerings is to increase the Company's working
capital and equity base, create a public market for the Company's Common Stock,
facilitate future access to public capital markets and provide increased
visibility and credibility for the Company in its marketplace. The net proceeds
to the Company from the sale of the 5,000,000 shares of Common Stock offered by
the Company hereby are estimated to be approximately $82.6 million ($95.2
million if the over-allotment options are exercised in full) at an assumed
initial public offering price of $18.00 per share, after deducting the
underwriting discount and estimated offering expenses. The Company also expects
to receive additional proceeds of approximately $0.6 million from the exercise
of certain outstanding warrants to purchase 300,000 shares of Convertible
Preferred Stock which are convertible into 1,500,000 shares of Common Stock.
The Company has no current plans for the net proceeds of the Offerings. The
Company intends to add the net proceeds from the Offerings and from the exercise
of warrants to working capital, where such proceeds will be available to support
general corporate purposes which are expected to include capital equipment
expenditures to support selling and marketing, manufacturing and product
development activities. A portion of the proceeds may also be used to acquire or
invest in complementary businesses or products or to obtain the right to use
complementary technologies. From time to time, in the ordinary course of
business, the Company evaluates potential acquisitions of such businesses,
products or technologies. However, the Company has no present understandings,
commitments or agreements with respect to any material acquisition of other
businesses, products or technologies. Pending use of the net proceeds for any
purposes, the Company intends to invest such funds in short-term,
interest-bearing, investment grade obligations.
DIVIDEND POLICY
The Company has never paid or declared any cash dividends on its capital
stock. It is the present policy of the Company to retain earnings to finance the
growth and development of the business and, therefore, the Company does not
anticipate declaring or paying cash dividends on its Common Stock in the
foreseeable future. In addition, the Company's credit agreement with
Mercantile-Safe Deposit & Trust Company prohibits the Company from paying cash
dividends on its capital stock.
13
15
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
October 31, 1996 (i) on an actual basis and (ii) as adjusted to reflect the
exercise of certain outstanding warrants to purchase 300,000 shares of
Convertible Preferred Stock which are convertible into 1,500,000 shares of
Common Stock of the Company, the conversion of all outstanding shares of
Convertible Preferred Stock into 73,315,740 shares of Common Stock upon the
closing of the Offerings and the sale of 5,000,000 shares of Common Stock
offered by the Company hereby (at an assumed initial public offering price of
$18.00 per share) and the application of the estimated net proceeds therefrom.
This table should be read in conjunction with the Company's financial statements
and notes thereto appearing elsewhere in this Prospectus.
OCTOBER 31, 1996
----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
Long-Term Debt........................................................ $ 2,673 $ 2,673
Series A Convertible Preferred Stock, $.01 par value (the "Series A
Preferred Stock"); 4,500,000 shares authorized, 3,590,157 shares
issued and outstanding (actual); no shares authorized, issued and
outstanding (as adjusted)(1)........................................ 3,492 --
Series B Convertible Preferred Stock, $.01 par value (the "Series B
Preferred Stock"); 8,000,000 shares authorized, 7,354,092 shares
issued and outstanding (actual); no shares authorized, issued and
outstanding (as adjusted)(1)........................................ 10,962 --
Series C Convertible Preferred Stock, $.01 par value (the "Series C
Preferred Stock"); 3,750,000 shares authorized, 3,718,899 shares
issued and outstanding (actual); no shares authorized, issued and
outstanding (as adjusted)(1)........................................ 25,950 --
Stockholders' equity:
Preferred Stock, $.01 par value; no shares authorized, issued and
outstanding (actual); 20,000,000 shares authorized, no shares
issued and outstanding (as adjusted)(2)......................... -- --
Common Stock, $.01 par value, 180,000,000 shares authorized;
13,191,585 shares issued and outstanding (actual); 93,007,325
shares issued and outstanding (as adjusted)(2)(3)............... 132 930
Additional paid-in capital....................................... 339 123,145
Notes receivable from stockholders............................... (60) (60)
Retained earnings................................................ 4,559 4,559
------- ----------
Total stockholders' equity............................................ 4,970 128,574
------- ----------
Total capitalization.................................................. $48,047 $ 131,247
======= ==========
- ---------------
(1) See Note 8 of Notes to Financial Statements.
(2) See Note 14 of Notes to Financial Statements.
(3) Excludes 19,426,505 shares of Common Stock reserved for issuance under the
Company's Amended and Restated 1994 Stock Option Plan, under which options
to purchase 10,957,960 shares at a weighted average exercise price of $.96
were outstanding as of October 31, 1996, and 750,000 shares reserved for
issuance under the Company's 1996 Outside Directors Stock Option Plan, under
which options to purchase 75,000 shares at a weighted average exercise price
of $2.30 were outstanding as of October 31, 1996. Also excludes 675,000
shares of Common Stock reserved for issuance pursuant to the exercise of
warrants outstanding as of October 31, 1996. See "Management -- Stock Plans"
and Note 9 of Notes to Financial Statements.
14
16
DILUTION
The pro forma net tangible book value of the Company as of October 31, 1996
was $46.0 million or approximately $.52 per share of Common Stock. Pro forma net
tangible book value per share represents the amount of the Company's pro forma
stockholders' equity, less intangible assets, divided by 88,007,325 pro forma
shares of Common Stock outstanding as of October 31, 1996. The preceding pro
forma information gives effect to (i) the conversion of the Company's
Convertible Preferred Stock into 73,315,740 shares of Common Stock and (ii) the
exercise of certain warrants to purchase 300,000 shares of Convertible Preferred
Stock which are convertible into 1,500,000 shares of Common Stock. Assuming the
sale by the Company of 5,000,000 shares of Common Stock offered hereby at an
assumed initial public offering price of $18.00 per share and receipt of the
estimated net proceeds therefrom, the pro forma adjusted net tangible book value
of the Company as of October 31, 1996 would have been approximately $128.6
million or $1.38 per share. This represents an immediate increase in such net
tangible book value of $.86 per share to existing stockholders and an immediate
dilution of $16.62 per share to new investors. The following table illustrates
this per share dilution:
Assumed initial public offering price per share...................... $ 18.00
Pro forma net tangible book value per share as of October 31,
1996........................................................... $.52
Increase per share of Common Stock attributable to the
Offerings...................................................... .86
----
Pro forma net tangible book value per share after the Offerings...... 1.38
-------
Net tangible book value dilution per share to new investors.......... $ 16.62
=======
The following table summarizes, on a pro forma basis as of October 31,
1996, the total number of shares of Common Stock purchased from the Company, the
total consideration paid to the Company and the average price per share paid, by
existing stockholders and by new investors (at an assumed initial public
offering price of $18.00 per share and without giving effect to the underwriting
discount and estimated offering expenses):
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ----------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- ------------ ------- ---------
Existing stockholders(1)............... 88,007,325 94.6% $ 41,416,000 31.5% $ .47
New investors.......................... 5,000,000 5.4 90,000,000 68.5 $ 18.00
---------- ------ ------------ -----
Total.................................. 93,007,325 100.0% $131,416,000 100.0%
========== ====== ============ =====
- ---------------
(1) Excludes 19,426,505 shares of Common Stock reserved for issuance under the
Company's Amended and Restated 1994 Stock Option Plan, under which options
to purchase 10,957,960 shares at a weighted average exercise price of $.96
were outstanding as of October 31, 1996, and 750,000 shares reserved for
issuance under the Company's 1996 Outside Directors Stock Option Plan,
under which options to purchase 75,000 shares at a weighted average
exercise price of $2.30 were outstanding as of October 31, 1996. Also
excludes 675,000 shares of Common Stock reserved for issuance pursuant to
the exercise of warrants outstanding as of October 31, 1996. See
"Management -- Stock Plans" and Note 9 of Notes to Financial Statements.
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SELECTED FINANCIAL DATA
The following selected financial data as of October 31, 1995 and 1996 and
for the years ended October 31, 1994, 1995 and 1996 have been derived from the
audited financial statements of the Company included elsewhere in this
Prospectus. The selected financial data as of October 31, 1993 and 1994 and for
the period from inception (November 2, 1992) through October 31, 1993 have been
derived from the Company's accounting records.
The data set forth below are qualified by reference to, and should be read
in conjunction with, the financial statements and notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" thereof included elsewhere in this Prospectus.
FOR THE PERIOD
FROM INCEPTION
(NOVEMBER 2, 1992) YEAR ENDED OCTOBER 31,(1)
THROUGH --------------------------------
OCTOBER 31, 1993(1) 1994 1995 1996
------------------- ------- ------- ----------
(IN THOUSANDS EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenue................................... $ -- $ -- $ -- $ 54,838
Cost of goods sold........................ -- -- -- 21,844
-------- ------- ------- ----------
Gross profit......................... -- -- -- 32,994
Operating expenses:
Research and development............. -- 1,287 6,361 8,922
Selling and marketing................ -- 295 481 3,780
General and administrative........... 123 787 896 3,905
-------- ------- ------- ----------
Total operating expenses.................. 123 2,369 7,738 16,607
-------- ------- ------- ----------
Income (loss) from operations............. (123) (2,369) (7,738) 16,387
Other income (expense), net............... -- (38) 109 581
-------- ------- ------- ----------
Income (loss) before income taxes......... (123) (2,407) (7,629) 16,968
Provision for income taxes................ -- -- -- 2,250
-------- ------- ------- ----------
Net income (loss)......................... $(123) $(2,407) $(7,629) $ 14,718
======== ======= ======= ==========
Pro forma net income per common and common
equivalent share(2)..................... $ .15
==========
OCTOBER 31,(1)
-------------------------------------
1993 1994 1995 1996
---- ------- ------- -------
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents............................... $ 10 $ 1,908 $ 5,032 $22,557
Working capital......................................... (35) 932 3,069 35,856
Total assets............................................ 13 2,497 7,383 67,301
Long-term debt, excluding current portion............... -- 392 856 2,673
Mandatorily redeemable preferred stock.................. -- 3,492 14,454 40,404
Stockholders' equity (deficit).......................... (35) (2,388) (9,930) 4,970
- ---------------
(1) The Company has a 52 or 53 week fiscal year which ends on the Saturday
nearest to the last day of October in each year. For purposes of financial
statement presentation, each fiscal year is described as having ended on
October 31. Fiscal 1994 and 1995 comprised 52 weeks and fiscal 1996
comprised 53 weeks.
(2) The pro forma weighted average common and common equivalent shares
outstanding for the year ended October 31, 1996 was 99,107,000. Pro forma
net income per common and common equivalent share is computed using the
weighted average number of common and common equivalent shares outstanding.
Weighted average common and common equivalent shares include Common Stock,
stock options and warrants using the modified treasury stock method and the
assumed conversion of all outstanding shares of Convertible Preferred Stock
into Common Stock. See Note 1 of Notes to Financial Statements.
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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 Financial Data" and the Company's financial statements and notes
thereto included elsewhere in this Prospectus. The information in this
Prospectus contains certain forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors", "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business" as well as those discussed elsewhere in
this Prospectus.
OVERVIEW
CIENA was incorporated in November 1992. From incorporation through April
1994, the Company's principal objective was to secure sufficient equity
financing to enable the Company to commence product development efforts based on
its optical communications technology. The Company secured its initial round of
equity financing in April 1994.
The engineering design and development efforts begun in April 1994 took on
greater product focus in early 1995 as the Company began working with Sprint to
refine the Company's design of its DWDM system to meet Sprint's requirements.
Satisfactory preliminary laboratory testing at Sprint in October 1995 led to the
execution of a three-year non-exclusive supply agreement in December 1995. The
agreement called for factory acceptance testing, followed by field testing,
prior to any obligation of Sprint to pay for any systems. The Company passed the
factory acceptance testing in April 1996, and shipped commercially deployable
systems for field testing in May 1996. Field testing was satisfactorily passed
in July 1996, and live traffic began being carried over the Company's MultiWave
1600 system in October 1996. The Company made initial contact with WorldCom in
February 1995 and WorldCom agreed in July 1996 to commence field testing of the
MultiWave 1600 system in August 1996. A supply agreement with WorldCom, which,
subject to certain conditions, is exclusive through December 1997, was signed in
September 1996. The Company also has shipped a MultiWave 1600 system for
Teleway's network in Japan.
The Company recognizes product revenue in accordance with the shipping
terms specified. For transactions where the Company has yet to obtain customer
acceptance or has agreements pertaining to installation services, revenue is
deferred until no significant obligations remain. Revenue for installation
services is recognized as the services are performed. Amounts received in excess
of revenue recognized are recorded as deferred revenue. For distributor sales
where risks of ownership have not transferred, the Company recognizes revenue
when the product is shipped through to the end user. The Company's initial
recognition of revenue from Sprint occurred in the quarter ended July 31, 1996,
after notification by Sprint of satisfactory completion of field testing. All of
the Company's revenue of $54.8 million through October 31, 1996 was derived from
MultiWave 1600 system sales to Sprint.
The Company is currently engaged in continued efforts to expand its
manufacturing capabilities. Approximately one-third of the Company's current
50,500 square foot facility in Savage, Maryland is used for manufacturing
operations; the Company intends to convert the entire facility to manufacturing
operations by April 30, 1997, while transferring other operating functions to an
approximately 96,000 square foot facility, approximately 10 miles from Savage,
near the Baltimore/Washington International Airport.
RESULTS OF OPERATIONS
FISCAL YEARS ENDED 1994, 1995 AND 1996
For the fiscal years ended October 31, 1994 and 1995, the Company was in
the development stage, generated no revenue and had losses from operations of
$2.4 million and $7.7 million, respectively. By the end of fiscal year 1995, the
Company had begun to devote substantial resources to the development of
manufacturing capabilities and the expansion of its selling and marketing
efforts and general and administrative support infrastructure. The level of
expenditures increased toward the end of fiscal 1996, as increased demand for
the Company's MultiWave 1600 system required rapid expansion of manufacturing
capabilities and of technical and field support
17
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staff. For the fiscal year ended October 31, 1996, the Company generated revenue
of $54.8 million, had gross profit of $33.0 million and incurred operating
expenses of $16.6 million.
QUARTERLY RESULTS OF OPERATIONS
The tables below set forth the operating results and percentage of revenue
represented by certain items in the Company's statements of operations for each
of the four quarters in the fiscal year ended October 31, 1996. This information
is unaudited, but in the opinion of the Company reflects all adjustments
(consisting only of normal recurring adjustments) that the Company 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. Operating results as a
percentage of revenue for the quarters ended January 31 and April 30, 1996 are
excluded due to the absence of revenue for those periods:
FISCAL QUARTER ENDED
--------------------------------------------
JAN. 31, APR. 30, JUL. 31, OCT. 31,
1996 1996 1996 1996
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenue........................................................... $ -- $ -- $ 16,923 $ 37,915
Cost of goods sold................................................ -- -- 7,346 14,498
-------- -------- -------- --------
Gross profit.................................................. -- -- 9,577 23,417
Operating expenses:
Research and development...................................... 2,473 1,746 1,964 2,739
Selling and marketing......................................... 491 700 1,130 1,459
General and administrative.................................... 499 526 1,064 1,816
-------- -------- -------- --------
Total operating expenses.................................. 3,463 2,972 4,158 6,014
-------- -------- -------- --------
Income (loss) from operations..................................... (3,463) (2,972) 5,419 17,403
Other income (expense), net....................................... 129 237 75 140
-------- -------- -------- --------
Income (loss) before income taxes................................. (3,334) (2,735) 5,494 17,543
Provision (benefit) for income taxes.............................. -- -- (4,600) 6,850
-------- -------- -------- --------
Net income (loss)................................................. $ (3,334) $ (2,735) $ 10,094 $ 10,693
======== ======== ======== ========
Pro forma net income (loss) per common and common equivalent
share........................................................... $ (.03) $ (.03) $ .10 $ .11
======== ======== ======== ========
Pro forma weighted average common and common equivalent shares
outstanding..................................................... 99,107 99,107 99,107 99,107
======== ======== ======== ========
FISCAL QUARTER ENDED
--------------------------------------------
JAN. 31, APR. 30, JUL. 31, OCT. 31,
1996 1996 1996 1996
-------- -------- -------- --------
(AS A PERCENTAGE OF REVENUE)
Revenue........................................................... -- -- 100.0% 100.0%
Cost of goods sold................................................ -- -- 43.4 38.2
-------- -------- -------- --------
Gross profit.................................................. -- -- 56.6 61.8
Operating expenses:
Research and development...................................... -- -- 11.6 7.2
Selling and marketing......................................... -- -- 6.7 3.8
General and administrative.................................... -- -- 6.3 4.8
-------- -------- -------- --------
Total operating expenses.................................. -- -- 24.6 15.8
-------- -------- -------- --------
Income (loss) from operations..................................... -- -- 32.0 46.0
Other income (expense), net....................................... -- -- 0.4 0.3
-------- -------- -------- --------
Income (loss) before income taxes................................. -- -- 32.4 46.3
Provision (benefit) for income taxes.............................. -- -- (27.2) 18.1
-------- -------- -------- --------
Net income (loss)................................................. -- -- 59.6% 28.2%
======== ======== ======== ========
THREE MONTHS ENDED JANUARY 31, 1996, APRIL 30, 1996, JULY 31, 1996 AND OCTOBER
31, 1996
REVENUE. The Company began shipping the MultiWave 1600 system for field
testing in May 1996 with customer acceptance by Sprint occurring in July 1996.
Revenue totalled $16.9 million for the quarter ended July 31, 1996. Revenue for
the quarter ended October 31, 1996 increased 124% over the previous quarter to
$37.9 million. The increase in revenue from quarter to quarter was due to the
increased sales to Sprint influenced by increases in the Company's manufacturing
capacity and customer confidence. While the Company achieved quarter to quarter
revenue growth
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of 124% from the third to fourth quarters of fiscal 1996, the Company does not
expect to sustain this rate of sequential quarterly revenue growth in future
periods. See "Risk Factors".
GROSS PROFIT. Cost of goods sold consists of component costs, direct
compensation costs, warranty and other contractual obligations, royalties,
license fees and overhead related to the Company's manufacturing operations.
Gross margins were 56.6% and 61.8% for the quarters ended July 31, 1996 and
October 31, 1996, respectively. The increase in gross margin was affected by
fixed overhead costs being allocated over a larger revenue base and an
improvement in manufacturing efficiencies. The Company's gross margins in the
future may be affected by a number of factors, including competitive market
pricing, manufacturing volumes and efficiencies and fluctuations in component
costs. The Company's future gross margins may also be affected by the mix of
product features and configurations sold in a period as well as the extent of
services provided.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
consist of compensation costs for research and development staff, depreciation
of test equipment, certain software development costs and prototype materials.
Research and development expenses fluctuated from $2.5 million for the quarter
ended January 31, 1996 to $1.7 million, $2.0 million and $2.7 million for the
quarters ended April 30, July 31 and October 31, 1996, respectively. First
quarter activity was attributable in part to selecting materials and equipment
while building prototype systems which in turn supported the development
activities for the second and third quarters. The fourth quarter development
expenditures of $2.7 million, which were significantly greater in absolute
dollars than the previous two quarters, were related to increased staffing
levels, outside consulting services and the purchase of prototype materials for
the development of the optical add/drop multiplexer. During the third and fourth
quarters, research and development expenses were 11.6% and 7.2% of revenue,
respectively. The decrease in research and development expenses as a percentage
of revenue from quarter to quarter was a function of the rapid revenue growth.
The Company expects that its research and development expenditures will
generally continue to increase in absolute dollars during fiscal 1997 to support
the continued development of new MultiWave features and products and develop
possible product cost reductions. The Company has expensed research and
development costs as incurred.
SELLING AND MARKETING EXPENSES. Selling and marketing expenses consist of
compensation costs for selling and marketing staff, certain pre-sales and
post-sales support, travel expenses, trade shows and other marketing programs.
Selling and marketing expenses increased from quarter to quarter during fiscal
year 1996. The costs incurred were $0.5 million, $0.7 million, $1.1 million and
$1.5 million for the quarters ended January 31, April 30, July 31, and October
31, 1996, respectively. The quarterly increases were primarily the result of
increased payroll costs reflecting the hiring of new employees for sales,
technical assistance and field support for the Company's customers. Other
factors contributing to the increases in the third and fourth quarters included
commissions earned and trade show participation. During the third and fourth
quarters, selling and marketing expenses were 6.7% and 3.8% of revenue,
respectively. The decrease in selling and marketing expenses as a percentage of
revenue was a function of the rapid revenue growth. The Company anticipates that
its selling and marketing expenses will increase in absolute dollars during
fiscal 1997 as additional personnel are hired and offices are opened to allow
the Company to pursue new market opportunities and service new customers.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
consist principally of expenses for finance, administration and general
management activities. The expenses totalled $0.5 million, $0.5 million, $1.1
million and $1.8 million for the quarters ended January 31, April 30, July 31,
and October 31, 1996, respectively. The increases in general and administrative
expenses in the third and fourth quarters compared to the first and second
quarters were primarily due to increased staffing. The Company also incurred
significant legal expenses in the fourth quarter of 1996 in connection with
certain litigation. The Company believes that its general and administrative
expenses will increase in fiscal 1997 as a result of the expansion of the
Company's
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administrative staff required to support its expanding operations and an
increase in expenses associated with operating as a public company.
OTHER INCOME (EXPENSE), NET. Other income (expense), net, consists of
interest income earned on the Company's cash and cash equivalents, net of
interest expense associated with the Company's debt obligations. The Company
believes that other income (expense), net, will fluctuate from quarter to
quarter primarily depending upon the level of the Company's cash balances,
funding required for daily operations and the retirement of its debt
obligations. The Company believes that other income will increase in absolute
dollars in fiscal 1997 as a result of the investment of the net proceeds of the
Offerings.
PROVISION (BENEFIT) FOR INCOME TAXES. During fiscal years 1993 through
1995 and the first two quarters of fiscal 1996, a valuation allowance had been
recorded to offset the Company's net deferred tax assets, including the possible
future benefit from realization of tax operating loss carryforwards. The
recording of such valuation allowance was based upon management's determination
that realization of the net deferred tax assets was not "more likely than not"
(as defined in Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes"). During the third quarter of 1996, the Company received
product acceptance from its initial customer and started profitable operations,
at which time the Company fully reversed its previously established deferred tax
valuation allowance. The tax benefit of $4.6 million recorded in the third
quarter reflects the impact of such reversal. See Note 10 of Notes to Financial
Statements.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations and capital
expenditures principally through the sale of Convertible Preferred Stock for
proceeds totalling $40.6 million and capital lease financing totalling $4.1
million. At the end of fiscal 1996, the Company's principal source of liquidity
was its cash of $22.6 million. In November 1996, the Company established an
unsecured $15.0 million bank revolving line of credit. Borrowings under this
line bear interest at the bank's prime rate. As of November 30, 1996, there were
no borrowings outstanding under the line of credit. The line of credit expires
in November 1997 and requires that the Company maintain certain financial ratios
and minimum profitability and tangible net worth. See Note 6 of Notes to
Financial Statements.
Capital equipment expenditures from inception through October 31, 1996
totalled $11.7 million. These expenditures were primarily for test,
manufacturing and computer equipment. The Company expects additional capital
equipment expenditures to be made during fiscal 1997 to support selling and
marketing, manufacturing and product development activities. In addition, since
its inception the Company has used $2.4 million for the construction of
leasehold improvements and expects to use an additional $5.0 million of capital
in the construction of leasehold improvements for its new facility and the
conversion to full manufacturing of its current facility during fiscal 1997.
The Company believes that the proceeds from the Offerings, combined with
its existing cash balance, its line of credit and the cash flows expected from
future operations, will be sufficient to meet the Company's capital requirements
for at least the next 18 to 24 months.
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BUSINESS
OVERVIEW
CIENA designs, manufactures and sells DWDM systems for long distance
fiberoptic telecommunications networks. CIENA's DWDM solution, the MultiWave
1600 system, alleviates capacity, or bandwidth, constraints in high traffic
fiberoptic routes without requiring the installation of new fiber. In addition,
the MultiWave 1600 system enables flexible provisioning of additional bandwidth
without requiring an upgrade of existing network transmission equipment. The
MultiWave 1600 system can increase the carrying capacity of a single optical
fiber 16 fold by allowing simultaneous transmission of up to 16 optical channels
per fiber. This permits fiber currently carrying signals at transmission speeds
of up to 2.5 Gb/s to carry up to 40 Gb/s. CIENA's MultiWave 1600 system includes
optical transmission terminals, optical amplifiers and network management
software. CIENA's system is designed with an open architecture that allows the
MultiWave 1600 system to interoperate with carriers' existing fiberoptic
transmission systems having a broad range of transmission speeds and signal
formats.
The Company believes it is a worldwide market leader in field deployment of
open architecture DWDM systems. CIENA's MultiWave 1600 system was introduced
into field trials in the long distance network of Sprint in May 1996 and
WorldCom in August 1996. The MultiWave 1600 system began carrying live traffic
in the Sprint network in October 1996. The Company has a three-year
non-exclusive supply agreement with Sprint which expires in December 1998, a
supply agreement with WorldCom which, subject to certain conditions, is
exclusive through December 1997 and an agreement to supply Teleway with the
Company's MultiWave 1600 system. Through October 31, 1996, the Company recorded
$54.8 million in revenue, all of which was derived from sales of the MultiWave
1600 system to Sprint. The Company is actively seeking additional customers
among other long distance carriers in the worldwide telecommunications market.
INDUSTRY BACKGROUND
The four largest long distance carriers in the United States, AT&T
Corporation ("AT&T"), MCI Communications Inc. ("MCI"), Sprint and WorldCom, have
widely deployed fiberoptic cable forming the backbone of their long distance
networks. Growth in utilization of long distance networks has increased both the
type of traffic -- from voice alone to voice, data and video -- and the volume
of traffic carried over these fiberoptic networks. This growth in utilization
has been caused by factors such as:
- increased use of office automation, distributed computing,
electronic mail, facsimile transmission, electronic
transaction processing, video conferencing, remote access
telecommuting, local and wide area networking and the
growing use of the Internet;
- widespread deregulation of the telecommunications industry
and the consequent increase in competition among, and
lowering of prices by, service providers in the long
distance market; and
- development of high bandwidth, network access technologies,
such as cable modems, hybrid fiber coaxial architectures
and digital subscriber lines, that permit users to transmit
and receive high volumes of information.
Increased utilization creates transmission bottlenecks on heavily used
routes that were originally designed for significantly less traffic. Although
exact statistics are not available, the Company believes that this increase in
type and volume of utilization has caused some long distance telecommunications
carriers to handle traffic over certain long distance routes at or near the
maximum capacity of the existing installed fiber and electronic-based
transmission systems currently in use.
The growth in demand for, and the resulting strains on, capacity of the
fiberoptic telecommunications networks have been coupled with an increasing need
for network reliability to support
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mission critical data communications. As end-users become more dependent on
around-the-clock network availability, they become less tolerant of service
interruptions which can be caused by factors such as equipment failure, fiber
cuts or high traffic volume.
This demand for greater reliability has led long distance carriers to adopt
"ring architecture" in which long distance routes are linked in a ring
configuration so that in the event of a fiberoptic cable cut or other equipment
failure between two points of the ring, the signal can be immediately redirected
through the reverse "protection path" of the ring. The service break associated
with a fiber cut or other equipment failure in a network using ring architecture
can be restored in approximately 50 milliseconds, which is essentially
unnoticeable by the consumer. However, many ring architectures now being
deployed demand twice as much fiber capacity (due to the need to maintain a
redundant alternative path to serve as a protection path for each fiber in use)
as non-ring based architectures. AT&T, Sprint and WorldCom have all announced an
intention to implement ring architecture for their networks, which will place
greater bandwidth demand on their existing fiberoptic networks.
The shortage of bandwidth available in existing fiberoptic networks can be
addressed in several ways. One solution is to install additional fiberoptic
cable along existing routes or in new fiberoptic routes. However, the
installation of additional fiber, and particularly the creation of new
fiberoptic routes, is a costly and time-consuming process, involving extensive
negotiation and acquisition of necessary rights of way, as well as the actual
construction effort. The Company believes that the average cost of creating new
underground fiberoptic routes is approximately $43,400 per kilometer ($70,000
per mile). Another solution is to increase the transmission speed of the
installed systems. However, this approach is also costly. Existing long distance
telecommunications routes generally use TDM fiberoptic transmission terminals at
either end of the route to send and receive signals. Opto-electronic signal
regenerators ("regenerators") are then placed between terminals along the
fiberoptic cables, spaced at regular intervals of 35-50 kilometers
(approximately 22 to 31 miles). These regenerators process, amplify and re-time
the signal through a process that involves conversion of the optical signal to
electronic form and back to optical form. However, terminals and regenerators
are "bit-rate specific," meaning upgrade of a route segment to handle higher
transmission speeds requires replacement of all terminals and regenerators. A
large number of regenerators are needed on a route of significant length, and
any upgrade of a route segment using TDM technology would require a significant
investment in new equipment as well as significant installation costs.
Certain types of existing fiber have been shown to display incompatibility
problems with very high speed TDM equipment. "Non-dispersion shifted" fiber
constitutes the majority of fiber installed in North America and Europe, while
"dispersion shifted" fiber has been popular in Japan. "Reduced dispersion" fiber
is a recent development that is beginning to see applications in some new fiber
installations. At lower transmission rates, such as 2.5 Gb/s, TDM-based
equipment is technically viable for use with these fiber types and widely
available commercially. As an upgrade to existing telecommunications links with
transmission rates below 2.5 Gb/s, TDM at 2.5 Gb/s can represent an alternative
incremental approach to the enhancement of transmission capacity. However, at
the 10 Gb/s transmission rate, transmission over non-dispersion shifted fiber
can result in significant impairments to and distortion of the signal.
CIENA and others have observed that the potential for an alternative
technological solution to laying new fiber or upgrading capacity to higher
electronic transmission rates exists because the bandwidth intrinsic to existing
fiber is vastly underutilized. For example, transmission systems which use TDM
and transmit at 2.5 Gb/s use substantially less than one percent of the inherent
bandwidth of the fiber currently deployed in United States fiberoptic networks.
An optical multiplexing technology called wavelength division multiplexing
("WDM") has long been recognized for its potential to better utilize fiber
bandwidth by enabling the simultaneous transmission of multiple optical signals
on discrete channels on a single fiber. Until recently, however, technological
barriers have limited exploitation of the potential of WDM as a commercially
viable solution. DWDM is an
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extension of WDM technology and refers to the simultaneous transmission of more
than four channels on a single fiber.
THE CIENA SOLUTION
CIENA has deployed a DWDM system that enhances the transmission capacity of
a single optical fiber 16 fold, without requiring significant modification or
upgrade to transmission equipment. The MultiWave 1600 system includes terminals,
optical amplifiers and network management software that enable simultaneous
transmission of up to 16 optical channels on a single fiber at rates of up to
2.5 Gb/s per channel. The MultiWave 1600 system permits the transmission of
optical signals over routes of up to 600 kilometers (372 miles) without
opto-electronic regeneration. CIENA's implementation of DWDM technology
incorporates the following features:
- OPEN ARCHITECTURE SYSTEM. CIENA's system is designed with an open
architecture that allows the MultiWave 1600 system to interoperate with
carriers' existing fiberoptic transmission systems having a broad range
of transmission speeds and signal formats. This approach is distinguished
from a closed architecture system design pursued by companies that
manufacture other telecommunications equipment and may seek to preserve
the market for their network equipment.
- MODULAR DESIGN. The MultiWave 1600 system design is modular and allows
capacity-specific configurations and the ability to add additional
capacity through a modular upgrade. This enables a customer to select the
number of channels to use in a particular fiber and preserves the
customer's ability to respond quickly to increased demand for capacity
without significant additional equipment purchases.
- TACTICAL IMPLEMENTATION. CIENA's MultiWave 1600 system can be tactically
implemented on a route-by-route basis, providing relief on capacity
constrained routes without mandating a network-wide architectural or
transmission equipment change. In the context of new network
construction, the Company believes that its ability to permit 40 Gb/s
capacity per fiber, together with the elimination of multiple
regenerators, make the MultiWave 1600 system cost-efficient.
- SCALEABLE AMPLIFIERS. The Company's optical amplifiers, when installed
to accommodate 16 channels, do not need to be changed as channels are
added or as transmission speeds are increased to up to 2.5 Gb/s. Unlike a
TDM upgrade solution which involves replacement of all transmission
equipment along a fiber route, a channel upgrade of a CIENA MultiWave
1600 system involves no replacement of existing transmission equipment
until all 16 channels are in service. Similarly, increases in
transmission rates up to a maximum of 2.5 Gb/s do not require replacement
of or modification to the optical amplifiers.
- MANAGEMENT SOFTWARE. CIENA's MultiWave 1600 system includes network
management software enabling customers to receive early warnings of
network problems and to manage and monitor network performance. The
Company's commitment to providing standards compliant network management
interfaces at all levels, from individual network elements to the element
management system, affords rapid integration into existing
telecommunication management operations. The Company provides standards
compliant network management systems based upon Simple Network Management
Protocol (SNMP), Transmission Control Protocol/Internet Protocol (TCP/IP)
and the International Telecommunications Union (ITU) Telecommunications
Management Network (TMN) standards.
- FIBER COMPATIBILITY. The CIENA MultiWave 1600 system is compatible with
dispersion shifted, reduced dispersion and non-dispersion shifted fiber.
Non-dispersion shifted fiber constitutes the majority of fiber installed
in North America and Europe.
CIENA's MultiWave 1600 system is based upon the use of three core enabling
technologies that assist in overcoming many of the constraints that limited
commercial introduction of WDM technology: Erbium-doped fiber amplifiers
enabling the direct amplification of optical signals without the use of
electronic regenerators; in-fiber Bragg gratings enabling precise filtering of
multiple optical signals
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in a single fiber; and network management software developed by the Company
permitting a customer to manage effectively the status and functions of the
CIENA MultiWave 1600 system in conjunction with the network operator's
management of other parts of its network.
CIENA'S STRATEGY
The Company's strategy is to maintain and build upon its market leadership
in the deployment of DWDM systems. Important elements of the Company's strategy
include:
- MAINTAIN LEADERSHIP IN DEPLOYMENT OF DWDM IN LONG DISTANCE NETWORKS. The
Company believes that the technological, operational and cost benefits of
the Company's DWDM systems create competitive advantages for long
distance telecommunications carriers worldwide. The Company also believes
that achieving early widespread operational deployment of its systems in
a particular carrier's network will provide CIENA significant competitive
advantages with respect to additional DWDM deployments and channel
upgrades within that network and will enhance its marketing to other
carriers as a field proven supplier. The Company therefore intends to
continue aggressively pursuing DWDM deployment opportunities among long
distance carriers in the domestic and foreign long distance markets. The
Company will focus its MultiWave product development efforts on expanding
the current 16 channel capacity of the MultiWave 1600 system to 40
channels while adding operational features designed to make MultiWave
products as attractive and flexible as possible to long distance
telecommunications carriers.
- CONTINUE TO EMPHASIZE TECHNICAL SUPPORT AND CUSTOMER SERVICE. The
Company markets a technically advanced system to sophisticated customers.
The nature of the Company's system and market require a high level of
technical support and customer service. The Company expects to have
full-time customer support offices in Kansas City, Kansas (to support
Sprint), Tulsa, Oklahoma (to support WorldCom) and other selected
locations where it develops significant customer relationships, to
provide on-going support to its customers.
- CONTINUE TO DEVELOP WORLD CLASS MANUFACTURING CAPABILITY. The Company's
system serves a mission critical role in its customers' networks. Quality
assurance and manufacturing excellence are necessary for the Company to
achieve success. CIENA believes it has developed and will continue to
enhance a world class manufacturing capability. The Company invested $5.9
million in capital improvements in fiscal 1996 and hired 125 employees in
that year to increase manufacturing capacity and efficiency and improve
manufacturing quality. The Company is working actively to achieve ISO
9001 certification.
- EXPAND SALES AND MARKETING EFFORTS. The nature of the target customer
base for MultiWave 1600 systems requires a focused sales effort on a
customer-by-customer basis. The Company will continue to increase its
sales and marketing efforts by focusing on the worldwide market of long
distance carriers. In fiscal 1996, the Company increased its sales and
marketing force by 12 persons. The Company will continue to strengthen
its marketing programs and increase its international presence through
both direct sales and international distributors.
- LEVERAGE CORE COMPETENCIES IN FIBEROPTIC COMMUNICATIONS. The Company
expects to leverage the core competencies it has developed in the design,
development, manufacturing and commercial introduction of the MultiWave
1600 system by exploring other areas in the telecommunications market
where these competencies can be used to solve related problems. This may
take the form of new product development or may involve strategic
alliances or acquisitions.
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NETWORK ARCHITECTURE
A CIENA MultiWave 1600 system is a combination of equipment and software
that is installed on a particular long distance route segment. A MultiWave 1600
system consists of one MultiWave terminal on each end of the route segment, one
or more MultiWave optical amplifiers along the route (depending on route length)
and CIENA's WaveWatcher network management software. The diagram below depicts
an operating configuration of a deployed MultiWave 1600 system in a four-fiber
ring architecture network configuration:
[This diagram shows an outline of the United States with
a four-fiber ring architecture network configuration.
Depicted within the four-fiber ring architecture is a
MultiWave 1600 system.]
The MultiWave terminal at one end of the route multiplexes the customer's
optical signals into as many as 16 discrete optical channels and transmits those
channels simultaneously on the outbound fiber of the fiber pair. A MultiWave
terminal at the other end of the route demultiplexes the inbound multichannel
signal into 16 individual signals that are directed to the customer's receivers.
Optical amplifiers placed along the route provide optical amplification of the
composite multichannel signal over long route lengths. The Company's WaveWatcher
software provides continuous network management capability by monitoring system
functions.
The diagram below compares (i) traditional transmission equipment
configuration for a high traffic (16 signal) long distance route of 600
kilometers (372 miles), using TDM transmission terminals and regenerators with
(ii) the same high traffic (16 signal) long distance route configured with a
MultiWave 1600 system.
[This diagram consists of two figures. The first figure
shows a traditional TDM route configuration with fiberoptic
transmission terminals at both ends of a 16-fiber pair
route with 272 regenerators. The second figures shows
the same route with the MultiWave 1600 system.]
In the TDM configuration above, 16 fiber pairs, and a total of 272
regenerators, are needed to transport 16 channels over the route. Each
regenerator converts the channels from optical to electrical and back to optical
format at 35-50 kilometer (22 to 31 mile) intervals. In order to upgrade the
transmission capacity of the typical TDM network route, as shown forth above,
using traditional TDM technology, all the fiberoptic transmission terminals and
all 272 regenerators would need to be replaced. This process entails significant
equipment costs, requires rerouting of transmissions and can be time-consuming
and, potentially, an operational bottleneck. While the TDM configuration above
is typical, the actual number of regenerators may be less than depicted above.
By contrast, as shown above, the same high traffic (16 signal)
long-distance route can be configured with a MultiWave 1600 system. The 272
regenerators are replaced with four MultiWave optical amplifiers and only one
fiber pair is required for transmission of 16 signals. As a result, 15 of the 16
fiber pairs that were previously used are freed for future use. The maintenance
costs associated with the 272 regenerators are eliminated and replaced by the
lower maintenance costs of four optical amplifiers. Because each regenerator
must be housed in a weather-protected, environmentally controlled shelter,
elimination of regenerator sites may also significantly lower operational costs.
Increasing the availability of a number of fiber pairs is especially significant
to carriers that have implemented or are planning to implement ring
architectures and those providing leased transmission capacity to other
operators.
THE MULTIWAVE 1600 SYSTEM
A MultiWave 1600 system is installed in a discrete route segment defined at
each end by the presence of the customer's fiberoptic transmission terminals.
The MultiWave 1600 system features
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an open architecture which interoperates with a broad range of models of
fiberoptic transmission terminals. The MultiWave 1600 system can be flexibly
configured based on the customer's capacity needs with up to 16 channels, and
the initial channel configuration, if less than 16 channels, can be supplemented
whenever additional capacity is needed. The modular design of the MultiWave 1600
system allows the network operator to add capacity without interrupting existing
MultiWave traffic.
MULTIWAVE TERMINAL. The CIENA MultiWave terminal is a modular DWDM
terminal which can multiplex and amplify signals from transmitters into 16
discrete optical channels for transmission over a pair of fibers to the other
MultiWave terminal and demultiplex the received multichannel signal into 16
individual signals. The MultiWave terminal functions in the same manner over a
broad range of transmission speeds, up to approximately 2.5 Gb/s per channel,
and operates without material modifications to existing fiberoptic transmission
systems. Each MultiWave terminal consists of up to two channel shelves (up to
eight channels per shelf) and a common equipment shelf. The MultiWave terminal
can transport over total route lengths of up to 600 kilometers (372 miles) at up
to 2.5 Gb/s per channel without regeneration or impairment of the signal.
MULTIWAVE OPTICAL AMPLIFIER. The CIENA MultiWave optical amplifier is a
modular Erbium-doped fiber amplifier that provides direct composite optical
amplification of the 16 optical channels carried by the MultiWave 1600 system. A
single MultiWave optical amplifier shelf is capable of amplifying the system's
entire 40 Gb/s capacity (16 channels times approximately 2.5 Gb/s per channel).
CIENA's MultiWave optical amplifiers take the place of the customer's existing
regenerators on routes of up to 600 kilometers (372 miles), and can be spaced as
much as 120 kilometers (74 miles) apart.
WAVEWATCHER NETWORK MANAGEMENT SYSTEM. WaveWatcher is the MultiWave 1600
system's integrated network management software package. The network element
manager uses a separate out-of-band optical service channel to communicate
network management information and provides a single view of multiple CIENA
systems through graphical user interfaces and supported operating system
interfaces. WaveWatcher has been designed to adhere to evolving open system
standards for network management software and operates on a UNIX platform.
WaveWatcher provides fault, performance, security and configuration management
of optical networking systems.
The Company is also introducing an optical add/drop multiplexer to enable
carriers to reroute traffic to different geographic areas without requiring
extensive termination equipment. A network operator may optically remove up to
four channels from the composite signal at a point along a fiber route where the
optical add/drop multiplexer is installed. The installation of an additional
optical add/drop multiplexer at a different point along that route would enable
the network operator to reuse those channels. The optical add/drop multiplexer
also will provide optical amplification for up to 16 channels.
A typical MultiWave 1600 system ranges in price from $500,000 to
$1,500,000, depending on such factors as customer needs for number of channels,
route length (which affects the number of optical amplifiers required), network
management software configuration and other negotiated terms and conditions. As
required, systems initially configured for less than 16 channels can be upgraded
to carry up to 16 channels at additional cost.
PRODUCT DEVELOPMENT
The Company expects the primary focus of its product development efforts
will be in the further enhancement and refinement of the MultiWave 1600 system.
The Company will focus its product development efforts on expanding the current
16 channel capacity of the MultiWave 1600 system to 40 channels while adding
operational features designed to make the Company's products attractive to a
wide range of network operators.
The Company has developed core competencies in DWDM technology through the
design, development, manufacturing and commercial introduction of the MultiWave
1600 system. In the
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future, the Company intends to migrate its core competencies in this area to
other segments of the telecommunications network. This migration may take the
form of new product development or may involve strategic alliances or
acquisitions.
As of October 31, 1996, there were 38 persons working in the Company's
research and development area. The Company's research and development
expenditures were $1.3 million, $6.4 million and $8.9 million for fiscal 1994,
1995 and 1996, respectively.
CUSTOMERS
SPRINT RELATIONSHIP
In December 1995, the Company entered into a three-year supply agreement
with Sprint, with the option for Sprint to extend the term of the agreement for
an additional year. Prices for all equipment purchased by Sprint under the terms
of the supply agreement are fixed for the initial three-year term but the prices
charged to Sprint for any deliverable under the supply agreement will not at any
time be higher than the Company's final net price to any "similarly situated
customer". The supply agreement does not obligate Sprint to make any minimum
purchases from the Company. The agreement requires that the Company set up and
maintain, at the Company's expense, certain test facilities for a period of 10
years.
The Company is obligated to provide software and equipment support until
December 2005 and must maintain two years of backwards compatibility for any
enhancements or upgrades to the software. The Company also warrants each
deliverable provided by the Company for 60 months from the date of delivery,
with Sprint having the right until December 2005 to purchase an unlimited number
of one-year extensions of any or all warranties. Upgrades are provided at no
cost to Sprint during the warranty or extended warranty periods. The supply
agreement contains penalties for failure to respond to various types of system
failures in a timely manner. The supply agreement with Sprint also provides
Sprint with a license to use, modify and enhance the Company's source code under
certain conditions.
WORLDCOM RELATIONSHIP
In September 1996, the Company entered into a supply agreement with
WorldCom. Pursuant to the terms of the supply agreement, upon the successful
completion of the field test, the Company will be the exclusive supplier of DWDM
systems for WorldCom through December 1997. The agreement does not require a
minimum purchase commitment; if WorldCom, however, does not purchase a certain
minimum amount of equipment, all prices for equipment purchased under the
agreement increase. WorldCom may terminate all or any part of an outstanding
purchase order upon the payment of a termination fee.
The Company has granted to WorldCom, pursuant to the supply agreement, a
license to use certain software. The Company has also granted WorldCom the
option to purchase the source code for certain software at any time during the
term of the agreement for a one-time payment. If WorldCom exercises this option,
the Company has no further obligation to provide support or maintenance services
or to provide upgrades or enhancements with respect to this software.
Under product and pricing attachments currently in effect, the Company
provides WorldCom with software upgrades at no charge for a period of 10 years
from installation and provides a five-year warranty for products.
TELEWAY RELATIONSHIP
The Company has entered into a two-year agreement with NISSHO Electronics
Corporation ("NISSHO") to act as a distributor of the Company's MultiWave 1600
system in Japan. Through NISSHO, the Company has shipped a MultiWave 1600 system
to Teleway.
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OTHER POTENTIAL CUSTOMER RELATIONSHIPS
The Company is actively working to develop customer relationships with long
distance carriers worldwide. The Company has contacted other long distance
carriers and is responding to requests for proposals as well as engaging in
direct sales efforts.
Under the Telecommunications Act of 1996, regional Bell operating companies
("RBOCs") are newly eligible to enter the long distance market once they have
met certain requirements for opening their local markets to competition. The
Company anticipates that one or more of the RBOCs will move into the long
distance market, although the timing of that move is uncertain, and the question
of how such a move will be implemented is unclear -- e.g., 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. In the deregulated market, utility companies are also known to be exploring
the use of their existing rights of way to develop fiberoptic-based
telecommunications networks, although it is not possible to predict the pace or
scope of their efforts.
Internationally, the market for DWDM systems is still developing. The
deregulation and competition which have characterized the United States long
distance market are much less pronounced in most international markets, and the
data communications applications which fuel the demand for high bandwidth
transmission systems in the United States are not as widely used in
international markets. The Company intends to concentrate its international
sales and marketing efforts in countries or regions where there is competition
among two or more long distance carriers, where there are significant bandwidth
constraints and where there is significant potential for near term growth in
telecommunications services.
SALES AND MARKETING
The Company has organized its resources for the separate but coordinated
approach to United States customers 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, the Company currently pursues prospective customers
through direct sales efforts, as well as through distributors, independent
marketing representatives and independent sales consultants. The Company has
distributor or marketing representative arrangements covering Austria, Germany,
Italy and Switzerland in Europe, and the Republic of Korea and Japan in Asia.
The Company has additional representative support in the U.K., Belgium and
Brazil. The Company intends to establish a direct sales presence in Europe and
in Asia over the next 12 to 18 months.
The Company's MultiWave 1600 systems require a relatively large investment,
and the Company's target customers in the long distance 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 DWDM systems
with existing transmission equipment. The convergence of these factors leads to
a very long sales cycle for the MultiWave 1600 system, often more than a year
between initial introduction to the Company and commitment to purchase, and has
further led CIENA to pursue sales efforts on a focused, customer-by-customer
basis.
In support of its worldwide selling efforts, the Company conducts marketing
programs intended to position and promote its products within the
telecommunications industry. Marketing personnel coordinate the Company's
participation in trade shows and conduct media relations activities with trade
and general business publications.
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COMPETITION
The market for increased bandwidth is highly competitive, and the Company
expects the level of competition to increase in the future. In addition,
competition in the telecommunications equipment industry generally is intense,
particularly in that portion of the industry devoted to delivering higher and
more cost effective bandwidth throughout the telecommunications network.
However, the Company believes that its position as a leading supplier of open
architecture DWDM systems and the field-tested design and technology of its
product give it a current competitive advantage.
The competition faced by the Company 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 the Company. Included among the Company's
competitors are Lucent, Nortel, Alcatel, NEC and Pirelli. Each of the Company's
major competitors are believed to be in various stages of development,
introduction or deployment of DWDM products directly competitive with the
Company's MultiWave system. Pirelli, in particular, is known to have deployed
open architecture WDM equipment and has announced the introduction of a
32-channel DWDM system. Lucent has an especially prominent role in the market
because of its historical affiliation with AT&T. Lucent has announced it is
supplying closed architecture DWDM system equipment to AT&T, and has announced
an intention to introduce in the near future an open architecture DWDM system.
Although Lucent's prior affiliation with AT&T may have inhibited its
relationships as a supplier to other carriers, the spin-off of Lucent into a
separate company may make it more attractive to potential customers as a
supplier.
In addition to DWDM suppliers, traditional TDM-based transmission equipment
suppliers compete with the Company in the market for transmission capacity.
Lucent, Alcatel, Nortel, Fujitsu and NEC are already providers of a full
complement of such equipment. These and other competitors have introduced or are
expected to introduce equipment which will offer 10 Gb/s transmission
capability, and MCI has recently announced limited deployment of such equipment.
The viability of widescale deployment of 10 Gb/s TDM based equipment has yet to
be demonstrated. Because of the transmission rate employed, the 10 Gb/s TDM
equipment requires digital multiplexing circuits operating at microwave
frequencies, which can lead to instability. This can complicate reproducibility,
which may in turn result in delays in introduction and higher manufacturing
costs. More significantly, at the 10 Gb/s transmission rate, dispersion
distortion effects in the fiber can result in significant impairments and
limitations, particularly in transmission over non-dispersion shifted fiber,
which comprises most of the installed fiber in current long distance networks in
the United States. However, at lower rates, such as 2.5 Gb/s, TDM-based
equipment is technically viable and widely available commercially, and, as an
upgrade to existing lower transmission rate telecommunications links, can
represent an alternative incremental approach to the enhancement of transmission
capacity.
Additionally, while the Company believes the open architecture of its
MultiWave 1600 system is attractive to some customers, certain of the Company's
competitors are able to offer more extensive TDM-based product lines under
closed architectures which may provide perceived network-wide cost and operating
efficiencies not available from the Company. For example, Lucent, Alcatel,
Nortel and NEC are already providers of a full complement of TDM terminals,
switches and regenerators, and thereby seek to position themselves as vertically
integrated, "one-stop shopping" solution providers to potential customers. The
Company expects competition in general to intensify substantially over the next
few quarters. The Company believes that competition is based on varying
combinations of price, manufacturing capacity, timely delivery, system
reliability and service commitment, installed customer base, as well as on the
comprehensiveness of the system solution in meeting immediate network needs and
foreseeable scaleability requirements. Further, in certain cases, competitors
have offered the Company's target customers on an immediate delivery basis, off
the shelf TDM transmission equipment at comparatively lower prices, with a
promise to upgrade to DWDM or other improved equipment in the future. While the
Company is ramping up its
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manufacturing capability as rapidly as it believes prudent, the Company is not
currently able to offer MultiWave 1600 system delivery times of less than three
to four months. The substantial system integration resources and manufacturing
capability of the TDM competitors, in combination with any difference in
timeliness of delivery, can be important to long distance network operators for
whom a less significant increase in transmission capacity (as opposed to the
16-fold increase available through MultiWave) is acceptable. In addition, as and
when these competitors are able to offer DWDM systems in combination with their
own terminals, they can be expected to further emphasize the attractiveness of a
one-stop shopping solution.
MANUFACTURING
The Company manufactures the in-fiber Bragg gratings and Erbium-doped fiber
amplifiers used in the MultiWave 1600 system, and conducts all optical assembly,
final assembly and final component, module and system test functions, at its
manufacturing facility in Savage, Maryland. The Company has invested
significantly in automated production capabilities and manufacturing process
improvements and expects to further enhance its manufacturing process with
additional production process control systems. However, certain critical
functions, including aspects of fiber splicing, require a highly skilled manual
work force, and the Company puts significant efforts into training and
maintaining the quality of its manufacturing work force. The Company is also
currently working towards obtaining an ISO 9001 certification, which it believes
will be a further competitive strength.
Electronic board assemblies are currently subcontracted to third parties to
enable the Company to concentrate on its core manufacturing competencies in
gratings production and optical assembly capabilities. The Company has not
experienced any significant delays or material unanticipated costs resulting
from the use of subcontractors; however, such a strategy involves certain risks,
including the potential absence of adequate capacity, the unavailability of or
interruptions in access to certain process technologies, and reduced control
over delivery schedules, manufacturing yields, quality and costs. In the event
that any significant subcontractor were to become unable or unwilling to
continue to manufacture and/or test the Company's assemblies in required
volumes, the Company would have to identify and qualify acceptable replacements.
This qualification process could also be lengthy and no assurance can be given
that any additional sources would become available to the Company on a timely
basis. A delay or reduction in component shipments, or a delay or increase in
costs in the assembly and testing of products by third party subcontractors,
could materially and adversely affect the Company's business, financial
condition and results of operations.
The Company's MultiWave 1600 system utilizes in excess of 600 parts, many
of which are customized for the Company. 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. Certain key optical and electronic components used in the Company's
MultiWave 1600 system are currently available only from sole sources. The
Company has from time to time experienced minor delays in the receipt of these
components, and any future difficulty in obtaining sufficient and timely
delivery of them could result in delays or reductions in product shipments
which, in turn, could have a material adverse effect on the Company's business,
financial condition and results of operations. While alternative suppliers have
been identified for certain other key optical and electronic components, those
alternative sources have not been qualified. The time and expense involved in
qualifying each additional source are significant. Accordingly, the Company will
for the near term continue to be dependent on sole and single source suppliers
of certain key components. See "Risk Factors -- Dependence on Suppliers" and
"-- Competitors as Suppliers".
PATENTS AND OTHER INTELLECTUAL PROPERTY RIGHTS
The Company has licensed certain key enabling technologies with respect to
the production of in-fiber Bragg gratings, utilized publicly available
technology associated with Erbium-doped fiber
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amplifiers, and applied its design, engineering and manufacturing skills to
develop its MultiWave 1600 system. The Company also licenses from third parties
certain software components for its network management software. The Company has
applied for trademark registration for Ciena, MultiWave and WaveWatcher.
Opposition has been filed with the United States Patent and Trademark Office
with respect to the Company's registration of WaveWatcher. The Company also
relies on contractual rights, trade secrets and copyrights to establish and
protect its proprietary rights in its products.
The Company intends to enforce vigorously its intellectual property rights
if infringement or misappropriation occurs. However, the Company does not expect
its proprietary rights in its technology will prevent competitors from
developing technologies and equipment functionally similar to the Company's.
The Company'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 the Company. These agreements
acknowledge the Company's exclusive ownership of all intellectual property
developed by the individual during the course of his work with the Company and
require that all proprietary information disclosed to the individual will remain
confidential.
As of December 4, 1996, the Company had received seven United States
patents, had received notice of allowance of two more, and had 16 pending patent
applications. The issued patents relate to (i) an optical monitoring channel for
WDM systems capable of surviving failure of an optical amplifier, (ii) an
in-fiber Bragg grating system for optical cable television systems that allows
the network operator to remove and insert different optical frequencies and
switch video signals on demand, (iii) a WDM optical communication system with
remodulators to carry multiple optical signals of different wavelengths
simultaneously, (iv) a WDM system that can be expanded with additional optical
signals, (v) an optical system which uses optical amplifiers with flattened gain
curves, (vi) a method for removing and inserting optical carriers in a WDM
system and (vii) an optical system with tunable in-fiber gratings. Allowed
patent applications relate to other aspects of in-fiber Bragg gratings
technology and other aspects of WDM system design. In addition, the Company
holds a non-exclusive license from General Instrument Corporation of Delaware
for a portfolio of 32 United States and foreign patents relating to optical
communications, primarily for video-on-demand applications. See "Risk
Factors -- Proprietary Rights".
EMPLOYEES
As of October 31, 1996, the Company employed 225 persons, of whom 38 were
primarily engaged in research and development activities, 135 in manufacturing,
20 in sales, marketing, customer support and related activities and 32 in
administration. None of the Company's employees are currently represented by a
labor union. The Company considers its relations with its employees to be good.
FACILITIES
The Company's principal executive offices, manufacturing and research and
development facilities are all located in Savage, Maryland and consist of
approximately 50,500 square feet under a lease that will expire in December
2001, absent exercise of a renewal option for an additional five years. The base
rent averages approximately $35,775 per month for the first six years. The
Company signed a lease in October 1996 for a facility approximately 10 miles
from Savage, near the Baltimore/Washington International Airport ("BWI"). This
facility consists of approximately 96,000 square feet, and is expected to be
suitable for occupancy by March 1997. Base rent is approximately $102,000 per
month, with annual rate increases each of the ten years of the initial lease
term, with a final year rate of approximately $126,000 per month. The Company
intends to convert substantially all of its current Savage, Maryland, facility
into a manufacturing facility (manufacturing
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currently occupies approximately 19,000 of the 50,500 square feet at the Savage
facility), and relocate the corporate, sales and marketing and product
development functions to the BWI facility.
LEGAL PROCEEDINGS
Kevin Kimberlin and parties controlled by him (the "Kimberlin Parties") are
owners of Common Stock, Series A, Series B and Series C Preferred Stock and
certain warrants to purchase Series B Preferred Stock. On November 20, 1996, the
Kimberlin Parties filed suit in U.S. District Court for the Southern District of
New York against the Company, and certain directors of the Company, alleging
that the Kimberlin Parties were entitled to purchase additional shares of Series
C Preferred Stock at the time of the closing of the Series C Preferred Stock
financing, but were denied that opportunity by the defendants. The lawsuit
alleges that certain rights of first refusal existing under the Series B
Preferred Stock Purchase Agreement entitled the Kimberlin Parties to purchase
more shares of Series C Preferred Stock than were in fact purchased by them at
the time of the closing of the Series C financing in December 1995. The lawsuit
claims breach of contract, breach of fiduciary duty and violation of Securities
and Exchange Commission Rule 10b-5 by the defendants. The Kimberlin Parties seek
to recover unspecified actual and punitive damages.
The number of shares to be purchased by each party to the Series C
Preferred Stock financing was communicated in writing to the Kimberlin Parties
in December 1995 prior to the Series C closing. Further, as permitted under the
Series B Preferred Stock Purchase Agreement, the Series C Preferred Stock
Purchase Agreement expressly stated that all rights of first refusal referred to
in the lawsuit were waived. The required number of Series B investors, including
the Kimberlin Parties, signed the Series C Preferred Stock Purchase Agreement
containing that waiver. In July 1996, the Kimberlin Parties reaffirmed to the
Company in writing that their beneficial ownership of shares did not include any
shares which they have subsequently claimed in the lawsuit they were entitled to
purchase. The Company believes that the Kimberlin Parties' claims, brought as
the Offerings were being prepared, are without merit and intends to defend
itself vigorously.
The Company is not currently a party to any other legal proceedings.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The table below sets forth certain information concerning each of the
directors and executive officers of the Company:
NAME AGE POSITION
- ----------------------------------- --- --------------------------------------------------
Patrick H. Nettles, Ph.D. ......... 53 President, Chief Executive Officer and Director
David R. Huber, Ph.D. ............. 46 Senior Vice President, Chief Scientist and
Director
Steve W. Chaddick.................. 45 Senior Vice President, Products and Technologies
Lawrence P. Huang.................. 45 Senior Vice President, Sales and Marketing
Stephen B. Alexander............... 37 Vice President, Transport Products
Joseph R. Chinnici................. 42 Vice President, Finance and Chief Financial
Officer
Mark Cummings...................... 45 Vice President, Operations
W. Michael Fagen................... 41 Vice President, Business Development
G. Eric Georgatos.................. 41 Vice President, General Counsel and Secretary
Jesus Leon......................... 52 Vice President, Access Products
Rebecca K. Seidman................. 50 Vice President, Human Resources Development
Jon W. Bayless, Ph.D.(1)(2)........ 56 Chairman of the Board of Directors
Harvey B. Cash..................... 58 Director
Clifford W. Higgerson(2)........... 57 Director
Billy B. Oliver(1)................. 71 Director
Michael J. Zak(1)(2)............... 43 Director
- ---------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
PATRICK H. NETTLES, PH.D., has served as Chief Executive Officer of the
Company since February 1994, as President and Chief Executive Officer since
April 1994 and as Director since February 1994. From 1992 until 1994, Dr.
Nettles served as Executive Vice President and Chief Operating Officer of Blyth
Holdings Inc., a publicly-held supplier of client/server software. From late
1990 through 1992, Dr. Nettles was President and Chief Executive Officer of
Protocol Engines Inc., a development stage enterprise, formed as an outgrowth of
Silicon Graphics Inc., and targeted toward very large scale integration based
solutions for high-performance computer networking. From 1989 to 1992, Dr.
Nettles was Chief Financial Officer of Optilink, a venture start-up which was
acquired by DSC Communications. Dr. Nettles received his B.S. degree from the
Georgia Institute of Technology and his Ph.D. from the California Institute of
Technology.
DAVID R. HUBER, PH.D., founded the Company in November 1992, served as
President from November 1992 until April 1994 and has served as Director since
November 1992. From April 1994 until September 1996 he served as Vice President
and Chief Technical Officer. Dr. Huber has served as Senior Vice President and
Chief Scientist since September 1996. From 1989 through 1992, Dr. Huber managed
the Lightwave Research and Development Program for the Jerrold Communications
Division of General Instruments. Dr. Huber holds a B.S. degree in physics from
Eastern Oregon State College and a Ph.D. degree in electrical engineering from
Brigham Young University.
STEVE W. CHADDICK has served as Senior Vice President, Products and
Technologies since September 1996, and was previously Vice President of Product
Development for the Company since joining it in 1994. Prior to joining the
Company, Mr. Chaddick was Vice President of Engineering at AT&T Tridom, a
company he co-founded in 1983 and which was acquired by AT&T in 1988. AT&T
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Tridom focused on the development of very small aperture satellite terminal
systems. Mr. Chaddick was responsible for all product development at AT&T
Tridom, including hardware, embedded systems software and network management
software. Mr. Chaddick received both his B.S. and M.S. degrees in electrical
engineering from the Georgia Institute of Technology.
LAWRENCE P. HUANG has served as Senior Vice President, Sales and Marketing
of the Company since November 1996 and served as Vice President, Sales and
Marketing of the Company since joining it in April 1994. Prior to joining CIENA,
Mr. Huang was Vice President/General Manager and Vice President of Sales and
Marketing of AT&T Tridom, which he co-founded with Mr. Chaddick in 1983. Mr.
Huang holds a B.S. in industrial management from the Georgia Institute of
Technology and an M.B.A. from Georgia State University.
STEPHEN B. ALEXANDER has served as Vice President, Transport Products since
September 1996, and was previously Director of Lightwave Systems at the Company
since joining it in 1994. From 1982 until joining the Company, he was employed
at MIT Lincoln Laboratory, where he last held the position of Assistant Leader
of the Optical Communications Technology Group. Mr. Alexander is an Associate
Editor for the Journal of Lightwave Technology and a General Chair of the
conference on Optical Fiber Communication (OFC) for 1997. He is author of the
tutorial text Optical Communication Receiver Design. Mr. Alexander received both
his B.S. and M.S. degrees in electrical engineering from the Georgia Institute
of Technology.
JOSEPH R. CHINNICI joined the Company in February 1994 as Controller, and
became Vice President, Finance and Chief Financial Officer in May 1995. From
1993 through 1994, Mr. Chinnici served as a financial consultant for Halston
Borghese Inc. From 1977 to 1993, Mr. Chinnici held a variety of accounting and
finance assignments for Playtex Apparel Inc. (now a division of Sara Lee
Corporation), ending this period as Director of Operations Accounting and
Financial Analysis. Mr. Chinnici holds a B.S. in accounting from Villanova
University and an M.B.A. from Southern Illinois University.
MARK CUMMINGS joined the Company in May 1996 as Vice President,
Manufacturing and was promoted to Vice President, Operations in September 1996.
From 1985 to 1996, Mr. Cummings was Vice President, Operations for Cray
Communications, Inc., an international manufacturer of communications equipment.
From 1975 to 1985, Mr. Cummings was Manager of Manufacturing Engineering at
Taylor Instruments, and from 1973 to 1975, an Industrial Engineer at Siemens
Stromberg Carlson Inc. Mr. Cummings holds a B.S. in electronic technology from
the State University of New York at Buffalo, and is currently in the Masters
program in advanced manufacturing systems at the University of Maryland.
W. MICHAEL FAGEN has served as Vice President, Business Development of the
Company since joining it in October 1995. From 1991 through 1995, Mr. Fagen
pursued advanced degree studies in international relations at George Washington
University, Washington, D.C. and Universidad Para la Paz, San Jose, Costa Rica.
Prior to 1991, Mr. Fagen served as Director of Sales for Telebit Corporation;
Director of Marketing and Strategic Account Development for Vitalink
Communications Corporation; National Account Manager for AT&T/Southern Bell; and
Marketing Representative for Major Accounts at IBM Corp. Mr. Fagen holds a B.A.
from The University of the South, an M.A. in international relations from La
Universidad Para la Paz and a Ph.D. in political science (pending) from the
George Washington University.
G. ERIC GEORGATOS has served as the Company's Vice President, General
Counsel and Secretary since February 1996. From 1980 to 1995, Mr. Georgatos was
an attorney and member of Gray Cary Ware & Friedenrich, a Professional
Corporation, a law firm based in California, where he served as outside general
corporate counsel for a variety of emerging companies. Mr. Georgatos holds a
B.S. degree in business administration from the University of Southern
California and a J.D. from the University of California Los Angeles.
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JESUS LEON joined the Company in November 1996 as Vice President, Access
Products. From December 1995 to October 1996, Mr. Leon served as Vice President,
Engineering, for the Access Systems Division of Alcatel Standard Electrica, S.A.
("Alcatel Electrica"), a division of Alcatel Alsthom Group. Alcatel Electrica is
a leading global supplier of telecommunications equipment. Mr. Leon led Alcatel
Electrica's product development for all access products with responsibility for
over 1,200 engineers in Europe, Australia and South Africa. Mr. Leon served in
various positions with Alcatel Electrica from 1990-1991. Mr. Leon holds a
B.S.E.E. and M.E. from the University of Florida, an A.B.D. (all but doctoral
dissertation) from the Georgia Institute of Technology and an M.B.A. from
Georgia State University.
REBECCA K. SEIDMAN joined the Company in April 1996 as Director of Human
Resources Development, and was promoted to Vice President, Human Resources
Development in June 1996. From 1984 until joining the Company, Ms. Seidman
served consecutively as Director of Marketing, Vice President, Administration,
and Principal of Walpert, Smullian & Blumenthal, P.A., a regional accounting and
consulting firm. Ms. Seidman is a Phi Beta Kappa graduate of Goucher College and
co-author of Total Quality Distribution, a book discussing practical
applications of Total Quality in the wholesale distribution industry.
JON W. BAYLESS, PH.D. has been a Director of the Company since April 1994
and has served as Chairman of the Board of Directors since November 1996. Dr.
Bayless is a general partner of various venture capital funds associated with
Sevin Rosen Funds where, since 1981, he has focused on developing business
opportunities in the fields of telecommunications and computers. Mr. Bayless is
also the controlling stockholder and sole director of Jon W. Bayless, Inc., the
general partner of Atlantic Partners L.P., which is the general partner of Citi
Growth Fund L.P., a venture capital investment firm. Dr. Bayless currently
serves as a director of 3DX Technologies Inc. and of several private companies.
Dr. Bayless is also Chairman of the Board of Directors of Shared Resource
Exchange, Inc. Shared Resource Exchange, Inc. filed for reorganization under
Chapter 11 of the Federal Bankruptcy Code in August 1996. A plan under Chapter
11 has been approved. Dr. Bayless has held faculty positions at Southern
Methodist University, Virginia Polytechnic Institute, and the Catholic
University of America. He holds patents in the field of digital
telecommunications, and is a senior member of the Institute of Electronic
Engineers. Dr. Bayless earned his B.S. degree in electrical engineering at the
University of Oklahoma. He earned his M.S. degree in electrical engineering at
the University of Alabama, and his Ph.D. in electrical engineering at Arizona
State University.
HARVEY B. CASH has been a Director of the Company since April 1994. Mr.
Cash is a general partner of InterWest Partners, a venture capital firm in Menlo
Park, California which he joined in 1985. Mr. Cash is Chairman of the Board of
Cyrix Corporation and serves on the board of directors of ProNet, Inc.,
Benchmarq, Microelectronics, Heritage Media Corporation, AMX Corporation, i(2)
Technologies Inc. and Aurora Electronics, Inc. He is also an advisor to Austin
Ventures. Mr. Cash received a B.S. in electrical engineering from Texas A&M
University and an M.B.A. from Western Michigan University.
CLIFFORD W. HIGGERSON has been a Director of the Company since April 1994.
Mr. Higgerson has since 1991 been a general partner of Vanguard Venture
Partners, a venture capital firm specializing in high technology start-ups,
located in Palo Alto, California. Prior to joining Vanguard in July 1991, Mr.
Higgerson was the managing partner of Communications Ventures, Inc. and prior to
that was a Managing Partner of Hambrecht & Quist. Mr. Higgerson is also a
director of Advanced Fibre Communications and Digital Microwave Corp. Mr.
Higgerson earned his B.S. in electrical engineering from the University of
Illinois and an M.B.A. in finance from the University of California at Berkeley.
BILLY B. OLIVER has been a Director of the Company since June 1996. Since
his retirement in 1985 after nearly 40 years of services at AT&T, Mr. Oliver has
worked as a self-employed communications consultant. During his last 15 years
with AT&T, he held the position of Vice President,
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Engineering Planning and Design, where he was directly involved in and had
significant responsibility for the evolution of AT&T's long distance network
during that period. He was a co-recipient of the Alexander Graham Bell Medal for
the conception and implementation of Nonhierarchical Routing in AT&T's network.
Mr. Oliver is also a director of Digital Microwave Corp., Communications Network
Enhancement Inc. and Enterprise Network Services Inc. Mr. Oliver earned his
B.S.E.E. degree from North Carolina State University.
MICHAEL J. ZAK has been a Director of the Company since December 1994. He
has been employed by Charles River Ventures of Boston, Massachusetts since 1991
and has been a general partner of Charles River Partnership VII and its related
entities since 1993. From 1986 through 1991, he was a founder and corporate
officer of Concord Communications, Inc., a manufacturer of data communications
systems. He is a director of ON Technology Corporation as well as five other
private companies. Mr. Zak has a B.S. degree in engineering from Cornell
University and an M.B.A. from Harvard Business School.
BOARD OF DIRECTORS
Upon the effective date of the Registration Statement of which this
Prospectus is a part, the Board of Directors will be divided into three classes.
Each class of Directors will consist of two or more Directors. At each annual
meeting of stockholders following the Offerings, one class of Directors will be
elected to a three-year term to succeed the Directors of the same class whose
terms are then expiring. The Class I Directors, whose terms will expire at the
1997 annual meeting of stockholders, will be Dr. Nettles and Mr. Bayless, the
Class II Directors, whose terms will expire at the 1998 annual meeting of
stockholders, will be Messrs. Zak and Cash, and the Class III Directors, whose
terms will expire at the 1999 annual meeting of stockholders, will be Messrs.
Oliver, Higgerson and Huber. See "Description of Capital Stock -- Delaware Law
and Certain Provisions of the Third Amended and Restated Certificate of
Incorporation".
Officers are elected by and serve at the discretion of the Board of
Directors. There are no family relationships among the Directors or officers of
the Company.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has established an Audit Committee of non-employee Directors to
make recommendations concerning the engagement of independent public
accountants, review the plans and results of the audit engagement with the
independent public accountants, review the independence of the independent
public accountants, consider the range of audit and non-audit fees and review
the adequacy of the Company's internal accounting controls. Dr. Bayless and
Messrs. Zak and Higgerson are the members of the Audit Committee. The Company
has established a Compensation Committee of non-employee Directors to determine
compensation for the Company's executive officers and to administer the
Company's Amended and Restated 1994 Stock Option Plan and the Management
Incentive Compensation Plan. Dr. Bayless and Messrs. Oliver and Zak are the
members of the Compensation Committee.
COMPENSATION OF BOARD OF DIRECTORS
Members of the Board of Directors receive $2,500 for participation in each
meeting of the full Board of Directors and $1,250 for each committee meeting and
are reimbursed for out-of-pocket expenses incurred in connection with attendance
at meetings. The Company has adopted the 1996 Outside Directors Stock Option
Plan and, under such plan, non-employee Directors are eligible to receive stock
options in consideration for their services. See "-- Stock Plans" and "-- 1996
Outside Directors Stock Option Plan".
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EXECUTIVE COMPENSATION
The following summary compensation table sets forth the compensation paid
by the Company during the fiscal year ended October 31, 1996 to the Company's
chief executive officer and each of the Company's four other executive officers
whose total compensation for services in all capacities to the Company exceeded
$100,000 during such year (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION SECURITIES
---------------------------- UNDERLYING
YEAR SALARY BONUS OPTIONS
---- -------- -------- ------------
Patrick H. Nettles, Ph.D. ........................ 1996 $174,000 $154,000 875,000
President and Chief Executive Officer
David R. Huber, Ph.D. ............................ 1996 153,000 98,000 --
Senior Vice President and Chief Scientist
Steve W. Chaddick................................. 1996 132,000 87,000 312,500
Senior Vice President, Products and Technologies
Lawrence P. Huang................................. 1996 132,000 87,000 312,500
Senior Vice President, Sales and Marketing
Joseph R. Chinnici................................ 1996 115,000 79,000 72,500
Vice President, Finance and Chief Financial
Officer
OPTION GRANTS
The following table provides information concerning grants of options to
purchase the Company's Common Stock made during the fiscal year ended October
31, 1996 to each of the Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
------------------------------------------------------------------------------
PERCENT
OF POTENTIAL REALIZABLE
TOTAL VALUE AT ASSUMED ANNUAL
NUMBER OF OPTIONS RATES OF STOCK PRICE
SECURITIES GRANTED APPRECIATION FOR OPTION
UNDERLYING EMPLOYEES EXERCISE TERM(3)
OPTIONS IN FISCAL PRICE PER EXPIRATION ------------------------
GRANTED(1) 1996 SHARE(2) DATE 5% 10%
---------- --------- --------- ---------- ---------- ----------
Patrick H. Nettles,
Ph.D. .................. 875,000 15.1% $2.30 6/21/06 $1,266,000 $3,207,000
David R. Huber, Ph.D...... -- -- -- -- -- --
Steve W. Chaddick......... 312,500 5.4 2.30 6/21/06 452,000 1,146,000
Lawrence P. Huang......... 312,500 5.4 2.30 6/21/06 452,000 1,146,000
Joseph R. Chinnici........ 72,500 1.3 2.30 6/21/06 105,000 266,000
- ---------------
(1) All options are immediately exercisable at the date of grant, but shares
purchased upon exercise of options are subject to repurchase by the Company
based upon a scheduled vesting period.
(2) All options were granted at an exercise price equal to the fair market value
of the Company's Common Stock as determined by the Board of Directors of the
Company on the date of grant. The Company's Common Stock was not publicly
traded at the time of the option grants.
(3) Potential realizable values are net of exercise price, but before taxes
associated with exercise. Amounts represent hypothetical gains that could be
achieved for the respective options if exercised at the end of the option
term. The assumed 5% and 10% rates of stock price
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appreciation are provided in accordance with rules of the United States
Securities and Exchange Commission and do not represent the Company's
estimate or projection of the future Common Stock price. Actual gains, if
any, on stock option exercises are dependent on the future performance of
the Common Stock, overall market conditions and the option holders'
continued employment through the vesting period. This table does not take
into account any appreciation in the price of the Common Stock from the date
of grant to date. Assuming the fair market value of the Common Stock at the
date of grant was the assumed initial public offering price of $18.00, the
potential realizable value of these options (a) at a 5% assumed annual rate
of stock price appreciation would be $23,643,000 for Dr. Nettles, $8,444,000
for Mr. Chaddick, $8,444,000 for Mr. Huang and $1,959,000 for Mr. Chinnici
and (b) at a 10% assumed annual rate of stock price appreciation would be
$38,839,000 for Dr. Nettles, $13,871,000 for Mr. Chaddick, $13,871,000 for
Mr. Huang and $3,218,000 for Mr. Chinnici.
AGGREGATED OPTION EXERCISES IN LAST FISCAL AND FISCAL YEAR-END OPTION VALUES
The following table provides the specified information concerning
unexercised options held as of October 31, 1996 by the Named Executive Officers:
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-
OPTIONS AT MONEY OPTIONS AT
OCTOBER 31, 1996(1) OCTOBER 31, 1996(2)
--------------------------- -----------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
--------- -------------- ----------- --------------
Patrick H. Nettles, Ph.D. .............. 875,000 -- $11,935,000 --
David R. Huber, Ph.D. .................. -- -- -- --
Steve W. Chaddick....................... 1,312,500 -- 20,180,000 --
Lawrence P. Huang....................... 1,312,500 -- 20,180,000 --
Joseph R. Chinnici...................... 322,500 -- 4,968,000 --
- ---------------
(1) All options are immediately exercisable at the date of grant, but shares
purchased upon exercise of options are subject to repurchase by the Company
based upon a scheduled vesting period. None of the shares underlying options
held by Dr. Nettles are vested and 562,500, 578,125 and 113,540 of the
shares underlying options held by Messrs. Chaddick, Huang and Chinnici,
respectively, are vested.
(2) Calculated on the basis of the fair market value of the underlying
securities as of October 31, 1996 of $15.94 per share, as determined by the
Company's Board of Directors, less the aggregate exercise price. The value
of vested in-the-money options held by Dr. Nettles is zero and the value of
vested in-the-money options for Messrs. Chaddick, Huang and Chinnici is
$8,954,000, $9,203,000 and $1,807,000, respectively.
No options to purchase the Company's Common Stock were exercised during the
fiscal year ended October 31, 1996 by the Named Executive Officers.
No compensation intended to serve as incentive for performance to occur
over a period longer than one fiscal year was paid pursuant to a long-term
incentive plan during the last fiscal year to any of the Named Executive
Officers.
EMPLOYMENT AGREEMENTS
In April 1994, the Company entered into employment agreements with each of
Dr. Huber and Dr. Nettles. The employment agreements specify that Dr. Huber and
Dr. Nettles are employees at will. In the event that either of them is
terminated for cause, as defined in the employment agreements, he will receive a
severance payment equal to his monthly base salary until the earlier of the
expiration of six months or the commencement of employment with a person or
entity other than the Company.
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40
MANAGEMENT INCENTIVE COMPENSATION PLAN
The Company has established a management incentive compensation plan (the
"Incentive Plan") pursuant to which management and non-management employees are
eligible to earn up to certain percentages of their base salary as additional
compensation, based upon the achievement of quarterly and annual objectives.
Under the Incentive Plan, the Chief Executive Officer of the Company may earn up
to 50% of his base salary, and Vice Presidents generally may earn up to 35% of
their base salaries, as additional compensation upon the achievement of certain
Company-wide objectives. Department directors and key managers are eligible to
earn up to 15% of their base salaries in additional compensation based on the
achievement of objectives which are specific to their functional department.
Managers and all other salaried employees are eligible to earn up to 7.5% of
their base salaries in additional compensation based on the achievement of
objectives which are specific to their functional department. The quarterly
objectives are determined on a quarter by quarter basis by the Board of
Directors in consultation with management, and address a wide variety of
activities with all functional areas of the Company based on the evolving needs
of the Company. Bonuses are payable quarterly and at year-end under the
Incentive Plan. In addition to amounts paid under the Incentive Plan during
fiscal year 1996, the Company paid additional bonuses to all employees in that
year.
STOCK PLANS
AMENDED AND RESTATED 1994 STOCK OPTION PLAN
A total of 20,050,000 shares of Common Stock are reserved for issuance
under the Company's Amended and Restated 1994 Stock Option Plan (the "Option
Plan"). At October 31, 1996, 259,345 shares of Common Stock subject to
repurchase by the Company had been issued upon exercise of options, 364,150
shares of Common Stock not subject to repurchase had been issued upon exercise
of options and 10,957,960 shares were subject to outstanding options at a
weighted average exercise price of $.96. Options may be granted to employees
(including officers), consultants, advisors and directors, although only
employees and directors and officers who are also employees may receive
"incentive stock options" intended to qualify for certain tax treatment. The
exercise price of nonqualified stock options must equal at least 85% of the fair
market value of the Common Stock as determined by the Board of Directors, and in
the case of incentive stock options must be no less than the fair market value
of the Common Stock as determined by the Board of Directors. These options are
immediately exercisable at the date of grant, but shares purchased upon exercise
of options are subject to repurchase by the Company based upon a scheduled
vesting period. Generally, shares underlying options vest over four years and
options must be exercised within ten years. The Option Plan provides for
accelerated vesting in the event of a change of control of the Company, provided
the subject options have been outstanding for at least 335 days. Furthermore, in
the event of a change in control, the surviving or acquiring company shall
either assume the Company's rights and obligations under outstanding stock
option agreements or substitute options for the acquiring corporation's stock
for the outstanding options.
1996 OUTSIDE DIRECTORS STOCK OPTION PLAN
A total of 750,000 shares of Common Stock have been reserved for issuance
under the 1996 Outside Directors Stock Option Plan (the "Directors Plan"). As of
October 31, 1996, options to purchase 75,000 shares have been granted under the
Directors Plan. The Directors Plan provides for the automatic granting of
nonqualified stock options to Directors of the Company who are not employees of
the Company (the "Outside Directors"). Under the Directors Plan, each current
Outside Director will automatically be granted an option to purchase 25,000
shares of Common Stock on the date of each annual meeting of stockholders after
the close of the Offerings, provided that the Outside Director continues to
serve in such capacity. Additionally, each new Outside Director will
automatically be granted an option to purchase 75,000 shares of Common Stock
upon assuming the office of Director. The exercise price of the options in all
cases will be equal to the fair
39
41
market value of the Common Stock on the date of grant. Initial grants vest over
a period of three years and annual grants vest in full on the first anniversary
of the date of grant. Options generally must be exercised within ten years.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Dr. Bayless, Mr. Cash and Mr. Zak served during the fiscal year ended
October 31, 1996 as members of the Compensation Committee of the Board of
Directors. Dr. Bayless is an affiliate of Sevin Rosen Bayless Management Co.,
Sevin Rosen Fund IV L.P. and Sevin Rosen Fund V L.P. (collectively, the "Sevin
Rosen Entities"), Mr. Cash is a general partner of InterWest Management Partners
V, the general partner of InterWest Partners V, L.P., and of InterWest Investors
V, L.P. (collectively, "InterWest"), and Mr. Zak is a general partner of the
general partner of Charles River Partnership VII ("Charles River"). Although
each of Sevin Rosen, InterWest and Charles River is a stockholder of the Company
none of Mr. Cash, Mr. Zak or Dr. Bayless were at any time during the fiscal year
ended October 31, 1996, or at any other time, an officer or employee of the
Company. No member of the Compensation Committee of the Company serves as a
member of the board of directors or compensation committee of any entity that
has one or more executive officers serving as a member of the Company's Board of
Directors or Compensation Committee. Mr. Cash is not a current member of the
Compensation Committee. See "Certain Transactions".
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Company's Certificate of Incorporation provides that a Director of the
Company shall not be personally liable for monetary damages to the Company or
its stockholders for a breach of fiduciary duty as a Director, except for
liability as a result of (i) a breach of the Director's duty of loyalty to the
Company or its stockholders, (ii) acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) an act
related to the unlawful stock repurchase or payment of a dividend under Section
174 of Delaware General Corporation Law and (iv) transactions from which the
Director derived an improper personal benefit. Such limitation of liability does
not affect the availability of equitable remedies such as injunctive relief or
rescission.
The Company's Certificate of Incorporation also authorizes the Company to
indemnify its officers, Directors and other agents, to the full extent permitted
under the Delaware General Corporation Law. The Company has entered into
separate indemnification agreements with its directors and certain officers
which may, in some cases, provide broader indemnification protection than the
specific indemnification provisions contained in the Delaware General
Corporation Law. The indemnification agreements require the Company, among other
things, to indemnify such officers and Directors against certain liabilities
that may arise by reason of their status or service as officers or Directors
(other than liabilities arising from willful misconduct of a culpable nature),
and to advance their expenses incurred as a result of any proceeding against
them as to which they could be indemnified. In addition, these agreements extend
similar indemnification arrangements to stockholders whose representatives serve
as directors of the Company.
At present, except for the Kimberlin litigation referred to above under
"Business -- Legal Proceedings," there is no pending litigation or proceeding
involving a Director, officer, employee or agent of the Company where
indemnification will be required or permitted. The Company is not aware of any
threatened litigation or proceeding which may result in a claim for such
indemnification. The Company expects to provide indemnification to its Directors
named in the Kimberlin litigation.
CERTAIN TRANSACTIONS
STOCK SALES
In April 1994, the Company issued and sold shares of Series A Preferred
Stock at a purchase price of $1.00 per share, in December 1994, the Company
issued and sold shares of Series B
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42
Preferred Stock at a purchase price of $1.50 per share and in December 1995, the
Company issued and sold shares of Series C Preferred Stock at a purchase price
of $7.00 per share. The shares of Series A, B and C Preferred Stock were
initially convertible into one share of Common Stock, subject to adjustment. The
Company effected a five-for-one stock split on December 9, 1996, and each share
of Series A, B and C Preferred Stock will convert automatically into five shares
of Common Stock upon the closing of the Offerings. In connection with these
transactions, the Company also issued warrants to purchase Common Stock at an
exercise price of $.02 per share. These warrants have been exercised and the
shares of Common Stock issued upon exercise of the warrants are reflected in the
table below.
The purchasers of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock and Common Stock included, among others, the following
directors, executive officers and holders of more than 5% of the Common Stock:
NUMBER OF NUMBER OF NUMBER OF
NUMBER OF SHARES OF SHARES OF SHARES OF
SHARES OF SERIES A SERIES B SERIES C
COMMON PREFERRED PREFERRED PREFERRED
STOCK STOCK STOCK STOCK
--------- --------- --------- ---------
(ADJUSTED
FOR FIVE-
FOR-ONE
SPLIT)
Bessemer Venture Partners III L.P., Quentin
Corporation, BVP III Special Situations, L.P.
and affiliated parties (collectively the
"Bessemer Entities")(1)....................... -- -- 700,000 447,143
Charles River(2)................................ -- -- 1,500,000 250,000
InterWest(3).................................... 205,415 1,154,848 744,950 250,000
Japan Associated Finance Co., Ltd., JAFCO G-5
Investment Enterprise Partnership, JAFCO R-
1(A) Investment Enterprise Partnership, JAFCO
R-1(B) Investment Enterprise Partnership and
U.S. Information Technology (collectively the
"JAFCO Entities")(4).......................... -- -- 1,000,000 171,429
Sevin Rosen Entities(5)......................... 205,235 1,153,789 744,291 428,571
SVE Star Ventures Enterprises No. II Limited
Partnership, SVE Star Ventures Enterprises No.
III Limited Partnership, SVE Star Ventures
Enterprises No. IIIA Limited Partnership, SVE
Star Ventures Managementgesellschaft mbH Nr. 3
& Co. Beteiligungs KG and SVE Star Ventures
Managementgesellschaft mbH Nr. 3 (collectively
the "Star Venture Entities")(6)............... -- -- 1,000,000 322,143
Vanguard IV, L.P.(7)............................ 136,220 750,000 493,999 142,850
Kevin Kimberlin(8).............................. 76,560 421,520 426,733 72,533
- ---------------
(1) Includes (i) 580,446 shares of Series B Preferred Stock held by Bessemer
Venture Partners III, L.P. ("Bessemer III"); 22,222 shares of Series B
Preferred Stock held by BVP III Special Situations L.P. ("BVP") and 97,332
shares of Series B Preferred Stock held by various individuals or entities
who are employees of, or otherwise related to, these entities, and (ii)
403,176 shares of Series C Preferred Stock held by Bessemer III, 9,523
shares of Series C Preferred Stock held by BVP and 34,444 shares of Series C
Preferred Stock held by various individuals or entities who are employees
of, or otherwise related to, these entities.
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43
(2) Michael J. Zak, an affiliate of Charles River, is a Director of the Company.
(3) Includes (i) 204,325 shares of Common Stock held by InterWest Partners V
L.P. and 1,090 shares of Common Stock held by InterWest Investors V L.P.,
(ii) 1,148,848 shares of Series A Preferred Stock held by InterWest Partners
V L.P. and 6,000 shares of Series A Preferred Stock held by InterWest
Investors V L.P., (iii) 740,998 shares of Series B Preferred Stock held by
InterWest Partners V L.P. and 3,952 shares of Series B Preferred Stock held
by InterWest Investors V L.P. and (iv) 248,438 shares of Series C Preferred
Stock held by InterWest Partners V L.P. and 1,562 shares of Series C
Preferred Stock held by InterWest Investors V L.P. Harvey B. Cash, an
affiliate of InterWest Partners V L.P., is a Director of the Company.
(4) Includes (i) 40,000 shares of Series B Preferred Stock held by Japan
Associated Finance Co., Ltd. ("JAFCO"); 82,712 shares of Series B Preferred
Stock held by JAFCO G-5 Investment Enterprise Partnership ("JAFCO G-5");
38,644 shares of Series B Preferred Stock held by JAFCO R-1(A) Investment
Enterprise Partnership ("JAFCO R-1(A)"); 38,644 shares of Series B Preferred
Stock held by JAFCO R-1(B) Investment Enterprise Partnership ("JAFCO
R-1(B)") and 800,000 shares of Series B Preferred Stock held by U.S.
Information Technology Investment Enterprise Partnership ("USIT"), and (ii)
6,857 shares of Series C Preferred Stock held by JAFCO; 14,179 shares of
Series C Preferred Stock held by JAFCO G5; 6,625 shares of Series C
Preferred Stock held by JAFCO R-1(A); 6,625 shares of Series C Preferred
Stock held by JAFCO R-1(B) and 137,143 shares of Series C Preferred Stock
held by USIT.
(5) Includes (i) 204,325 shares of Common Stock held by Sevin Rosen Fund IV L.P.
and 910 shares of Common Stock held by Sevin Rosen Bayless Management Co.,
(ii) 1,148,789 shares of Series A Preferred Stock held by Sevin Rosen Fund
IV L.P. and 5,000 shares of Series A Preferred Stock held by Sevin Rosen
Bayless Management Co., (iii) 740,998 shares of Series B Preferred Stock
held by Sevin Rosen Fund IV L.P. and 3,293 shares of Series B Preferred
Stock held by Sevin Rosen Bayless Management Co. and (iv) 285,714 shares of
Series C Preferred Stock held by Sevin Rosen Fund IV L.P. and 142,857 shares
of Series C Preferred Stock held by Sevin Rosen Fund V L.P. Jon W. Bayless,
an affiliate of the Sevin Rosen Entities, is a Director of the Company. Mr.
Bayless disclaims beneficial ownership of the shares owned by each of the
foregoing entities except to the extent of his proportional interest, if
any.
(6) Includes (i) 256,000 shares of Series B Preferred Stock held by SVE Star
Ventures Enterprises No. II Limited Partnership ("Star Enterprises II");
687,100 shares of Series B Preferred Stock held by SVE Star Ventures
Enterprises No. III Limited Partnership ("Star Enterprises III") and 56,900
shares of Series B Preferred Stock held by SVE Star Ventures Enterprises No.
IIIA Limited Partnership ("Star Enterprises IIIA"); and (ii) 33,548 shares
of Series C Preferred Stock held by Star Enterprises II; 90,026 shares of
Series C Preferred Stock held by Star Enterprises III; 7,528 shares of
Series C Preferred Stock held by Star Enterprises IIIA; 107,143 shares of
Series C Preferred Stock held by SVE Star Ventures Managementgesellschaft
mbH Nr. 3 & Co. Beteiligungs KG and 83,898 shares of Series C Preferred
Stock held by SVE Star Ventures Managementgesellschaft mbH Nr. 3.
(7) Clifford W. Higgerson, an affiliate of Vanguard IV, L.P., is a Director of
the Company.
(8) The shares beneficially owned by Kevin Kimberlin include shares of Kevin
Kimberlin Partners L.P. and Spencer Trask Holdings.
In April 1994, the Company sold 3,500,000 shares of Common Stock to Dr.
Nettles at a purchase price of $.02 per share pursuant to a Stock Purchase and
Stock Restriction Agreement dated April 9, 1994. In connection therewith, Dr.
Nettles issued a note to the Company in the amount of $63,000. The note was paid
in full in March 1995. Under the agreement, one quarter of the shares vested on
the first anniversary date of the agreement and the remaining shares vested
monthly at a rate of 1/48th per month. Until the shares are fully vested, they
are subject to certain restrictions
42
44
including forfeiture in the event employment is terminated, restrictions on
transferability and right of first refusal. As of October 31, 1996, 2,183,335 of
the shares were vested under the agreement.
The Company believes that all transactions with affiliates described above
were made on terms no less favorable to the Company than could have been
obtained from unaffiliated third parties. All future transactions, including any
loans, between the Company and its officers, directors, principal stockholders
and their affiliates will be approved by a majority of the Board of Directors,
including a majority of the independent and disinterested Outside Directors, and
will continue to be on terms no less favorable to the Company than could be
obtained from unaffiliated third parties.
LITIGATION SETTLEMENT
William K. Woodruff & Company, Inc. ("Woodruff") is participating in the
Offerings as one of the representatives of the U.S. Underwriters and the
International Underwriters as a result of the settlement of litigation
instituted by Woodruff in July 1996 against the Company and certain stockholders
of the Company. Under a 1994 agreement with the Company, Woodruff was granted a
right of first refusal for retention as an "investment banker" in any
transaction for which the Company intended to retain one or more investment
bankers, subject to certain qualifications, at a predetermined level of
compensation. The litigation brought by Woodruff sought to recover monetary,
declaratory and injunctive relief, including injunctive relief compelling the
Company to include Woodruff as a "co-manager" of the Company's initial public
offering under Woodruff's interpretation of the 1994 agreement. Under the terms
of the settlement, the Company has agreed to retain Woodruff as one of the
representatives of the underwriters of the Company's initial public offering,
granted Woodruff warrants to purchase 75,000 shares at an exercise price of
$4.00 per share, made a cash payment to Woodruff of $87,500, and agreed to
arrange for Woodruff to obtain a designated portion of the compensation to be
paid to the underwriters of the Company's initial public offering. The Company
entered into this settlement in order to avoid costly and potentially protracted
litigation over the questions of Woodruff's entitlement to compensation for, and
to participate as a "co-manager" in connection with, the Company's initial
public offering.
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45
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of November 30, 1996, and as adjusted
to reflect the sale of the shares offered hereby, (i) by each person who is
known by the Company to own beneficially more than 5% of the Company's Common
Stock, (ii) by each Director and Named Executive Officer, (iii) by all officers
and Directors as a group and (iv) by certain other holders.
PERCENT OF OWNERSHIP
NUMBER OF SHARES -----------------------
BENEFICIALLY BEFORE THE AFTER THE
DIRECTORS, OFFICERS AND PRINCIPAL STOCKHOLDERS OWNED(1) OFFERINGS OFFERINGS
- -------------------------------------------------------- ---------------- ---------- ---------
Sevin Rosen Entities(2)................................. 11,838,490 13.5% 12.7%
Two Galleria Tower
13455 Noel Road, Suite 1670
Dallas, Texas 75240
InterWest(3)............................................ 10,954,405 12.4 11.8
3000 Sand Hill Road
Building 3, Suite 255
Menlo Park, CA 94025
Charles River(4)........................................ 8,750,000 10.0 9.4
c/o Charles River Ventures, Inc.
1000 Winter Street, Suite 3300
Waltham, MA 02154
Star Venture Entities
Meir Barel.............................................. 6,610,715 7.5 7.1
Possartstrasse G
D-81679 Munich, Germany
JAFCO Entities.......................................... 5,857,145 6.7 6.3
c/o Japan Associated Finance Co., Ltd.
Toshiba Bldg., 10F
1-1-1, Shibaura, Minato-Ku
Tokyo, Japan 105
Bessemer Entities....................................... 5,735,715 6.6 6.2
1025 Old Country Road
Suite 205
Westbury, NY 11530
Vanguard IV, L.P.(5).................................... 7,070,465 8.0 7.6
525 University Avenue
Suite 600
Palo Alto, CA 94301
Patrick H. Nettles(6)................................... 4,352,135 4.9 4.6
David R. Huber(7)....................................... 6,187,950 7.0 6.7
Steve W. Chaddick(8).................................... 1,312,500 1.5 1.4
Lawrence P. Huang(9).................................... 1,312,500 1.5 1.4
Joseph R. Chinnici(10).................................. 322,500 * *
Jon W. Bayless(11)...................................... 11,838,490 13.4 12.7
Harvey B. Cash(12)...................................... 10,954,405 12.4 11.8
Clifford W. Higgerson(13)............................... 7,070,465 8.0 7.6
Billy B. Oliver(14)..................................... 75,000 * *
Michael J. Zak(15)...................................... 8,750,000 10.0 9.4
All officers and directors as a group (16
persons)(16).......................................... 53,633,445 57.7 54.7
Kevin Kimberlin(17)..................................... 4,680,490 5.3 5.0
Weiss, Peck & Greer Venture Capital Funds(18)........... 3,625,000 4.1 3.9
- ---------------
* Represents less than 1%.
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46
(1) The persons named in this table have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them,
subject to community property laws where applicable and except as indicated
in the other footnotes to this table. Beneficial ownership is determined in
accordance with the rules of the United States Securities and Exchange
Commission. In computing the number of shares beneficially owned by a
person and the percentage ownership of that person, shares of Common Stock
subject to options or warrants held by that person that are currently
exercisable or exercisable within 60 days after October 31, 1996 are deemed
outstanding. Such shares, however, are not deemed outstanding for the
purpose of computing the percentage ownership of any other person.
(2) Represents 11,081,830 shares of Common Stock beneficially owned by Sevin
Rosen Fund IV L.P., 714,285 shares of Common Stock beneficially owned by
Sevin Rosen Fund V L.P., and 42,375 shares beneficially owned by Sevin
Rosen Bayless Management Company. Jon W. Bayless, a director of the
Company, is a general partner of both SRB Associates IV L.P. the general
partner of Sevin Rosen Fund IV L.P., and SRB Associates V L.P., the general
partner of Sevin Rosen Fund V L.P., and is a principal of Sevin Rosen
Bayless Management Company. Dr. Bayless disclaims beneficial ownership of
the shares held by such entities except to the extent of his proportionate
partnership interest therein.
(3) Represents 10,895,745 shares of Common Stock beneficially owned by
InterWest Partners V L.P., and 58,660 shares of Common Stock beneficially
owned by InterWest Investors V L.P. Harvey B. Cash, a director of the
Company, is a special limited partner of InterWest Management Partners V
L.P., which is a general partner of InterWest Partners V L.P. Mr. Cash is
also the general partner of InterWest Investors V L.P. Mr. Cash disclaims
beneficial ownership of the shares held by such entities except to the
extent of his proportionate partnership interest therein.
(4) Michael J. Zak, a Director of the Company, is a general partner of the
general partner of Charles River Partnership VII. Mr. Zak disclaims
beneficial ownership of the shares held by such entity except to the extent
of his proportionate partnership interest therein.
(5) Clifford W. Higgerson, a Director of the Company, is a general partner of
Vanguard IV, L.P. Mr. Higgerson disclaims beneficial ownership of the
shares held by such entity except to the extent of his proportionate
partnership interest therein.
(6) Includes 875,000 shares of Common Stock issuable upon exercise of options,
all of which are subject to a right of repurchase by the Company. Also
includes 2,383,387 shares of Common Stock, which are not subject to a right
of repurchase by the Company.
(7) Includes 1,200,000 shares of Common Stock held in trust by Dr. Huber's wife
and 151,320 shares of Common Stock held by Mrs. Huber as custodian on
behalf of their minor children.
(8) Includes 1,312,500 shares issuable upon exercise of stock options, of which
562,500 shares are not subject to a right of repurchase by the Company.
(9) Includes 1,312,500 shares issuable upon exercise of stock options, of which
578,125 shares are not subject to a right of repurchase by the Company.
(10) Includes 322,500 shares issuable upon exercise of stock options, of which
113,540 shares are not subject to a right of repurchase by the Company.
(11) Represents 11,081,830 shares of Common Stock beneficially owned by Sevin
Rosen Fund IV L.P., 714,285 shares of Common Stock beneficially owned by
Sevin Rosen Fund V L.P., and 42,375 shares of Common Stock beneficially
owned by Sevin Rosen Bayless Management Co., which Dr. Bayless may be
deemed to beneficially own by virtue of his status as a general partner of
both SRB Associates IV L.P., the general partner of Sevin Rosen Fund IV
L.P., and SRB Associates V L.P., the general partner of Sevin Rosen Fund V
L.P., and as a principal of Sevin Rosen Bayless Management Co. Dr. Bayless
disclaims beneficial ownership of the shares held by such entities except
to the extent of his proportionate partnership interest therein.
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(12) Represents 10,895,745 shares of Common Stock beneficially owned by
InterWest Partners V L.P., and 58,660 shares of Common Stock beneficially
owned by InterWest Investors V L.P. Harvey B. Cash, a director of the
Company, is a special limited partner of InterWest Management Partners V
L.P., which is a general partner of InterWest Partners V L.P. Mr. Cash is
also the general partner of InterWest Investors V L.P. Mr. Cash disclaims
beneficial ownership of the shares held by such entities except to the
extent of his proportionate partnership interest therein.
(13) Represents 7,070,465 shares of Common Stock beneficially owned by Vanguard
IV, L.P., which Mr. Higgerson may be deemed to beneficially own by virtue
of his status as a general partner of Vanguard IV, L.P. Mr. Higgerson
disclaims beneficial ownership of the shares held by such entities except
to the extent of his proportionate partnership interest therein.
(14) Includes 75,000 shares of Common Stock issuable upon exercise of stock
options granted pursuant to the 1996 Outside Directors Plan.
(15) Represents 8,750,000 shares of Common Stock beneficially owned by Charles
River Partnership VII, which Mr. Zak may be deemed to beneficially own by
virtue of his status as a general partner of Charles River Partnership VII.
Mr. Zak disclaims beneficial ownership of the shares held by such entity
except to the extent of his proportionate partnership interest therein.
(16) Includes 3,075,000 shares issuable upon exercise of stock options, of which
1,867,715 shares are subject to a right of repurchase by the Company.
(17) Kevin Kimberlin provided initial equity capital during the formation of the
Company. The shares beneficially owned by Kevin Kimberlin include shares of
Kevin Kimberlin Partners L.P. and Spencer Trask Holdings. The address of
Kevin Kimberlin is c/o Spencer Trask, 535 Madison Avenue, New York, New
York 10022. See "Business -- Legal Proceedings".
(18) Represents 1,979,250 shares held of record by WPG Enterprise Fund II, L.P.
and 1,645,750 shares held of record by Weiss, Peck & Greer Venture
Associates III, L.P. The address of the funds is 555 California Street,
Suite 3130, San Francisco, California 94104, Attention: Christopher J.
Schaepe.
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DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 180,000,000 shares
of Common Stock and 20,000,000 shares of preferred stock, par value $.01 per
share. Each outstanding share of Convertible Preferred Stock will be
automatically converted into five shares of Common Stock upon the closing of the
Offerings being made hereby. Upon such conversion, such Convertible Preferred
Stock will be canceled, retired and eliminated from the shares that the Company
is authorized to issue. The following summary of the Company's capital stock
does not purport to be complete and is subject to, and qualified in its entirety
by, the Certificate of Incorporation and bylaws of the Company that are included
as exhibits to the Registration Statement of which this Prospectus forms a part
and by the provisions of applicable law.
COMMON STOCK
As of October 31, 1996, there were 86,507,325 shares of Common Stock
outstanding and held of record by 112 stockholders, as adjusted to reflect the
conversion of the outstanding shares of Convertible Preferred Stock into Common
Stock upon the closing of the Offerings. The holders of Common Stock are
entitled to one vote for each share held of record on all matters submitted to a
vote of the holders of Common Stock. Subject to preferences applicable to any
outstanding preferred stock, holders of Common Stock are entitled to receive
ratably such dividends as may be declared by the Board of Directors out of funds
legally available therefor. In the event of a liquidation, dissolution or
winding up of the Company, the holders of Common Stock are entitled to share
ratably in all assets remaining after payment of liabilities and the liquidation
preference of any preferred stock. Holders of Common Stock have no preemptive or
subscription rights, and there are no redemption or conversion rights with
respect to such shares. All outstanding shares of Common Stock are fully paid
and non-assessable, and the shares of Common Stock to be issued upon completion
of the Offerings will be fully paid and non-assessable.
As of October 31, 1996, there were warrants to purchase 675,000 shares of
Common Stock outstanding and warrants to purchase 300,000 shares of Convertible
Preferred Stock outstanding. The warrants to purchase Convertible Preferred
Stock expire unless exercised prior to the closing of the Offerings, and an
aggregate of 1,500,000 shares of Common Stock are issuable upon conversion of
such Convertible Preferred Stock.
UNDESIGNATED PREFERRED STOCK
The Board of Directors has the authority, without action by the
stockholders, to designate and issue preferred stock in one or more series and
to designate the dividend rate, voting rights and other rights, preferences and
restrictions of each series any or all of which may be greater than the rights
of the Common Stock. It is not possible to state the actual effect of the
issuance of any shares of preferred stock upon the rights of holders of the
Common Stock until the Board of Directors determines the specific rights of the
holders of such preferred stock. However, the effects might include, among other
things, restricting dividends on the Common Stock, diluting the voting power of
the Common Stock, impairing the liquidation rights of the Common Stock and
delaying or preventing a change in control of the Company without further action
by the stockholders. The Company has no present plans to issue any shares of
preferred stock.
REGISTRATION RIGHTS
Following the sale of the shares of Common Stock offered hereby, the
holders of 74,815,740 shares issuable upon conversion of the outstanding shares
of Convertible Preferred Stock or issued or issuable to certain holders of the
warrants, and certain shares held by certain founders of the Company and their
transferees will have certain rights to register those shares under the
Securities Act. These rights are provided under the terms of certain agreements
among the Company and the holders of such shares. Subject to certain limitations
in such agreements, the
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holders of at least 25% of such shares may require, on two occasions, that the
Company use its best efforts to register such shares for public resale, subject
to certain limitations. If the Company registers any of its Common Stock either
for its own account or for the account of other security holders, the holders of
such shares are entitled to include their shares of Common Stock in the
registration, subject to the ability of the underwriters to limit the number of
shares included in the Offerings. The holders of such shares may also require
the Company on no more than one occasion every 12 months to register all or a
portion of their registrable securities on Form S-3 when use of such form
becomes available to the Company, provided, among other limitations, that the
proposed aggregate selling price is at least $500,000, and that the total number
of permitted demand registrations on Form S-3 is limited to six. All fees, costs
and expenses of registrations pursuant to Form S-1 (other than underwriting
discounts and commissions) will be borne by the Company. All expenses of demand
registrations pursuant to Form S-3 shall be borne by the holders.
DELAWARE LAW AND CERTAIN PROVISIONS OF THE THIRD AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
The Company is a Delaware corporation and subject to Section 203 of the
Delaware General Corporation Law ("DGCL"). In general, Section 203 of the DGCL
prevents an "interested stockholder" (defined generally as a person owning 15%
or more of a Delaware corporation's outstanding voting stock) from engaging in a
"business combination" (as defined) with a Delaware corporation for three years
following the date such person became an interested stockholder, subject to
certain exceptions such as the approval of the board of directors and of the
holders of at least two thirds of the outstanding shares of voting stock not
owned by the interested stockholder. The existence of this provision of law can
be expected to have the effect of discouraging hostile takeover attempts,
including attempts that might result in a premium over the market price for the
shares of Common Stock held by stockholders.
The Company's Certificate of Incorporation provides that following the date
of this Prospectus, the Board of Directors will be divided into three classes of
directors with each class serving a staggered three-year term. The
classification system of electing directors may tend to discourage a third party
from making a tender offer or otherwise attempting to obtain control of the
Company and may maintain the incumbency of the Board of Directors, as it
generally makes it more difficult for stockholders to replace a majority of the
directors. The Company's Certificate of Incorporation also eliminates, upon the
closing of the Offerings, the right of stockholders to act without a meeting and
does not provide for cumulative voting in the election of directors. These and
other provisions may have the effect of deterring hostile takeovers or delaying
changes in control or management of the Company. The amendment of any of these
provisions would require approval by holders of 66 2/3% or more of the
outstanding Common Stock.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is The First National
Bank of Boston.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offerings, there has been no public market for the Common
Stock. Future sales of substantial amounts of Common Stock in the public market
could adversely affect the market price of the Common Stock.
Upon completion of the Offerings, the Company will have outstanding an
aggregate of 93,007,325 shares of Common Stock, assuming (i) the issuance of
5,000,000 shares of Common Stock in the Offerings, (ii) no exercise of the
Underwriters' over-allotment options and (iii) no exercise of options or
warrants to purchase Common Stock after October 31, 1996 except for 1,500,000
shares issuable upon exercise of warrants expiring at the close of the
Offerings. Of these shares, the 5,000,000 shares sold in the Offerings will be
freely tradable without restriction or further
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registration under the Securities Act, except for any shares purchased by
"affiliates" of the Company as that term is defined in Rule 144 under the
Securities Act. Sales by affiliates will be subject to certain limitations and
restrictions described below. Beginning 90 days after the date of this
Prospectus, approximately shares will become eligible for sale in the
public market subject in some cases to the volume and other restrictions of Rule
144 under the Securities Act.
Of these shares, holders of shares and options and warrants to
purchase shares are subject to lock-up agreements. Shares covered by these
lock-up agreements are subject to restrictions on resale in the public market
for a period of 180 days following the date of this Prospectus, subject to
release, directly or indirectly, by the Representatives of the Underwriters.
Upon expiration of the lock-up period, shares will become eligible
for sale in the public market, subject in most cases to the limitations of Rule
144. The remaining shares held by existing stockholders will become
eligible for sale at various times over a period of less than two years and
could be sold earlier if the holders exercise registration rights. In addition,
holders of stock options could exercise these options and sell certain of the
shares issued upon exercise as described below.
As of October 31, 1996, there were a total of 10,957,960 shares of Common
Stock subject to outstanding options under the Amended and Restated 1994 Stock
Option Plan, 2,684,355 of which were vested. Promptly following these Offerings,
the Company intends to file a registration statement on Form S-8 under the
Securities Act to register all of the shares of Common Stock issued or reserved
for future issuance under the Option Plan and the Directors Plan. On the date
180 days after the effective date of this Prospectus, a total of shares
of Common Stock subject to outstanding options will be vested and exercisable.
After the effective date of the registration statement on Form S-8, shares
purchased upon exercise of options granted pursuant to the Option Plan or
Directors Plan generally would be available for resale in the public market.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares for at least two
years (including the holding period of any prior owner except an affiliate) is
entitled to sell in "broker's transactions" or to market makers, within any
three-month period commencing 90 days after the date of this prospectus, a
number of shares that does not exceed the greater of (i) one percent of the
number of shares of Common Stock then outstanding (approximately 930,000 shares
immediately after the Offerings) or (ii) generally, the average weekly trading
volume in the Common Stock during the four calendar weeks preceding the required
filing of a Form 144 with respect to such sale. Sales under Rule 144 are
generally subject to the availability of current public information about the
Company. Under Rule 144(k), a person who is not deemed to have been an affiliate
of the Company at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for a least three years
(including the holding period of any prior owner except an affiliate), is
entitled to sell such shares without having to comply with the manner of sale,
public information, volume limitation or notice filing provisions of Rule 144.
Under Rule 701 under the Securities Act, persons who purchase shares upon
exercise of options granted prior to the effective date of the Offerings are
entitled to sell such shares 90 days after the date of this Prospectus in
reliance on Rule 144, without having to comply with the holding period and
notice filing requirements of Rule 144 and, in the case of non-affiliates,
without having to comply with the public information, volume limitation or
notice filing provisions of Rule 144. The Commission has proposed to amend the
holding period required by Rule 144 to permit sales of "restricted securities"
after one year rather than two years and to permit "non-affiliates" to sell
without restrictions, pursuant to Rule 144(k), after a holding period of two
years (including the holding period of any prior owner except an affiliate). If
such proposed amendment is adopted, restricted securities would become freely
tradable (subject to any applicable contractual restrictions) at correspondingly
earlier dates.
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CERTAIN U.S. TAX CONSIDERATIONS APPLICABLE TO
NON-U.S. HOLDERS OF THE COMMON STOCK
The following is a general discussion of certain U.S. federal income and
estate tax consequences of the ownership and disposition of Common Stock by a
person that, for U.S. federal income tax purposes, is a non-resident alien
individual, a foreign corporation, a foreign partnership or a foreign estate or
trust as defined in the U.S. Internal Revenue Code of 1986, as amended (the
"Code") (a "non-U.S. holder"). This discussion does not consider specific facts
and circumstances that may be relevant to a particular non-U.S. holder's tax
position and does not deal with all aspects of United States federal income and
estate taxation that may be relevant to non-U.S. holders, or with U.S. state and
local or non-U.S. tax consequences. Furthermore, the following discussion is
based on provisions of the Code, existing and proposed regulations promulgated
thereunder, and administrative and judicial interpretations thereof as of the
date hereof, all of which are subject to change, possibly with retroactive
effect. Each prospective non-U.S. holder is urged to consult a tax adviser with
respect to the U.S. federal tax consequences of holding and disposing of Common
Stock, as well as any tax consequences that may arise under the laws of any U.S.
state, municipality or other taxing jurisdiction.
An individual may, among other ways, be deemed to be a resident alien (as
opposed to a non-resident alien) with respect to any calendar year by virtue of
being present in the United States on at least 31 days in such calendar year and
for an aggregate of at least 183 days during the current calendar year and the
two preceding calendar years (counting for such purposes all of the days present
in the current year, one-third of the days present in the immediately preceding
year, and one-sixth of the days present in the second preceding year). Resident
aliens are subject to U.S. federal tax as if they were U.S. citizens.
DIVIDENDS
As described above, the Company does not expect to pay dividends. In the
event the Company does pay dividends, dividends paid to a non-U.S. holder of
Common Stock will be subject to withholding of U.S. federal income tax at a rate
of 30% of the gross amount of the dividend or such lower rate as may be
specified by an applicable income tax treaty, unless the dividends are
effectively connected with the conduct of a trade or business by the non-U.S.
holder within the United States. Dividends that are effectively connected with
such holder's conduct of a trade or business in the United States are subject to
U.S. federal income tax on a net income basis at applicable graduated individual
or corporate rates, and are not generally subject to withholding, if the holder
complies with certain certification and disclosure requirement. Any such
effectively connected dividends received by a foreign corporation may also,
under certain circumstances, be subject to an additional "branch profits tax" at
a 30% rate or such lower rate as may be specified by an applicable income tax
treaty.
Dividends paid to an address outside the United States are presumed to be
paid to a resident of the country of address (unless the payer has knowledge to
the contrary) for purposes of the withholdings discussed above and for purposes
of determining the applicability of a tax treaty rate. Under proposed U.S.
Treasury regulations that are proposed to be effective for distributions after
1997 (the "Proposed Regulations") however, a non-U.S. holder of Common Stock who
wishes to claim the benefit of an applicable treaty rate would be required to
satisfy applicable certification requirements. The Proposed Regulations include
special rules that apply to dividends paid to foreign partnerships. It is not
certain whether, or in what form, the Proposed Regulations will be adopted as
final regulations.
A non-U.S. holder of Common Stock that is eligible for a reduced rate of
U.S. withholding tax pursuant to an income tax treaty may obtain a refund of any
excess amounts withheld by filing an appropriate claim for refund with the U.S.
Internal Revenue Service.
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GAIN ON DISPOSITION OF COMMON STOCK
A non-U.S. holder generally will not be subject to U.S. federal income tax
in respect of gain recognized on a disposition of Common Stock unless (i) the
gain is effectively connected with a trade or business of the non-U.S. holder in
the United States or, if a tax treaty applies, is attributable to a permanent
establishment maintained by the non-U.S. holder in the United States, (ii) in
the case of a non-U.S. holder who is an individual and holds the Common Stock as
a capital asset, such holder is present in the United States for 183 or more
days in the taxable year of the sale and certain other conditions are met, or
(iii) the Company is or has been a "U.S. real property holding corporation" for
federal income tax purposes at any time during the five-year period ending on
the date of the disposition. The Company believes that it has not been and it is
not a "U.S. real property holding corporation" for U.S. federal income tax
purposes and does not currently anticipate becoming a "U.S. real property
holding corporation." If an individual non-U.S. holder falls under clause (i)
above, he or she will be taxed on his or her net gain derived from the sale at
regular graduated U.S. federal income tax rates. If an individual non-U.S.
holder falls under clause (ii) above, he or she will be subject to a flat 30%
tax on the net gain derived from the sale which gain may be offset by U.S.
capital losses. If a non-U.S. holder that is a foreign corporation falls under
clause (i) above, it will be taxed on its gain at regular graduated U.S. federal
income tax rates and, in addition, may be subject to the branch profits tax
equal to 30% of its "effectively connected earnings and profits" within the
meaning of the Code for the taxable year, as adjusted for certain items, or at
such lower rate as may be specified by an applicable income tax treaty.
FEDERAL ESTATE TAXES
Common Stock owned or treated as owned by a non-U.S. holder at the time of
death, or Common Stock of which the non-U.S. holder made certain in lifetime
transfers, will be included in such holder's gross estate for U.S. federal
estate tax purposes, unless an applicable estate tax treaty provides otherwise.
U.S. INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX
The Company must report annually to the U.S. Internal Revenue Service and
to each non-U.S. holder the amount of dividends paid to such holder and the tax
withheld with respect to such dividends, regardless of whether withholding was
required. Copies of the information returns reporting such dividends and
withholding may also be made available to the tax authorities in the country in
which the non-U.S. holder resides under the provisions of an applicable income
tax treaty.
Under current law, backup withholding (which generally is a withholding tax
imposed at the rate of 31% on certain payments to persons that fail to furnish
certain information under the U.S. information reporting requirements) will
generally not apply to dividends paid to a non-U.S. holder at an address outside
the United States unless such non-U.S. holder is engaged in a trade or business
in the United States or unless the payer has knowledge that the payee is a U.S.
person. Under the Proposed Regulations, however, dividend payments generally
will be subject to backup withholding unless applicable certification
requirements are satisfied.
In general, backup withholding and information reporting will not apply to
a payment of the proceeds of a sale of Common Stock to or through a foreign
office of a broker. If, however, such broker is, for U.S. federal income tax
purposes, a U.S. person, a controlled foreign corporation, or a foreign person
that derives 50% of more of its gross income for certain periods form the
conduct of a trade or business in the United States, such payments will not be
subject to backup withholding but will be subject to information reporting,
unless (1) such broker has documentary evidence in its records that the
beneficial owner is a non-U.S. holder and certain other conditions are met, or
(2) the beneficial owner otherwise establishes an exemption.
Payment to or through a U.S. office of a broker of the proceeds of a sale
of Common Stock is generally subject to both backup withholding and information
reporting unless the beneficial owner
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certifies under penalties of perjury that it is a non-U.S. holder, or otherwise
establishes an exemption.
Any amounts withheld under the backup withholding rules may be allowed as a
refund or a credit against such holder's U.S. federal income tax liability
provided the required information is furnished to the U.S. Internal Revenue
Service.
LEGAL MATTERS
Certain legal matters with respect to the shares of Common Stock offered
hereby will be passed upon for the Company by Hogan & Hartson L.L.P., Baltimore,
Maryland and for the Underwriters by Hale and Dorr, Washington, D.C.
EXPERTS
The financial statements as of October 31, 1996 and 1995 and for each of
the three fiscal years in the period ended October 31, 1996 included in this
Prospectus have been so included in reliance on the report of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission a
Registration Statement on Form S-1 under the Securities Act with respect to the
Common Stock offered hereby. This Prospectus, which constitutes a part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement, certain items of which are contained in exhibits to the
Registration Statement as permitted by the rules and regulations of the
Commission. For further information with respect to the Company and the Common
Stock offered hereby, reference is made to the Registration Statement, including
the exhibits thereto. Statements made in this Prospectus concerning the contents
of any document referred to herein are not necessarily complete. With respect to
each such document filed with the Commission as an exhibit to the Registration
Statement, reference is made to the copy of such documents filed as exhibits to
the Registration Statement for a more complete description of the matter
involved, and each such document shall be deemed qualified in its entirety by
such reference. The Registration Statement, including the exhibits thereto, as
well as other information filed with the Commission, may be inspected without
charge at the Commission's principal office at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the Commission's regional offices at 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade
Center, Suite 1300, New York, New York 10048. Copies of all or any part thereof
may be obtained from the Commission upon the payment of certain fees prescribed
by the Commission. The Commission also maintains a World Wide Web site that
contains reports, proxy statements and other information regarding registrants,
including the Company, that file such information electronically with the
Commission. The address of the Commission's Web site is http://www.sec.gov.
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54
CIENA CORPORATION
INDEX TO FINANCIAL STATEMENTS
Report of Independent Accountants..................................................... F-2
Balance Sheets as of October 31, 1995 and 1996........................................ F-3
Statements of Operations for the years ended October 31, 1994, 1995 and 1996.......... F-4
Statements of Changes in Stockholders' Equity (Deficit) for the years ended October
31, 1994, 1995 and 1996............................................................. F-5
Statements of Cash Flows for the years ended October 31, 1994, 1995 and 1996.......... F-6
Notes to Financial Statements......................................................... F-7
F-1
55
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of CIENA Corporation
In our opinion, the accompanying balance sheets and the related statements of
operations, of cash flows and of changes in stockholders' equity (deficit)
present fairly, in all material respects, the financial position of CIENA
Corporation at October 31, 1996 and 1995, and the results of its operations and
its cash flows for each of the three years in the period ended October 31, 1996,
in conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Falls Church, VA
November 27, 1996, except as to Note 14,
which is as of December 10, 1996
F-2
56
CIENA CORPORATION
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
PRO FORMA
STOCKHOLDERS'
OCTOBER 31, EQUITY AT
--------------------- OCTOBER 31,
1995 1996 1996
--------- -------- ------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents......................................................... $ 5,032 $ 22,557
Accounts receivable (net of allowance of $--)..................................... 8 16,759
Inventories, net.................................................................. -- 13,228
Deferred income taxes............................................................. -- 1,834
Prepaid expenses and other........................................................ 22 634
--------- --------
Total current assets..................................................... 5,062 55,012
Equipment, furniture and fixtures, net................................................ 2,239 11,863
Other assets.......................................................................... 82 426
--------- --------
Total assets................................................................. $ 7,383 $ 67,301
========= ========
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current installments of capital lease obligations................................. $ 368 $ 960
Current maturities of notes payable............................................... -- 69
Accounts payable.................................................................. 541 6,278
Accrued liabilities............................................................... 1,084 5,242
Income taxes payable.............................................................. -- 3,342
Deferred revenue.................................................................. -- 3,265
--------- --------
Total current liabilities................................................ 1,993 19,156
Capital lease obligations, less current installments.................................. 856 2,186
Notes payable, less current maturities................................................ -- 487
Deferred rent......................................................................... 10 98
--------- --------
Total liabilities........................................................ 2,859 21,927
Commitments and contingencies......................................................... -- --
Mandatorily redeemable preferred stock -- par value $.01, 16,250,000 shares
authorized:
Series A -- 4,500,000 shares authorized; 3,542,520 and 3,590,157 shares issued and
outstanding; zero outstanding pro forma.......................................... 3,492 3,492 $ --
Series B -- 8,000,000 shares authorized; 7,354,092 shares issued and outstanding;
zero outstanding pro forma....................................................... 10,962 10,962 --
Series C -- 3,750,000 shares authorized; 3,718,899 shares issued and outstanding;
zero outstanding pro forma....................................................... -- 25,950 --
Stockholders' equity (deficit):
Preferred stock -- par value $.01; 20,000,000 shares authorized; zero shares
issued and outstanding; zero outstanding pro forma............................... -- -- --
Common stock -- par value $.01; 180,000,000 shares authorized; 11,935,415 and
13,191,585 shares issued and outstanding; 86,507,325 outstanding pro forma....... 119 132 865
Additional paid-in capital........................................................ 110 339 40,010
Notes receivable from stockholders................................................ -- (60) (60)
Retained earnings (deficit)....................................................... (10,159) 4,559 4,559
--------- -------- --------
Total stockholders' equity (deficit)..................................... (9,930) 4,970 $ 45,374
--------- -------- --------
Total liabilities, mandatorily redeemable preferred stock and stockholders'
equity (deficit)............................................................ $ 7,383 $ 67,301
========= ========
The accompanying notes are an integral part of these financial statements
F-3
57
CIENA CORPORATION
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED OCTOBER 31,
-----------------------------
1994 1995 1996
------- ------- -------
Revenue........................................................ $ -- $ -- $54,838
Cost of goods sold............................................. -- -- 21,844
------- ------- -------
Gross profit.............................................. -- -- 32,994
------- ------- -------
Operating expenses:
Research and development.................................. 1,287 6,361 8,922
Selling and marketing..................................... 295 481 3,780
General and administrative................................ 787 896 3,905
------- ------- -------
Total operating expenses............................. 2,369 7,738 16,607
------- ------- -------
Income (loss) from operations.................................. (2,369) (7,738) 16,387
Interest and other income (expense), net....................... (36) 195 877
Interest expense............................................... (2) (86) (296)
------- ------- -------
Income (loss) before income taxes.............................. (2,407) (7,629) 16,968
Provision for income taxes..................................... -- -- 2,250
------- ------- -------
Net income (loss).............................................. $(2,407) $(7,629) $14,718
======= ======= =======
Pro forma net income per common and common equivalent
share........................................................ $ .15
=======
Pro forma weighted average common and common equivalent shares
outstanding.................................................. 99,107
=======
The accompanying notes are an integral part of these financial statements.
F-4
58
CIENA CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED OCTOBER 31, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS)
NOTES TOTAL
COMMON STOCK RECEIVABLE RETAINED STOCKHOLDERS'
--------------------- ADDITIONAL FROM EARNINGS EQUITY
SHARES AMOUNT PAID-IN-CAPITAL STOCKHOLDERS (DEFICIT) (DEFICIT)
----------- ------ --------------- ------------ -------- ------------
BALANCE AT OCTOBER 31,
1993..................... 7,066,665 $ 71 $ 17 $ -- $ (123) $ (35)
Issuance of common stock... 3,750,000 37 39 (65) -- 11
Payment of expenses by
stockholder.............. -- -- 43 -- -- 43
Net loss................... -- -- -- -- (2,407) (2,407)
----------- ------ ------ ------ -------- ------------
BALANCE AT OCTOBER 31,
1994..................... 10,816,665 108 99 (65) (2,530) (2,388)
Exercise of warrants....... 1,075,000 11 11 -- -- 22
Exercise of stock
options.................. 43,750 -- -- -- -- --
Repayment of receivables
from stockholders........ -- -- -- 65 -- 65
Net loss................... -- -- -- -- (7,629) (7,629)
----------- ------ ------ ------ -------- ------------
BALANCE AT OCTOBER 31,
1995..................... 11,935,415 119 110 -- (10,159) (9,930)
Exercise of warrants....... 676,425 7 -- -- -- 7
Exercise of stock
options.................. 579,745 6 71 (60) -- 17
Compensation cost of stock
options.................. -- -- 2 -- -- 2
Issuance of warrants for
settlement of certain
equity rights............ -- -- 156 -- -- 156
Net income................. -- -- -- -- 14,718 14,718
----------- ------ ------ ------ -------- ------------
BALANCE AT OCTOBER 31,
1996..................... 13,191,585 $132 $ 339 $(60) $ 4,559 $ 4,970
========= ====== ============ ========== ======= ==========
The accompanying notes are an integral part of these financial statements.
F-5
59
CIENA CORPORATION
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED OCTOBER 31,
---------------------------------
1994 1995 1996
-------- -------- ---------
Cash flows from operating activities:
Net income (loss)............................................. $ (2,407) $ (7,629) $ 14,718
Adjustments to reconcile net income (loss) to net cash (used
in) provided by operating activities:
Non-cash charges from equity transactions................ 75 -- 158
Write down of leasehold improvements..................... -- -- 883
Depreciation and amortization............................ 25 355 1,007
Provision for inventory excess and obsolescence.......... -- -- 1,937
Accrued interest on notes receivable from stockholders... (2) -- (2)
Provision for warranty and other contractual
obligations............................................ -- -- 1,584
Changes in assets and liabilities:
(Increase) decrease in accounts receivable.......... 4 (8) (16,751)
Increase in prepaid expenses and other.............. (2) (16) (612)
Increase in inventories............................. -- -- (15,165)
Increase in deferred income taxes................... -- -- (1,834)
Increase in other assets............................ (26) (56) (343)
Increase in accounts payable and accruals........... 820 757 8,311
Increase in income taxes payable.................... -- -- 3,342
Increase (decrease) in deferred revenue and deferred
rent.............................................. 21 (11) 3,353
-------- -------- ---------
Net cash (used in) provided by operating activities...... (1,492) (6,608) 586
-------- -------- ---------
Cash flows from investing activities:
Additions to equipment, furniture and fixtures................ (585) (2,036) (11,514)
-------- -------- ---------
Net cash used in investing activities.................... (585) (2,036) (11,514)
-------- -------- ---------
Cash flows from financing activities:
Proceeds from notes payable................................... -- -- 556
Proceeds from bridge loan..................................... 200 -- --
Repayment of bridge loan...................................... (200) -- --
Net proceeds from issuance of or subscription to mandatorily
redeemable preferred stock................................. 3,460 10,962 25,950
Proceeds from issuance of common stock and warrants........... 11 22 24
Repayment of notes receivable from stockholders............... -- 65 --
Proceeds from lease financing activities...................... 504 944 2,564
Principal payments on capital lease obligations............... -- (225) (641)
-------- -------- ---------
Net cash provided by financing activities................ 3,975 11,768 28,453
-------- -------- ---------
Net increase in cash and cash equivalents................ 1,898 3,124 17,525
Cash and cash equivalents at beginning of year.................... 10 1,908 5,032
-------- -------- ---------
Cash and cash equivalents at end of year.......................... $ 1,908 $ 5,032 $ 22,557
======= ======= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest...................................................... $ 2 $ 86 $ 296
======= ======= ========
Income taxes.................................................. $ -- $ -- $ 742
======= ======= ========
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
Issuance of common stock for notes receivable from stockholders... $ 65 $ -- $ 60
======= ======= ========
The accompanying notes are an integral part of these financial statements.
F-6
60
CIENA CORPORATION
NOTES TO FINANCIAL STATEMENTS
(1) THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
Description of Business
CIENA Corporation (the "Company" or "CIENA"), a Delaware corporation, was
incorporated on November 2, 1992 as HydraLite Incorporated. Subsequently, the
Company changed its name to Cedrus Corporation and then to CIENA Corporation.
The Company designs, manufactures and sells dense wavelength division
multiplexing systems for long distance fiberoptic telecommunications networks.
During the period from November 2, 1992 to October 31, 1995, CIENA was a
development stage company as defined in Statement of Financial Accounting
Standards No. 7, "Development Stage Enterprises". Planned principal operations
commenced during fiscal 1996 and, accordingly, CIENA is no longer considered a
development stage company.
During fiscal 1996, all of the Company's revenue was attributable to a
single product and to a single customer. Additionally, the Company's access to
certain raw materials is dependent upon single and sole source suppliers.
Fiscal Year
The Company has a 52 or 53 week fiscal year which ends on the Saturday
nearest to the last day of October in each year (November 2, 1996; October 28,
1995; and October 29, 1994). For purposes of financial statement presentation,
each fiscal year is described as having ended on October 31. Fiscal 1994 and
1995 comprised 52 weeks and fiscal 1996 comprised 53 weeks.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company to make estimates, judgments
and assumptions that affect the reported amounts of assets, liabilities, revenue
and expenses, together with amounts disclosed in the related notes to the
financial statements. Particularly sensitive estimates include reserves for
warranty and other contractual obligations and for excess and obsolete
inventories. Actual results could differ from the recorded estimates.
Pro Forma Stockholders' Equity
CIENA anticipates filing an initial registration statement with the
Securities and Exchange Commission. If the contemplated Offerings are
consummated under the terms presently anticipated, each share of the Mandatorily
Redeemable Series A, B, and C Preferred Stock (collectively, the "Convertible
Preferred Stock") will convert into five shares of the Company's Common Stock.
Pro forma stockholders' equity as of October 31, 1996 reflects the anticipated
conversion of the Convertible Preferred Stock into Common Stock.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents. The Company's entire
cash and cash equivalents balance at October 31, 1996 was on deposit with one
financial institution, which represents a concentration of credit risk as
defined under Statement of Financial Accounting Standards No. 105, "Disclosure
of Information about Financial Instruments with Off-Balance-Sheet Risk and
Financial Instruments with Concentrations of Credit Risk". The majority of the
Company's cash equivalents are invested in overnight repurchase agreements,
which are secured by the U.S. Government.
F-7
61
CIENA CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(1) THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Inventories
Inventories are stated at the lower of cost or market, with cost determined
on the first-in, first-out basis. The Company records a provision for excess and
obsolete inventory whenever such an impairment has been identified.
Equipment, Furniture and Fixtures
Equipment, furniture and fixtures are recorded at cost. Depreciation and
amortization are computed using the straight-line method over useful lives of
2-5 years for equipment, furniture and fixtures and of 6-10 years for leasehold
improvements.
Revenue Recognition
The Company recognizes product revenue in accordance with the shipping
terms specified. For transactions where the Company has yet to obtain customer
acceptance or has agreements pertaining to installation services, revenue is
deferred until no significant obligations remain. Revenue for installation
services is recognized as the services are performed. Amounts received in excess
of revenue recognized are included as deferred revenue in the accompanying
balance sheets. For distributor sales where risks of ownership have not
transferred, the Company recognizes revenue when the product is shipped through
to the end user.
During fiscal 1996, all of the Company's revenue and related trade accounts
receivable were derived from one customer, which is headquartered within the
United States.
Revenue-Related Accruals
The Company provides for the estimated costs to fulfill customer warranty
and other contractual obligations upon the recognition of the related revenue.
Such reserves are determined based upon actual warranty cost experience,
estimates of component failure rates, and management's industry experience. The
Company's contractual sales arrangements generally do not permit the right of
return of product by the customer.
Research and Development
The Company charges all research and development costs to expense as
incurred.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 (SFAS No. 109), "Accounting for Income
Taxes". SFAS No. 109 is an asset and liability approach that requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences attributable to differences between the carrying amounts of assets
and liabilities for financial reporting purposes and their respective tax bases,
and for operating loss and tax credit carryforwards. In estimating future tax
consequences, SFAS No. 109 generally considers all expected future events other
than the enactment of changes in tax laws or rates. A valuation allowance is
recorded if it is "more likely than not" that some portion or all of a deferred
tax asset will not be realized.
F-8
62
CIENA CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(1) THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Computation of Pro Forma Net Income per Share
Pro forma net income per common and common equivalent share is computed
using the weighted average number of common and common equivalent shares
outstanding. Weighted average common and common equivalent shares include Common
Stock, stock options and warrants using the modified treasury stock method and
the assumed conversion of all outstanding shares of Convertible Preferred Stock
into Common Stock. Since the conversion of the Convertible Preferred Stock has a
significant effect on the earnings per share calculation, historical loss per
share has not been calculated on the basis that it is irrelevant.
Pursuant to the requirements of the Securities and Exchange Commission,
Common Stock, stock options, warrants and Convertible Preferred Stock issued by
the Company during the twelve months immediately preceding the filing of an
initial registration statement and through the effective date of such
registration statement have been included in the calculation of the weighted
average shares outstanding using the modified treasury stock method based on the
estimated initial public offering price.
Software Development Costs
Statement of Financial Accounting Standards No. 86, "Accounting for the
Costs of Computer Software to be Sold, Leased or Otherwise Marketed", requires
the capitalization of certain software development costs incurred subsequent to
the date technological feasibility is established and prior to the date the
product is generally available for sale. The capitalized cost is then amortized
over the estimated product life. The Company defines technological feasibility
as being attained at the time a working model is completed. To date, the period
between achieving technological feasibility and the general availability of such
software has been short and software development costs qualifying for
capitalization have been insignificant. Accordingly, the Company has not
capitalized any software development costs.
Accounting for Stock Options
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 (SFAS No. 123), "Accounting for
Stock-Based Compensation". The Company's adoption of SFAS No. 123 in fiscal 1997
will not have any effect on the Company's financial condition or results of
operations, as the Company intends to continue to measure compensation cost of
stock options granted to employees using the intrinsic value method provided by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees".
(2) INVENTORIES
Inventories are comprised of the following (in thousands):
OCTOBER 31,
1996
-----------
Raw materials................................................... $ 8,585
Work-in-process................................................. 3,629
Finished goods.................................................. 2,951
-------
15,165
Less reserve for excess and obsolescence........................ (1,937)
-------
$13,228
=======
F-9
63
CIENA CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(3) EQUIPMENT, FURNITURE AND FIXTURES
Equipment, furniture and fixtures are comprised of the following (in
thousands):
OCTOBER 31,
-------------------
1995 1996
------- --------
Equipment, furniture and fixtures........................ $ 2,077 $ 11,647
Leasehold improvements................................... 133 1,141
------- --------
2,210 12,788
Accumulated depreciation and amortization................ (381) (1,388)
Construction-in-progress................................. 410 463
------- --------
$ 2,239 $ 11,863
====== ========
In September 1994 and October 1995, the Company entered into separate
master lease agreements to lease certain furniture and equipment. The Company
may lease up to a maximum total of $4.5 million of furniture and equipment under
these agreements, of which $4.1 million had been utilized as of October 31,
1996. Lease terms range from 36 to 48 months. In accordance with Statement of
Financial Accounting Standards No. 13, "Accounting for Leases", the related
leases have been recorded as capital lease transactions.
Furniture and equipment with a cost of $1,541,000 and $4,105,000 and
accumulated depreciation of $311,000 and $1,080,000 have been accounted for as
capital lease assets at October 31, 1995 and 1996, respectively. The Company has
the option to purchase the assets at the end of the lease term.
(4) ACCRUED LIABILITIES
Accrued liabilities are comprised of the following (in thousands):
OCTOBER 31,
------------------
1995 1996
------- -------
Warranty and other contractual obligations......................... $ -- $ 1,584
Accrued compensation............................................... 434 2,314
Unbilled construction-in-progress and leasehold improvements....... 411 50
Other.............................................................. 239 1,294
------- -------
$ 1,084 $ 5,242
====== ======
(5) CAPITAL LEASE OBLIGATIONS
Capital lease obligations are summarized as follows (in thousands):
OCTOBER 31,
1996
-----------
Capital lease obligations, secured by related assets, payable in
monthly installments including interest at rates ranging from
8.72% to 13.15% through June 2000............................. $ 3,146
Less current installments.................................. (960)
-----------
Long-term capital lease obligations........................ $ 2,186
=========
F-10
64
CIENA CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(5) CAPITAL LEASE OBLIGATIONS -- (CONTINUED)
Future minimum capital lease payments at October 31, 1996 are as follows
(in thousands):
Fiscal year ending October 31,
1997..................................................... $ 1,288
1998..................................................... 1,202
1999..................................................... 942
2000..................................................... 377
-------
3,809
Less amounts representing interest................................. (663)
-------
$ 3,146
=======
(6) LINE OF CREDIT
In November 1996, the Company entered into an unsecured line of credit
agreement with a bank, which provides for borrowings of up to $15,000,000.
Interest on borrowings is set at the bank's prime rate (at November 20, 1996 the
rate was 8.25%). Among other provisions, the Company is required to maintain
certain financial covenants, principally certain minimum working capital levels
and monthly profitability levels. The line of credit agreement also prohibits
the Company from paying cash dividends on its capital stock, and expires in
November 1997.
(7) NOTES PAYABLE
In June 1996, the Company borrowed $556,000 from the Maryland Economic
Development Corporation for construction of leasehold improvements and executed
promissory notes of $500,000 and $56,000 with annual interest rates of 6.63% and
3.00%, respectively. Initial interest payments on the notes are due three and
six months following the date of disbursement with quarterly principal payments
commencing on March 31, 1997. The Company provided $56,000 on deposit in escrow
as collateral towards the notes and has recorded such amount as a component of
other assets in the accompanying balance sheet.
The notes payable are due as follows (in thousands):
Fiscal year ending October 31,
1997....................................................... $ 69
1998....................................................... 153
1999....................................................... 104
2000....................................................... 111
2001....................................................... 119
-----
$ 556
=====
(8) MANDATORILY REDEEMABLE PREFERRED STOCK
Each holder of Convertible Preferred Stock is entitled to vote on all
matters on an as if converted basis. Dividends, if declared by the Board of
Directors, are $.06, $.1275 and $.56 per share for the Series A, Series B and
Series C Preferred Stock, respectively. No dividends have been declared through
fiscal 1996. Subsequent to December 1, 2001, Series A dividends accrue on a
quarterly basis and become cumulative. Upon liquidation, holders of the Series
A, Series B and
F-11
65
CIENA CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(8) MANDATORILY REDEEMABLE PREFERRED STOCK -- (CONTINUED)
Series C Preferred Stock are entitled to receive $1.00, $1.50 and $7.00 per
share, respectively, as adjusted for certain defined recapitalization events,
plus accrued dividends, if any.
Holders of Convertible Preferred Stock may convert each of their shares
into five shares of common stock at any time. Each outstanding share of
Convertible Preferred Stock will be automatically converted into five shares of
Common Stock upon (1) the consummation of the Offerings contemplated by the
Company in its anticipated initial registration statement, or (2) the
affirmative vote of the holders of record of (a) 67% of the outstanding shares
of all series of Convertible Preferred Stock, voting together as one class to
that effect, and (b) 85% of the outstanding shares of Series C Preferred Stock,
voting separately as a class. Each outstanding share of Convertible Preferred
Stock is mandatorily redeemable by the Company at the greater of purchase price
or fair value upon the affirmative vote of holders of 72% of the outstanding
shares for each individual series. A total of 50% of any such redemption is to
be paid seven years from original issuance and 50% eight years from original
issuance. The accompanying financial statements do not reflect any accretion to
redemption value, because such accretion is not meaningful in light of the
contemplated Offerings and the related expected conversion of all Convertible
Preferred Stock to Common Stock.
During February 1994, the Company received a two month $200,000 bridge loan
from two investors that subsequently purchased Series A Preferred Stock shares
in April 1994. These two investors received warrants to purchase 50,000 shares
of Series A Preferred Stock at either an exercise price of $1.00 per share or at
a reduced share quantity for a cashless exercise price. The fair value of these
warrants was determined to be immaterial on the date of grant and therefore no
charge was recorded. In September 1996, warrants to purchase 50,000 of these
shares were exercised and exchanged in a cashless exercise for 47,637 shares.
The following is a summary of the Company's Convertible Preferred Stock
activity (dollars in thousands):
SERIES A SERIES B SERIES C
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
------------------- -------------------- --------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ------ --------- ------- --------- -------
Balance at October 31, 1993........... -- $ -- -- $ -- -- $ --
Issued................................ 3,542,520 3,543 -- -- -- --
Costs associated with issuance........ -- (51) -- -- -- --
--------- ------- --------- ------- --------- -------
Balance at October 31, 1994........... 3,542,520 3,492 -- -- -- --
Issued................................ -- -- 7,354,092 11,031 -- --
Costs associated with issuance........ -- -- -- (69) -- --
--------- ------ --------- ------- --------- -------
Balance at October 31, 1995........... 3,542,520 3,492 7,354,092 10,962 -- --
Issued................................ 47,637 -- -- -- 3,718,899 26,032
Costs associated with issuance........ -- -- -- -- -- (82)
--------- ------ --------- ------- --------- -------
Balance at October 31, 1996........... 3,590,157 $3,492 7,354,092 $10,962 3,718,899 $25,950
========= ====== ========= ======= ========= =======
(9) STOCK OPTIONS AND WARRANTS
Stock Warrants
In January 1993, the Company issued a fully paid option to acquire up to
five percent of the Company's outstanding shares of Common Stock after exercise.
This option was issued in connection with the license of certain technologies
described in Note 11. This option was redeemed
F-12
66
CIENA CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(9) STOCK OPTIONS AND WARRANTS -- (CONTINUED)
for 643,090 shares in early January 1996. As the fair value of these warrants
was determined to be immaterial at the date of issuance, no charge to research
and development expense was recorded.
In connection with the master lease agreement discussed in Note 5, the
Company issued in September 1994, for $600, a warrant to the lessor to acquire
600,000 shares of the Company's Common Stock at an exercise price of $0.20 per
share. As the fair value of these warrants was determined to be immaterial at
the date of issuance, no charge was recorded by the Company.
In connection with the 1994 equity offerings, the Company issued warrants
to investment bankers to purchase 1,075,000 shares of Common Stock at an
exercise price of $0.02 and 150,000 shares of Series A Preferred Stock at an
exercise price of $1.00 per share. No charge was recorded relative to these
warrants as their fair value was determined to be immaterial. The warrants for
the purchase of 1,075,000 shares of Common Stock were exercised in December 1994
for a $21,500 purchase price. During 1995, the warrants to purchase 150,000
shares of Series A Preferred Stock at $1.00 per share were canceled in exchange
for the Company granting options to purchase 300,000 shares of Series B
Preferred Stock at $2.00 per share.
During August 1996, in connection with the settlement of litigation
involving a dispute over certain rights awarded from the April 1994 equity
offerings of Series A Preferred Stock, the Company issued, for $150, a warrant
to an investor to acquire 75,000 shares of the Company's Common Stock at an
exercise price of $4.00 per share. The Company recorded approximately $156,000
in expense for the fair value of the warrant when granted.
Stock Incentive Plans
The Company has an Amended and Restated 1994 Stock Option Plan (the "1994
Plan"). Under the 1994 Plan, 20,050,000 shares of the Company's authorized but
unissued Common Stock are reserved for options issuable to employees. These
options are immediately exercisable upon grant, and both the options and the
shares issuable upon exercise of the options generally vest to the employee over
a four year period. The Company has the right to repurchase any exercised and
non-vested shares at the original purchase price from the employees upon
termination of employment. In June 1996 the Company approved the 1996 Outside
Directors Stock Option Plan (the "1996 Plan"). Under the 1996 Plan, 750,000
shares of the Company's authorized but unissued Common Stock are reserved for
options issuable to outside members of the Company's Board of Directors. These
options vest to the director over periods from one to three years, depending on
the type of option granted, and are exercisable once vested. Under the 1994 Plan
and the 1996 Plan, options may be incentive stock options or non-statutory
options, and the exercise price for each option shall be established by the
Board of Directors provided, however, that the exercise price per share shall
not be not less than the fair market value for incentive stock options and not
less than
F-13
67
CIENA CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(9) STOCK OPTIONS AND WARRANTS -- (CONTINUED)
85% of fair market value for non-statutory stock options. Following is a summary
of the Company's stock option and warrant activity:
NUMBER OF SHARES (IN THOUSANDS)
-------------------------------------------
PREFERRED PREFERRED
COMMON STOCK STOCK STOCK EXERCISE
------------------- SERIES A SERIES B PRICE
OPTIONS WARRANTS WARRANTS WARRANTS PER SHARE
------- -------- -------- -------- ----------
Balance at October 31, 1993................ -- 386 -- -- $.00- .10
Granted............................... 3,560 1,916 200 -- .00- 1.00
------- -------- ------ ------ ----------
Balance at October 31, 1994................ 3,560 2,302 200 -- .00- 1.00
Granted............................... 3,856 49 -- 300 .00- 2.00
Exercised............................. (44) (1,075) -- -- .02
Canceled.............................. (431) -- (150) -- .02- 1.00
------- -------- ------ ------ ----------
Balance at October 31, 1995................ 6,941 1,276 50 300 .00- 2.00
Granted............................... 5,851 75 -- -- .06-15.94
Exercised............................. (579) (676) (48) -- .00- 1.52
Canceled.............................. (1,180) -- (2) -- .03- 3.69
------- -------- ------ ------ ----------
Balance at October 31, 1996................ 11,033 675 -- 300 $.02-15.94
====== ======= ====== ====== ==========
All of the outstanding warrants above are currently exercisable, except the
Common Stock warrant for 75,000 shares granted to an investor in August 1996.
This warrant becomes exercisable in August 1997. Approximately 3.3 million of
the total outstanding options and warrants were vested at October 31, 1996.
(10) INCOME TAXES
In fiscal 1996, the provision for income taxes consists of the following
(in thousands):
Current:
Federal...................................................... $ 3,452
State........................................................ 632
--------
4,084
--------
Deferred:
Federal...................................................... (1,690)
State........................................................ (144)
--------
(1,834)
--------
$ 2,250
========
In fiscal 1994 and 1995, the tax provision was comprised primarily of a tax
benefit of approximately $960,000 and $3.1 million, respectively, which was
offset by valuation allowance of the same amount.
In fiscal 1994 and 1995, the tax provision differed from the expected tax
benefit, computed by applying the U.S. federal statutory rate of 35% to the loss
before income taxes, principally due to the effect of increases in the valuation
allowance. In fiscal 1996, the tax provision reconciles to the
F-14
68
CIENA CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(10) INCOME TAXES -- (CONTINUED)
amount computed by multiplying income before income taxes by the U.S. federal
statutory rate of 35% as follows:
Provision at statutory rate......................................... 35.0%
Reversal of valuation allowance..................................... (24.3)
State taxes, net of federal benefit................................. 2.9
Current tax credits................................................. (1.1)
Other............................................................... 0.8
----
13.3%
====
The components of deferred tax assets were as follows (in thousands):
OCTOBER 31,
-------------------
1995 1996
-------- -------
Reserve for excess and obsolete inventories.............. $ -- $ 736
Accrued warranty and other contractual obligations....... -- 602
Start-up costs deferred for tax purposes................. 496 379
Other accrued expenses not deducted for tax.............. -- 114
Accrual to cash basis adjustments........................ 689 --
Net operating loss carryforward.......................... 2,814 --
Other.................................................... 51 3
-------- -------
Gross deferred tax assets........................... 4,050 1,834
Valuation allowance................................. (4,050) --
-------- -------
Net deferred tax asset......................... $ -- $ 1,834
======== =======
The increase in the valuation allowance during fiscal 1995 was primarily
attributable to the increase in net operating losses. The reversal of the
valuation allowance during the third quarter of fiscal 1996 was attributable to
the receipt of product acceptance by the Company from its initial customer and
the start of profitable operations during that period. In assessing the
realizability of deferred tax assets, management considers whether it is "more
likely than not" (as defined under SFAS No. 109) that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers projected future taxable income and tax planning strategies in making
this assessment. Based upon their evaluation of the evidence relating to net
deferred tax assets at October 31, 1995, management determined that realization
was not "more likely than not" and, accordingly, established a valuation
allowance of $4.1 million.
(11) LICENSE AGREEMENT
The Company has an exclusive agreement to license certain technologies
which requires a 7.5% royalty on sales of products using the licensed
technologies or certain minimum annual requirements. To date, the Company has
incurred only the minimum annual royalty fees of $50,000 and $100,000 for the
years ended October 31, 1995 and 1996, respectively. The Company may terminate
the agreement upon notice to the licensor and would be liable for any payments
accrued or owed prior to such termination.
F-15
69
CIENA CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(12) EMPLOYEE BENEFIT PLANS
In January 1995, the Company adopted a 401(k) defined contribution profit
sharing plan. The plan covers all full-time employees who are at least 21 years
of age, have completed three months of service and are not covered by a
collective bargaining agreement where retirement benefits are subject to good
faith bargaining. Participants may contribute up to 15% of pretax compensation,
subject to certain limitations. The Company may make discretionary annual profit
sharing contributions of up to the lesser of $30,000 or 25% of each
participant's compensation. The Company has made no profit sharing contributions
to date.
(13) COMMITMENTS AND CONTINGENCIES
Operating Lease Commitments
The Company has certain minimum obligations under noncancelable operating
leases expiring on various dates through 2006 for equipment and facilities.
Future annual minimum rental commitments under noncancelable operating leases at
October 31, 1996 are as follows (in thousands):
Fiscal Year Ending
------------------------------------------------------------------
1997.............................................................. $ 1,487
1998.............................................................. 1,816
1999.............................................................. 1,807
2000.............................................................. 1,796
2001.............................................................. 1,796
Thereafter........................................................ 7,245
--------
$ 15,947
========
Rental expense for fiscal 1994, 1995 and 1996 was approximately $42,000,
$111,000 and $602,000, respectively.
Litigation
In November 1996, a stockholder and entities controlled by that stockholder
(the "plaintiffs") who provided initial equity capital during the formation of
the Company and participated in the Series C Preferred Stock financing, filed
suit against the Company and certain directors of the Company (the
"defendants"). This suit alleges that the plaintiffs were entitled by the terms
of an agreement with the Company to purchase approximately 230,000 shares of
additional Series C Preferred Stock, at $7.00 per share, at the time of the
closing of the Series C Preferred Stock financing, but were denied that
opportunity by the defendants. The plaintiffs seek to recover unspecified actual
and punitive damages. The Company believes that the plaintiffs' claims are
without merit and intends to defend itself vigorously. However, due to the very
early stage of this matter, it is not possible to determine what impact, if any,
the outcome of this litigation might have on the financial condition, results of
operations or cash flows of the Company.
The Company has agreed to indemnify its customer for liability incurred in
connection with the infringement of a third-party's intellectual property
rights. Although the Company has not received notice from its customer advising
the Company of any alleged infringement of a third-party's intellectual property
rights, there can be no assurance that such indemnification of alleged liability
will not be required from the Company in the future.
Substantial inventories of intellectual property are held by a few industry
participants and major universities and research laboratories. The Company has
on a few occasions hired personnel from
F-16
70
CIENA CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(13) COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
such parties. The Company has in the past received letters from legal counsel to
one such party, asserting that the hiring of their personnel involves a
compromise of that party's intellectual properties. The Company disagrees with
such assertions and, if any formal claim were to be filed, the Company would
vigorously defend itself. Such litigation could be very expensive to defend,
regardless of the merits of any possible claim.
(14) SUBSEQUENT EVENTS
On November 22, 1996, the Company's Board of Directors approved the
following effective on December 9, 1996: (i) a five-for-one stock split of the
Company's Common Stock; (ii) an increase in the number of Common Stock
authorized from 112,500,000 to 180,000,000; (iii) an increase in the number of
shares of Common Stock issuable upon conversion of the Convertible Preferred
Stock from one-for-one to five-for-one, and (iv) the authorization of 20,000,000
shares of undesignated Preferred Stock. All references to the number of shares
authorized, issued and outstanding, the Preferred Stock to Common Stock
conversion factor and per share information for all periods presented have been
adjusted to give effect to the aforementioned stock split and share
authorizations.
On December 10, 1996, the Company's Board of Directors authorized
management of the Company to file a registration statement with the Securities
and Exchange Commission for the initial public offering of its common stock. The
Company plans to issue 5,000,000 shares at an estimated initial public offering
price of between $17 and $19 per share.
F-17
71
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of the U.S. Underwriters named below, and
each of such U.S. Underwriters, for whom Goldman, Sachs & Co., Alex. Brown &
Sons Incorporated, Wessels, Arnold & Henderson, L.L.C. and William K. Woodruff &
Company are acting as representatives, has severally agreed to purchase from the
Company, the respective number of shares of Common Stock set forth opposite its
name below:
NUMBER OF
SHARES OF
UNDERWRITER COMMON STOCK
- ------------------------------------------------------------------------------ ------------
Goldman, Sachs & Co. .........................................................
Alex. Brown & Sons Incorporated...............................................
Wessels, Arnold & Henderson, L.L.C. ..........................................
William K. Woodruff & Company.................................................
---------
Total............................................................... 4,000,000
=========
Under the terms and conditions of the Underwriting Agreement, the U.S.
Underwriters are committed to take and pay for all of the shares offered hereby,
if any are taken.
The U.S. Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus and in part to certain securities dealers at such
price less a concession of $ per share. The U.S. Underwriters may allow, and
such dealers may reallow, a concession not in excess of $ per share to
certain brokers and dealers. After the shares of Common Stock are released for
sale to the public, the offering price and other selling terms may from time to
time be varied by the representatives.
The Company has entered into an underwriting agreement (the "International
Underwriting Agreement") with the underwriters of the international offering
(the "International Underwriters") providing for the concurrent offer and sale
of 1,000,000 shares of Common Stock in an international offering outside the
United States. The offering price and aggregate underwriting discounts and
commissions per share for the two offerings are identical. The closing of the
offering made hereby is a condition to the closing of the international
offering, and vice versa. The representatives of the International Underwriters
are Goldman Sachs International, Alex. Brown & Sons Incorporated, Wessels,
Arnold & Henderson, L.L.C. and William K. Woodruff & Company.
Pursuant to an Agreement between the U.S. and International Underwriting
Syndicates (the "Agreement Between") relating to the two offerings, each of the
U.S. Underwriters named herein has agreed that, as a part of the distribution of
the shares offered hereby and subject to certain exceptions, it will offer, sell
or deliver the shares of Common Stock, directly or indirectly, only in the
United States of America (including the States and the District of Columbia),
its territories, its possessions and other areas subject to its jurisdiction
(the "United States") and to U.S. persons, which term shall mean, for purposes
of this paragraph: (a) any individual who is a resident of the United States or
(b) any corporation, partnership or other entity organized in or under the laws
of the United States or any political subdivision thereof and whose office most
directly involved with the purchase is located in the United States. Each of the
International Underwriters has agreed pursuant to the Agreement Between that, as
part of the distribution of the shares offered as a part of the international
offering, and subject to certain exceptions, it will (i) not, directly or
indirectly, offer, sell or deliver shares of Common Stock (a) in the United
States or to any U.S. persons or (b) to any person whom it believes intends to
reoffer, resell or deliver the shares in the United States or to any
U-1
72
U.S. persons, and (ii) cause any dealer to whom it may sell such shares at any
concession to agree to observe a similar restriction.
Pursuant to the Agreement Between, sales may be made between the U.S.
Underwriters and the International Underwriters of such number of shares of
Common Stock as may be mutually agreed. The price of any shares so sold shall be
the initial public offering price, less an amount not greater than the selling
concession.
The Company has granted the U.S. Underwriters an option exercisable for 30
days after the date of this Prospectus to purchase up to an aggregate of 600,000
additional shares of Common Stock solely to cover over-allotments, if any. If
the U.S. Underwriters exercise their over-allotment option, the U.S.
Underwriters have severally agreed, subject to certain conditions, to purchase
approximately the same percentage thereof that the number of shares to be
purchased by each of them, as shown in the foregoing table, bears to the
4,000,000 shares of Common Stock offered. The Company has granted the
International Underwriters a similar option to purchase up to an aggregate of
150,000 additional shares of Common Stock.
The Company, optionholders, warrantholders and certain stockholders of the
Company have agreed that, during the period beginning from the date of this
Prospectus and continuing to and including the date 180 days after the date of
the Prospectus, they will not offer, sell, contract to sell or otherwise dispose
of any securities of the Company (other than pursuant to employee stock option
plans existing, or on the conversion or exchange of convertible or exchangeable
securities outstanding, on the date of this Prospectus) which are substantially
similar to the shares of the Common Stock or which are convertible into or
exchangeable for securities which are substantially similar to the shares of
Common Stock without the prior written consent of the Representatives, except
for the shares of Common Stock offered in connection with the concurrent U.S.
and international offerings.
The representatives of the Underwriters have informed the Company that they
do not expect sales to accounts over which the Underwriters exercise
discretionary authority to exceed five percent of the total number of shares of
Common Stock offered by them.
Prior to the Offerings, there has been no public market for the shares. The
initial public offering price will be negotiated between the Company and the
representatives of the U.S. Underwriters and the International Underwriters.
Among the factors to be considered in determining the initial public offering
price of the Common Stock, in addition to prevailing market conditions, will be
the Company's historical performance, estimates of the business potential and
earnings prospects of the Company, an assessment of the Company's management and
the consideration of the above factors in relation to market valuation of
companies in related businesses.
Under the terms of a settlement agreement with the Company entered into in
August 1996, the Company has (i) agreed to retain Woodruff as one of the
representatives of the United States Underwriters and the International
Underwriters, (ii) granted Woodruff warrants to purchase 75,000 shares at a
purchase price of $4.00 per share and (iii) made a cash payment to Woodruff of
$87,500. See "Certain Transactions -- Litigation Settlement".
Application will be made for quotation of the Common Stock on the Nasdaq
National Market under the symbol "CIEN".
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act.
U-2
73
This Prospectus may be used by underwriters and dealers in connection with
offers and sales of the Common Stock, including shares initially sold in the
international offering, to persons located in the United States.
U-3
74
[This diagram shows pictures of
various employees of the Company]
75
- ----------------------------------------------------------
- ----------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
----------------------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary....................... 3
Risk Factors............................. 5
Use of Proceeds.......................... 13
Dividend Policy.......................... 13
Capitalization........................... 14
Dilution................................. 15
Selected Financial Data.................. 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................. 17
Business................................. 21
Management............................... 33
Certain Transactions..................... 40
Principal Stockholders................... 44
Description of Capital Stock............. 47
Shares Eligible for Future Sale.......... 48
Certain U.S. Tax Considerations
Applicable to Non-U.S. Holders of the
Common Stock........................... 50
Legal Matters............................ 52
Experts.................................. 52
Additional Information................... 52
Index to Financial Statements............ F-1
Underwriting............................. U-1
THROUGH AND INCLUDING , 1997 (THE 25TH DAY AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- ----------------------------------------------------------
- ----------------------------------------------------------
- ----------------------------------------------------------
- ----------------------------------------------------------
5,000,000 SHARES
CIENA CORPORATION
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
------------------------
[LOGO]
------------------------
GOLDMAN, SACHS & CO.
ALEX. BROWN & SONS
INCORPORATED
WESSELS, ARNOLD & HENDERSON
WILLIAM K. WOODRUFF & COMPANY
REPRESENTATIVES OF THE UNDERWRITERS
- ----------------------------------------------------------
- ----------------------------------------------------------
76
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all fees and expenses, other than the
underwriting discounts and commissions, payable by the Registrant in connection
with the sale of the Common Stock being registered. All amounts shown are
estimates except for the registration fee and the NASD filing fee.
SEC registration fee........................................... $ 33,107
NASD filing fee................................................ 11,425
Nasdaq National Market listing fee............................. 30,000
Blue sky qualification fees and expenses....................... 10,000
Printing and engraving expenses................................ 190,000
Legal fees and expenses........................................ 500,000
Accounting fees and expenses................................... 300,000
Transfer agent and registrar fees.............................. 25,000
Miscellaneous.................................................. 468
-----------
Total..................................................... $ 1,100,000
==========
- ---------------
* To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 145 of the Delaware General Corporation Law permits indemnification
of officers, directors and other corporate agents under certain circumstances
and subject to certain limitations. The Registrant's Third Amended and Restated
Certificate of Incorporation and bylaws provide that the Registrant shall
indemnify its directors, officers, employees and agents to the full extent
permitted by Delaware General Corporation Law, including in circumstances in
which indemnification is otherwise discretionary under Delaware law. In
addition, the Registrant has entered into separate indemnification agreements
with its directors, officers and certain employees which require the Registrant,
among other things, to indemnify them against certain liabilities which may
arise by reason of their status or service (other than liabilities arising from
willful misconduct of a culpable nature) and to maintain directors' and
officers' liability insurance, if available on reasonable terms. The Registrant
intends to obtain directors' and officers' liability insurance with up to $10
million coverage per occurrence.
These indemnification provisions and the indemnification agreement to be
entered into between the Registrant and its officers and directors may be
sufficiently broad to permit indemnification of the Registrant's officers and
directors for liabilities (including reimbursement of expenses incurred) arising
under the Securities Act.
The Underwriting Agreements filed as Exhibits 1.1 and 1.2 to this
Registration Statement provide for indemnification by the Underwriters of the
Registrant and its officers and directors for certain liabilities arising under
the Securities Act, or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since December 1993, the Registrant has sold and issued the following
unregistered securities (stated after giving effect to a 1,333.33-for-1 stock
split in April 1994 and a five-for-one stock split effective on December 9,
1996).
(1) In April 1994, the Registrant sold 3,332,520 shares of Series A Preferred
Stock for an aggregate price of $3,332,520.
II-1
77
(2) In April 1994, the Registrant sold 3,500,000 shares of Common Stock for an
aggregate price of $70,000.
(3) In August 1994, the Registrant sold 210,000 shares of Series A Preferred
Stock for an aggregate price of $210,000.
(4) In October 1994, the Registrant sold 250,000 shares of Common Stock for an
aggregate price of $5,000.
(5) In December 1994, the Registrant sold 1,075,000 shares of Common Stock upon
exercise of a warrant for an aggregate price of $21,500.
(6) In December 1994, the Registrant sold 7,354,092 shares of Series B
Preferred Stock for an aggregate price of $11,031,138.
(7) In December 1995, the Registrant sold 3,718,899 shares of Series C
Preferred Stock for an aggregate price of $26,032,293.
(8) In December 1995, the Registrant sold 33,335 shares of Common Stock upon
exercise of a warrant for an aggregate price of $3,300.
(9) In January 1996, the Registrant sold 643,090 shares of Common Stock upon
exercise of a warrant granted in consideration for the license of certain
technologies.
(10) In September 1996, the Registrant sold 23,789 shares of Series A Preferred
Stock upon a cashless exercise of a warrant.
(11) In September 1996, the Registrant sold 23,848 shares of Series A Preferred
Stock upon a cashless exercise of a warrant.
(12) From December 1, 1993 through October 31, 1996, the Registrant has sold an
aggregate of 623,495 shares for an aggregate consideration of $82,268 upon
exercise of stock options granted pursuant to the Registrant's Amended and
Restated 1994 Stock Option Plan.
The issuances described above were deemed to be exempt from registration
under the Securities Act in reliance on Section 4(2) of the Securities Act as
transactions by an issuer not involving a public offering. In addition, certain
issuances described in Paragraph 13 were deemed exempt from registration under
the Securities Act in reliance on Rule 701 promulgated thereunder as
transactions pursuant to compensatory benefit plans and contracts relating to
compensation. The recipients of securities in each such transaction represented
their intention to acquire the securities for investment only and not with a
view to or for sale in connection with any distribution thereof and appropriate
legends were affixed to the share certificates and other instruments issued in
such transactions. All recipients either received adequate information about the
Registrant or had access, through employment or other relationships, to such
information. Effective upon the completion of the Offerings being registered
hereby, all of the issued and outstanding shares of the Company's Convertible
Preferred Stock will automatically convert into 73,315,740 shares of the
Company's Common Stock. The Registrant will rely upon the exemption from
registration contained in Section 3(a)(9) of the Securities Act.
ITEM 16. EXHIBITS
(a) Exhibits.
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------------
1.1 Form of U.S. Underwriting Agreement
1.2 Form of International Underwriting Agreement
3.1 Certificate of Amendment to Third Restated Certificate of Incorporation
3.2 Third Restated Certificate of Incorporation
II-2
78
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------------
3.3 Amended and Restated Bylaws
4.1* Specimen Stock Certificate
5.1* Opinion of Hogan & Hartson L.L.P.
10.1 Form of Indemnification Agreement for Directors and Officers
10.2 Amended and Restated 1994 Stock Option Plan
10.3 Form of Employee Stock Option Agreements
10.4 1996 Outside Directors Stock Option Plan
10.5 Forms of 1996 Outside Directors Stock Option Agreement
10.6 Series C Preferred Stock Purchase Agreement dated December 20, 1995
10.7 Lease Agreement dated October 5, 1995 between the Company and CS Corridor-32
Limited Partnership
10.8+ Purchase Agreement Between Sprint/United Management Company and the Company
dated December 14, 1995
10.9+ Basic Purchase Agreement between WorldCom Network Services, Inc. and the
Company dated September 19, 1996
10.10 Settlement Agreement and Mutual Release, between the Company and William K.
Woodruff & Company, dated August 26, 1996
10.11 Warrant, dated August 21, 1996, granted by the Company to William K. Woodruff
& Company
10.12 Employment Agreement dated April 9, 1994 between the Company and David Huber
10.13 Employment Agreement dated April 9, 1994 between the Company and Patrick
Nettles
10.14 Lease Agreement dated November 1, 1996 by and between the Company and Aetna
Life Insurance Company
10.15 Revolving Note and Business Loan Agreement dated November 25, 1996 between
the Company and Mercantile-Safe Deposit & Trust Company
23.1* Consent of Hogan & Hartson L.L.P. (included in Exhibit 5.1)
23.2 Consent of Independent Accountants
27.1 Financial Data Schedule
- ---------------
* To be filed by amendment.
+ Confidential treatment has been requested with respect to certain portions of
these exhibits in reliance on Rule 406 under the Securities Act of 1933, as
amended.
(b) Financial Statement Schedules
Schedules have been omitted because the information required to be set
forth therein is not applicable or is shown in the financial statements or
notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreements certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement or otherwise, the Registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered hereunder, the Registrant will,
II-3
79
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon 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 shall be deemed to be part of this
Registration Statement as of the time it was declared effective; and
(2) For the purpose of determining any liability under the Securities
Act, 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 the time shall be
deemed to be the initial bona fide offering thereof.
II-4
80
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Savage, County of Howard,
State of Maryland, on the 12th day of December, 1996.
CIENA CORPORATION
By: /s/ Patrick H. Nettles
-----------------------------------
Patrick H. Nettles
President, Chief Executive Officer
and Director
(Principal Executive Officer)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that each person whose signature appears
below constitutes and appoints Patrick H. Nettles, Joseph R. Chinnici and G.
Eric Georgatos, and each of them, his or her true and lawful attorney-in-fact
and agents, with full power of substitution and resubstitution, from such person
and in each person's name, place and stead, in any and all capacities, to sign
any and all amendments (including post-effective amendments) to the Registration
Statement, any Registration Statement relating to this Registration Statement
under Rule 462 and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, full power and authority to do
and perform each and every act and thing requisite and necessary to be done as
fully to all intents and purposes as he or she might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
date indicated.
SIGNATURES TITLE DATE
- ---------------------------------------- ------------------------------ ------------------
/s/ Patrick H. Nettles President, Chief Executive December 12, 1996
- ---------------------------------------- Officer and Director
Patrick H. Nettles (Principal Executive Officer)
/s/ Joseph R. Chinnici Vice President, Finance and December 12, 1996
- ---------------------------------------- Chief Financial Officer
Joseph R. Chinnici (Principal Financial Officer)
/s/ Andrew C. Petrik Controller and Treasurer December 12, 1996
- ---------------------------------------- (Principal Accounting Officer)
Andrew C. Petrik
/s/ Jon W. Bayless Director December 12, 1996
- ----------------------------------------
Jon W. Bayless
/s/ Harvey B. Cash Director December 12, 1996
- ----------------------------------------
Harvey B. Cash
II-5
81
SIGNATURES TITLE DATE
- ---------------------------------------- ------------------------------ ------------------
/s/ Clifford W. Higgerson Director December 12, 1996
- ----------------------------------------
Clifford W. Higgerson
/s/ Billy B. Oliver Director December 12, 1996
- ----------------------------------------
Billy B. Oliver
/s/ Michael J. Zak Director December 12, 1996
- ----------------------------------------
Michael J. Zak
/s/ David R. Huber, Ph.D. Director December 12, 1996
- ----------------------------------------
David R. Huber, Ph.D.
II-6
82
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------
1.1 Form of U.S. Underwriting Agreement
1.2 Form of International Underwriting Agreement
3.1 Certificate of Amendment to Third Restated Certificate of Incorporation
3.2 Third Restated Certificate of Incorporation
3.3 Amended and Restated Bylaws
4.1* Specimen Stock Certificate
5.1* Opinion of Hogan & Hartson L.L.P.
10.1 Form of Indemnification Agreement for Directors and Officers
10.2 Amended and Restated 1994 Stock Option Plan
10.3 Forms of Employee Stock Option Agreements
10.4 1996 Outside Directors Stock Option Plan
10.5 Forms of 1996 Outside Directors Stock Option Agreement
10.6 Series C Preferred Stock Purchase Agreement dated December 20, 1995
10.7 Lease Agreement dated October 5, 1995 between the Company and CS
Corridor-32 Limited Partnership
10.8+ Purchase Agreement Between Sprint/United Management Company and the
Company dated December 14, 1995
10.9+ Basic Purchase Agreement between WorldCom Network Services, Inc. and
the Company dated September 19, 1996
10.10 Settlement Agreement and Mutual Release, between the Company and
William K. Woodruff & Company, dated August 26, 1996
10.11 Warrant, dated August 21, 1996, granted by the Company to William K.
Woodruff & Company
10.12 Employment Agreement dated April 9, 1994 between the Company and David
Huber
10.13 Employment Agreement dated April 9, 1994 between the Company and
Patrick Nettles
10.14 Lease Agreement dated November 1, 1996 by and between the Company and
Aetna Life Insurance Company
10.15 Revolving Note and Business Loan Agreement dated November 25, 1996
between the Company and Mercantile-Safe Deposit & Trust Company
23.1* Consent of Hogan & Hartson L.L.P. (included in Exhibit 5.1)
23.2 Consent of Independent Accountants
27.1 Financial Data Schedule
- ---------------
* To be filed by amendment.
+ Confidential treatment has been requested with respect to certain portions of
these exhibits in reliance on Rule 406 under the Securities Act of 1933, as
amended.
1
CIENA CORPORATION
COMMON STOCK, PAR VALUE $.01 PER SHARE
-------------
UNDERWRITING AGREEMENT
(U.S. VERSION)
_________________, 1997
Goldman, Sachs & Co.,
Alex. Brown & Sons Incorporated,
Wessels, Arnold & Henderson, L.L.C.,
William K. Woodruff & Company,
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 4,000,000 shares (the "Firm Shares") and, at the election of the
Underwriters, up to 600,000 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 being collectively called the "Shares").
It is understood and agreed to by all parties that the Company
is concurrently entering into an agreement (the "International Underwriting
Agreement") providing for the sale by the Company of up to a total of 1,150,000
shares of Stock (the "International Shares"), including the over-allotment
option thereunder, through arrangements with certain underwriters outside the
United States (the "International Underwriters"), for whom Goldman Sachs
International, Alex. Brown & Sons Incorporated, Wessels, Arnold & Henderson,
L.L.C. and William K. Woodruff & Company are acting as lead managers. Anything
herein or therein to the contrary notwithstanding, the respective closings
2
under this Agreement and the International Agreement are hereby expressly made
conditional on one another. The Underwriters hereunder and the International
Underwriters are simultaneously entering into an Agreement between U.S. and
International Underwriting Syndicates (the "Agreement between Syndicates")
which provides, among other things, for the transfer of shares of Stock between
the two syndicates. Two forms of prospectus are to be used in connection with
the offering and sale of shares of Stock contemplated by the foregoing, one
relating to the Shares hereunder and the other relating to the International
Shares. The latter form of prospectus will be identical to the former except
for certain substitute pages. Except as used in Sections 2, 3, 4, 9 and 11
herein, and except as the context may otherwise require, references hereinafter
to the Shares shall include all the shares of Stock which may be sold pursuant
to either this Agreement or the International Underwriting Agreement, and
references herein to any prospectus whether in preliminary or final form, and
whether as amended or supplemented, shall include both the U.S. and the
international versions thereof.
1. The Company represents and warrants to, and agrees with,
each of the Underwriters that:
(a) A registration statement on Form S-1
(File No. 333-_________) (the "Initial Registration
Statement") in respect of the Shares 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, 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 will
become effective upon filing, no other document with respect
to the Initial Registration Statement 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,
including all exhibits thereto and including 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, each as amended at the
time such part of the 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").
(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
3
& Co. expressly for use therein;
(c) 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 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;
(d) The Company has not sustained since
the date of the latest audited financial statements included
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 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, otherwise than as set forth or
contemplated in the Prospectus;
(e) The Company does not own any real
property and has good and marketable title to all personal
property owned by it, 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
any real property and buildings held under lease by the
Company are held by it under valid, subsisting and enforceable
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;
(f) 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;
(g) The Company has an authorized
capitalization as set forth in the
4
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, conform to the description
of the Stock contained in the Prospectus and were not issued
in violation of or subject to any preemptive rights or other
rights to subscribe for or purchase any securities; except as
disclosed in or contemplated by the Prospectus and the
financial statements of the Company, and the related notes
thereto, included in the Prospectus, the Company does not
have any outstanding options to purchase, or any preemptive
rights or other rights to subscribe for or to purchase, any
securities or obligations convertible into, or any contracts
or commitments to issue or sell, shares of its capital stock
or any such options, rights, convertible securities or
obligations; and the description of the Company's stock
option, stock bonus and other stock plans or arrangements, and
the options or other rights granted and exercised thereunder,
set forth in the Prospectus accurately and fairly presents the
information required to be shown with respect to such plans,
arrangements, options and rights.
(h) The Shares to be issued and sold by
the Company to the Underwriters hereunder and under the
International Underwriting Agreement have been duly and
validly authorized and, when issued and delivered against
payment therefor as provided herein and in the International
Underwriting Agreement, 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; no
preemptive rights or other rights to subscribe for or purchase
exist with respect to the issuance and sale of the Shares by
the Company pursuant to this Agreement and the International
Underwriting Agreement; and no stockholder of the Company has
any right which has not been waived to require the Company to
register the sale of any shares owned by such stockholder
under the Act in the public offering contemplated by this
Agreement and the International Underwriting Agreement.
(i) The issue and sale of the Shares by
the Company hereunder and under the International Underwriting
Agreement and the compliance by the Company with all of the
provisions of this Agreement and the International
Underwriting 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 is a party or by which the
Company is bound or to which any of the property or assets of
the Company 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 statute or any
order, rule or regulation of any court or governmental agency
or body having jurisdiction over the Company or any of its
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 and the
International Underwriting 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 and the International Underwriters;
(j) The Company is not in violation of
its Certificate of Incorporation or By-laws or in default in
any material respect in the performance or observance of any
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;
5
(k) The statements set forth in the
Prospectus under the caption "Description of Capital Stock",
insofar as they purport to constitute a summary of the terms
of the Stock are accurate and complete in all material
respects;
(l) Other than as set forth or
contemplated in the Prospectus, there are no legal or
governmental proceedings pending to which the Company a party
or of which any property of the Company is the subject which,
if determined adversely to the Company, 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, 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;
(m) 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");
(n) Price Waterhouse LLP, who have
certified certain financial statements of the Company, are
independent public accountants as required by the Act and the
rules and regulations of the Commission thereunder;
(o) The Company has no subsidiaries and
does not own or control, directly or indirectly, shares
of capital stock of any other corporation or any interest in
any partnership, joint venture, or other non-corporate
business entity or enterprise;
(p) Other than as set forth or
contemplated in the Prospectus, the Company has 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 its 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; 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, and, except as
disclosed in the Prospectus, the Company is not a party to or
bound by any options licenses or agreements with respect to
the Intellectual Property of any other person or entity; none
of the technology employed by the Company has been obtained or
is being used by the Company in violation of any contractual
fiduciary obligation binding on the Company or any of its
executive officers or, to the Company's knowledge, any of its
employees or otherwise in violation of the rights of any
person; except as disclosed in the Prospectus, neither of the
Company nor any of its employees have received any written or,
to the Company's knowledge, oral communications alleging that
the Company 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
6
entity; neither the execution nor delivery of this
Agreement, nor the operation of the Company's business by the
employees of the Company, nor the conduct of the Company's
business as proposed, will result in a breach or violation of
the terms, conditions or provisions of, or constitute a
default under, any material contract, covenant or instrument
known to the Company under which any of such employees is now
obligated; and the Company has taken and will maintain
reasonable measures to prevent the unauthorized dissemination
or publication of its confidential information and, to the
extent contractually required to do so, the confidential
information of third parties in its 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 compliance would not materially
adversely affect the condition (financial or otherwise),
business, results of operations or prospects of the Company;
and
(t) The Company has obtained from the
persons and entities listed on _________ hereto the binding
agreement of each such person and entity that during the
period beginning from the date hereof and continuing to and
including the date 180 days after the date of the Prospectus,
not to offer, sell, contract to sell or otherwise dispose of
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 pursuant to
employee or director stock option plans existing on, or upon
the conversion, exercise or exchange of convertible,
exercisable or exchangeable securities outstanding as of, the
date of this Agreement), without the Company's prior written
consent, which consent in no instance has been given or agreed
to be given and which consent in any instance will be given or
agreed to be given without your prior written consent.
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
7
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 600,000 Optional Shares, at the purchase price
per share set forth in the paragraph above, 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 only 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. 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 certified or
official bank check or checks, payable to the order of the
Company in Federal (same day) funds. 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 Goldman, Sachs & Co., 85 Broad Street, New
York, New York 10004 (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
............., 1997 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 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 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 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(k)
8
hereof, will be delivered at the offices of Hale and Dorr, The
Willard Building, 1455 Pennsylvania Avenue, N.W., Washington,
D.C. 20004 (the "Closing Location"), and the Shares will be
delivered at the Designated Office, all at such 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 such 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 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 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 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 copies of the Prospectus in New York City in such
quantities as you may from time to time 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 the 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 in order to comply
9
with the Act, to notify you and upon your request 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 copies as you may request
of an amended or supplemented Prospectus complying with
Section 10(a)(3) of the Act;
(d) 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 of
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;
(e) 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 earning 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 thereunder (including,
at the option of the Company, Rule 158);
(f) During the period beginning from the date
hereof and continuing to and including the date 180 days after
the date of the Prospectus, not to offer, sell, contract to
sell or otherwise dispose of, except as provided hereunder and
under the International Underwriting Agreement, 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 pursuant to employee or director stock
option plans existing on, or upon the conversion, exercise or
exchange of convertible, exercisable or exchangeable
securities outstanding as of, the date of this Agreement),
without your prior written consent;
(g) 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 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;
(h) 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,
10
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);
(i) To use the net proceeds received by it from
the sale of the Shares pursuant to this Agreement and the
International Underwriting Agreement in the manner specified
in the Prospectus under the caption "Use of Proceeds";
(j) To use its best efforts to list for
quotation the Shares on the Nasdaq National Market ("NASDAQ");
and
(k) During the period beginning from the date
hereof and continuing to and including the date 180 days after
the date of the Prospectus, not to allow or agree to allow any
person or entity referred to in clause (t) of Section 1 to
offer, sell, contract to sell or otherwise dispose of 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 pursuant to employee or director stock
option plans existing on, or upon the conversion, exercise or
exchange of convertible, exercisable or exchangeable
securities outstanding as of, the date of this Agreement),
without your prior written consent.
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, the International
Underwriting Agreement, the Agreement between Syndicates, the Selling
Agreement, closing documents (including 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 the Blue Sky survey;
(iv) all fees and expenses in connection with listing the Shares on NASDAQ; (v)
the filing fees incident to, and the fees and disbursements of Hale and Dorr,
as counsel for the Underwriters in connection with, securing any required
review by the National Association of Securities Dealers, Inc. of the terms of
the sale of the Shares; (vi) the cost of preparing stock certificates; (vii)
the cost and charges of any transfer agent or registrar; and (viii) 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, 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, as to the
Shares to be delivered at each Time of Delivery, 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
11
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, counsel for the
Underwriters, shall have furnished to you such opinion or
opinions (a draft of such opinion is attached as Annex II(a)
hereto), dated such Time of Delivery, with respect to the
matters covered in paragraphs (i), (ii), (vi), (viii) and
(xii) 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 (a
draft of such opinion is attached as Annex II(b) hereto),
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 as of the date specified in such
opinion, 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 are validly issued, fully paid and
nonassessable; 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) Nothing has come to the attention
of such counsel that causes it to believe real property and
buildings held under lease by the Company are not held by it
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;
(v) This Agreement and the
International Underwriting Agreement have been duly
authorized, executed and delivered by the Company;
12
(vi) The issue and sale of the Shares
being delivered at such Time of Delivery by the Company and
the compliance by the Company with all of the provisions of
this Agreement and the International Underwriting Agreement as
of such Time of Delivery and the consummation as of such Time
of Delivery 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 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 properties;
(vii) 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 properties is
required for the issue and sale of the Shares or the
consummation by the Company of the transactions contemplated
by this Agreement and the International Underwriting 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 and the International Underwriters;
(viii) The statements set forth in the
Prospectus under the caption "Description of Capital Stock",
insofar as they purport to constitute a summary of the terms
of the Stock, under the caption "Certain U.S. Tax
Considerations Applicable to Non-U.S. Holders of the Common
Stock", insofar as they purport to describe the provisions of
the laws referred to therein, are accurate in all material
respects;
(ix) The Company is not an "investment
company" as such term is defined in the Investment Company
Act;
(x) 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;
(xi) No holder of outstanding shares of
capital stock of the Company has (i) any statutory preemptive
right under the 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 being
delivered at such Time of Delivery) (except that no opinion
need be expressed with respect to the specific matters that
are the subject of the legal proceedings disclosed in the
Prospectus under the caption "Business--Legal Proceedings") 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
(xii) 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 notes thereto, financial
schedules and other financial data included 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
13
regulations thereunder.
In addition to the matters set forth above, such letter shall
also contain statements 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 is a party or of which any
property of the Company is the subject 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, 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, except for those statements referred to in the
opinion in subsection (viii) of this Section 7(c), or any
further amendment or supplement thereto, 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 required to be stated therein
or necessary to make the statements therein not misleading or
that, as of its date, 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 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, in the light of the circumstances under which they
were made, not misleading or that, as of such Time of
Delivery, 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 notes
thereto, schedules and other financial data included therein,
as to which such counsel need express no opinion) contains an
untrue statement of a material fact 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 described in the Registration Statement or the
Prospectus which are not filed 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) Gray Cary Ware & Friedenrich, special patent
counsel for the Company, shall have furnished its written
opinion to the Company, dated on or before such Time
of Delivery,
14
with respect to certain patent law matters.
(e) The 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 II(c) hereto),
dated such Time of Delivery, in form and substance
satisfactory to you, to the effect that:
(i) The Company is not 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 is a
party or of which any property of the Company is the subject;
and, to such counsel's knowledge, no such proceedings are
threatened by governmental authorities or by others.
(f) 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,
Price Waterhouse LLP shall 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 Annex I hereto (the executed copy of the letter
delivered prior to the execution of this Agreement is attached
as Annex I(a) hereto and a draft of the form 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 is attached as Annex I(b) hereto;
(g) (i) The Company shall not have sustained
since the date of the latest audited financial statements
included 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 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;
(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 the
New York Stock Exchange or 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
Maryland State 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
15
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 Shares to be sold at such Time of
Delivery shall have been duly approved for quotation on
NASDAQ;
(j) The Company has obtained and delivered to
the Underwriters executed copies of an agreement from
___________________________________, substantially to the
effect set forth in Subsection 5(f) hereof in form and
substance satisfactory to you;
(k) 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
(l) 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 obligations hereunder
to be performed at or prior to such Time of Delivery, 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
16
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 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
17
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 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
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
18
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 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.
(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 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 obligations 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.
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
19
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., 85 Broad Street, New York, New York 10004, 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 at the time of 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 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 counterparts shall together constitute one and the
same instrument.
20
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 (U.S. Version), 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:
------------------------------
Patrick H. Nettles
President
Accepted as of the date hereof:
Goldman, Sachs & Co.
Alex. Brown & Sons Incorporated
Wessels, Arnold & Henderson, L.L.C.
William K. Woodruff & Company
By:
-----------------------------
(Goldman, Sachs & Co.)
On behalf of each of the Underwriters
21
SCHEDULE I
NUMBER OF OPTIONAL
SHARES TO BE
TOTAL NUMBER OF PURCHASED IF
FIRM SHARES MAXIMUM OPTION
TO BE PURCHASED EXERCISED
--------------- -----------------
UNDERWRITER
-----------
Goldman, Sachs & Co. . . . . . . . . . . . . . . . . . . . . . .
Alex. Brown & Sons Incorporated . . . . . . . . . . . . . . . . .
Wessels, Arnold & Henderson, L.L.C. . . . . . . . . . . . . . . .
William K. Woodruff & Company . . . . . . . . . . . . . . . . . .
------------- -------------
Total . . . . . . . . . . . . . . . . . . . . . .
============= =============
22
ANNEX I
DESCRIPTION OF COMFORT LETTER
Pursuant to Section 7(e) of the Underwriting Agreement, the accountants
shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public
accountants with respect to the Company within the meaning of
the Act and the applicable published rules and regulations
thereunder;
(ii) In their opinion, the financial statements
and any supplementary financial information and schedules
(and, if applicable, financial forecasts and/or pro forma
financial information) examined by them and included in the
Prospectus or the Registration Statement comply as to form in
all material respects with the applicable accounting
requirements of the Act and the related published rules and
regulations thereunder; and, if applicable, they have made a
review in accordance with standards established by the
American Institute of Certified Public Accountants of the
unaudited consolidated interim financial statements, selected
financial data, pro forma financial information, financial
forecasts and/or condensed financial statements derived from
audited financial statements of the Company for the periods
specified in such letter, as indicated in their reports
thereon, copies of which have been furnished separately to the
representatives of the Underwriters (the "Representatives")
and are attached hereto;
(iii) They have made a review in accordance with
standards established by the American Institute of Certified
Public Accountants of the unaudited condensed consolidated
statements of income, consolidated balance sheets and
consolidated statements of cash flows included in the
Prospectus as indicated in their reports thereon copies of
which are attached hereto and on the basis of specified
procedures including inquiries of officials of the Company who
have responsibility for financial and accounting matters
regarding whether the unaudited condensed consolidated
financial statements referred to in paragraph (vi)(A)(i) below
comply as to form in all material respects with the applicable
accounting requirements of the Act and the related published
rules and regulations, nothing came to their attention that
caused them to believe that the unaudited condensed
consolidated financial statements do not comply as to form in
all material respects with the applicable accounting
requirements of the Act and the related published rules and
regulations;
(iv) The unaudited selected financial information
with respect to the consolidated results of operations and
financial position of the Company for the five most recent
fiscal years included in the Prospectus agrees with the
corresponding amounts (after restatements where applicable) in
the audited consolidated financial statements for such five
fiscal years;
(v) They have compared the information in the
Prospectus under selected captions with the disclosure
requirements of Regulation S-K and on the basis of limited
procedures specified in such letter nothing came to their
attention as a result of the foregoing procedures that caused
them to believe that this information does not conform in all
material respects with the disclosure requirements of Items
301, 302, 402 and 503(d), respectively, of Regulation S-K;
23
(vi) On the basis of limited procedures, not
constituting an examination in accordance with generally
accepted auditing standards, consisting of a reading of the
unaudited financial statements and other information referred
to below, a reading of the latest available interim financial
statements of the Company, inspection of the minute books of
the Company and its subsidiaries since the date of the latest
audited financial statements included in the Prospectus,
inquiries of officials of the Company responsible for
financial and accounting matters and such other inquiries and
procedures as may be specified in such letter, nothing came to
their attention that caused them to believe that:
(A) (i) the unaudited consolidated statements of
income, consolidated balance sheets and consolidated
statements of cash flows included in the Prospectus do not
comply as to form in all material respects with the applicable
accounting requirements of the Act and the related published
rules and regulations, or (ii) any material modifications
should be made to the unaudited condensed consolidated
statements of income, consolidated balance sheets and
consolidated statements of cash flows included in the
Prospectus for them to be in conformity with generally
accepted accounting principles;
(B) any other unaudited income statement data and
balance sheet items included in the Prospectus do not agree
with the corresponding items in the unaudited consolidated
financial statements from which such data and items were
derived, and any such unaudited data and items were not
determined on a basis substantially consistent with the basis
for the corresponding amounts in the audited consolidated
financial statements included in the Prospectus;
(C) the unaudited financial statements which were
not included in the Prospectus but from which were derived any
unaudited condensed financial statements referred to in Clause
(A) and any unaudited income statement data and balance sheet
items included in the Prospectus and referred to in Clause (B)
were not determined on a basis substantially consistent with
the basis for the audited consolidated financial statements
included in the Prospectus;
(D) any unaudited pro forma consolidated
condensed financial statements included in the Prospectus do
not comply as to form in all material respects with the
applicable accounting requirements of the Act and the
published rules and regulations thereunder or the pro forma
adjustments have not been properly applied to the historical
amounts in the compilation of those statements;
(E) as of a specified date not more than five
days prior to the date of such letter, there have been any
changes in the consolidated capital stock (other than
issuances of capital stock upon exercise of options and stock
appreciation rights, upon earn-outs of performance shares and
upon conversions of convertible securities, in each case which
were outstanding on the date of the latest financial
statements included in the Prospectus) or any increase in the
consolidated long-term debt of the Company, or any decreases
in consolidated net current assets or stockholders' equity or
other items specified by the Representatives, or any increases
in any items specified by the Representatives, in each case as
compared with amounts shown in the latest balance sheet
included in the Prospectus, except in each case for changes,
increases or decreases which the Prospectus discloses have
occurred or may occur or which are described in such letter;
and
(F) for the period from the date of the latest
financial statements included in the Prospectus to the
specified date referred to in Clause (E) there were any
decreases in
24
consolidated net revenues or operating profit or the total or
per share amounts of consolidated net income or other items
specified by the Representatives, or any increases in any
items specified by the Representatives, in each case as
compared with the comparable period of the preceding year and
with any other period of corresponding length specified by the
Representatives, except in each case for decreases or
increases which the Prospectus discloses have occurred or may
occur or which are described in such letter; and
(vii) In addition to the examination referred to in
their report(s) included in the Prospectus and the limited
procedures, inspection of minute books, inquiries and other
procedures referred to in paragraphs (iii) and (vi) above,
they have carried out certain specified procedures, not
constituting an examination in accordance with generally
accepted auditing standards, with respect to certain amounts,
percentages and financial information specified by the
Representatives, which are derived from the general accounting
records of the Company, which appear in the Prospectus, or in
Part II of, or in exhibits and schedules to, the Registration
Statement specified by the Representatives, and have compared
certain of such amounts, percentages and financial information
with the accounting records of the Company and have found them
to be in agreement.
25
ANNEX I(a)
COMFORT LETTER DELIVERED PRIOR TO EXECUTION OF THIS AGREEMENT
26
ANNEX I(b)
UPDATED COMFORT LETTER
27
ANNEX II(a)
OPINION OF UNDERWRITERS COUNSEL
28
ANNEX II(b)
OPINION OF COMPANY COUNSEL
29
ANNEX II(c)
OPINION OF GENERAL COUNSEL
1
EXHIBIT 1.2
CIENA CORPORATION
COMMON STOCK, PAR VALUE $.01 PER SHARE
-------------
UNDERWRITING AGREEMENT
(INTERNATIONAL VERSION)
, 1997
----------------------
Goldman Sachs International,
Alex. Brown & Sons Incorporated,
Wessels, Arnold & Henderson, L.L.C.,
William K. Woodruff & Company,
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman Sachs International,
Peterborough Court,
133 Fleet Street,
London EC4A 2BB, England.
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 1,000,000 shares (the "Firm Shares") and, at the election of the
Underwriters, up to 150,000 additional shares (the "Optional Shares") of Common
Stock, par value $.01 per share (the "Stock"), of the Company (the Firm Shares
and the Optional Shares which the Underwriters elect to purchase pursuant to
Section 2 hereof being collectively called the "Shares").
It is understood and agreed to by all parties that the Company
is concurrently entering into an agreement, a copy of which is attached hereto
(the "U.S. Underwriting Agreement"), providing for the offering by the Company
of up to a total of 4,600,000 shares of Stock (the "U.S. Shares") including the
over-allotment option thereunder through arrangements with certain underwriters
in the United States (the "U.S. Underwriters"), for whom Goldman, Sachs & Co.,
Alex. Brown & Sons Incorporated, Wessels, Arnold & Henderson, L.L.C. and
William K. Woodruff & Company are acting as representatives. Anything herein
and therein to the contrary notwithstanding, the respective closings under this
Agreement and the U.S. Underwriting Agreement are hereby expressly made
conditional on one another. The Underwriters hereunder and the U.S.
Underwriters are simultaneously entering into an Agreement between U.S. and
International Underwriting Syndicates (the "Agreement between Syndicates")
which provides, among other things, for the transfer of shares of Stock between
the two syndicates and for consultation by the Lead Managers hereunder with
Goldman, Sachs & Co. prior to exercising the rights of the Underwriters under
Section 7 hereof. Two forms of prospectus are to be used in connection with
the offering and sale of shares of Stock contemplated by the foregoing, one
relating to the Shares hereunder and the other relating to the U.S. Shares.
The latter form of prospectus will be identical to the former except for
certain substitute
2
pages. Except as used in Sections 2, 3, 4, 9 and 11 herein, and except as the
context may otherwise require, references hereinafter to the Shares shall
include all of the shares of Stock which may be sold pursuant to either this
Agreement or the U.S. Underwriting Agreement, and references herein to any
prospectus whether in preliminary or final form, and whether as amended or
supplemented, shall include both of the U.S. and the international versions
thereof.
In addition, this Agreement incorporates by reference certain
provisions from the U.S. Underwriting Agreement (including the related
definitions of terms, which are also used elsewhere herein) and, for purposes
of applying the same, references (whether in these precise words or their
equivalent) in the incorporated provisions to the "Underwriters" shall be to
the Underwriters hereunder, to the "Shares" shall be to the Shares hereunder as
just defined, to "this Agreement" (meaning therein the U.S. Underwriting
Agreement) shall be to this Agreement (except where this Agreement is already
referred to or as the context may otherwise require) and to the representatives
of the Underwriters or to Goldman, Sachs & Co. shall be to the addressees of
this Agreement and to Goldman Sachs International ("GSI"), and, in general, all
such provisions and defined terms shall be applied mutatis mutandis as if the
incorporated provisions were set forth in full herein having regard to their
context in this Agreement as opposed to the U.S. Underwriting Agreement.
1. The Company hereby makes with the Underwriters
the same representations, warranties and agreements as are set forth in Section
1 of the U.S. Underwriting Agreement, which Section is incorporated herein by
this reference.
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 150,000 Optional Shares, at the purchase price
per share set forth in the paragraph above, 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 only 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 GSI 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 and in the forms
of Agreement among Underwriters (International Version) and Selling Agreements,
which have been previously submitted to the Company by you. Each Underwriter
hereby
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makes to and with the Company the representations and agreements of such
Underwriter as a member of the selling group contained in Sections 3(d) and
3(e) of the form of Selling Agreements.
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 GSI may request upon at least forty-eight
hours' prior notice to the Company shall be delivered by or on behalf of the
Company to GSI, for the account of such Underwriter, against payment by or on
behalf of such Underwriter of the purchase price therefor by certified or
official bank check or checks, payable to the order of the Company in Federal
(same day) funds. 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 GSI, 85 Broad Street, New York, New York 10004 (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 ____________,
1997 or such other time and date as GSI 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 GSI in the written notice given by GSI of the
Underwriters' election to purchase such Optional Shares, or such other time and
date as GSI 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 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 of the
U.S. Underwriting Agreement, including the cross receipt for the Shares and any
additional documents requested by the Underwriters pursuant to Section 7(k) of
the U.S. Underwriting Agreement hereof, will be delivered at the offices of
Hale and Dorr, The Willard Building, 1455 Pennsylvania Avenue, N.W.,
Washington, D.C. 20004 (the "Closing Location"), and the Shares will be
delivered at the Designated Office, all at such 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 such 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 hereby makes to the Underwriters the
same agreements as are set forth in Section 5 of the U.S. Underwriting
Agreement, which Section is incorporated herein by this reference.
6. The Company and the Underwriters hereby agree
with respect to certain expenses on the same terms as are set forth in Section
6 of the U.S. Underwriting Agreement, which Section is incorporated herein by
this reference.
7. Subject to the provisions of the Agreement
between Syndicates, the obligations of the Underwriters hereunder shall be
subject, in their discretion, at each Time of Delivery, 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 additional conditions identical to those set forth in
Section 7 of the U.S. Underwriting Agreement, which Section is incorporated
herein by this reference.
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
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4
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 GSI 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
Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by such
Underwriter through GSI 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 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,
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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 relating to such Shares. 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 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 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
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6
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 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.
(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 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.
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 Section 6 and Section 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 GSI for
all out-of-pocket expenses approved in writing by GSI, 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 agreement on behalf
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of any Underwriter made or given by you jointly or by GSI on behalf of you as
the representatives of the Underwriters.
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 the Underwriters in care of GSI,
Peterborough Court, 133 Fleet Street, London EC4A 2BB, England, Attention:
Equity Capital Markets, Telex No. 94012165, facsimile transmission No. (071)
774-1550; and if to the Company shall be delivered or sent by registered 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 GSI 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 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.
15. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, UNITED STATES
OF AMERICA.
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 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 one for each of the
Co-Lead Managers or Lead Managing Underwriters 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 among 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 (International Version), the form of which shall be
furnished 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:
-----------------------------
Patrick H. Nettles
President
Accepted as of the date hereof:
Goldman Sachs International
Alex. Brown & Sons Incorporated
Wessels, Arnold & Henderson, L.L.C.
William K. Woodruff & Company
By: Goldman Sachs International
By:
------------------------------------
(Attorney-in-fact)
On behalf of each of the Underwriters
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SCHEDULE I
NUMBER OF OPTIONAL
SHARES TO BE
TOTAL NUMBER OF PURCHASED IF
FIRM SHARES MAXIMUM OPTION
UNDERWRITER TO BE PURCHASED EXERCISED
----------- --------------- -----------------
Goldman Sachs International . . . . . . . . . . . . . . . . . . .
Alex. Brown & Sons Incorporated . . . . . . . . . . . . . . . . .
Wessels, Arnold & Henderson, L.L.C. . . . . . . . . . . . . . . .
William K. Woodruff & Company . . . . . . . . . . . . . . . . . .
------------- -------------
Total . . . . . . . . . . . . . . . . . . . . . . ============= =============
-9-
1
EXHIBIT 3.1
CERTIFICATE OF
AMENDMENT TO THIRD RESTATED CERTIFICATE OF INCORPORATION
OF
CIENA CORPORATION
It is hereby certified that:
l. The present name of the corporation is CIENA CORPORATION (the
"Corporation"). The Corporation was originally incorporated under the name
"Hyrdralite Incorporated", and the date of filing of the original Certificate
of Incorporation of the Corporation with the Secretary of State of the State of
Delaware is November 2, 1992. A Restated Certificate of Incorporation was
filed thereafter on April 8, 1994 (the "First Restated Certificate"); a Second
Restated Certificate of Incorporation was filed thereafter on December 20, 1994
(the "Second Restated Certificate"); and a Third Restated Certificate of
Incorporation was filed thereafter on December 20, 1995 (the "Third Restated
Certificate").
2. The Third Restated Certificate is hereby amended to (i)
increase the authorized capital stock of the Corporation and effect a split up
outstanding shares of Common Stock, (ii) establish a classified Board of
Directors effective with the Corporation becoming a public company, with three
classes serving staggered three year terms, and each class consisting of two or
more directors, (iii) eliminate stockholder action by written consent, and (iv)
specify the terms under which a special meeting of stockholders may be called.
3. This amendment has been duly adopted by the stockholders of
the Corporation in accordance with the provisions of Sections 228 and 242 of
the General Corporation Law of the State of Delaware.
2
The first paragraph of Article FOURTH is hereby replaced in its entirety with
the following:
The Corporation shall have the authority to issue two (2) classes of
shares to be designated respectively "Preferred Stock" and "Common Stock". The
total number of shares of stock that the Corporation shall have the authority
to issue is Two Hundred Million (200,000,000) shares of capital stock, par
value $0.01 per share. The total number of shares of Preferred Stock that the
Corporation shall have authority to issue is Twenty Million (20,000,000), par
value $0.01 per share. The total number of shares of Common Stock which the
Corporation shall have the authority to issue is One Hundred Eighty Million
(180,000,000), par value $0.01 per share. Effective with the filing of this
Amendment, each issued share of Common Stock of the Corporation, $0.01 par
value, shall be changed and reclassified into five shares of Common Stock,
$0.01 par value.
Articles SIXTH and SEVENTH of the Third Restated Certificate are hereby
replaced in their entirety with the following:
SIXTH: The following provisions are inserted for purposes of the
management of the business and conduct of the affairs of the Corporation and
for creating, defining, limiting and regulating the powers of the Corporation
and its directors and stockholders:
(a)(l) The number of directors shall initially be set at seven (7)
and, thereafter, shall be fixed from time to time exclusively by the Board of
Directors pursuant to a resolution adopted by a majority of the total number of
authorized directors (whether or not there exist any vacancies in previously
authorized directorships at the time any such resolution is presented to the
Board for adoption). Prior to the effectiveness of the first registration
statement filed by the Company under the Securities Act of 1933, as amended,
the directors shall be elected at each annual meeting with a term to expire at
the next annual meeting of stockholders. Upon the effectiveness of the first
registration statement filed under the Securities Act of 1933, as amended (the
"IPO Date"), the directors shall be divided into three classes consisting of
two or more directors each with the term of office of the first class (Class I)
to expire at the first annual meeting of stockholders following the IPO Date;
the term of office of the second class (Class II) to expire at the second
annual meeting following the IPO Date; the term of office of the third class
(Class III) to expire at the third annual meeting following the IPO Date; and
thereafter for each such term to expire at each third succeeding annual meeting
of stockholders after such election. The initial allocation of existing
directors among the classes shall be made by
3
determination of the Board of Directors. Subject to the rights of the holders
of any series of Preferred Stock then outstanding, a vacancy resulting from the
removal of a director by the stockholders as provided in Article SIXTH, Section
C below may be filled at a special meeting of the stockholders held for that
purpose. All directors shall hold office until the expiration of the term for
which elected, and until their respective successors are elected, except in the
case of the death, resignation, or removal of any director.
(2) Subject to the rights of the holders of any series of
Preferred Stock then outstanding, newly created directorships resulting from
any increase in the authorized number of directors or any vacancies in the
Board of Directors resulting from death, resignation or other cause (other than
removal from office by a vote of the stockholders) may be filled only by a
majority vote of the directors then in office, though less than a quorum, and
directors so chosen shall hold office for a term expiring at the next annual
meeting of stockholders at which the term of office of the class to which they
have been elected expires, and until their respective successors are elected,
except in the case of the death, resignation or removal of any director. No
decrease in the number of directors constituting the Board of Directors shall
shorten the term of any incumbent director.
(3) Subject to the rights of the holders of any series of
Preferred Stock then outstanding, any directors, or the entire Board of
Directors, may be removed from office at any time, with or without cause, but
only by the affirmative vote of the holders of at least a majority of the
voting power of all of the then outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors, voting
together as a single class. Vacancies in the Board of Directors resulting from
such removal may be filled by a majority of the directors then in office,
though less than a quorum, or by the stockholders as provided in Article SIXTH,
Section (a)(1) above. Directors so chosen shall hold office for a term
expiring at the next annual meeting of stockholders at which the term of office
of the class to which they have been elected expires, and until their
respective successors are elected, except in the case of the death, resignation
or removal of any director.
(b) The election of directors may be conducted in any manner
approved by the stockholders at the time when the election is held and need not
be by ballot.
(c) All corporate powers and authority of the Corporation (except
as at the time otherwise provided by law, by this Certificate of Incorporation,
as restated from time to time, or by the bylaws) shall be vested in and
exercised by the Board of Directors.
(d) From and after the IPO Date, any action required or permitted
to be taken by the stockholders of the Corporation must be effected at a duly
called
4
annual or special meeting of stockholders of the Corporation and may not be
effected by any consent in writing by such stockholders.
(e) Special meetings of stockholders of the Corporation may be
called only (1) by the Board of Directors pursuant to a resolution adopted by a
majority of the total number of authorized directors (whether or not there
exist any vacancies in previously authorized directorships at the time any such
resolution is presented to the Board for adoption) or (2) by the holders of not
less than ten percent (10%) of all of the shares entitled to cast votes at the
meeting.
(f) The Board of Directors is expressly empowered to adopt, amend
or repeal bylaws of the Corporation. Any adoption, amendment or repeal of
bylaws of the Corporation by the Board of Directors shall require the approval
of a majority of the total number of authorized directors (whether or not there
exist any vacancies in previously authorized directorships at the time any
resolution providing for adoption, amendment or repeal is presented to the
Board). The stockholders shall also have power to adopt, amend or repeal the
bylaws of the Corporation. Any adoption, amendment or repeal of bylaws of the
Corporation by the stockholders shall require, in addition to any vote of the
holders of any class or series of stock of the Corporation required by law or
by this Certificate of Incorporation, the affirmative vote of the holders of at
least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of
the then outstanding shares of the capital stock of the Corporation entitled to
vote generally in the election of directors, voting together as a single class.
SEVENTH: The Corporation reserves the right to amend or repeal
any provision contained in this Certificate of Incorporation in the manner
prescribed by the laws of the State of Delaware and all rights conferred upon
stockholders are granted subject to this reservation; provided, however, that,
notwithstanding any other provision of law which might otherwise permit a
lesser vote or no vote, but in addition to any vote required by law or by this
Certificate of Incorporation, the affirmative vote of the holders of at least
66-2/3% of the voting power of all of the then outstanding shares of the
capital stock of the Corporation entitled to vote generally in the election of
directors, voting together as a single class, shall be required to amend or
repeal Articles SIXTH, SEVENTH, EIGHTH and NINTH.
5
IN WITNESS WHEREOF, the undersigned do execute this Certificate and
affirm and acknowledge, under penalties of perjury, that this Certificate and
the signatures thereon are their act and deed and that the facts stated herein
are true, this 6 day of ,1996.
/s/ PATRICK H. NETTLES
-----------------------------------
Patrick H. Nettles,
President
Attest:
/s/ ERIC GEORGATOS
- ------------------------
Eric Georgatos
Secretary
1
EXHIBIT 3.2
THIRD RESTATED CERTIFICATE OF INCORPORATION
OF
CIENA CORPORATION
It is hereby certified that:
1. The present name of the corporation is CIENA CORPORATION ("the
corporation"). The Corporation was originally incorporated under the name
"Hydralite Incorporated" , and the date of filing of the original Certificate
of Incorporation of the Corporation with the Secretary of the State of Delaware
is November 2, 1992. A restated Certificate of Incorporation was filed
thereafter on April 8, 1994 (the First Restated Certificate of Incorporation")
, and a Second Restated Certificate of Incorporation was filed thereafter on
December 20, 1994 (the Second Restated Certificate of Incorporation").
2. The Certificate of Incorporation of the Corporation is hereby amended by
(I) creating a new series of Preferred Stock, to be designated as "Convertible
Preferred Stock, Series C" (ii) changing the terms of the Preferred Stock to
reflect the creation of the new series; and (iii) making certain other changes
and modifications to the Certificate of Incorporation.
3. The provisions of the Certificate of Incorporation of the Corporation, as
herein amended, are hereby restated and integrated into the single instrument
that is herein set forth , and that is entitled "Third Reinstated Certificate
of Incorporation of CIENA CORPORATION" without any further amendments other
than the amendments herein certified and without any discrepancy between the
provisions of the Certificate of Incorporation as heretofore amended and
supplemented, and the provisions of the said single instrument hereinafter set
forth.
4. The amendments and the reinstatement of the Third Restated Certificate of
Incorporation herein certified have been duly adopted by the stockholders of
the Corporation in accordance with the provisions of sections 228, 242 and 245
of the General Corporation Law of the State of Delaware.
2
FIRST: The name of the Corporation is CIENA Corporation ( "The Corporation").
SECOND: The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street, in the city of Wilmington, County of New
Castle. The name of its registered agent at such address is The Corporation
Trust Company.
THIRD: The nature of the business or purposes to be conducted or promoted is
to engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law.
FOURTH: The Corporation shall have the authority to issue two (2) classes of
shares to be designated respectively, "Preferred Stock" and "Common Stock".
The total number of shares of stock that the Corporation shall have the
authority to issue is Thirty -Eight Million Seven Hundred Forty Thousand
(38,750,000) shares of capital stock, par value $.01 per share. The total
number of shares of Common Stock which the Corporation shall have the authority
to issue is Twenty-Two million Five Hundred Thousand (22,500,000), par value
$.01 per share.
The Preferred Stock authorized by this Certificate of Incorporation may be
issued from time to time in one or more series. The Board of Directors is
hereby authorized, within the limitations and restrictions stated in this Third
Restated Certificate of Incorporation , to fix or alter the dividend rights,
dividend rate, conversion rights, voting rights, rights and terms of redemption
including sinking fund provisions, the redemption price or prices, the
liquidation preferences and other preferences, powers, rights, qualifications,
limitations and restrictions of any wholly unissued class or series of
Preferred Stock (not including any Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, as defined in Article Fifth Below) and the
number of shares constituting any such series and the designation thereof, or
any of them.
The Board of Directors is further authorized to increase or decrease the number
of shares of any series of Preferred Stock, the number of which was fixed by
it, subsequent to the issue of shares of that series, but not below the number
of shares of such series then outstanding, subject to the limitations and
restrictions stated in the resolutions of the Board of Directors originally
fixing the number of shares of such series. In case the number of shares of
any series shall be so decreased, the shares constituting such decrease shall
resume the status which they had prior to the adoption of the resolution
originally fixing the number of shares of such series.
FIFTH: Four Million Five Hundred Thousand (4,500,000) shares of the Preferred
Stock are hereby constituted as Convertible Preferred Stock, Series A ( "Series
A Preferred Stock"). Eight Million (8,000,000) shares of the Preferred Stock
are hereby constituted as Convertible Preferred Stock , Series B ("Series B
Preferred Stock"). Three Million Seven Hundred Fifty Thousand (3,750,000)
shares of the Preferred Stock are hereby constituted as convertible Preferred
Stock Series C (" Series C Preferred Stock"). The Series A Preferred Stock,
the Series B Preferred Stock and the Series C Preferred Stock
3
are collectively referred to hereinafter as the Convertible Preferred Stock.
The relative preferences, powers, rights, qualifications, limitations and
restrictions in respect of the Series A Preferred Stock, the Series B Preferred
Stock, and the Series C Preferred Stock and the Common Stock are as follows:
Voting Rights:
(I) Each holder of shares of Convertible Preferred Stock shall be entitled to
vote on all matters and, except as otherwise expressly provided herein, shall
be entitled to the number of votes equal to the largest whole number of shares
of Common Stock into which such shares of Convertible Preferred Stock could be
converted, pursuant to the provisions of paragraph (d) hereof, on the record
date for the determination of the stockholders entitled to vote on such matters
or, if no such record date is established, in accordance with Delaware law.
(ii) Each holder of shares of Common Stock shall be entitled to one vote for
each share of Convertible Preferred Stock held and no holder of Convertible
Preferred Stock shall be entitled to cumulate its votes by giving one candidate
more than one vote per share. These special and exclusive voting rights of the
holders of Convertible Preferred Stock contained in this subparagraph (iii) may
be exercised either at a special meeting of the holders of Convertible
Preferred Stock called as provided below, or at any annual or special meeting
of the stockholders of the Corporation, or by written consent of such holders
in lieu of a meeting. The directors to be elected pursuant to this
subparagraph (iii) shall serve for a term extending from the date of their
election and qualification and until the time of the next succeeding annual
meeting of stockholders and until their successors have been duly elected and
qualified.
If at any time any directorship to be filled by the holders of the Convertible
Preferred Stock pursuant to this subparagraph (iii) becomes vacant, the
secretary of the Corporation shall, upon the written request of the holders of
record of shares representing at least 25% of the voting power of Convertible
Preferred Stock then outstanding, call a special meeting of the holders of the
Convertible Preferred Stock for the purpose of electing a director to fill such
vacancy. Such meeting shall be held at the earliest practicable date at such
place as is specified in the By-Laws of the Corporation. If such meeting shall
not be called by the Secretary of the Corporation within ten days after
personal service of said written request upon him or her, then the holders of
record shares representing at least 25% of the voting power of the Convertible
Preferred Stock then outstanding may designate in writing one of their number
to call such meeting at the expense of the Corporation, and such meeting may be
called by such persons so designated upon the notice required for annual
meetings of stockholders and shall be held at such specified place. Any holder
of Convertible Preferred stock so designated shall have access to the stock
books of the Corporation for the purpose of calling a meeting of the
stockholders pursuant to these provisions.
4
At any meeting held for the purpose of electing directors at which the holders
of the Convertible Preferred stock shall have the special and exclusive rights
to elect directors as provided in the subparagraph (iii), the presence, in
person or by proxy, of the holders of record of shares representing a majority
of the voting power of the Convertible Preferred Stock then outstanding shall
be required to constitute a quorum of the Convertible Preferred Stock for such
election. In the absence of such a quorum, the holders of record of shares
representing a majority of the voting power of the Convertible preferred Stock
present, in person or by proxy, shall have the power to adjourn the meeting for
the election of directors through no notice other than announcement at the
meeting.
A vacancy in any directorship to be elected by the holders of the Convertible
Preferred Stock pursuant to this subparagraph (iii), may be filled only by (a)
vote of the holders of a majority in holding power of the Convertible Preferred
Stock, acting separately as one class, or (b) written consent in lieu of a
meeting the holders of a majority in voting power of the Convertible Preferred
Stock, acting separately as one class.
Any director elected pursuant to this subparagraph (iii) may be removed after
the aforesaid term of office, either with or without cause, by, and only by,
the affirmative vote of the holders of the Convertible Preferred stock given
either at a special meeting of such stockholders duly called for that purpose
or pursuant to a written consent of such stockholders.
(b) Dividend Rights. (I) Each issued and outstanding share of Convertible
Preferred Stock shall entitle the holder of record thereof to receive, when,
as and if declared by the Board of Directors, out of any funds legally
available therefor, dividends in cash at the annual rate per share of (A) Six
Cents ($0.06) for Series A Preferred Stock, (B) Twelve and Seventy Five One
Hundredths Cents ($0.1275) for Series B Preferred Stock and (C) Fifty-Six Cents
($0.56) for Series C Preferred Stock (or such greater amount per share as such
Convertible Preferred stock would be entitled to receive if such Convertible
Preferred Stock were converted to Common Stock), as adjusted for stock splits,
stock dividends, recapitalizations, reclassifications and similar events
(together herein referred to as "Recapitalization Events"), payable as the
Board of Directors may from time to time determine. Dividends and distribution
( other than those paid solely in Common Stock or Preferred stock other than
Convertible Preferred Stock respectively) may be paid, or declared and set
aside for payment, upon shares of Common stock or Preferred Stock other than
Convertible Preferred Stock in any calendar year only if dividends shall have
been paid, or declared and set aside for payment, on account of all shares of
Convertible Preferred Stock then issued and outstanding, at the aforesaid rate
for the calendar year. Except as herein set forth, the Board of Directors of
the Corporation is under no obligation to pay dividends and the dividend
preferences granted herein to shares of Convertible Preferred Stock shall apply
only at such time as the Board of Directors may in its discretion decide to pay
or declare and set aside for payment of any dividends on any shares of capital
stock of the Corporation.
5
(ii) Until December 1, 2001, the right to dividend upon the issued and
outstanding shares of Convertible preferred Stock shall be non-cumulative and
shall not be deemed to accrue, whether dividends are earned or whether there be
funds legally available therefor, unless and until said dividends shall have
been declared by the Board of Directors. If until December 1, 2001, the
Corporation pays dividends upon the Convertible Preferred stock that are less
than the dividend preference on the Convertible Preferred Stock pursuant to the
subsection (b) (I) hereof, dividends shall be distributed ratably among the
holders of Convertible Preferred stock based upon the amounts of their
respective dividend preferences.
(iii) From and after December 1, 2001, the right to dividends among the issued
and outstanding shares of Convertible Preferred Stock shall be cumulative so
that such rights shall be deemed to accrue, on a quarterly basis, from and
after December 1, 2001, whether earned, or whether there be funds legally
available therefor, or whether said dividends shall have been declared . If
such dividends in respect of any period beginning December 1, 2001, shall not
have been declared and either paid or a sum sufficient for the payment thereof
set aside in full, the deficiency shall first be fully paid on the Convertible
Preferred Stock, before any dividend or other distribution ( other than those
payable solely in Common Stock or Preferred Stock other than Convertible
Preferred Stock, respectively) may be paid or declared on shares of Common
Stock or Preferred Stock other than Convertible Preferred Stock. Any accrued
and unpaid dividends on the Convertible Preferred stock shall in any event be
paid upon conversion of the Convertible Preferred stock, in cash or in Common
stock at its then fair market value, as determined in good faith by the Board
of Directors of the Corporation. If at any time from and after December 1,
2001, the Corporation pays dividends upon the Convertible Preferred Stock that
are less than the total dividends then accrued but unpaid for the Convertible
Preferred stock, such dividends shall be distributed ratably among the holders
of Convertible Preferred Stock based upon the aggregate accrued but unpaid
dividends on the shares of Convertible Preferred Stock held by each such
holder. Any accumulation of dividends on the shares of Convertible Preferred
stock shall not bear interest.
(iv) The restrictions on dividends and distributions with respect to shares of
Common Stock and of Preferred stock other than Convertible Preferred Stock set
forth in this paragraph (b) are in addition to, and not in derogation of, the
other restrictions on such dividends and distributions set forth herein.
(c) Liquidation Rights. (I) In the event of a voluntary or involuntary
liquidation, dissolution, or winding up of the Corporation (a "Liquidation"),
the holders of record of share of the Series C Preferred Stock shall be
entitled to receive, prior and in preference to any distribution of any assets
of the Corporation to the holders of Common Stock or any Preferred Stock other
than Series C Preferred stock by reason of their ownership thereof, out of the
assets of the Corporation legally available therefor, Seven Dollars ($7.00) per
share of Series C Preferred Stock ("The Original Series C Issue Price"), as
adjusted for recapitalization events pursuant to subsections (d) (iv) (B) (F),
as appropriate, plus a further amount per share equal to dividends, if any, (A)
then declared
6
and unpaid on account of shares of Series C Preferred Stock and (B) whether or
not declared, then accrued in accordance with the provisions of subparagraph
(b) (iii) hereof, before any payment shall be made or any assets distributed to
the holders of Common or any Preferred stock other than Series C Preferred
Stock. If upon any liquidation, the assets available for distribution among
the holders of the Series C Preferred Stock shall be insufficient to permit
payment to such holders of the full preferential amounts aforesaid, then such
assets shall be distributed ratably among the holders of Series C Preferred
Stock.
(ii) After payment to the holders of record of the shares of Series C
Preferred Stock of the full amounts set forth in the preceding subparagraph
(I), the holders of record of shares of Series B Preferred Stock shall be
entitled to receive, prior and in preference to any distribution of any assets
of the Corporation to the holders of Common Stock or any Preferred Stock other
than series C Preferred Stock by reason of their ownership thereof, out of the
assets of the Corporation legally available therefor, One Dollar and Fifty
Cents ($1.50) per share of series B Preferred Stock ("The Original Series B
Issue Price") , as adjusted for recapitalization Events pursuant to subsections
(d) (iv) (E) (F), as appropriate, plus a further amount per share equal to
dividends, if any, (A) then declared and unpaid on account of shares of Series
B Preferred Stock and (B) whether or not declared, then accrued in accordance
with the provisions of subparagraph (b) (iii) hereof, before any payment shall
be made or any assets distributed to the holders of shares of Common Stock or
any Preferred Stock other than Series C Preferred Stock. If, upon any
liquidation after payment shall have been made to all holders of record of
Series C Preferred Stock of the full amounts to which such holders shall be
entitled pursuant to subparagraph (c) (I) hereof, the assets available for
distribution among the holders of the series B Preferred stock shall be
insufficient to permit payment to such holders of the full amounts aforesaid,
then such assets shall bee distributed ratably among the holders of Series B
Preferred stock.
(iii) After payment to the holders of record of the shares of Series C
Preferred Stock and Series B Preferred Stock of the full amounts set forth in
the preceding subparagraphs (I) and (ii), respectively, the holders of record
of shares of Series A Preferred Stock shall be entitled to receive, prior and
in preference to any distribution of any assets of the Corporation to the
holders of Common Stock or any Preferred Stock other than series C Preferred
Stock by reason of their ownership thereof, out of the assets of the
Corporation legally available therefor, One Dollar ($1.00) per share of series
A Preferred Stock ("The Original Series A Issue Price") , as adjusted for
recapitalization Events pursuant to subsections (d) (iv) (B) (F), as
appropriate, plus a further amount per share equal to dividends, if any, (A)
then declared and unpaid on account of shares of Series A Preferred Stock and
(B) whether or not declared, then accrued in accordance with the provisions of
subparagraph (b) (iii) hereof, before any payment shall be made or any assets
distributed to the holders of shares of Common Stock or any Preferred Stock
other than Series C Preferred Stock and Series B Preferred Stock. If, upon any
liquidation after payment shall have been made to all holders of record of
Series C Preferred Stock and Series b Preferred Stock of the full amounts to
which such holders shall be entitled pursuant to
7
subparagraph (c) (i) and (c) (ii) hereof, the assets available for distribution
among the holders of the series B Preferred stock shall be insufficient to
permit payment to such holders of the full amounts aforesaid, then such assets
shall bee distributed ratably among the holders of Series A Preferred stock.
(iv) After payment to the holders of record of the shares of the Convertible
Preferred stock of the amounts set forth in the preceding subparagraphs (I),
(ii) and (iii), the remaining assets of the Corporation available for
distribution shall be distributed in like amounts per share to the holders of
record of the Corporation's stock, each share of Preferred Stock being treated
as the number of shares of Common Stock ( giving effect to fractional shares)
into which it could then be converted for such purpose; provided, however,
(A) That if the assets and the funds thus distributed would be sufficient to
permit the payment to the holders of Series C Preferred Stock of an amount in
excess of Seven Dollars ($7.00) per share of Series C Preferred Stock ( as
adjusted for Recapitalization Events), plus (2) whether or not declared
dividends then accrued in accordance with subparagraph (b) (iii) hereof, then
the holders of Series C Preferred Stock shall be entitled to the full amounts
otherwise payable to them pursuant to the preceding provisions, but shall not
be entitled to share in the remaining assets and funds of the Corporation in
excess of Fourteen dollars ($14.00) per share of series C Preferred stock ( as
adjusted for Recapitalization Events) plus (2) whether or not declared
dividends then accrued in accordance with subparagraph (b) (iii) hereof;
(B) that if the assets and the funds thus distributed would be sufficient to
permit the payment to the holders of Series B Preferred stock of an amount in
excess of One Dollar and Fifty Cents ($1.50) per share of Series B Preferred
Stock ( as adjusted for Recapitalization Events) plus (2) whether or not
declared, dividends then accrued in accordance with subparagraph (b) (iii)
hereof, then the holders of series B Preferred Stock shall be entitled to the
full amounts otherwise payable to them pursuant to the preceding provisions,
but shall not be entitled to share in the remaining assets and funds of the
Corporation in excess of (1) Three Dollars ($3.00) per share of Series B
Preferred Stock ( as adjusted for Recapitalization Events) plus (2) whether or
not declared, dividends then accrued in accordance with subparagraph (b) (iii)
hereof, and
(C) that if the assets and the funds thus distributed would be sufficient to
permit the payment to the holders of Series A Preferred stock of an amount in
excess of One Dollar ($1.00) per share of Series A Preferred Stock ( as
adjusted for Recapitalization Events) plus (2) whether or not declared,
dividends then accrued in accordance with subparagraph (b) (iii) hereof, then
the holders of series A Preferred Stock shall be entitled to the full amounts
otherwise payable to them pursuant to the preceding provisions, but shall not
be entitled to share in the remaining assets and funds of the Corporation in
excess of (1) Two and Fifty Cents ($2.50) per share of Series A Preferred Stock
( as adjusted for Recapitalization Events) plus (2) whether or not declared,
dividends then accrued in accordance with subparagraph (b) (iii) hereof.
8
(iv) Any acquisition of the Corporation by means of merger or other form of
corporate reorganization in which the shareholders of the Corporation
immediately before the closing of such transaction do not, by virtue of shares
issued in the transaction, own a majority of the outstanding shares of the
surviving corporation, or a sale of all or substantially all of the assets of
the Corporation, shall each be deemed a Liquidation within the meaning of this
paragraph (c) and shall entitle the holders of the Corporation's stock to
receive at the closing in cash, securities or other property as determined in
good faith by the Board of Directors, amounts as specified in subparagraphs (c)
(I) - (c) (iii) above.
(d) Conversion Rights. The holders of the Convertible Preferred Stock shall
have conversion rights ("The Conversion Rights") as follows:
(I) Right to Convert. Each holder of record of shares of Convertible
Preferred stock may, at any time, upon surrender to the Corporation of the
Certificates therefor at the principal office of the Corporation or at such
other place as the Corporation shall designate, convert all or any part of such
holder's shares of Convertible Preferred Stock into such number of fully paid
and non-assessable shares of Common Stock of the Corporation (as such Common
Stock shall then be constituted) equal to the product of (A) the number of
shares of Convertible Preferred Stock which such holder shall then surrender to
the Corporation, multiplied by (B) the number determined by dividing (1) One
Dollar ($1.00) for Series A Preferred Stock, One Dollar and Fifty Cents ($1.50)
for Series B Preferred Stock and Seven Dollars ($7.00) for Series C Preferred
Stock by (2) the Conversion Price (as hereinafter defined) per share for the
respective series of Convertible Preferred Stock in effect at the time of
conversion. Promptly following surrender of such certificates, the holder
shall be entitled to receive certificates evidencing the number of shares of
Common Stock into which such shares of Convertible Preferred Stock are
converted.
(ii) Automatic Conversion.
(A) All outstanding shares of Convertible Preferred Stock shall be deemed
automatically converted into such number of shares of Common Stock as are
determined in accordance with subparagraph (d) (I) hereof upon (1) the
consummation of a firm commitment underwritten public offering of the
securities of the Corporation pursuant to a registration statement filed with
the Securities and Exchange Commission pursuant to the Securities Act of 1933,
as amended, where the aggregate proceeds to the Corporation resulting from the
sale of such securities (before deduction of underwriting discounts and
expenses of sale) is not less than $15,000,000 and the per share sales price of
such securities before such deductions is not less than Twelve Dollars
($12.00), as adjusted for Recapitalization Events, or (2) the affirmative vote
of the holders of record of (a) sixty-seven percent(67%) in interest of the
outstanding shares of Convertible Preferred Stock, voting together as one class
to that effect, and (b) eighty-five percent (85% in interest of the
9
outstanding shares of Series C Preferred Stock voting separately as a class
(either such event being hereinafter referred to as an "Automatic Conversion
Event").
(B) In addition to the Automatic Conversion Event set forth in subsection (9A)
above, if any holder of Convertible Preferred stock or holder of a warrant,
option or other right to acquire Convertible Preferred Stock (either such
holder being hereinafter referred to as a "Holder") ( by itself or together
with affiliated persons or entities which affiliation shall include (1) any
venture fund related to a Holder by virtue of having at least two (2) common
individuals who are officers, employees, directors, or partners of the entities
that are general partners or managers of such venture funds or (2) any partner
of such venture fund; any such person or entity, hereinafter an 'Affiliate")
fails to [participate in any particular financing by the Corporation consisting
of a bridge loan for a term not in excess of one year or the offering of
Convertible Securities (as herein defined) (an "Additional Offering"), by
acquiring in such Additional Offering such portion of the principal amount of
the financing or such number of shares as shall equal the product of the
principal amount of the bridge loan or the number of shares actually offered in
the Additional Offering to all Holders, multiplied by a fraction: (x) the
numerator of which is the number of shares of Convertible Preferred Stock of
each series held by such Holder ( by itself or together with any Affiliate),
which number shall include the number of shares of Convertible Preferred Stock
issuable to such holder upon exercise of any warrants held by such holder that
are exercisable for shares of Convertible Preferred Stock ( "Warrant Shares") ,
at the time of such Additional Offering, and (y) the denominator of which is
the total number of shares of the Convertible Preferred Stock of each series
then outstanding, including all Warrant Shares, in each case determined on the
basis of the number of shares of Common Stock into which such shares of
Convertible Preferred Stock would be convertible at the Conversion Price for
such shares of Convertible Preferred stock that would be in effect immediately
after the transaction ( the "Converted Shares"), assuming all Holders purchased
their respective pro rata shares in such transaction or participated in the
bridge loan financing ("the Pro Rata Share"), then to the extent of the
percentage of the Pro Rata Share not so acquired by the Holder ( or by an
Affiliate of such Holder) ("Refused Percentage) the number of outstanding
shares of such Holder's Convertible Preferred Stock including for this purpose
all warrant Shares) determined by multiplying the Refused Percentage by all
outstanding shares of such Holder's Convertible Preferred Stock ( including for
this purpose all warrant Shares) ("Converted Percentage") shall be
automatically converted into such number of fully paid and non-assessable
shares of Common Stock of the Corporation (as such Common Stock shall then be
constituted) equal to the product of (x) the Converted Shares multiplied by (y)
the number determined by dividing (1) One dollar ($1.00) for Series A Preferred
Stock, One Dollar and Fifty Cents ($1.50) for Series B Preferred stock and
Seven Dollars ($7.00) for Series C Preferred stock by (2) the Initial
Conversion Price (as defined) (subject to adjustments as provided in
subsections (d) (iv) (B) - (F), but without giving any effect to adjustments
pursuant to subsection (d) (iv) (A) per share for the Convertible Preferred
Stock (such event being hereinafter referred to as an "Additional Automatic
Conversion Event"); provided, however, that the number of shares to be offered
in the Additional Offering to all Holders shall be determined in good faith by
the
10
Board of Directors and, if the Additional Offering consists of bridge notes
convertible into securities or Convertible Securities at an Effective Price
greater than $1.00 per share for Series A Preferred Stock, $1.50 per share for
Series B Preferred Stock, or $7.00 per share for Series C Preferred Stock (as
adjusted for Recapitalization Events), the Additional Offering shall be
required, in the reasonable business judgment of the Board of Directors, as a
condition to the Corporation's ability to secure financing from one or more
third parties. Notwithstanding the foregoing, the term "Additional Automatic
Conversion Event" shall not include any "Deferred Closing" under Section 2.3 of
that certain Preferred stock Purchase Agreement relating to the Series B
Preferred Stock dated as of December 22, 1994 or any failure to participate in
a financing when pursuant to a written request by the Company, the holder of
shares of Convertible Preferred Stock agrees in writing to waive such holder's
right of first refusal with respect to such financing.
(C) On or after the date of occurrence of an Automatic Conversion Event or an
Additional Automatic Conversion Event, and in any event within 10 days after
receipt of notice, by mail, postage prepaid from the Corporation of the
occurrence of such Event, each holder of record of shares of Convertible
Preferred Stock Subject to such event shall surrender such Holder's
certificates evidencing such holder's shares of Convertible Preferred Stock at
the principal office of the Corporation at such other place as the Corporation
shall designate, and shall thereupon be entitled to receive certificate
evidencing the number of shares of Common Stock into which such shares of
Convertible Preferred Stock are converted. On the date of the occurrence of an
Automatic Conversion Event or an Additional Automatic Conversion Event, each
Holder of record of shares of Convertible Preferred Stock subject to such event
shall be deemed to be the holder of record of the Common Stock issuable upon
such conversion, notwithstanding that the certificate representing such shares
of convertible Preferred Stock shall not have been surrendered at the office of
the Corporation, that notice from the Corporation shall not have been received
by any holder of record of shares of Convertible Preferred Stock, or that the
certificate evidencing such shares of common stock shall not then be actually
delivered to such holder.
(iii) For purposes of this Certificate of Incorporation:
"Additional Shares of Common Stock" shall mean all shares of Common Stock
issued (or, pursuant to this paragraph (d), deemed to be issued) by the
Corporation; other than shares of Common Stock issued or issuable:
(AA) upon conversion of shares of Preferred Stock;
(BB) to officers, directors or employees of, or consultants to, the
Corporation pursuant to a stock grant or sale or option plan or other employee
stock incentive program approved by the Board of Directors, provided that such
shares shall not exceed 2,110,000 in the aggregate without the approval of
members constituting at least 81% of the Board of
11
Directors of the Corporation ( or at least 81% of the compensation Committee of
the Board of Directors, if such Committee has been constituted);
(CC) in connection with an acquisition or joint venture by the Corporation, or
to consultants, lenders or equipment lessors of the Corporation, in each case
as approved by the Board of Directors, or
(DD) as a dividend or distribution on Preferred Stock.
"Conversion Price" shall mean, with respect to each series of Convertible
Preferred Stock, the price at which the shares of the Common Stock shall be
deliverable upon conversion of shares of such series of Convertible Preferred
Stock as adjusted from time to time as herein provided. The initial Conversion
Price per share for shares of Series A Preferred Stock shall be the Original
Series A Issue Price. The Initial Conversion Price per share for shares of
Series B Preferred Stock shall be the Original Series B Issue Price. The
initial Conversion Price per share for shares of Series C Preferred Stock shall
be the Original Series C Issue Price. The Conversion Price shall be subject to
adjustment as herein provided.
"Convertible Securities" shall mean any evidences of indebtedness, shares or
securities, in each case convertible into, or exchangeable for Additional
Shares of Common Stock.
"Effective Price" of Additional Shares of Common Stock shall mean the quotient
determined by dividing the total number of additional Shares of Common Stock
issued or sold, or deemed to have been issued or sold by the Corporation under
the subparagraph (d) (iv) (A), into the aggregate consideration received or
deemed to have been received by the Corporation for such issue under
subparagraph (d) (iv) (A)."
"Issuance Date" shall mean the actual initial date of issuance of shares of
each series of Convertible Preferred Stock."
"Options" shall mean rights, options or warrants to subscribe for, purchase or
otherwise acquire Additional Shares of Common Stock or Convertible Securities."
"Original Issue Price" shall mean, with respect to any share of Convertible
Preferred Stock, the price at which such share shall have been issued on the
Issuance Date.
(iv) Adjustments to Conversion Price for Diluting Issues.
(A) Sale of Shares below Conversion Price.
(1) If at any time or from time to time after the Issuance Date, the
Corporation issues or sells, or is deemed by the express provisions of this
subparagraph (d) (iv) (A) to have issued or sold, Additional Shares of Common
Stock, for an Effective Price less than the
12
Initial Conversion Price (as adjusted for Recapitalization events) of any
series of Preferred Stock, then and in each such case the then existing
Conversion Price for such series of Convertible Preferred Stock shall be
reduced, as of the opening of business on the date of such issue or sale, to
the effective price of such issuance or sale.
(2) For the purpose of making any adjustment required under thus subparagraph
(d) (iv) (A), the consideration received by the Corporation for any issue or
sale of securities shall (a) to the extent it consists of cash be computed at
the gross amount of cash received by the Corporation before deduction of any
expenses payable by the Corporation and any underwriting or similar
commissions, compensation or concessions paid or allowed by the Corporation in
connection with such issue or sale, (b) to the extent it consists of property
other than cash, be computed at the fair market value of that property as
determined in good faith by the Board of Directors and (c) if Additional Shares
of Common Stock, Convertible Securities or rights or options to purchase either
additional shares of Common Stock or Convertible Securities are issued or sold
together with other stock or securities or other assets of the Corporation for
a consideration which covers both, be computed (as provided in clauses (a) and
(b) above) as the portion of the consideration so received that may be
reasonably determined in good faith by the Board of directors to be allocable
to such Additional Shares of Common Stock, Convertible Securities or rights or
options.
(3) For the purpose of the adjustment required under the subparagraph (d) (iv)
(A), if at any time or from time to time after the Issuance Date for any series
of Convertible Preferred stock, the Corporation issues or sells any Options or
Convertible Securities, or increases the number of shares of Common Stock for
which any option may be exercised or into which any Convertible Securities may
convert (other than options or rights exercisable for or convertible into
shares of common stock referred to in clause (BB) of the definition of
Additional Shares of Common Stock), then in each case the Corporation shall be
deemed to have issued at the time of the issuance of such Options or
Convertible Securities, or at the time of the increase in the number of shares
of Common Stock for which such Options or Convertible Securities may be
exercised, the maximum number of additional shares of common Stock ( as set
forth in the instruments relating thereto, giving effect to any provision
contained therein for a subsequent upward adjustment of such number) issuable
upon exercise or conversion thereof and to have received as consideration for
the issuance of such shares an amount equal to the total amount of the
consideration, if any, received by the Corporation for the issuance of such
Options or Convertible securities, or for the increase in the number of shares
of Common Stock for which such Options or Common Stock may be exercised plus,
in the case off such Options, the minimum amounts of consideration, if any ( as
set forth in the instruments relating thereto, giving effect to any provision
contained therein for a subsequent downward adjustment of such consideration),
payable to the Corporation upon the exercise of such Options and , in the case
of Convertible Securities, the minimum amounts of consideration, if any,
payable to the Corporation ( other than by cancellation of liabilities or
obligations evidenced by such Convertible securities which were deemed to have
been received by the Corporation on issuance of such convertible Securities.
No
13
further adjustment of the Conversion Price, adjusted upon the issuance of such
Options or Convertible securities, shall be made as a result of the actual
issuance of Additional Shares of common stock on the exercise of any such
Options or the conversion of any such Convertible securities; provided,
however, that if any such Options or the conversion privilege represented by
any such Convertible Securities shall expire without having been exercised, or
are exercised for a lesser number of Additional Shares of Common Stock or with
a greater consideration paid to the Corporation than was previously deemed to
be issued or received by the Corporation, the Conversion Price adjusted upon
the issuance of such options or Convertible Securities ( or an increase in the
number of shares of Common Stock for which they may be exercised) shall be
readjusted to the Conversion Price which would have been in effect had an
adjustment been made on the basis that the only Additional Shares of Common
Stock so issued were the Additional Shares o common Stock, if any, actually
issued or sold on the exercise of such Options or rights of conversion of such
convertible Securities, and such Additional Shares of Common Stock, if any,
were issued or sold for the consideration actually received by the Corporation
upon such exercise, plus consideration, if any, actually received by the
Corporation for the granting of all such Options, whether or not exercised,
plus the consideration received for issuing or selling the Convertible
Securities actually converted plus the consideration, if any, actually received
by the Corporation ( other than by cancellation of liabilities or obligations
evidenced by such Convertible Securities which were deemed to have been
received by the Corporation on issuance of such Convertible Securities) on the
conversion of such Convertible Securities; and provided further, however, that
if any such Options or Convertible securities by their terms provide, with the
passage of time or otherwise, for any increase or decrease in the consideration
payable to the Corporation, or decrease or increase in the number of shares of
Common Stock or Convertible Securities issuable, upon the exercise, conversion,
or exchange thereof, the Conversion Price for each series of Convertible
Preferred Stock computed upon the original issue thereof ( or upon the
occurrence of a record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such increase or decrease becoming
effective, be recomputed to reflect such increase or decrease insofar as it
affects such Options or the rights of conversion or exchange under such
Convertible securities (provided, however, that no such adjustment of the
Conversion price for a series of Convertible Preferred Stock shall affect
Common Stock previously issued upon conversion of such series of Convertible
Preferred Stock).
(4) In each case of an adjustment or readjustment of the Conversion Price or
the number of shares of Common Stock or other securities issuable upon
conversion expense, shall cause the chief financial officer of the Corporation
to compute such adjustment or readjustment in accordance with the provisions
hereof and prepare a certificate showing such adjustment or readjustment , and
shall mail such certificate, by first class mail, postage prepaid, to each
registered holder of Convertible Preferred Stock at the holder's address as
shown in the Corporation's books. The certificate shall et forth such
adjustment or readjustment, showing in detail the facts upon which such
adjustment or readjustment is based, including a statement of (a) the
consideration received or deemed to be received by the Corporation for any
Additional Shares of Common Stock issued or
14
sold or deemed to have been issued or sold, (b) the Conversion Price for each
series of Convertible Preferred Stock at the time in effect, (c) the number of
Additional Shares of Common Stock and (d) the type and amount, if any, of other
property which at the time would be received upon conversion of such
Convertible Preferred Stock.
(5) Except as expressly provided herein, no adjustment in the Conversion Price
of any share of Convertible Preferred Stock shall be made in respect of the
issue of additional Shares of Common Stock unless the consideration per share
for such Additional Shares of Common Stock issued or deemed to be issued by t
he Corporation is less than the Conversion Price in effect on the date of, and
immediately prior to, such issue, for such share of Convertible Preferred
stock.
(b) Adjustment for Stock Splits and Combinations.
If the Corporation at any time or from time to time after the Issuance Date
effects a subdivision of the outstanding Common Stock, the Conversion Price for
each series of convertible preferred Stock then in effect immediately before
that subdivision shall be proportionately decreased, and conversely, if the
Corporation at any time or from time to time after the Issuance Date combines
the outstanding shares of Common Stock, the Conversion Price for each series of
Convertible Preferred Stock then in effect immediately before the combination
shall be proportionately increased. Any adjustment under this subparagraph (d)
(iv) (B) shall become effective at the close of business on the date of the
subdivision or combination becomes effective.
(C) Adjustment for Certain Dividends and Distributions.
In the event the Corporation at any time, or form time to time after the
Issuance Date makes, or fixes a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other distribution payable in
Additional Shares of Common Stock or in any right to acquire Common Stock for
no consideration, then and in each such event the Conversion Price for each
series of Convertible Preferred Stock then in effect shall be decreased as of
the time of such issuance or, in the event such a record date is fixed, as of
the close of business on such record date, by multiplying the Conversion Price
for the series of Convertible Preferred Stock then in effect by a fraction (a)
the numerator of which is the total number of shares of Common Stock issued and
outstanding immediately prior to the time of such issuance or the close of
business on such record date, and (b) the denominator of which shall be the
total number of shares of Common Stock issued and outstanding immediately
prior to the time of such issuance or the close of business on such record date
plus the number of shares of Common Stock issuable in payment of such dividend
or distribution; provided however, that if such record date is fixed and such
dividend is not fully paid or if such distribution is not made on the date so
fixed, the Conversion Price for each such series of Convertible Preferred Stock
shall be recomputed accordingly as of the close of business on such record date
and thereafter the Conversion Price for each series of Convertible Preferred
Stock shall be adjusted pursuant to this subparagraph (d) (iv) (C) as of the
time of actual payment of such dividends or distributions.
15
(D) Adjustment for other Dividends and Distributions.
In the event that the Corporation at ant time or form time to time after the
Issuance Date makes, or fixes a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other distribution payable in
securities to the Corporation other than shares of Common Stock, then in each
such event provision shall be made so that the holder of Convertible Preferred
Stock shall receive upon conversion thereof, in addition to the number of
shares of Common Stock receivable thereupon, the amount of securities of the
Corporation which they would have received had their Convertible Preferred
stock been converted into Common Stock on the date of such event and had they
thereafter, during the period from the date of such event and including the
date of conversion retained such securities receivable by them as aforesaid
during such period, subject to all other adjustments called for during such
period under this paragraph (d) with respect to the rights of the holders of
the Convertible Preferred Stock.
(E) Adjustment for Reclassification, Exchange and Substitution.
If the Common Stock Issuable upon the conversion of Convertible Preferred Stock
is changed into the same or a different number of share of any other class or
classes of stock, whether by recapitalization, reclassificatioon or otherwise
( other than a subdivision or combination of shares, or stock dividend or a
recapitalization, reclassification or otherwise, ( otheer than a subdivision
or combination of shares, or stock dividend or a recapitalization provided for
elsewhere in this paragraph (d)), then and in any such event each holder of
Convertible Preferred Stock shall have the rioght thereafter to convert such
stock into the kind and amount of stock and other securities and property
receivable upon such recapitalization, reclassification or other change, by
holders of the number of shares of Common Stock into which such shares of
Convertible oreferred stock would have been converted immeediately prior to
such recapitalization, reclassification or change, all subject to further
adjustment as provided herein.
(F) Reorganizations.
If at any time or form time to time there is a capital reorganization of the
Common Stock ( other than a recapitalization, subdivision, combination,
reclassification or exchange of shares provided for elsewhere in this paragraph
(d)), then, aas a part of such reorganization, provision shall be made so that
the holders of Convertible Preferred Stock shall thereafter be entitled to
receive upon conversion of Preferred Stock, the number of shares of stock or
otheeer securities or property of the Corporation to which a holder of Common
Stock deliverable upon conversion would have been entitled on such capital
roerganization. In any such case, appropriate adjustment shall be made in the
application of the provisions of this paragraph (d) with respect to the right s
of the holders of the Convertible Preferred Stock after the reorganization to
the end that the provision of this paragraph (d) ( including adjustment of the
Conversion Price for each series of Convertible Preferred stock then in effect
and number osf shares purchaaseable upon conversion of Convertible preferred
Stock) shall be applicable after that event and be as nearly equivalent to the
provisions hereof as may be practicable.
(v) No impairment.
16
The Corporation will not, by amendment of this Certificate of Incorporation or
through any reorganization, transfer of assets, consolidation, mergewr,
dissolution, issue or sale of securities or any other voluntary action, avoid
or seek to avoid the observance or performance of any of hte terms to be
observed or performed hereunder by the Corporation but will at all times in
good faith assist in the carrying out of all the provisions of this paragraph
(d) and in the taking of all such action as may be necessary or appropriate in
order to protect the Conversion Rights of the holders of Convertible Preferred
Stock against dilution or other impairment. The Corporation shall at all times
reserve and keep available out of its authorized but unissued Common Stock the
full number of shares of Common Stock deliverable upon the conversion of all
the theen outstanding shares of Convertible Preferred stock and shall take all
such action and obtain all such permits or orders as may be necessary to enable
the Corporation lawfully to issue such Common Stock upon the conversion of
Convertible Preferred stock.
(vi) Notices of Record Date.
In the event of any taking by the Corporation of a record of the holders of any
class of securities for the purpose of determi ning the holders thereof who are
entitled to receive any dividend ( other than a cash dividend which is the same
as cash dividends paid in previous quarters) or other distribution, the
Corporation shall mail to each holder of Convertible Preferred Stock at least
twenty (20) days prior to the date specified therein, a notice specifying the
date on which any such record is to be takes for the purpose of such dividend
or distribution.
(e) Redemption.
The Convertible Preferred Stock shall, at the election of the holders of
Convertible Preferred Stock, voting together as one class, be redeeemed by the
Corporation in two equal installments in accordance with the following
provisions:
(I) Election to Redeem. The Corporation shall redeem the Convertible
Preferred Stock at the times, and pursuant to the terms, set forth below, if
the Corporation receives written certification (the "Redemption Certificae")
that holders of no less than seventy-two percent (72%) of the then outstanding
shares of Convertible Preferred Stock (the "Electing Holders"), voting together
as one class, have elected in favor of redemption ( the "Redemption Election").
The Redemption Certificate shall be signed by the Electing Holders and shall
be deliverd to the Corporation at its principal office.
(ii) Redemption Price. The onvertible Preferred stock shall be redeemed by
the Corporation paying in cash, out of funds legally available therefor, an
amount eqiual to (A) the greater of (1) One Dollar ($1.00) per share for
Series A Preferred Stock, One Dollar and Fifty Cents ($1.50) per share for
Series B Preferred Stock or Seven Dollars ($7.00) per share for Series C
Preferred Stock (adjusted for any recapitalization events with respect to such
shares) and (2) for each series of Convertible Preferred Stock, the fair market
value per share as of a date within forty-five (45) days after receipt by the
Corporation of the Redemption Certificate, determined as sset forth below, plus
(B) a further amount per share equal to dividends, if any, (1) then declared
and unpaid on
17
account of the respective series of Convertible Preferred stock and (2) whether
or not declared, then accrued on the respective series of Convertible Preferred
stock in accordance with the provisions of subparagraph (b) (iii) hereof to and
including the date fixed for redemption( the "Redemption Price"). The
Redemption Price for each series of Convertible Preferred Stock shall be
applicable both to elective and mandatory redemptions pursuant to the
provisions of this section. The fair market value of the Convertible Preferred
Stock shall be determined as follows: The Board of Directors shall determine
the fair market value of each share of each series of convertible Preferred
Stock; provided, however, that (A) if the board of Directors determines that
the fair market value of each share of (1) series A Preferred stock is greater
than One Dollar ($1.00), (2) Series B Preferred Stock is greater than One
Dollar and Fifty Cents ($1.50) or (3) Series C Preferred Stock is greater than
Seven Dollars ($7.00) ( adjusted for any recapitalization eveents with respect
to such shares) , the Corporation shall promptly give the stockholders notice
thereof and the holders of a majority of the Corporation's then outstanding
Common Stock shall have the right to contest any of these determinations, or
both if applicable, by giving notice thereof to the Corporation within fifteen
(15) days of the receipt of the Corporation's notice, and in such event the
fair market value of the respective series of Convertible Preferred Stock shall
be determined by an independent appraiser paid by the Corporation and mutually
acceptable to the Corporation, the holders of a majority of the Common Stock
and the holders of a majority of the then outstandingConvertible Preferred
stock of the respective sseries to which such appraisal relates, or (B) if the
holders of a majority of the then outstanding shares of such series of
Convertible Preferred stock contests the determination of the Board of
Directors, then the fair market value of such series of Convertible Preferred
Stock shall be determined by an independent appraiser mutually acceptable to a
majority of disinterested directors and holders of a majority of the then
outstanding shares of such series of Convertible Preferred Stock. In the event
that the holders of a majority of the shares of a series of Convertible
Preferred Stock contest the board of directors fair market value determination,
the cost of appraisal shall be borne as follows:
(A) if the fair market value determined by the independent appraiser is less or
equal to ninety percent (90%) of the fair market value as determined by the
Board of Directors, then the cost of appraisal shall be borne by the holders of
the respective sseries of Convertible Preferred Stock pro rata based on the
number of shares held;
(B) if the fair market value determined by the appraiser is equal to or
greater than one hundred and ten percent (110%) of the fair market value as
determined by the Board of Directors, the cost of appraisal shall be borne by
the Corporation; and
(C) if the fair market value as determined by the independent appraiser is
between ninety and one-hundred and ten percent (90 - 110%) of the fair market
value as determined by the Board ofDirectors, then the cost of appraisal shall
be borne 50% by the Corporation and 50% by the holders of the respective series
of Convertible Preferred Stock, with each holder paying a pro rata portion of
such cost based on the number of shares held.
18
(iii) Mandatory Redemption; Two Installments.
The Redemption Election constitutes an election in favor of a mandatory
redemption of all shares of Convertible Preferred Stock. Each of Series A,
Series B and Series C Preferred Stock shall be redeemed in two equal
installments, with the Corporation redeeming 50% of each holder's shares of
each such series of Convertible Preferred Stock in the first installment and
the remaining shares of each such series of Convertible Preferred stock in the
second installment. Subject to the Corporation having funds legally available,
the closing of the first installment with respect to each of Series A, Series B
and Series C shall occur on or about the seventh anniversary of the initial
issuance of the respective series of Convertible Preferred stock (with respect
to each series, the "Firest Redemption date") and the closing of the second
installment shall take place on or about the eighth anniversary of the initial
issuance of the respective series of Convertible Preferred Stock ( with respect
to each series, the "Second Redemption Date"). If the Corporation shall not
have sufficient funds legally available for redeeming Convertible Preferred
Stock at the First Redemption Date or the Second Redemption Date of any series,
respectively, the Corporation sghall redeem a pro rata portion of each holder's
shares of such series of Convertible Preferred Stock out of the funds legally
available therefor and shall redeem the remaining shares to have been redeemed
in such installment as soon as practicable after the Corporation has funds
legally available therefor. If after either the First Redemtion Date or the
Second Redemption Date of any series of Convertible Preferred Stock, any shares
of such series of Convertible Preferred Stock are outstanding that the
Corporation was required to redeem on such Redemption Date (the "Delayed
Redemption Shares"), the Corporation shall not pat dividends or other
distributions or make any other payments on Common Stock or any Preferred Stock
other than the series of Convertible Preferred Stock of which the delayed
redemption shares are a pert until the Delayed Redemption Shares have been
redeemed for the Redemption Price.
(iv) Redemption Notice.
If the Redemption Election has been received, the Corporation shall mail,
postage prepaid, not less than thirty (30) days nor more than sixty (60) days
prior to the First and Second Redemption Dates, written notice thereof (the
"Redemption Notice") , to each holder of record of the Convertible Preferred
Stock, at its post office address last shown on the records of the
Corporation.Each such Redemption Notice shall state:
(A) The number of shares of Convertible Preferred Stock held by the holder
that th e Corporation shall redeem on the Redemption Date specified in the
Redemption Notice;
(B) The Redemption Date and Redemption Price;
(C) The date upon which the holder's conversion rights ( as set forth in
paragraph (d) above) as to such shares terminate, which termination shall be
five days before the Redemption Date; and
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(D) That the holder is to surrender to the Corporation, in the manner and at
the place designated, its certificate or certificates representing the shares
of Convertible Preferred Stock to be redeemed.
(v) Surrender of Certificates; Payment.
On or before each Redemption Date, each holder of shares of Convertible
Preferred Stock to be redeemed on such Redemption Date, unless such holder has
exercised its right to convert the shares aas provided in paragraph (d)
hereeof, shall surrender the certificate or certificates representing such
shares to the Corporation, in the manner and at hre place designated in the
Redemption Notice, and thereupon the Redemption Price for such shares shall be
payable to the order of the person whose name appears on such certificate or
certificates as the owner thereof, and each surrendered certificate shall be
cancelled and retired. In the event that fewer than all the shares represented
by such certificate are redeemed, a new certificate representing them shall be
issued forthwith.
(vi) Rights Subsequent to Redemption.
If the Redemption Notice shall have been duly given, and if on each Redemption
Date the Redemption Price thereafter is either paid or made available for
payment throughthe deposit arrangement specified in subparagraph (vii) below,
then notwithstanding the certificates evidencing any of the shares of
Convertible Preferred Stock so called for redemption shall not have been
surrendered, the dividends with respect to such shares shall cease to accrue
after the Redemption Date and all rights with respect to such shares shall
forthwith terminate after the Redemption Date, except only the right of the
holders to receive the redemption Price without interest upon their surrender
of their certificate or certificates therefor.
(vii) Deposit of Funds.
On or prior to each Redemption Date, the Corporation shall deposit as a trust
company, having a capital and surplus of at least $100,000,000, a sum equal to
the aggregate Redemption Price of all shares of Preferred stock called for
redemption on such Redemption Date and not yet redeemed or converted, with
irrevocable instructions and authority to the bank or trust company to pay, on
and after each such Redemption Date, the Redemption Price to the respective
holders upon the surrender of their share certificates. From and after the
date of such deposit (but not prior to each Redemption Date), the shares so
called for redemption on such Redemption Date shall be redeemed. The deposit
shall constitute full payment of the shares of their holders, and from and after
each Redemption Date the shares redeemed on such Redemption Date shall be
deemed to be no longer outstanding, and the holders thereof shall cease to be
stockholders with respect to such shares and shall have no rights with respect
thereto except the rights to receive, from the bank or trust company, payment
of the Redemption Price of the shares, without interest, upon surrender of their
certificates therefor. Any funds so deposited and unclaimed at the end of
one year from the Second Redemption Date shall be released or repaid to the
Corporation, after which the holders of shares called for redemption shall be
entitled to receive payment of the Redemption Price only from the Corporation.
(f) Protective Provisions. So long as any shares of any series of Convertible
Preferred Stock are outstanding and subject to any additional voting rights
required by applicable law, the Corporation shall not, without the affirmative
vote of the holders of record of sixty-seven percent (67%) of the outstanding
shares of each of Series A Preferred Stock, Series B Preferred Stock and Series
C Preferred Stock, each series voting separately as a class:
(i) Amend, repeal or modify any provision of, or add any provision to, the
Corporation's Certificate of Incorporation or By-Laws if such action would
alter or change the rights, preferences, privileges or powers of, or the
restrictions provided for the benefit of, such series of Convertible Preferred
Stock so as to affect such series of Convertible Preferred Stock adversely;
(ii) Authorize, create or issue any additional shares of such series of
Convertible Preferred Stock, or authorize or create shares of any class or
series of stock having any preference or priority as to dividends, redemption or
assets superior to or on a parity with any such preference or priority of such
series Convertible Preferred Stock, or authorize, create or issue shares of any
class or series or any bonds, debentures, notes or other obligations convertible
into or exchangeable for, or having optional rights to purchase, any shares of
the Corporation having any such preference or priority;
(iii) Reclassify the shares of Common Stock or any Preferred Stock other than
the Convertible Preferred Stock as to dividends, redemption or assets into
shares of such series of Convertible Preferred Stock or into shares having any
preference or priority as to dividends or assets
20
superior to or on a parity with that of such series of Convertible Preferred
Stock;
(iv) Set aside or apply any monies for the purchase, redemption, retirement,
or other acquisition or liquidation of the shares of Common Stock or any
Preferred Stock other than the Convertible Preferred Stock; or
(v) Increase the number of members of the Board of Directors without a
proportional increase in the number of members to be elected exclusively by the
Convertible Preferred Stock as provided in subparagraph (a) (iii) (any fraction
rounded up to increase the number of members elected exclusively by the
Convertible Preferred Stock).
SIXTH: The following provisions are inserted for purposes of the management
of the business and conduct of the affairs of the Corporation and for creating,
defining, limiting and regulating the powers of the Corporation and its
directors and stockholders:
(a) The number of directors of the Corporation shall be fixed and may be
altered from time to time in the manner provided in the By-Laws, and vacancies
in the Board of Directors and newly created directorships resulting from any
increase in the authorized number of directors may be filled, and directors
may be removed, as provided in the By-Laws and this Third Restated
Certificate of Incorporation.
(b) The election of directors may be conducted in any manner approved by the
stockholders at the time when the election is held and need not be by ballot.
(c) All corporate power and authority of the Corporation (except as at the
time otherwise provided by law, by this Third Restated Certificate of
Incorporation or by the By-Laws) shall be vested in and exercised by the Board
of Directors.
(d) The Board of Directors shall have the power without the assent or vote of
the stockholders to adopt, amend, alter or repeal the By-Laws unless the
By-Laws or this Third Restated Certification of Incorporation otherwise
provide.
SEVENTH: The Corporation reserves the right to amend or repeal any provision
contained in this Certificate of Incorporation in the manner now or hereafter
prescribed by the laws of the State of Delaware, and all rights herein
21
conferred upon stockholders or directors are granted subject to this
reservation.
EIGHTH: To the fullest extent permitted by the Delaware General
Corporation Law, no director of the Corporation shall have personal liability to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, provided that nothing in this article shall eliminate or
limit the liability of a director (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv)
for any transaction from which the director derived an improper personal
benefit. In the event the Delaware General Corporation Law is amended after the
date hereof so as to authorize corporate action further eliminating or limiting
the liability of directors of the Corporation, the liability of the directors
shall thereupon be eliminated or limited to the maximum extent permitted by the
Delaware General Corporation Law, as so amended from time to time.
NINTH: The Corporation shall indemnify any person:
(a) who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Corporation) by reason of the fact that such person is or was a
director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorney's fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding if such person acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of the Corporation, and with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which such person reasonably believed to be in or not
opposed to the best interests of the Corporation or, with respect to any
criminal action or proceeding, that the person had reasonable cause to believe
such person's action was unlawful, or
22
(b) who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
Corporation to procure a judgment in its favor by reason of the fact that such
person is or was a director, officer, employee or agent of the Corporation, or
is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust, or
other enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or settlement
of such action or suit if such person acted in good faith and in a manner he or
she reasonably believed to be in or not opposed to the best interests of the
Corporation, except that no indemnification shall be made in respect of any
claim, issue or matters as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in paragraph (a) and (b), or in defense
of any claim, issue or matter therein, such person shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection therewith. The rights conferred on any director of the
Corporation under this Article Ninth shall inure to the benefit of any entity
that is affiliated with such director and that is a stockholder of the
Corporation.
Any indemnification under paragraph (a) and (b) (unless ordered by a
court) shall be made by the Corporation only as authorized in the specified
case upon a determination that indemnification of the director, officer,
employee or agent is proper in the circumstances because such person has met
the applicable standard of conduct set forth in paragraph (a) and (b). Such
determination shall be made (1) by the board of directors of a majority vote
of the quorum consisting of directors who were not parties to such action, suit
or proceeding, or (2) if such quorum is not obtainable, or, even if obtainable
a quorum of disinterested directors so directs, by independent legal counsel in
a written opinion, or (3) by the stockholders.
Expenses incurred by an officer or director in defending a civil or
criminal action, suit or proceeding may be paid by the Corporation in advance of
the final
23
disposition of such action, suit or proceeding upon receipt of an undertaking
by or on behalf of such director or officer to repay such amount if it shall
ultimately be determined that such person is not entitled to be indemnified by
the Corporation as authorized in this Article Ninth. Such expenses incurred by
other employees and agents may be so paid upon such terms and conditions, if
any, as the board of directors deems appropriate.
The indemnification and advancement of expenses provided by or granted
pursuant to this Article Ninth shall not be deemed exclusive of any other rights
to which one seeking indemnification or advancement of expenses may be entitled
under any by-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his or her official capacity and as to action in
another capacity while holding such office.
The Corporation may purchase and maintain, insurance on behalf of any
person who is or was a director, officer, employee or agent of the Corporation,
or is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him or her and incurred
by him or her in such capacity or arising our of his or her status as such,
whether or not the Corporation would have the power to indemnify such person
against such liability under the provisions of this Article Ninth.
For purposes of this Article Ninth, references to "the Corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have the power and authority to indemnify its directors, officers, and employees
or agents, so that any person who is or was a director, officer, employee or
agent of such constituent corporation, or is or was serving at the request of
such constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
shall stand in the same position under this Article Ninth with respect to the
resulting or surviving corporation as he or she would have with respect to such
constituent corporation if its separate existence had continued.
For purpose of the Article Ninth, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director,
24
officer, employee or agent of the Corporation that imposes duties on, or
involves services by, such director, officer, employee or agent with respect to
an employee benefit plan, its participants, or beneficiaries; and a person who
acted in good faith and in a manner such person reasonably believed to be in
the interest of the participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner "not opposed to the best interests of
the Corporation" as referred to in this Article Ninth.
The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article Ninth shall continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.
IN WITNESS WHEREOF, the undersigned do execute this Certificate and
affirm and acknowledge, under penalties of perjury, that this Certificate are
their act and deed and that the facts stated herein are true, this 20th day of
December, 1995.
/s/ PATRICK H. NETTLES
------------------------
Patrick H. Nettles
President
Attest:
/s/ PHILLIP L. SPECTOR
- ----------------------
Phillip L. Spector
Secretary
1
EXHIBIT 3.3
AMENDED AND RESTATED BY-LAWS
OF
HYDRALITE INCORPORATED
ARTICLE I
STOCKHOLDERS
SECTION 1. Annual Meeting. The annual meeting of the
stockholders of the Corporation shall be held on such date, at such time and at
such place within or without the State of Delaware as may be designated by the
Board of Directors, for the purpose of electing Directors and for the
transaction of such other business as may be properly brought before the
meeting.
SECTION 2. Special Meetings. Except as otherwise provided in
the Certificate of Incorporation, a special meeting of the stockholders of the
Corporation may be called at any time by the Board of Directors or the
President and shall be called by the President or the Secretary at the request
in writing of stockholders holding together at least twenty-five percent of the
number of shares of stock outstanding and entitled to vote at such meeting.
Any special meeting of the stockholders shall be held on such date, at such
time and at such place within or without the State of Delaware as the Board of
Directors or the officer calling the meeting may designate. At a special
meeting of the stockholders, no business shall be transacted and no corporate
action shall be taken other than that stated in the notice of the meeting
unless all of the stockholders are present in person or by proxy, in which case
any and all business may be transacted at the meeting even though the meeting
is held without notice.
SECTION 3. Notice of Meetings. Except as otherwise provided
in these
2
By-Laws or by law, a written notice of each meeting of the stockholders shall
be given not less than ten (10) nor more than sixty (60) days before the date
of the meeting to each stockholder of the Corporation entitled to vote at such
meeting at his address as it appears on the records of the Corporation. The
notice shall state the place, date and hour of the meeting and, in the case of
a special meeting, the purpose or purposes for which the meeting is called.
SECTION 4. Quorum. At any meeting of the stockholders, the
holders of a majority in number of the total outstanding shares of stock of the
Corporation entitled to vote at such meeting, present in person or represented
by proxy, shall constitute a quorum of the stockholders for all purposes,
unless the representation of a larger number of shares shall be required by
law, by the Certificate of Incorporation or by these By-Laws, in which case the
representation of the number of shares so required shall constitute a quorum;
provided that at any meeting of the stockholders at which the holders of any
class of stock of the Corporation shall be entitled to vote separately as a
class, the holders of a majority in number of the total outstanding shares of
such class, present in person or represented by proxy, shall constitute a
quorum for purposes of such class vote unless the representation of a larger
number of shares of such class shall be required by law, by the Certificate of
Incorporation or by these By-Laws.
SECTION 5. Adjourned Meetings. Whether or not a quorum shall
be present in person or represented at any meeting of the stockholders, the
holders of a majority in number of the shares of stock of the Corporation
present in person or represented by proxy and entitled to vote at such meeting
may adjourn from time to time; provided, however, that if the holders of any
class of stock of the Corporation are entitled to vote separately as a class
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upon any matter at such meeting, any adjournment of the meeting in respect of
action by such class upon such matter shall be determined by the holders of a
majority of the shares of such class present in person or represented by proxy
and entitled to vote at such meeting. When a meeting is adjourned to another
time or place, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the stockholders, or the holders of any class
of stock entitled to vote separately as a class, as the case may be, may
transact any business which might have been transacted by them at the original
meeting. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the adjourned meeting.
SECTION 6. Organization. The President or, in his absence, a
Vice President shall call all meetings of the stockholders to order, and shall
act as Chairman of such meetings. In the absence of the President and all of
the Vice Presidents, the holders of a majority in number of the shares of stock
of the Corporation present in person or represented by proxy and entitled to
vote at such meeting shall elect a Chairman.
The Secretary of the Corporation shall act as Secretary of all
meetings of the stockholders; but in the absence of the Secretary, the Chairman
may appoint any person to act as Secretary of the meeting. It shall be the
duty of the Secretary to prepare and make, at least ten days before every
meeting of stockholders, a complete list of stockholders entitled to vote at
such meeting, arranged in alphabetical order and showing the address of each
stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open,
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either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting or, if not so specified, at the
place where the meeting is to be held, for the ten days next preceding the
meeting, to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, and shall be produced and kept at the
time and place of the meeting during the whole time thereof and subject to the
inspection of any stockholder who may be present.
SECTION 7. Voting. Except as otherwise provided in the
Certificate of Incorporation or by law, each stockholder shall be entitled to
one vote for each share of the capital stock of the Corporation registered in
the name of such stockholder upon the books of the Corporation. Each
stockholder entitled to vote at a meeting of stockholders or to express consent
or dissent to corporate action in writing without a meeting may authorize
another person or persons to act for him by proxy, but no such proxy shall be
voted or acted upon after three years from its date, unless the proxy provides
for a longer period. When directed by the presiding officer or upon the demand
of any stockholder, the vote upon any matter before a meeting of stockholders
shall be by ballot. Except as otherwise provided by law or by the Certificate
of Incorporation, Directors shall be elected by a plurality of the votes cast
at a meeting of stockholders by the stockholders entitled to vote in the
election and, whenever any corporate action other than the election of
Directors is to be taken, it shall be authorized by a majority of the votes
cast at a meeting of stockholders by the stockholders entitled to vote thereon.
Shares of the capital stock of the Corporation belonging to
the Corporation or to another corporation, if a majority of the shares entitled
to vote in the election of directors of
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such other corporation is held, directly or indirectly, by the Corporation,
shall neither be entitled to vote nor be counted for quorum purposes.
SECTION 8. Inspectors. When required by law or directed by
the presiding officer, but not otherwise, the polls shall be opened and closed,
the proxies and ballots shall be received and taken in charge, and all
questions touching the qualification of voters, the validity of proxies and the
acceptance or rejection of votes shall be decided at any meeting of the
stockholders by one or more Inspectors who may be appointed by the Board of
Directors before the meeting, or if not so appointed, shall be appointed by the
presiding officer at the meeting. If any person so appointed fails to appear
or act, the vacancy may be filled by appointment in like manner.
SECTION 9. Consent of Stockholders in Lieu of Meeting. To
the fullest extent permitted by law, any action required to be taken or which
may be taken at any annual or special meeting of the stockholders of the
Corporation, may be taken without a meeting, without prior notice and without a
vote, if a consent in writing, setting forth the action so taken, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Prompt notice of the taking of any such corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not so consented in writing.
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ARTICLE II
BOARD OF DIRECTORS
SECTION 1. Number and Term of Office. The business and
affairs of the Corporation shall be managed by or under the direction of a
Board of not less than five nor more than seven Directors, who need not be
stockholders of the Corporation. The Directors shall, except as hereinafter
otherwise provided for filling vacancies, be elected at the annual meeting of
stockholders, and shall hold office until their respective successors are
elected and qualified or until their earlier resignation or removal. The
initial number of Directors constituting the Board shall be five. The number
of Directors may be altered from time to time by amendment of these By-Laws or
by resolution of the Board of Directors, subject to the provisions of the
Corporation's Certificate of Incorporation.
SECTION 2. Removal, Vacancies and Additional Directors. The
stockholders may, at any special meeting the notice of which shall state that
it is called for that purpose, remove, with or without cause, any Director and
fill the vacancy; provided that whenever any Director shall have been elected
by the holders of any class of stock of the Corporation voting separately as a
class under the provisions of the Certificate of Incorporation, such Director
may be removed and the vacancy filled only by the holders of that class of
stock voting separately as a class. Vacancies caused by any such removal and
not filled by the stockholders at the meeting at which such removal shall have
been made, or any vacancy caused by the death or resignation of any Director or
for any other reason, and any newly created directorship resulting from any
increase in the authorized number of Directors, may be filled by the
affirmative vote of a majority of the Directors then in office, although less
than a
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quorum, and any Director so elected to fill any such vacancy or newly created
directorship shall hold office until his successor is elected and qualified or
until his earlier resignation or removal.
When one or more Directors shall resign effective at a future
date, a majority of the Directors then in office, including those who have so
resigned, shall have power to fill such vacancy or vacancies, the vote thereon
to take effect when such resignation or resignations shall become effective,
and each Director so chosen shall hold office as herein provided in connection
with the filling of other vacancies.
SECTION 3. Place of Meeting. The Board of Directors may hold
its meetings in such place or places in the State of Delaware or outside the
State of Delaware as the Board from time to time shall determine.
SECTION 4. Regular Meetings. Regular meetings of the Board
of Directors shall be held monthly at the offices of the Corporation, or at
such other place as the Board may determine. No notice shall be required for
any regular meeting of the Board of Directors; but a copy of every resolution
fixing or changing the time or place of regular meetings shall be mailed to
every Director at least five days before the first meeting held in pursuance
thereof.
SECTION 5. Special Meetings. Special meetings of the Board
of Directors shall be held whenever called by direction of the President, or by
any two of the Directors then in office.
Notice of the day, hour and place of holding of each special
meeting shall be given by mailing the same at least two days before the meeting
or by causing the same to be transmitted by telegraph, cable or wireless at
least one day before the meeting to each
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Director. Unless otherwise indicated in the notice thereof, any and all
business other than an amendment of these By-Laws may be transacted at any
special meeting, and an amendment of these By-Laws may be acted upon if the
notice of the meeting shall have stated that the amendment of these By-Laws is
one of the purposes of the meeting. At any meeting at which every Director
shall be present, even though without any notice, any business may be
transacted, including the amendment of these By-Laws.
SECTION 6. Quorum. Subject to the provisions of Section 2 of
this Article II, a majority of the members of the Board of Directors in office
(but in no case less than one-third of the total number of Directors) shall
constitute a quorum for the transaction of business and the vote of the
majority of the Directors present at any meeting of the Board of Directors at
which a quorum is present shall be the act of the Board of Directors. If at
any meeting of the Board there is less than a quorum present, a majority of
those present may adjourn the meeting from time to time.
SECTION 7. Organization. A Chairman shall be elected from
the Directors present to preside at all meetings of the Board of Directors.
The Secretary of the Corporation shall act as Secretary of all meetings of the
Directors; but in the absence of the Secretary, the Chairman may appoint any
person to act as Secretary of the meeting.
SECTION 8. Committees. The Board of Directors may, by
resolution passed by a majority of the whole Board, designate one or more
committees, each committee to consist of one or more of the Directors of the
Corporation. The Board may designate one or more Directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee. In the absence or disqualification of a
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9
member of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a quorum,
may unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided by resolution passed by a majority of the
whole Board, shall have and may exercise all the powers and authority of the
Board of Directors in the management of the business and the affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to amending the Certificate of Incorporation, adopting
an agreement of merger or consolidation, recommending to the stockholders the
sale, lease or exchange of all or substantially all of the Corporation's
property and assets, recommending to the stockholders a dissolution of the
Corporation or a revocation of a dissolution, or amending these By-Laws; and
unless such resolution, these By-Laws, or the Certificate of Incorporation
expressly so provide, no such committee shall have the power or authority to
declare a dividend or to authorize the issuance of stock.
SECTION 9. Conference Telephone Meetings. Unless otherwise
restricted by the Certificate of Incorporation or by these By-Laws, the members
of the Board of Directors or any committee designated by the Board, may
participate in a meeting of the Board or such committee, as the case may be, by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and such
participation shall constitute presence in person at such meeting.
SECTION 10. Consent of Directors or Committee in Lieu of
Meeting. Unless
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otherwise restricted by the Certificate of Incorporation or by these By-Laws,
any action required or permitted to be taken at any meeting of the Board of
Directors, or of any committee thereof, may be taken without a meeting if all
members of the Board or committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings
of the Board or committee, as the case may be.
SECTION 11. Compensation. The amount, if any, that each
Director shall be entitled to receive as compensation for his services as such
shall be fixed from time to time by resolution of the Board of Directors;
provided that only independent directors may receive compensation for services
as a director of the Corporation. Directors shall not be entitled to receive
reimbursement from the Corporation for expenses in connection with their
attendance at any meeting of the Board of Directors.
ARTICLE III
OFFICERS
SECTION 1. Officers. The officers of the Corporation shall
be a President, one or more Vice Presidents, a Secretary and a Treasurer, and
such additional officers, if any, as shall be elected by the Board of Directors
pursuant to the provisions of Section 6 of this Article III. The President,
one or more Vice Presidents, the Secretary and the Treasurer shall be elected
by the Board of Directors at its first meeting after each annual meeting of the
stockholders. The failure to hold such election shall not of itself terminate
the term of office of any officer. All officers shall hold office at the
pleasure of the Board of Directors. Any officer may resign at any time upon
written notice to the Corporation. Officers may, but need not, be Directors.
Any number of offices may be held by the same person.
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All officers, agents and employees shall be subject to
removal, with or without cause, at any time by the Board of Directors. The
removal of an officer without cause shall be without prejudice to his contract
rights, if any. The election or appointment of an officer shall not of itself
create contract rights. All agents and employees other than officers elected
by the Board of Directors shall also be subject to removal, with or without
cause, at any time by the officers appointing them.
Any vacancy caused by the death of any officer, his
resignation, his removal, or otherwise, may be filled by the Board of
Directors, and any officer so elected shall hold office at the pleasure of the
Board of Directors.
In addition to the powers and duties of the officers of the
Corporation as set forth in these By-Laws, the officers shall have such
authority and shall perform such duties as from time to time may be determined
by the Board of Directors.
SECTION 2. Powers and Duties of the President. Unless
otherwise determined by the Board of Directors, the President shall be the
chief executive officer of the Corporation and, subject to the control of the
Board of Directors, shall have general charge and control of all its business
and affairs and shall perform all duties incident to the office of President.
He shall preside at all meetings of the stockholders and at all meetings of the
Board of Directors and shall have such other powers and perform such other
duties as may from time to time be assigned to him by these By-Laws or by the
Board of Directors.
SECTION 3. Powers and Duties of the Vice Presidents. Each
Vice President shall perform all duties incident to the office of Vice
President and shall have such other powers and perform such other duties as may
from time to time be assigned to him by these
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By-Laws or by the Board of Directors or the President.
SECTION 4. Powers and Duties of the Secretary. The Secretary
shall keep the minutes of all meetings of the Board of Directors and the
minutes of all meetings of the stockholders in books provided for that purpose;
he shall attend to the giving or serving of all notices of the Corporation; he
shall have custody of the corporate seal of the Corporation and shall affix the
same to such documents and other papers as the Board of Directors or the
President shall authorize and direct; he shall have charge of the stock
certificate books, transfer books and stock ledgers and such other books and
papers as the Board of Directors or the President shall direct, all of which
shall at all reasonable times be open to the examination of any Director, upon
application, at the office of the Corporation during business hours; and he
shall perform all duties incident to the office of Secretary and shall also
have such other powers and shall perform such other duties as may from time to
time be assigned to him by these By-Laws or the Board of Directors or the
President.
SECTION 5. Powers and Duties of the Treasurer. The Treasurer
shall have custody of, and when proper shall pay out, disburse or otherwise
dispose of, all funds and securities of the Corporation which may have come
into his hands; he may endorse on behalf of the Corporation for collection
checks, notes and other obligations and shall deposit the same to the credit of
the Corporation in such bank or banks or depositary or depositaries as the
Board of Directors may designate; he shall sign all receipts and vouchers for
payments made to the Corporation; he shall enter or cause to be entered
regularly in the books of the Corporation kept for the purpose full and
accurate accounts of all moneys received or paid or otherwise disposed of by
him and whenever required by the Board of Directors or the
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President shall render statements of such accounts; he shall, at all reasonable
times, exhibit his books and accounts to any Director of the Corporation upon
application at the office of the Corporation during business hours; and he
shall perform all duties incident to the office of Treasurer and shall also
have such other powers and shall perform such other duties as may from time to
time be assigned to him by these By-Laws or by the Board of Directors or the
President.
SECTION 6. Additional Officers. The Board of Directors may
from time to time elect such other officers (who may but need not be
Directors), including a Controller, Chief Financial Officer, a Chief Technical
Officer and one or more Assistant Treasurers, Assistant Secretaries and
Assistant Controllers, as the Board may deem advisable, and such officers shall
have such authority and shall perform such duties as may from time to time be
assigned to them by the Board of Directors or the President.
The Board of Directors may from time to time by resolution
delegate to any Assistant Treasurer or Assistant Treasurers any of the powers
or duties herein assigned to the Treasurer; and may similarly delegate to any
Assistant Secretary or Assistant Secretaries any of the powers or duties herein
assigned to the Secretary.
SECTION 7. Giving of Bond by Officers. All officers of the
Corporation, if required to do so by the Board of Directors, shall furnish
bonds to the Corporation for the faithful performance of their duties, in such
penalties and with such conditions and security as the Board shall require.
SECTION 8. Voting Upon Stocks. Unless otherwise ordered by
the Board of Directors, the President or any Vice President shall have full
power and authority on behalf of
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the Corporation to attend and to act and to vote, or in the name of the
Corporation to execute proxies to vote, at any meetings of stockholders of any
corporation in which the Corporation may hold stock, and at any such meetings
shall possess and may exercise, in person or by proxy, any and all rights,
powers and privileges incident to the ownership of such stock. The Board of
Directors may from time to time, by resolution, confer like powers upon any
other person or persons.
SECTION 9. Compensation of Officers. The officers of the
Corporation shall be entitled to receive such compensation for their services
as shall from time to time be determined by the Board of Directors (or the
Compensation Committee of the Board, if one exists).
ARTICLE IV
STOCK-SEAL-FISCAL YEAR
SECTION 1. Certificates For Shares of Stock. The
certificates for shares of stock of the Corporation shall be in such form, not
inconsistent with the Certificate of Incorporation, as shall be approved by the
Board of Directors. All certificates shall be signed by the President or a
Vice President and by the Secretary or an Assistant Secretary or the Treasurer
or an Assistant Treasurer, and shall not be valid unless so signed.
In case any officer or officers who shall have signed any such
certificate or certificates shall cease to be such officer or officers of the
Corporation, whether because of death, resignation or otherwise, before such
certificate or certificates shall have been delivered by the Corporation, such
certificate or certificates may nevertheless be issued and delivered as though
the person or persons who signed such certificate or certificates had not
ceased to be
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such officer or officers of the Corporation.
All certificates for shares of stock shall be consecutively
numbered as the same are issued. The name of the person owning the shares
represented thereby with the number of such shares and the date of issue
thereof shall be entered on the books of the Corporation.
Except as hereinafter provided, all certificates surrendered
to the Corporation for transfer shall be cancelled, and no new certificates
shall be issued until former certificates for the same number of shares have
been surrendered and cancelled.
SECTION 2. Lost, Stolen or Destroyed Certificates. Whenever
a person owning a certificate for shares of stock of the Corporation alleges
that it has been lost, stolen or destroyed, he shall file in the office of the
Corporation an affidavit setting forth, to the best of his knowledge and
belief, the time, place and circumstances of the loss, theft or destruction,
and, if required by the Board of Directors, a bond of indemnity or other
indemnification sufficient in the opinion of the Board of Directors to
indemnify the Corporation and its agents against any claim that may be made
against it or them on account of the alleged loss, theft or destruction of any
such certificate or the issuance of a new certificate in replacement therefor.
Thereupon the Corporation may cause to be issued to such person a new
certificate in replacement for the certificate alleged to have been lost,
stolen or destroyed. Upon the stub of every new certificate so issued shall be
noted the fact of such issue and the number, date and the name of the
registered owner of the lost, stolen or destroyed certificate in lieu of which
the new certificate is issued.
SECTION 3. Transfer of Shares. Shares of stock of the
Corporation shall be transferred on the books of the Corporation by the holder
thereof, in person or by his attorney
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duly authorized in writing, upon surrender and cancellation of certificates for
the number of shares of stock to be transferred, except as provided in the
preceding section.
SECTION 4. Regulations. The Board of Directors shall have
power and authority to make such rules and regulations as it may deem expedient
concerning the issue, transfer and registration of certificates for shares of
stock of the Corporation.
SECTION 5. Record Date. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock
or for the purpose of any other lawful action, as the case may be, the Board of
Directors may fix, in advance, a record date, which shall not be more than
sixty (60) nor less than ten (10) days before the date of such meeting, nor
more than sixty (60) days prior to any other action.
If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders
shall be at the close of business on the day next preceding the day on which
notice is given, or, if notice is waived, at the close of business on the day
next preceding the day on which the meeting is held; the record date for
determining stockholders entitled to express consent to corporate action in
writing without a meeting, when no prior action by the Board of Directors is
necessary, shall be the day on which the first written consent is expressed;
and the record date for determining stockholders for any other purpose shall be
at the close of business on the day on which the Board of Directors adopts the
resolution relating thereto. A determination of stockholders of record
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entitled to notice of or to vote at a meeting of stockholders shall apply to
any adjournment of the meeting; provided, however, that the Board of Directors
may fix a new record date for the adjourned meeting.
SECTION 6. Dividends. Subject to the provisions of the
Certificate of Incorporation, the Board of Directors shall have power to
declare and pay dividends upon shares of stock of the Corporation, but only out
of funds available for the payment of dividends as provided by law.
Subject to the provisions of the Certificate of Incorporation,
any dividends declared upon the stock of the Corporation shall be payable on
such date or dates as the Board of Directors shall determine. If the date
fixed for the payment of any dividend shall in any year fall upon a legal
holiday, then the dividend payable on such date shall be paid on the next day
not a legal holiday.
SECTION 7. Corporate Seal. The Board of Directors shall
provide a suitable seal, containing the name of the Corporation, which seal
shall be kept in the custody of the Secretary. A duplicate of the seal may be
kept and be used by any officer of the Corporation designated by the Board or
the President.
SECTION 8. Fiscal Year. The fiscal year of the Corporation
shall be such fiscal year as the Board of Directors from time to time by
resolution shall determine.
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ARTICLE V
MISCELLANEOUS PROVISIONS
SECTION 1. Checks, Notes, etc. All checks, drafts, bills of
exchange, acceptances, notes or other obligations or orders for the payment of
money shall be signed and, if so required by the Board of Directors,
countersigned by such officers of the Corporation and/or other persons as shall
from time to time be designated by the Board of Directors or pursuant to
authority delegated by the Board.
Checks, drafts, bills of exchange, acceptances, notes,
obligations and orders for the payment of money made payable to the
Corporation may be endorsed for deposit to the credit of the Corporation with a
duly authorized depositary by the Treasurer and/or such other officers or
persons as shall from time to time be designated by the Treasurer.
SECTION 2. Loans. No loans and no renewals of any loans
shall be contracted on behalf of the Corporation except as authorized by the
Board of Directors. When authorized so to do, any officer or agent of the
Corporation may effect loans and advances for the Corporation from any bank,
trust company or other institution or from any firm, corporation or individual,
and for such loans and advances may make, execute and deliver promissory notes,
bonds or other evidences of indebtedness of the Corporation. When authorized
so to do, any officer or agent of the Corporation may pledge, hypothecate or
transfer, as security for the payment of any and all loans, advances,
indebtedness and liabilities of the Corporation, any and all stocks, securities
and other personal property at any time held by the Corporation, and to that
end may endorse, assign and deliver the same. Such authority may be general or
confined to specific instances.
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SECTION 3. Waivers of Notice. Whenever any notice whatever
is required to be given by law, by the Certificate of Incorporation or by these
By-Laws to any person or persons, a waiver thereof in writing, signed by the
person or persons entitled to the notice, whether before or after the time
stated therein, shall be deemed equivalent thereto. The attendance of any
person at a meeting shall constitute a waiver of notice of such meeting, except
when the person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business on the ground that
the meeting is not lawfully called or convened.
SECTION 4. Offices Outside of Delaware. Except as otherwise
required by the laws of the State of Delaware, the Corporation may have an
office or offices and keep its books, documents and papers outside of the State
of Delaware at such place or places as from time to time may be determined by
the Board of Directors or the President.
SECTION 5. Indemnification of Directors, Officers and
Employees. The Corporation shall, to the fullest extent permitted by
applicable law from time to time in effect, indemnify any and all persons who
may serve or who have served at any time as Directors or officers of the
Corporation, or who at the request of the Corporation may serve or at any time
have served as Directors or officers of another corporation (including
subsidiaries of the Corporation) or of any partnership, joint venture, trust or
other enterprise, from and against any and all of the expenses, liabilities or
other matters referred to in or covered by said law. Such indemnification
shall continue as to a person who has ceased to be a Director or officer and
shall inure to the benefit of the heirs, executors and administrators of such a
person. The Corporation may also indemnify any and all other persons whom it
shall have power to
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indemnify under any applicable law from time to time in effect to the extent
authorized by the Board of Directors and permitted by such law. The
indemnification provided by this Article shall not be deemed exclusive of any
other rights to which any person may be entitled under any provision of the
Certificate of Incorporation, other By-law, agreement, vote of stockholders or
disinterested Directors, or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office.
For purposes of this Section 5, the term "Corporation" shall
include constituent corporations referred to in Subsection (h) of the Section
145 of the General Corporation Law (or any similar provision of applicable law
at the time in effect).
SECTION 6. Voting as Stockholder. Unless otherwise
determined by resolution of the Board of Directors, the President or any Vice
President shall have full power and authority on behalf of the Corporation to
attend any meeting of stockholders of any corporation in which the Corporation
may hold stock, and to act, vote (or execute proxies to vote) and exercise in
person or by proxy all other rights, powers and privileges incident to the
ownership of such stock. Such officers acting on behalf of the Corporation
shall have full power and authority to execute any instrument expressing
consent to or dissent from any action of any such corporation without a
meeting. The Board of Directors may by resolution from time to time confer
such power and authority upon any other person or persons.
SECTION 7. Construction. In the event of any conflict
between the provisions of these By-laws as in effect from time to time and the
provisions of the Certificate of Incorporation of the Corporation as in effect
from time to time, the provisions of such Certificate of Incorporation shall be
controlling.
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ARTICLE VI
AMENDMENTS
These By-Laws and any amendment thereof may be altered,
amended or repealed, or new By-Laws may be adopted, by the Board of Directors
at any regular or special meeting by the affirmative vote of a majority of all
of the members of the Board, provided in the case of any special meeting at
which all of the members of the Board are not present, that the notice of such
meeting shall have stated that the amendment of these By-Laws was one of the
purposes of the meeting; but these By-Laws and any amendment thereof, including
the By-Laws adopted by the Board of Directors, may be altered, amended or
repealed and other By-Laws may be adopted by the holders of a majority of the
total outstanding stock of the Corporation entitled to vote at any annual
meeting or at any special meeting, provided, in the case of any special
meeting, that notice of such proposed alteration, amendment, repeal or adoption
is included in the notice of the meeting.
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EXHIBIT 10.1
INDEMNIFICATION AGREEMENT
AGREEMENT, made this th day of , 19 , between CIENA
Corporation, a Delaware corporation (the "Company"), and (the "Indemnitee"),
with respect to the following facts:
A. Fulfilling the potential of the Company requires the
attraction and retention of qualified and capable directors, officers,
employees, agents and fiduciaries; and
B. The Restated Certificate of Incorporation of the Company
(the "Restated Certificate of Incorporation") requires the Company to indemnify
and advance expenses to its directors and officers to the fullest extent
authorized by law and allows the Company to indemnify employees and agents to
the fullest extent authorized by law; and
C. Historically, basic protection against undue risk of
personal liability of directors and officers has been provided through
insurance coverage providing reasonable protection at reasonable cost; and
D. The Company's current stage of development is such that
it is presently uncertain whether, and to what extent, directors' and officers'
liability insurance is or will continue to be available to the Company at a
reasonable cost for the protection of Indemnitee; and
E. It is the policy of the Company to indemnify its
directors and officers so as to provide them with the maximum possible
protection permitted by law; and
F. In recognition of Indemnitee's need for protection
against personal liability in order to induce Indemnitee to serve or continue
to serve the Company in an effective manner, and, in the case of directors and
officers, to supplement or replace directors' and officers' liability insurance
coverage, if any, obtained by the Company, and in part to provide Indemnitee
with specific contractual assurance that the protection promised by the
Restated Certificate of Incorporation will be available to Indemnitee
(regardless of, among other things, any amendment to or revocation of the
Restated Certificate of Incorporation or any change in the composition of the
Company's Board of Directors or any acquisition transaction relating to the
Company), the Company, with the prior approval of the Company's stockholders,
wishes to provide the Indemnitee with the benefits contemplated by this
Agreement; and
G. As a result of the provision of such benefits Indemnitee
has agreed to serve or to continue to serve the Company;
NOW, THEREFORE, the parties hereto do hereby agree as follows:
1. Definitions. The following terms, as used
herein, shall have the following respective meanings:
a. An Affiliate: of a specified Person is a
Person who directly, or indirectly through one or more intermediaries, controls
or is controlled by, or is under common control with, the Person specified.
The term Associate used to indicate a relationship with any Person shall mean
(i) any corporation or organization (other than the Company or a Subsidiary) of
which such Person is an officer or partner or is, directly, or indirectly, the
Beneficial Owner of ten (10) percent or more of any
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class of Equity Securities, (ii) any trust or other estate in which such Person
has a substantial beneficial interest or as to which such Person serves as
trustee or in a similar fiduciary capacity (other than an Employee Plan
Trustee), (iii) any Relative of such Person, or (iv) any officer or director of
any corporation controlling or controlled by such Person.
b. Beneficial Ownership: shall be determined,
and a Person shall be the Beneficial Owner of all securities which such Person
is deemed to own beneficially, pursuant to Rule13d-3 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended (or any
successor rule or statutory provision), or, if said Rule13d-3 shall be
rescinded and there shall be no successor rule or statutory provision thereto,
pursuant to said Rule 13d-3 as in effect on April 26, 1996; provided, however,
that a Person shall, in any event, also be deemed to be the Beneficial Owner of
any Voting Shares: (A) of which such Person or any of its Affiliates or
Associates is, directly or indirectly, the Beneficial Owner, or (B) of which
such Person or any of its Affiliates or Associates has (i) the right to acquire
(whether such right is exercisable immediately or only after the passage of
time), pursuant to any agreement, arrangement or understanding or upon the
exercise of conversion rights, exchange rights, warrants, or options, or
otherwise, or (ii) sole or shared voting or investment power with respect
thereto pursuant to any agreement, arrangement, understanding, relationship or
otherwise (but shall not be deemed to be the Beneficial Owner of any Voting
Shares solely by reason of a revocable proxy granted for a particular meeting
of stockholders, pursuant to a public solicitation of proxies for such meeting,
with respect to shares of which neither such Person nor any such Affiliate or
Associate is otherwise deemed the Beneficial Owner), or (C) of which any other
Person is, directly or indirectly, the Beneficial Owner if such first mentioned
Person or any of its Affiliates or Associates acts with such other Person as a
partnership, syndicate or other group pursuant to any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or disposing of any
shares of capital stock of the Company; and provided further, however, that (i)
no director or officer of the Company, nor any Associate or Affiliate of any
such director or officer, shall, solely by reason of any or all of such
directors and officers acting in their capacities as such, be deemed for any
purposes hereof, to be the Beneficial Owner of any Voting Shares of which any
other such director or officer (or any Associate or Affiliate thereof) is the
Beneficial Owner and (ii) no trustee of an employee stock ownership or similar
plan of the Company or any Subsidiary ("Employee Plan Trustee") or any
Associate or Affiliate of any such Trustee, shall, solely by reason of being an
Employee Plan Trustee or Associate or Affiliate of an Employee Plan Trustee, be
deemed for any purposes hereof to be the Beneficial Owner of any Voting Shares
held by or under any such plan.
c. A Change in Control: shall be deemed to have
occurred if (A) any Person (other than (i) the Company or any Subsidiary, (ii)
any pension, profit sharing, employee stock ownership or other employee benefit
plan of the Company or any Subsidiary or any trustee of or fiduciary with
respect to any such plan when acting in such capacity, or (iii) any Person who
is as of April 26, 1996 the Beneficial Owner of 20% or more of the total voting
power of the Voting Shares) is or becomes, after the date of this Agreement,
the Beneficial Owner of 20% or more of the total voting power of the Voting
Shares, (B) during any period of two consecutive years, individuals who at the
beginning of such period constitute the Board of Directors of the Company and
any new director whose election or appointment by the Board of Directors or
nomination or recommendation for election by the Company's stockholders was
approved by a vote of at least two-thirds (2/3) of the directors then still in
office who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved, cease for any
reason to constitute a majority thereof, (C) the stockholders of the Company
approve a merger or consolidation of the Company with any other corporation,
other than a merger or consolidation which would result in the Voting Shares of
the Company outstanding immediately prior thereto continuing to represent
(either by remaining
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outstanding or by being converted into Voting Shares of the surviving entity)
at least 80% of the total voting power represented by the Voting Shares of the
Company or such surviving entity outstanding, or the stockholders of the
Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of all or substantially all of the
Company's assets, or (D) a change in control of a nature that would be required
to be reported in response to Item5(f) of Schedule 14A of Regulation 14
promulgated under the Securities Act of 1934, as amended, as in effect on April
26, 1996.
d. Claim: means any threatened, pending or
completed action, suit, arbitration or proceeding, or any inquiry or
investigation, whether brought by or in the right of the Company or otherwise,
that Indemnitee in good faith believes might lead to the institution of any
such action, suit, arbitration or proceeding, whether civil, criminal,
administrative, investigative or other, or any appeal therefrom.
e. Equity Security: shall have the meaning
given to such term under Rule 3a11-1 of the General Rules and Regulations under
the Securities Exchange Act of 1934, as in effect on April 26, 1996.
f. D&O Insurance: means any valid directors'
and officers' liability insurance policy maintained by the Company for the
benefit of the Indemnitee, if any.
g. Determination: means a determination, and
"Determined" means a matter which has been determined based on the facts known
at the time, by: (i) a majority vote of a quorum of disinterested directors,
or (ii) if such a quorum is not obtainable, or even if obtainable, if a quorum
of disinterested directors so directs, by independent legal counsel in a
written opinion, or, in the event there has been a Change in Control, by the
Special Independent Counsel (in a written opinion) selected by Indemnitee as
set forth in Section 6, or (iii) a majority of the disinterested stockholders
of the Company, or (iv) a final adjudication by a court of competent
jurisdiction.
h. Excluded Claim: means any payment for Losses
or Expenses in connection with any Claim: (i) based upon or attributable to
Indemnitee gaining in fact any personal profit or personal advantage to which
Indemnitee is not entitled; or (ii) for the return by Indemnitee of any
remuneration paid to Indemnitee without the previous approval of the
stockholders of the Company which is illegal; or (iii) for an accounting of
profits in fact made from the purchase or sale by Indemnitee of securities of
the Company within the meaning of Section16 of the Securities Exchange Act of
1934, as amended, or similar provisions of any state law; or (iv) resulting
from Indemnitee's knowingly fraudulent, dishonest or willful misconduct; or (v)
the payment of which by the Company under this Agreement is not permitted by
applicable law.
i. Expenses: means any reasonable expenses
incurred by Indemnitee as a result of a Claim or Claims made against Indemnitee
for Indemnifiable Events including, without limitation, attorneys' fees and all
other costs, expenses and obligations paid or incurred in connection with
investigating, defending, being a witness in or participating in (including on
appeal), or preparing to defend, be a witness in or participate in any Claim
relating to any Indemnifiable Event.
j. Fines: means any fine, penalty or, with
respect to an employee benefit plan, any excise tax or penalty assessed with
respect thereto.
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k. Indemnifiable Event: means any event or
occurrence, occurring prior to or after the date of this Agreement, related to
the fact that Indemnitee is or was a director, officer, employee, trustee,
agent or fiduciary of the Company, or is or was serving at the request of the
Company as a director, officer, employee, trustee, agent or fiduciary of
another corporation, partnership, joint venture, employee benefit plan, trust
or other enterprise, or by reason of anything done or not done by Indemnitee,
including, but not limited to, any breach of duty, neglect, error,
misstatement, misleading statement, omission, or other act done or wrongfully
attempted by Indemnitee, or any of the foregoing alleged by any claimant, in
any such capacity.
l. Losses: means any amounts or sums which
Indemnitee is legally obligated to pay as a result of a Claim or Claims made
against Indemnitee for Indemnifiable Events including, without limitation,
damages, judgments and sums or amounts paid in settlement of a Claim or Claims,
and Fines.
m. Person: means any individual, partnership,
corporation, business trust, joint stock company, trust, unincorporated
association, joint venture, governmental authority or other entity of whatever
nature.
n. Potential Change in Control: shall be deemed
to have occurred if (A) the Company enters into an agreement, the consummation
of which would result in the occurrence of a Change in Control; (B) any Person
(including the Company) publicly announces an intention to take or to consider
taking actions which if consummated would constitute a Change in Control; (C)
any Person (other than (i) the Company or any Subsidiary, (ii) any pension,
profit sharing, employee stock ownership or other employee benefit plan of the
Company or any Subsidiary or any trustee of or fiduciary with respect to any
such plan when acting in such capacity, or (iii) any Person who is as of April
26, 1996 the Beneficial Owner of 20% or more of the total voting power of the
Voting Shares), who is or becomes the Beneficial Owner of 9.5% or more of the
total voting power of the Voting Shares, increases his Beneficial Ownership of
such voting power by 5% or more over the percentage so owned by such Person on
the date hereof; or (D) the Board of Directors adopts a resolution to the
effect that, for purposes of this Agreement, a Potential Change in Control has
occurred.
o. Relative: means a Person's spouse, parents,
children, siblings, mothers- and father-in-law, sons-and daughters-in-law, and
brothers- and sisters-in-law.
p. Reviewing Party: means any appropriate
person or body consisting of a member or members of the Company's Board of
Directors or any other person or body appointed by the Board (including the
Special Independent Counsel referred to in Section 6) who is not a party to the
particular Claim for which Indemnitee is seeking indemnification.
q. Subsidiary: means any corporation of which a
majority of any class of Equity Security is owned, directly or indirectly, by
the Company.
r. Trust: means the trust established pursuant
to Section 7 hereof.
s. Voting Shares: means any issued and
outstanding shares of capital stock of the Company entitled to vote generally
in the election of directors.
2. Basic Indemnification Agreement. In
consideration of, and as an inducement to, the Indemnitee rendering valuable
services to the Company, the Company agrees that in
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5
the event Indemnitee is or becomes a party to or witness or other participant
in, or is threatened to be made a party to or witness or other participant in,
a Claim by reason of (or arising in part out of) an Indemnifiable Event, the
Company will indemnify Indemnitee to the fullest extent authorized by law,
against any and all Expenses and Losses (including all interest, assessments
and other charges paid or payable in connection with or in respect of such
Expenses and Losses) of such Claim, whether or not such Claim proceeds to
judgment or is settled or otherwise is brought to a final disposition, subject
in each case, to the further provisions of this Agreement.
3. Limitations on Indemnification. Notwithstanding
the provisions of Section 2, Indemnitee shall not be indemnified and held
harmless from any Losses or Expenses (a) which have been Determined, as
provided herein, to constitute an Excluded Claim; (b) to the extent Indemnitee
is indemnified by the Company and has actually received payment pursuant to the
Restated Certificate of Incorporation, D&O Insurance, or otherwise; or (c)
other than pursuant to the last sentence of Section 4(d) or Section 14, in
connection with any Claim initiated by Indemnitee, unless the Company has
joined in or the Board of Directors has authorized such Claim.
4. Indemnification Procedures.
a. Promptly after receipt by Indemnitee of
notice of any Claim, Indemnitee shall, if indemnification with respect thereto
may be sought from the Company under this Agreement, notify the Company of the
commencement thereof and Indemnitee agrees further not to make any admission or
effect any settlement with respect to such Claim without the consent of the
Company, except any Claim with respect to which the Indemnitee has undertaken
the defense in accordance with the second to last sentence of Section 4(d).
b. If, at the time of the receipt of such
notice, the Company has D&O Insurance in effect, the Company shall give prompt
notice of the commencement of Claim to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of Indemnitee, all Losses and Expenses payable as a result of such Claim.
c. To the extent the Company does not, at the
time of the Claim have applicable D&O Insurance, or if a Determination is made
that any Expenses arising out of such Claim will not be payable under the D&O
Insurance then in effect, the Company shall be obligated to pay the Expenses of
any Claim in advance of the final disposition thereof and the Company, if
appropriate, shall be entitled to assume the defense of such Claim, with
counsel satisfactory to Indemnitee, upon the delivery to Indemnitee of written
notice of its election so to do. After delivery of such notice, the Company
will not be liable to Indemnitee under this Agreement for any legal or other
Expenses subsequently incurred by the Indemnitee in connection with such
defense other than reasonable Expenses of investigation; provided that
Indemnitee shall have the right to employ its counsel in such Claim but the
fees and expenses of such counsel incurred after delivery of notice from the
Company of its assumption of such defense shall be at the Indemnitee's expense;
provided further that if: (i) the employment of counsel by Indemnitee has been
previously authorized by the Company; (ii) Indemnitee shall have reasonably
concluded that there may be a conflict of interest between the Company and
Indemnitee in the conduct of any such defense; or (iii) the Company shall not,
in fact, have employed counsel to assume the defense of such action, the
reasonable fees and expenses of counsel shall be at the expense of the Company.
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d. All payments on account of the Company's
indemnification obligations under this Agreement shall be made within sixty
(60) days of Indemnitee's written request therefor unless a Determination is
made that the Claims giving rise to Indemnitee's request are Excluded Claims or
otherwise not payable under this Agreement, provided that all payments on
account of the Company's obligation to pay Expenses under Section 4(c) of this
Agreement prior to the final disposition of any Claim shall be made within 20
days of Indemnitee's written request therefor and such obligation shall not be
subject to any such Determination but shall be subject to Section 4(e) of this
Agreement. In the event the Company takes the position that the Indemnitee is
not entitled to indemnification in connection with the proposed settlement of
any Claim, the Indemnitee shall have the right at its own expense to undertake
defense of any such Claim, insofar as such proceeding involves Claims against
the Indemnitee, by written notice given to the Company within 10 days after the
Company has notified the Indemnitee in writing of its contention that the
Indemnitee is not entitled to indemnification. If it is subsequently
determined in connection with such proceeding that the Indemnifiable Events are
not Excluded Claims and that the Indemnitee, therefore, is entitled to be
indemnified under the provisions of Section 2 hereof, the Company shall
promptly indemnify the Indemnitee.
e. Indemnitee hereby expressly undertakes and
agrees to reimburse the Company for all Losses and Expenses paid by the Company
in connection with any Claim against Indemnitee in the event and only to the
extent that a Determination shall have been made by a court of competent
jurisdiction in a decision from which there is no further right to appeal that
Indemnitee is not entitled to be indemnified by the Company for such Losses and
Expenses because the Claim is an Excluded Claim or because Indemnitee is
otherwise not entitled to payment under this Agreement.
5. Settlement. The Company shall have no obligation
to indemnify Indemnitee under this Agreement for any amounts paid in settlement
of any Claim effected without the Company's prior written consent. The Company
shall not settle any Claim in which it takes the position that Indemnitee is
not entitled to indemnification in connection with such settlement without the
consent of the Indemnitee, nor shall the Company settle any Claim in any manner
which would impose any Fine or any obligation on Indemnitee, without
Indemnitee's written consent. Neither the Company nor Indemnitee shall
unreasonably withhold their consent to any proposed settlement.
6. Change in Control; Extraordinary Transactions.
The Company and Indemnitee agree that if there is a Change in Control of the
Company (other than a Change in Control which has been approved by a majority
of the Company's Board of Directors who were directors immediately prior to
such Change in Control) then all Determinations thereafter with respect to the
rights of Indemnitee to be paid Losses and Expenses under this Agreement shall
be made only by a special independent counsel (the "Special Independent
Counsel") selected by Indemnitee and approved by the Company (which approval
shall not be unreasonably withheld) or by a court of competent jurisdiction.
The Company shall pay the reasonable fees of such Special Independent Counsel
and shall indemnify such Special Independent Counsel against any and all
reasonable expenses (including reasonable attorneys' fees), claims, liabilities
and damages arising out of or relating to this Agreement or its engagement
pursuant hereto.
The Company covenants and agrees that, in the event of a
Change in Control of the sort set forth in clause (b) of Section 1(c), the
Company will use its best efforts (a) to have the obligations of the Company
under this Agreement including, but not limited to those under Section 7,
expressly assumed by the surviving, purchasing or succeeding entity, or (b)
otherwise to adequately provide for
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the satisfaction of the Company's obligations under this Agreement, in a manner
reasonably acceptable to the Indemnitee.
7. Establishment of Trust. In the event of a
Potential Change in Control, the Company shall, upon written request by
Indemnitee, create a trust (the "Trust") for the benefit of the Indemnitee and
from time to time upon written request of Indemnitee shall fund the Trust in an
amount sufficient to satisfy any and all Losses and Expenses which are actually
paid or which Indemnitee reasonably determines from time to time may be payable
by the Company under this Agreement. The amount or amounts to be deposited in
the Trust pursuant to the foregoing funding obligation shall be determined by
the Reviewing Party, in any case in which the Special Independent Counsel is
involved. The terms of the Trust shall provide that upon a Change in Control:
(i) the Trust shall not be revoked or the principal thereof invaded without the
written consent of the Indemnitee; (ii) the trustee of the Trust shall advance,
within twenty days of a request by the Indemnitee, any and all Expenses to the
Indemnitee (and the Indemnitee hereby agrees to reimburse the Trust under the
circumstances under which the Indemnitee would be required to reimburse the
Company under Section 4(e) of this Agreement); (iii) the Company shall continue
to fund the Trust from time to time in accordance with the funding obligations
set forth above; (iv) the trustee of the Trust shall promptly pay to the
Indemnitee all Losses and Expenses for which the Indemnitee shall be entitled
to indemnification pursuant to this Agreement; and (v) all unexpended funds in
the Trust shall revert to the Company upon a final determination by a court of
competent jurisdiction in a final decision from which there is no further right
of appeal that the Indemnitee has been fully indemnified under the terms of
this Agreement. The Trustee of the Trust shall be chosen by the Indemnitee.
8. No Presumption. For purposes of this Agreement,
the termination of any Claim by judgment, order, settlement (whether with or
without court approval) or conviction, or upon a plea of nolo contendere, or
its equivalent, shall not, of itself, create a presumption that Indemnitee did
not meet any particular standard of conduct or have any particular belief or
that a court has determined that indemnification is not permitted by applicable
law.
9. Non-exclusivity, Etc. The rights of the
Indemnitee hereunder shall be in addition to any other rights Indemnitee may
have under the Restated Certificate of Incorporation, the Company's By-laws,
the Delaware General Corporation Law, any vote of stockholders or disinterested
directors or otherwise, both as to action in the Indemnitee's official capacity
and as to action in any other capacity by holding such office, and shall
continue after the Indemnitee ceases to serve the Company as a director,
officer, employee, agent or fiduciary, for so long as the Indemnitee shall be
subject to any Claim by reason of (or arising in part out of) an Indemnifiable
Event. To the extent that a change in the Delaware General Corporation Law
(whether by statute or judicial decision) permits greater indemnification by
agreement than would be afforded currently under the Restated Certificate of
Incorporation and this Agreement, it is the intent of the parties hereto that
Indemnitee shall enjoy by this Agreement the greater benefits so afforded by
such change.
10. Liability Insurance. To the extent the Company
maintains an insurance policy or policies providing directors' and officers'
liability insurance, Indemnitee, if an officer or director of the Company,
shall be covered by such policy or policies, in accordance with its or their
terms, to the maximum extent of the coverage available for any director or
officer of the Company.
11. Subrogation. In the event of payment under this
Agreement, the Company shall be subrogated to the extent of such payment to all
of the rights of recovery of Indemnitee, who shall execute all papers required
and shall do everything that may be necessary to secure such rights,
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including the execution of such documents necessary to enable the Company
effectively to bring suit to enforce such rights.
12. Partial Indemnity, Etc. If Indemnitee is
entitled under any provision of this Agreement to indemnification by the
Company for some or a portion of the Expenses and Losses of a Claim but not,
however, for all of the total amount thereof, the Company shall nevertheless
indemnify Indemnitee for the portion thereof to which Indemnitee is entitled.
Moreover, notwithstanding any other provision of this Agreement, to the extent
that Indemnitee has been successful on the merits or otherwise in defense of
any or all Claims relating in whole or in part to any Indemnifiable Event or in
defense of any issue or matter therein, including dismissal without prejudice,
Indemnitee shall be indemnified against all Expenses incurred in connection
therewith. In connection with any Determination as to whether Indemnitee is
entitled to be indemnified hereunder the burden of proof shall be on the
Company to establish that Indemnitee is not so entitled.
13. Liability of Company. The Indemnitee agrees that
neither the stockholders nor the directors nor any officer, employee,
representative or agent of the Company shall be personally liable for the
satisfaction of the Company's obligations under this Agreement and the
Indemnitee shall look solely to the assets of the Company for satisfaction of
any claims hereunder.
14. Enforcement.
Indemnitee's right to indemnification and other
rights under this Agreement shall be specifically enforceable by Indemnitee
only in the state or Federal courts of the States of Delaware or Maryland and
shall be enforceable notwithstanding any adverse Determination by the Company's
Board of Directors, independent legal counsel, the Special Independent Counsel
or the Company's stockholders and no such Determination shall create a
presumption that Indemnitee is not entitled to be indemnified hereunder. In
any such action the Company shall have the burden of proving that
indemnification is not required under this Agreement.
In the event that any action is instituted by
Indemnitee under this Agreement, or to enforce or interpret any of the terms of
this Agreement, Indemnitee shall be entitled to be paid all court costs and
reasonable expenses, including reasonable counsel fees, incurred by Indemnitee
with respect to such action, unless the court determines that each of the
material assertions made by Indemnitee as a basis for such action were not made
in good faith or were frivolous.
15. Severability. In the event that any provision of
this Agreement is determined by a court to require the Company to do or to fail
to do an act which is in violation of applicable law, such provision (including
any provision within a single section, paragraph or sentence) shall be limited
or modified in its application to the minimum extent necessary to avoid a
violation of law, and, as so limited or modified, such provision and the
balance of this Agreement shall be enforceable in accordance with their terms
to the fullest extent permitted by law.
16. Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of Delaware
applicable to agreements made and to be performed entirely within such State.
17. Consent to Jurisdiction. The Company and the
Indemnitee each hereby irrevocably consent to the jurisdiction of the courts of
the States of Delaware and Maryland for all purposes in connection with any
action or proceeding which arises out of or relates to this Agreement
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and agree that any action instituted under this Agreement shall be brought only
in the state and Federal courts of the States of Delaware and Maryland.
18. Notices. All notices, or other communications
required or permitted hereunder shall be sufficiently given for all purposes if
in writing and personally delivered, telegraphed, telexed, sent by facsimile
transmission or sent by registered or certified mail, return receipt requested,
with postage prepaid addressed as follows, or to such other address as the
parties shall have given notice of pursuant hereto:
If to the Company, to:
CIENA Corporation
8530 Corridor Road
Savage, Maryland 20763
Attention: Vice President and
General Counsel
If to the Indemnitee, to:
-------------------------------
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19. Counterparts. This Agreement may be signed in
counterparts, each of which shall be an original and all of which, when taken
together, shall constitute one and the same instrument.
20. Successors and Assigns. This Agreement shall be
(i) binding upon all successors and assigns of the Company, including any
direct or indirect successor by purchase, merger, consolidation or otherwise to
all or substantially all of the business and/or assets of the Company, and (ii)
shall be binding upon and inure to the benefit of any successors and assigns,
heirs, and personal or legal representatives of Indemnitee.
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21. Amendment; Waiver. No amendment, modification,
termination or cancellation of this Agreement shall be effective unless made in
a writing signed by each of the parties hereto. No waiver of any of the
provisions of this Agreement shall be deemed or shall constitute a waiver of
any other provision hereof (whether or not similar) nor shall such waiver
constitute a continuing waiver.
IN WITNESS WHEREOF, the Company and Indemnitee have executed
this Agreement as of the day and year first above written.
ATTEST: CIENA Corporation
[Corporate Seal]
By: By:
----------------------- -----------------------
Title: Title:
WITNESS:
- -------------------------- --------------------------
Indemnitee
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1
EXHIBIT 10.2
CIENA CORPORATION
AMENDED AND RESTATED 1994 STOCK OPTION PLAN
1. Establishment and Purpose.
(a) Establishment. The CIENA CORPORATION Amended and
Restated 1994 Employee Stock Option Plan was adopted effective August _, 1994
(the "PLAN") .
(b) Purpose. The purpose of the Plan is to attract, retain
and reward persons providing services to Ciena Corporation. a Delaware
corporation, and any successor corporation thereto (collectively referred to as
the "Company"). and any present or future parent and/or subsidiary corporations
of such corporation (all of which along with the Company being individually
referred to as a "PARTICIPATING COMPANY" and collectively referred to as THE
"PARTICIPATING COMPANY GROUP"). and to motivate such persons to contribute to
the growth and profits of the Participating Company Group in the future. For
purposes of the Plan, a parent corporation and a subsidiary corporation shall
be as defined in Sections 424(e) and 424(f) of the Internal Revenue Code of
1986. as amended (the "Code").
2. Administration.
(a) Administration bv Board and/or Committee. The Plan
shall be administered by the Board of Directors of the Company (the "BOARD")
and/or by a duly appointed committee of the Board having sucl1 powers as shall
be specified by the Board. Any subsequent references herein to the Board shall
also mean the committee if such committee has been appointed and, unless the
powers of the committee have been specifically limited, the committee shall
have all of the powers of the Board granted herein. including. without
limitation. the power to tenninate or amend the Plan at any time. subject to
the temas of the Plan and any applicable limitations imposed by law. All
questions of interpretation of the Plan or of any options granted under the
Plan (an "Option") shall be detennined by the Board, and such determinations
shall be final and binding UpOl1 all persons having an interest in the Plan
and/or any Option.
(b) Options Authorized. Options may be either incentive stock
options as defined in Section 422 of the Code ("INCENTIVE STOCK OPTIONS") or
non-statutory stock options.
(c) Authority of Officers. Any officer of a Participating
Company shall have the authority to act on behalf of the Company with respect
to any matter. right. obligation, or election which is the responsibility of or
which is allocated to the Company herein, provided the officer has apparent
authority with respect to such matter,right, obligation, or election.
(d) Disinterested Administration. With respect to the
participation in the Plan of officers or directors of the Company subject to
Section 16 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), the Plan shall be administered by the Board in compliance with the
"disinterested administration" requirement of Rule 16b-3. as promulgated under
the Exchange Act and amended from time to time or any successor rule or
regulation ("Rule 16b-3").
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3. Eligibility
(a) Eligible Persons. Options may be granted only to employees
(including officers) and directors of the Participating Company Group or to
individuals who are rendering services as consultants, advisors, or other
independent contractors to the Participating Company Group. The Board shall, in
its sole discretion, determine which persons shall be granted Options (an
"Optionee"). Eligible persons may be granted more than one (l) Option.
(b) Directors Serving on Committee. If a committee of the
Board has been established to administer the Plan in compliance with the
"disinterested administration" requirement of Rule 16b-3, no member of such
committee, while a member, shall be eligible to be granted an Option.
(c) Restrictions on Option Grants. A director of a
Participating Company may only be granted a nonstatutory stock option unless
the director is also an employee of the Participating Company Group. An
individual who is rendering services as a consultant, advisor, or other
independent contractor may only be granted a non-statutory stock option.
4. Shares Subject to Option.
Options shall be for the purchase of shares of the authorized but unissued
common stock or treasury shares of common stock of the Company (the "Stock"),
subject to adjustment as provided in paragraph 10 below. The maximum number of
shares of Stock which may be issued under the Plan shall be Eight Hundred
Sixty Thousand (860,000) shares. In the event that any outstanding Option for
any reason expires or is terminated or canceled and/or shares of Stock subject
to repurchase are repurchased by the Company, the shares allocable to the
unexercised portion of such Option. Or such repurchased shares, may again be
subject to an Option grant. Notwithstanding the foregoing any such shares
shall be made subject to a new Option only if the grant of such new Option and
the issuance of such shares pursuant to such new Option would not cause the
Plan or any Option granted under the Plan to contravene Rule 16b-3.
5. Time for Granting Options.
All Options shall be granted, if at all, within ten (10) years from the earlier
of the date the Plan is adopted by the Board or the date the Plan approved by
the stockholders of the Company.
6. Terms Conditions and Form of Options.
Subject to the provisions of the Plan, the Board shall determine for each
Option (which need not be identical) the number of shares of Stock for which
the Option shall be granted, the exercise price of the Option, the timing and
terms of exercisability and vesting of the Option, the time of expiration of
the Option, the effect of the Optionee's termination of employment or service,
whether the Option is to be treated as an Incentive Stock Option or as a
non-statutory stock option, the method for satisfaction of any tax withholding
obligation arising in connection with Option, including by the withholding or
delivery of shares of stock, and all other terms and conditions of the Option
not inconsistent with the Plan. Options granted pursuant to the Plan shall be
evidenced by written agreements specifying the number of shares of Stock
covered thereby, in such form as the Board shall from time to time establish,
which agreements may incorporate all or any of the terms of the Plan by
reference and shall comply with and be subject to the following terms and
conditions:
(a) Exercise Price. The exercise price for each Option shall
be established in the sole discretion of the Board; provided, however, that (i)
the exercise price per share for an Incentive Stock Option shall be not less
than the fair market value, as determined by the Board, of a share of
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Stock on the date of the granting of the Option; (ii) the exercise price per
share for a non-statutory stock option shall not be less than eighty-five
percent (85%) of the fair market value, as determined by the Board, of a share
of Stock on the date of the granting of the Option; and (iii) no Incentive
Stock Option granted to an Optionee who at the time the Option is granted owns
stock possessing more than ten percent (10%) of the total combined voting power
of all classes of stock of a Participating Company within the meaning of
Section 422(b)(6) of the Code (a "Ten Percent Owner Optionee") shall have an
exercise price per share less than one hundred ten percent (110%) of the fair
market value, as determined by the Board, of a share of Stock on the date of
the granting of the Option. Notwithstanding the foregoing, an Option (whether
an Incentive Stock Option or a non-statutory stock option) may be granted with
an exercise price lower than the minimum exercise price set forth above if such
Option is granted pursuant to an assumption or substitution for another option
in a manner qualifying with the provisions of Section 424(a) of the Code.
(b) Exercise Period of Options. The Board shall have the power
to set, including by amendment of an Option, the time or times within which
each Option shall be exercisable or the event or events upon the occurrence of
which all or a portion of each Option shall be exercisable and the term of
each Option; provided, however, that (i) no Option shall be exercisable after
the expiration of ten (10) years after the date such Option is granted, and
(ii) no Incentive Stock Option granted to a Ten Percent Owner Optionee shall
be exercisable after the expiration of five (5) years after the date such
Option is granted.
(c) Payment of Exercise Price.
(i) Forms of Payment Authorized. Payment of the
exercise price for the number of shares of Stock being purchased pursuant to
any Option shall be made (1) in cash, by check, or cash equivalent, (2) by
tender to the Company of shares of the Company's stock owned by the Optionee
having a fair market value, as determined by the Board (but without regard to
any restrictions on transferability applicable to such stock by reason of
federal or state securities laws or agreements with an underwriter for the
Company), not less than the exercise price, (3) by the Optionee's recourse
promissory note in a form approved by the Company, (4) by the assignment of
the proceeds of a sale of some or all of the shares being acquired upon the
exercise of the Option (including, without limitation, through an exercise
complying with the provisions of Regulation T as promulgated from time to time
by the Board of Governors of the Federal Reserve System), or (5) by any
combination thereof. The Board may at any time or from time to time grant
Options which do not permit all of the foregoing forms of consideration to be
used in payment of the exercise price and/or which otherwise restrict one or
more forms of consideration.
(ii) Tender of Company Stock. Notwithstanding the
foregoing, an Option may not be exercised by tender to the Company of shares of
the Company's stock to the extent such tender of stock would constitute a
violation of the provisions of any law, regulation and/or agreement restricting
the redemption of the Company's stock or, if in the opinion of Company counsel,
might impair the ability of purchasers of stock from the Company from taking
full advantage of the provisions of Section 1202 of the Code relating to
capital gains treatment of stock issued by the Company. Unless otherwise
provided by the Board, an Option may not be exercised by tender to the Company
of shares of the Company's stock unless such shares of the Company's stock
either have been owned by the Optionee for more than six (6) months or were not
acquired, directly or indirectly, from the Company.
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(iii) Promissorv Notes. No promissory note shall
be permitted if an exercise using a promissory note would be a violation of any
law. Any permitted promissory note shall be due and payable not more than four
(4) years after the Option is exercised, and interest shall be payable at least
annually and be at least equal to the minimum interest rate necessary to avoid
imputed interest pursuant to all applicable sections of the Code. The Board
shall have the authority to permit or require the Optionee to secure any
promissory note used to exercise an Option with the shares of Stock acquired on
exercise of the Option and/or with other collateral acceptable to the Company.
Unless otherwise provided by the Board, in the event the Company at any time is
subject to the regulations promulgated by the Board of Governors of the Federal
Reserve System or any other governmental entity affecting the extension of
credit in connection with the Company's securities, any promissory note shall
comply with such applicable regulations, and the Optionee shall pay the unpaid
principal and accrued interest, if any, to the extent necessary to comply with
such applicable regulations.
(iv) Assignment of Proceeds of Sale. The Company
reserves, at any and all times, the right, in the Company's sole and absolute
discretion, to establish. decline to approve and/or terminate any program
and/or procedures for the exercise of Options by means of an assignment of the
proceeds of a sale of some or all of the shares of Stock to be acquired upon
such exercise.
7. Standard Forms of Stock Option Agreement.
(a) Incentive Stock Options. Unless otherwise provided
for by the Board at the time an Option is granted, an Option designated as an
"Incentive Stock Option" shall comply with and be subject to the terms and
conditions set forth in the form of incentive stock option agreement attached
hereto as Exhibit A and incorporated herein by reference.
(b) Non-statutory Stock Options. Unless otherwise
provided for by the Board at the time an Option is granted, an Option
designated as a "Non-statutory Stock Option" shall comply with and be subject
to the terms and conditions set forth in the forms of non-statutory stock
option agreement attached hereto as Exhibit B and incorporated herein by
reference.
(c) Standard Term for Options. Unless otherwise provided
for by the Board in the grant of an Option, any Option granted hereunder shall
be exercisable for a term of [ten (10)] years.
8. Authority to Vary Terms.
The Board shall have the authority from time to time to vary the terms of
either of the standard forms of Stock Option Agreement described in paragraph
7 above either in connection with the grant or amendment of an individual
Option or in connection with the authorization of a new standard form or
forrns: provided, however, that the terms and conditions of such revised or
amended standard form or forms of stock option agreement shall be in
accordance with the terms of the Plan. Such authority shall include, but not
by way of limitation, the authority to grant Options which are not immediately
exercisable.
9. Fair Market Value Limitation.
To the extent that the aggregate fair market value (determined at the time the
Option is granted) of stock with respect to which Incentive Stock Options are
exercisable by an Optionee for the first time during any calendar year (under
all stock option plans of the Company, including the Plan) exceeds One Hundred
Thousand Dollars ($100,000), such Options shall be treated as non-statutory
stock options. This paragraph shall be applied by taking Incentive Stock
Options into account in the order in which they were granted.
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10. Effect of Change in Stock Subject to Plan.
Appropriate adjustments shall be made in the number and class of shares of
Stock subject to the Plan and to any outstanding Options and in the exercise
price of any outstanding Options in the event of a stock dividend, stock split,
reverse stock split, recapitalization, combination, reclassificationt or like
change in the capital structure of the Company.
In the event a majority of the shares which are of the same class as the shares
that are subject to outstanding Options are exchanged for, converted into, or
otherwise become (whether or not pursuant to a Transfer of Control (as defined
below)) shares of another corporation (the "New Shares"), the Company may
unilaterally amend the outstanding Options to provide that such Options are
exercisable for New Shares In the event of any such amendment, the number of
shares and the exercise price of the outstanding Options shall be adjusted in a
fair and equitable manner.
11. Transfer of Control.
A "TRANSFER OF CONTROL" shall be deemed to have occurred in the event any of
the following occurs with respect to the Company.
(a) the direct or indirect sale or exchange by the
stockholders of the Company of all or substantially all of the stock of the
Company where the stockholders of the Company before such sale or exchange do
not retain, directly or indirectly, at least a majority of the beneficial
interest in the voting stock of the Acquiring Corporation as defined below
after such sale or exchange;
(b) a merger or consolidation where the stockholders of
the Company before such merger or consolidation do not retain, directly or
indirectly, at least a majority of the beneficial interest in the voting stock
of the Acquiring Corporation as defined below after such merger or
consolidation;
(c) the sale, exchange, or transfer of all or
substantially all of the assets of the Company (other than a sale, exchange, or
transfer to one (1) or more subsidiary corporations (as defined in paragraph 1
above) of the Company); or
(d) a liquidation or dissolution of the Company.
Thirty (30) days prior the proposed effective date of any Transfer of
Control. each Optionee under a stock option agreement outstanding for 335 days
or more shall be credited, as of the proposed effective date of the Transfer of
Control, and if still employed by the Company on that date, with 100% of such
shares, for purposes of determining the percentage of shares which shall be
immediately exercisable and/or fully vested under each such stock option
agreement. Other options, except as set forth below, shall not be affected.
Furthermore, in the event of a Transfer of Control, the surviving,
continuing successor, or purchasing corporation or parent corporation thereof,
as the case may be (the "Acquiring Corporation"), shall either assume the
Company's rights and obligations under outstanding stock option agreements or
substitute options for the Acquiring Corporation's stock for such outstanding
Options. In the event the Acquiring Corporation elects not to assume or
substitute for such outstanding Options in connection with the Transfer of
Control. any unexercisable and/or unvested shares subject to such outstanding
stock option agreements shall be immediately exercisable and fully vested as of
the date thirty (30) days prior to the proposed effective date of the Transfer
of
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Control. The exercise and/or vesting of any Option that was permissible solely
by reason of this paragraph 11 shall be conditioned upon the consummation of
the Transfer of Control. Any Options which are neither assumed or substituted
for by the Acquiring Corporation in connection with the Transfer of Control nor
exercised as of the date of the Transfer of Control shall terminate and cease
to be outstanding effective as of the date of the Transfer of Control.
12. Provision of Information. Each Optionee shall be given access
to information concerning the Company equivalent to that information generally
made available to the Company's common stockholders generally.
13. Options Non-Transferable. During the lifetime of the Optionee,
the Option shall be exercisable only by the Optionee. No Option shall be
assignable or transferable by the Optionee, except by will or by the laws of
descent and distribution.
14. Termination or Amendment of Plan or Options. The Board,
including any duly appointed committee of the Board, may terminate or amend the
Plan or any Option at any time; provided, however, that without the approval of
the Company's stockholders, there shall be (a) no increase in the total number
of shares of Stock covered by the Plan (except by operation of the provisions
of paragraph 10 above), (b) no change in the class eligible to receive
Incentive Stock Options and (c) no expansion in the class eligible to receive
non-statutory stock options. In addition to the foregoing, the approval of the
Company's stockholders shall be sought for any amendment to the Plan for which
the Board deems stockholder approval necessary in order to comply with Rule
16b-3. In any event, no amendment may adversely affect any then outstanding
Option or any unexercised portion thereof, without the consent of the Optionee,
unless such amendment is required to enable an Option designated as an
Incentive Stock Option to qualify as an Incentive Stock Option.
IN WITNESS WHEREOF, the undersigned Assistant Secretary of
the Company certifies that the foregoing Ciena Corporation Amended and Restated
1994 Stock Option Plan was duly adopted by the Board of Directors of the
Company on the ___ day of August, 1994.
/s/ DAVID R. HOBER
------------------------------------
Secretary
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EXHIBIT A
STANDARD FORM OF
CIENA CORPORATION
IMMEDIATELY EXERCISABLE
INCENTIVE STOCK OPTION AGREEMENT
1
EXHIBIT 10.3
THE SECURITY REPRESENTED BY THIS CERTIFICATE HAS BEEN ACQUIRED FOR INVESTMENT
AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION
THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO
THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF
1933.
CIENA CORPORATION
INCENTIVE STOCK OPTION AGREEMENT
THIS INCENTIVE STOCK OPTION AGREEMENT (the "OPTION AGREEMENT")
is made and entered into as of {date}, by and between Ciena Corporation, a
Delaware corporation (the "COMPANY"), and {employee} (the "OPTIONEE").
The Company granted to the Optionee an option to purchase
certain shares of common stock of the Company, in the manner and subject to the
provisions of this Option Agreement (the "OPTION"). If the Optionee (and the
Optionee's spouse, if married) does not execute and return the Option Agreement
to the Company within sixty (60) days of the date first written above, the
Option shall terminate and be without further force and effect.
1. Definitions:
(a) "DATE OF OPTION GRANT" shall mean the date
set forth on Exhibit A annexed hereto and made a part hereof.
(b) "NUMBER OF OPTION SHARES" shall mean the
number of shares of common stock of the Company set forth on Exhibit A as
adjusted from time to time pursuant to paragraph 9 below.
(c) "EXERCISE PRICE" shall mean the price per
share set forth on Exhibit A as adjusted from time to time pursuant to
paragraph 9 below.
(d) "INITIAL EXERCISE DATE" shall be the Initial
Vesting Date.
(e) "INITIAL VESTING DATE" shall be the last day
of the calendar month in which occurs the date one (1) year after the date set
forth on Exhibit A.
2
(f) Determination of "VESTED PERCENTAGE":
Vested Percentage
-----------------
Prior to Initial Vesting Date 0%
On Initial Vesting Date, provided 25%
the Optionee is continuously
employed by a Participating
Company from the Date of Option
Grant until the Initial Vesting Date
Plus
----
For each full month of the 2.084%
Optionee's continuous employment
by a Participating Company from
the Initial Vesting Date
In no event shall the Vested
Percentage exceed 100%
(g) "OPTION TERM DATE" shall mean the date ten
(10) years after the Date of Option Grant.
(h) "CODE" shall mean the Internal Revenue Code
of 1986, as amended.
(i) "COMPANY" shall mean Ciena Corporation, a
Delaware corporation, and any successor corporation thereto.
(j) "PARTICIPATING COMPANY" shall mean (i) the
Company and (ii) any present or future parent and/or subsidiary corporation of
the Company while such corporation is a parent or subsidiary of the Company.
For purposes of this Option Agreement, a parent corporation and a subsidiary
corporation shall be as defined in sections 424(e) and 424(f) of the Code.
(k) "PARTICIPATING COMPANY GROUP" shall mean at
any point in time all corporations collectively which are then a Participating
Company.
(l) "PLAN" shall mean the Ciena Corporation 1994
Stock Option Plan.
(m) On any given date, the number of "VESTED
SHARES" shall be equal to the Number of Option Shares multiplied by the Vested
Percentage determined as of such date pursuant to paragraph 1(f) above and
rounded down to the nearest whole share. On
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such date, the number of UNVESTED SHARES shall be equal to the Number of Option
Shares reduced by the number of Vested Shares determined as of such date.
2. Status of the Option. This Option is intended to be
an incentive stock option as described in section 422 of the Code, but the
Company does not represent or warrant that this Option qualifies as such. The
Optionee should consult with the Optionee's own tax advisors regarding the tax
effects of this Option and the requirements necessary to obtain favorable
income tax treatment under section 422 of the Code, including, but not limited
to, holding period requirements.
3. Administration. All questions of interpretation
concerning this Option Agreement shall be determined by the Board of Directors
of the Company (the "BOARD") and/or by a duly appointed committee of the Board
having such powers as shall be specified by the Board. Any subsequent
references herein to the Board shall also mean the committee if such committee
has been appointed and, unless the powers of the committee have been
specifically limited, the committee shall have all of the powers of the Board
granted in the Plan, including, without limitation, the power to terminate or
amend the Plan at any time, subject to the terms of the Plan and any applicable
limitations imposed by law. All determinations by the Board shall be final and
binding upon all persons having an interest in the Option. Any officer of a
Participating Company shall have the authority to act on behalf of the Company
with respect to any matter, right, obligation, or election which is the
responsibility of or which is allocated to the Company herein, provided the
officer has apparent authority with respect to such matter, right, obligation,
or election.
4. Exercise of the Option.
(a) Right to Exercise. The Option shall be first
exercisable on and after the Initial Vesting Date, and then only to the extent
vested. Notwithstanding the foregoing, except as provided in paragraph 16, the
aggregate fair market value of the stock with respect to which the Optionee may
exercise the Option for the first time during any calendar year, together with
any other incentive stock options which are exercisable for the first time
during any such year, as determined in accordance with section 422(d) of the
Code, shall not exceed One Hundred Thousand Dollars ($100,000). Such
limitation on exercise described in section 422(d) of the Code shall be
referred to in this Option Agreement as the "$100,000 EXERCISE LIMITATION".
Furthermore, notwithstanding the foregoing, the Option may be exercised only in
multiples of one hundred (100) shares unless all shares subject to the Option
are being exercised; provided, however, that the foregoing restriction shall
not apply so as to prevent an exercise (i) following the Optionee's termination
of employment as set forth in paragraph 7 below or (ii) during the thirty (30)
day periods immediately preceding and following an Ownership Change as defined
in paragraph 8 below. In addition to the foregoing, in the event that the
adoption of the Plan or any amendment of the Plan is subject to the approval of
the Company's stockholders in order for the Option to comply with the
requirements of Rule 16b-3, promulgated under the Securities Exchange Act of
1934, as amended (the "EXCHANGE ACT"), the Option shall not be exercisable
prior to such stockholder
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approval if the Optionee is subject to Section 16(b) of the Exchange Act,
unless the Board, in its sole discretion, approves the exercise of the Option
prior to such stockholder approval.
(b) Method of Exercise. Exercise of the Option
must be by written notice to the Company which must state the election to
exercise the Option, the number of shares for which the Option is being
exercised and such other representations and agreements as to the Optionee's
investment intent with respect to such shares as may be required pursuant to
the provisions of this Option Agreement. The written notice must be signed by
the Optionee and must be delivered in person, by certified or registered mail,
return receipt requested, or by facsimile transmission, to the Chief Financial
Officer of the Company, or other authorized representative of the Participating
Company Group, prior to the termination of the Option as set forth in paragraph
6 below, accompanied by (i) full payment of the exercise price for the number
of shares being purchased and (ii) an executed copy, if required herein, of the
then current forms of escrow and security agreements referenced below.
(c) Payment of Exercise Price.
(i) Forms of Payment Authorized.
Payment of the exercise price for the number of shares for which the Option is
being exercised shall be made
(A) in cash, by check, or cash
equivalent;
(B) by tender to the Company of
shares of the Company's common stock owned by the Optionee having a fair market
value, as determined by the Board, not less than the exercise price, which
either have been owned by the Optionee for more than six (6) months or were not
acquired, directly or indirectly, from the Company;
(C) if expressly authorized by the
Company at the time of Option exercise, in its sole discretion, by the
Optionee's recourse promissory note in a form approved by the Company;
(D) by Immediate Sales Proceeds, as
defined below;
(E) by any combination of the
foregoing.
(ii) Tender of Company Stock.
Notwithstanding the foregoing, the Option may not be exercised by tender to the
Company of shares of the Company's common stock to the extent such tender of
stock would constitute a violation of the provisions of any law, regulation
and/or agreement restricting the redemption of the Company's common stock or,
if in the opinion of Company counsel, might impair the ability of purchasers of
stock from the Company from taking full advantage of the provisions of Section
1202 of the Code relating to capital gains treatment of stock issued by the
Company. Unless otherwise provided by the Board, an Option may not be
exercised by tender to the Company of shares of the Company's common stock
unless such shares of the Company's
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stock either have been owned by the Optionee for more than six (6) months or
were not acquired, directly or indirectly, from the Company.
(iii) Promissory Note. Unless otherwise
specified by the Board at the time the Option is granted, a promissory note
permitted in accordance with clause (c)(i)(C) above shall not exceed the amount
permitted by law to be paid by a promissory note and shall be a full recourse
note in a form satisfactory to the Company, with principal payable four (4)
years after the date the Option is exercised. Interest on the principal
balance of the promissory note shall be payable in annual installments at the
minimum interest rate necessary to avoid imputed interest pursuant to all
applicable sections of the Code. Such recourse promissory note shall be
secured by the shares of stock acquired pursuant to the then current form of
security agreement as approved by the Company. In the event the Company at any
time is subject to the regulations promulgated by the Board of Governors of the
Federal Reserve System or any other governmental entity affecting the extension
of credit in connection with the Company's securities, any promissory note
shall comply with such applicable regulations, and the Optionee shall pay the
unpaid principal and accrued interest, if any, to the extent necessary to
comply with such applicable regulations. Except as the Company in its sole
discretion shall determine, the Optionee shall pay the unpaid principal balance
of the promissory note and any accrued interest thereon upon termination of the
Optionee's employment with the Participating Company Group for any reason, with
or without cause.
(iv) Immediate Sales Proceeds.
"IMMEDIATE SALES PROCEEDS" shall mean the assignment in form acceptable to the
Company of the proceeds of a sale of some or all of the shares acquired upon
the exercise of the Option pursuant to a program and/or procedure approved by
the Company (including, without limitation, through an exercise complying with
the provisions of Regulation T as promulgated from time to time by the Board
of Governors of the Federal Reserve System). The Company reserves, at any and
all times, the right, in the Company's sole and absolute discretion, to decline
to approve any such program and/or procedure.
(d) Tax Withholding. At the time the Option is
exercised, in whole or in part, or at any time thereafter as requested by the
Company, the Optionee hereby authorizes payroll withholding and otherwise
agrees to make adequate provision for foreign, federal and state tax
withholding obligations of the Company, if any, which arise in connection with
the Option, including, without limitation, obligations arising upon (i) the
exercise, in whole or in part, of the Option, (ii) the transfer, in whole or in
part, of any shares acquired on exercise of the Option, or (iii) the operation
of any law or regulation providing for the imputation of interest, or (iv) the
lapsing of any restriction with respect to any shares acquired on exercise of
the Option. The Optionee is cautioned that the Option is not exercisable
unless the Company's withholding obligations are satisfied. Accordingly, the
Optionee may not be able to exercise the Option when desired even though the
Option is vested and the Company shall have no obligation to issue a
certificate for such shares.
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(e) Certificate Registration. Except in the
event the exercise price is paid by Immediate Sales Proceeds, the certificate
or certificates for the shares as to which the Option is exercised shall be
registered in the name of the Optionee, or, if applicable, the heirs of the
Optionee.
(f) Restrictions of Grant of the Option and
Issuance of Shares. The grant of the Option and the issuance of the shares
upon exercise of the Option shall be subject to compliance with all applicable
requirements of federal, state or foreign law with respect to such securities.
The Option may not be exercised if the issuance of shares upon such exercise
would constitute a violation of any applicable federal, state, or foreign
securities laws or other law or regulations. In addition, the Option may not
be exercised unless (i) a registration statement under the Securities Act of
1933, as amended (the "SECURITIES ACT"), shall at the time of exercise of the
Option be in effect with respect to the shares issuable upon exercise of the
Option or (ii) in the opinion of legal counsel to the Company, the shares
issuable upon exercise of the Option may be issued in accordance with the terms
of an applicable exemption from the registration requirements of the Securities
Act. THE OPTIONEE IS CAUTIONED THAT THE OPTION MAY NOT BE EXERCISABLE UNLESS
THE FOREGOING CONDITIONS ARE SATISFIED. ACCORDINGLY, THE OPTIONEE MAY NOT BE
ABLE TO EXERCISE THE OPTION WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED.
Questions concerning this restriction should be directed to the Chief Financial
Officer of the Company. As a condition to the exercise of the Option, the
Company may require the Optionee to satisfy any qualifications that may be
necessary or appropriate, to evidence compliance with any applicable law or
regulation and to make any representation or warranty with respect thereto as
may be requested by the Company.
(g) Fractional Shares. The Company shall not be
required to issue fractional shares upon the exercise of the Option.
5. Non-Transferability of the Option; Non-Alienation of
Benefits. The Option may be exercised during the lifetime of the Optionee only
by the Optionee and may not be assigned or transferred in any manner except by
will or by the laws of descent and distribution. Following the death of the
Optionee, the Option, to the extent unexercised and vested to the Optionee on
the date of death, may be exercised by the Optionee's legal representative or
by any person empowered to do so under the deceased Optionee's will or under
the then applicable laws of descent and distribution.
Except with the prior written consent of the Company, subject
to the foregoing, or as otherwise provided herein, no right or benefit under
this Option Agreement shall be subject to anticipation, alienation, sale,
assignment, pledge, encumbrance or charge, and any attempt to anticipate,
alienate, sell, assign, pledge, encumber or charge the same without such
consent, if applicable, shall be void. Except with such consent, no right or
benefit under this Option Agreement shall in any manner be liable for or
subject to the debts, contacts, liabilities or torts of the person entitled to
such benefit. Except to the extent previously approved by the Company in
writing, or as otherwise provided herein, if the Optionee should become
bankrupt or attempt to anticipate, alienate, sell, assign, pledge, encumber or
charge any right or benefit
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hereunder, then such right or benefit shall cease and terminate, and in such
event, the Company may hold or apply the same or any part thereof for the
benefit of the Optionee, the Optionee's spouse, children or other dependents,
or any of them, in such manner and in such proportion as the Company may in its
sole determination deem proper.
6. Termination of the Option. The Option shall
terminate and may no longer be exercised on the first to occur of (a) the
Option Term Date as defined above, (b) the last date for exercising the Option
following termination of employment as described in paragraph 7 below, or (c) a
Transfer of Control to the extent provided in paragraph 8 below.
7. Termination of Employment.
(a) Termination Other Than by Death or
Disability. Except as otherwise provided below, if the Optionee ceases to be
an employee of the Participating Company Group for any reason, except death or
disability within the meaning of section 422(c) of the Code, the Option, to the
extent unexercised and exercisable by the Optionee on the date on which the
Optionee ceased to be an employee, may be exercised by the Optionee within
thirty (30) days after the date on which the Optionee's employment terminated,
but in any event no later than the Option Term Date.
(b) Termination by Death or Disability. Except
as otherwise provided below, if the Optionee's employment with the Company is
terminated because of the death or disability of the Optionee within the
meaning of section 422(c) of the Code, the Option, to the extent unexercised
and exercisable by the Optionee on the date on which the Optionee ceased to be
an employee, may be exercised by the Optionee (or the Optionee's legal
representative) at any time prior to the expiration of twelve (12) months from
the date on which the Optionee's employment terminated, but in any event no
later than the Option Term Date. The Optionee's employment shall be deemed to
have terminated on account of death if the Optionee dies within three (3)
months after the Optionee's termination of employment.
(c) Limitations on Exercise After Termination.
Notwithstanding the provisions of paragraphs 7(a) and (b), the Option may not
be exercised after the Optionee's termination of employment if the shares to be
acquired on exercise of the Option would be Unvested Shares as that term is
defined in paragraph 11 below. Except as provided in this paragraph 7, the
Option shall terminate and may not be exercised after the Optionee ceases to be
an employee of the Participating Company Group. Furthermore, the Board may at
any time after the Optionee's termination of employment cancel the Option with
respect to all or a portion of the shares otherwise remaining exercisable under
the Option, if the Company finds or has found that the Optionee:
(i) Engaged in willful, deliberate or
gross misconduct toward the Company;
(ii) Has violated the terms of any
confidentiality agreement or obligation between the Optionee and the Company;
or
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(iii) Has accepted employment with an
entity which the Company determines is in a business that could result in
compromising any confidentiality agreement or obligation between the Optionee
and the Company.
(d) Employee and Termination of Employment
Defined. For purposes of this paragraph 7, the term "employee" shall mean any
person, including officers and directors, employed by a Participating Company
or performing services for a Participating Company as a director, consultant,
advisor or other independent contractor. For purposes of this paragraph 7, the
Optionee's employment shall be deemed to have terminated if the Optionee ceases
to be employed by a Participating Company (whether upon an actual termination
of employment or upon the Optionee's employer ceasing to be a Participating
Company). The Optionee's employment shall not be deemed to have terminated
merely because of a change in the capacity in which the Optionee serves as an
employee, provided that there is no interruption or termination of the
Optionee's service as an employee. (THE OPTIONEE IS CAUTIONED THAT IF THE
OPTION IS EXERCISED MORE THAN THREE (3) MONTHS AFTER THE DATE ON WHICH THE
OPTIONEE'S EMPLOYMENT (OTHER THAN AS A DIRECTOR, CONSULTANT, ADVISOR OR OTHER
INDEPENDENT CONTRACTOR) TERMINATED, THE OPTION MAY CEASE TO BE AN INCENTIVE
STOCK OPTION. THE OPTIONEE SHOULD CONSULT WITH THE OPTIONEE'S OWN TAX ADVISORS
AS TO THE TAX CONSEQUENCES OF ANY SUCH DELAYED EXERCISE.)
(e) Extension if Exercise Prevented by Law.
Notwithstanding the foregoing, if the exercise of the Option within the
applicable time periods set forth above is prevented by the provisions of
paragraph 4(f) above, the Option shall remain exercisable until three (3)
months after the date the Optionee is notified by the Company that the Option
is exercisable, but in any event no later than the Option Term Date. The
Company makes no representation as to the tax consequences of any such delayed
exercise. The Optionee should consult with the Optionee's own tax advisors as
to the tax consequences to the Optionee of any such delayed exercise.
(f) Extension if Optionee Subject to Section
16(b). Notwithstanding the foregoing, if the exercise of the Option within the
applicable time periods set forth above would subject the Optionee to suit
under Section 16(b) of the Exchange Act, the Option shall remain exercisable
until the earliest to occur of (i) the tenth (10th) day following the date on
which the Optionee would no longer be subject to such suit, (ii) the one
hundred and ninetieth (190th) day after the Optionee's termination of
employment, or (iii) the Option Term Date. The Company makes no representation
as to the tax consequences of any such delayed exercise. The Optionee should
consult with the Optionee's own tax advisors as to the tax consequences to the
Optionee of any such delayed exercise.
(g) Leave of Absence. For purposes
hereof, the Optionee's employment with the Participating Company Group shall
not be deemed to terminate if the Optionee takes any military leave, sick
leave, or other bona fide leave of absence approved by
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the Company of ninety (90) days or less. In the event of a leave in excess of
ninety (90) days, the Optionee's employment shall be deemed to terminate on the
ninety-first (91st) day of the leave unless the Optionee's right to re
employment with the Participating Company Group remains guaranteed by statute
or contract. Notwithstanding the foregoing, unless otherwise designated by the
Company (or required by law) a leave of absence shall not be treated as
employment for purposes of determining the Optionee's Vested Percentage.
8. A "Transfer of Control"
(a) A "TRANSFER OF CONTROL" shall be deemed to
have occurred in the event any of the events described in Paragraph 11 of the
Plan occurs with respect to the Company.
(b) In the event of Transfer of Control, the
surviving, continuing, successor, or purchasing corporation or parent
corporation thereof, as the case may be (the "ACQUIRING CORPORATION"), shall
either assume the Company's rights and obligations under this Option Agreement
or substitute an option for the Acquiring Corporation's stock for the Option.
In the event the Acquiring Corporation elects not to assume the Company's
rights and obligations under this Option Agreement or substitute an option for
the Acquiring Corporation's stock for the Option, all shares subject to this
Option Agreement shall become Vested Shares (as defined in paragraph 11(b)
below) effective as of the date thirty (30) days prior to the Proposed
Effective Date.
(c) The exercise and/or vesting of any shares
that was permissible solely by reason of this paragraph 8 shall be conditioned
upon the consummation of the Transfer of Control. The Option shall terminate
and cease to be outstanding effective upon the Transfer of Control to the
extent that the Option is neither assumed or substituted for by the Acquiring
Corporation in connection with the Transfer of Control nor exercised as of the
date of the Transfer of Control.
9. Effect of Change in Stock Subject to the Option.
Appropriate adjustments shall be made in the number, exercise price and class
of shares of stock subject to the Option in the event of a stock dividend,
stock split, reverse stock split, recapitalization, combination,
reclassification, or like change in the capital structure of the Company. In
the event a majority of the shares which are of the same class as the shares
that are subject to the Option are exchanged for, converted into, or otherwise
become (whether or not pursuant to an Ownership Change) shares of another
corporation (the "NEW SHARES"), the Company may unilaterally amend the Option
to provide that the Option is exercisable for New Shares. In the event of any
such amendment, the number of shares and the exercise price shall be adjusted
in a fair and equitable manner.
10. Rights as a Stockholder or Employee. The Optionee
shall have no rights as a stockholder with respect to any shares covered by the
Option until the date of the issuance of a certificate or certificates for the
shares for which the Option has been exercised. No adjustment shall be made
for dividends or distributions or other rights for which the record
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date is prior to the date such certificate or certificates are issued, except
as provided in paragraph 9 above. Nothing in the Option shall confer upon the
Optionee any right to continue in the employ of a Participating Company or
interfere in any way with any right of the Participating Company Group to
terminate the Optionee's employment at any time.
11. Right of First Refusal.
(a) Right of First Refusal. Except as
provided in paragraph 11(g) below, in the event the Optionee proposes to sell,
pledge, or otherwise transfer any Vested Shares (the "TRANSFER SHARES") to any
person or entity, including, without limitation, any stockholder of the
Participating Company Group, the Company shall have the right to repurchase the
Transfer Shares under the terms and subject to the conditions set forth in this
paragraph 12 (the "RIGHT OF FIRST REFUSAL").
(b) Notice of Proposed Transfer. Prior to any
proposed transfer of the Transfer Shares, the Optionee shall give a written
notice (the "TRANSFER NOTICE") to the Company describing fully the proposed
transfer, including the number of Transfer Shares, the name and address of the
proposed transferee (the "PROPOSED TRANSFEREE") and, if the transfer is
voluntary, the proposed transfer price and containing such information
necessary to show the bona fide nature of the proposed transfer. In the event
of a bona fide gift or involuntary transfer, the proposed transfer price shall
be deemed to be the fair market value of the Transfer Shares as determined by
the Company in good faith. In the event the Optionee proposes to transfer any
Transfer Shares to more than one (1) Proposed Transferee, the Optionee shall
provide a separate Transfer Notice for the proposed transfer to each Proposed
Transferee. The Transfer Notice shall be signed by both the Optionee and the
Proposed Transferee and must constitute a binding commitment of the Optionee
and the Proposed Transferee for the transfer of the Transfer Shares to the
Proposed Transferee subject only to the Right of First Refusal.
(c) Bona Fide Transfer. In the event that
the Company shall determine that the information provided by the Optionee in
the Transfer Notice is insufficient to establish the bona fide nature of a
proposed voluntary transfer, the Company shall give the Optionee written notice
of the Optionee's failure to comply with the procedure described in this
paragraph 12 and the Optionee shall have no right to transfer the Transfer
Shares without first complying with the procedure described in this paragraph
12. The Optionee shall not be permitted to transfer the Transfer Shares if the
proposed transfer is not bona fide.
(d) Exercise of Right of First Refusal. In
the event the proposed transfer is deemed to be bona fide, the Company shall
have the right to purchase all, but not less than all, of the Transfer Shares
(except as the Company and the Optionee otherwise agree) at the purchase price
and on the terms set forth in the Transfer Notice by delivery to the Optionee
of a notice of exercise of the Right of First Refusal within thirty (30) days
after the date the Transfer Notice is delivered to the Company. The Company's
exercise or failure to exercise the Right of First Refusal with respect to any
proposed transfer described in a Transfer Notice shall not affect the Company's
right to exercise the Right of First Refusal with respect to any proposed
transfer described in any other Transfer Notice, whether or not
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such other Transfer Notice is issued by the Optionee or issued by a person
other than the Optionee with respect to a proposed transfer to the same
Proposed Transferee. If the Company exercises the Right of First Refusal, the
Company and the Optionee shall thereupon consummate the sale of the Transfer
Shares to the Company on the terms set forth in the Transfer Notice within
sixty (60) days after the date the Transfer Notice is delivered to the Company
(unless a longer period is offered by the Proposed Transferee); provided,
however, that in the event the Transfer Notice provides for the payment for the
Transfer Shares by the present value cash equivalent of the consideration
described in the Transfer Notice as reasonably determined by the Company. For
purposes of the foregoing, cancellation of any indebtedness of the Optionee to
any Participating Company shall be treated as payment to the Optionee in cash
to the extent of the unpaid principal and any accrued interest canceled.
(e) Failure to Exercise Right of First Refusal.
If the Company fails to exercise the Right of First Refusal in full within the
period specified in paragraph 11(d) above, the Optionee may conclude a transfer
to the Proposed Transferee of the Transfer Shares on the terms and conditions
described in the Transfer Notice, provided such transfer occurs not later than
ninety (90) days following delivery to the Company of the Transfer Notice. The
Company shall have the right to demand further assurances from the Optionee and
the Proposed Transferee (in a form satisfactory to the Company) that the
transfer of the Transfer Shares was actually carried out on the terms and
conditions described in the Transfer Notice. No Transfer Shares shall be
transferred on the books of the Company until the Company has received such
assurances, if so demanded, and has approved the proposed transfer as bona
fide. Any proposed transfer on terms and conditions different from those
described in the Transfer Notice, as well as any subsequent proposed transfer
by the Optionee, shall again be subject to the Right of First Refusal and shall
require compliance by the Optionee with the procedure described in this
paragraph 11.
(f) Transferees of Transfer Shares. All
transferees of the Transfer Shares or any interest therein, other than the
Company, shall be required as a condition of such transfer to agree in writing
(in a form satisfactory to the Company) that such transferee shall receive and
hold such Transfer Shares or interests subject to the provisions of this
paragraph 11 providing for the Right of First Refusal with respect to any
subsequent transfer. Any sale or transfer of any shares acquired upon exercise
of the Option shall be void unless the provisions of this paragraph 11 are met.
(g) Transfers Not Subject to Right of First
Refusal. Notwithstanding the foregoing, the Right of First Refusal shall not
apply to any transfer or exchange of the shares acquired pursuant to the
exercise of the Option if such transfer or exchange is in connection with an
Ownership Change. If the consideration received pursuant to such transfer or
exchange consists of stock of a Participating Company, such consideration shall
remain subject to the Right of First Refusal unless the provisions of paragraph
11(i) below result in a termination of the Right of First Refusal.
Furthermore, notwithstanding the foregoing, the Right of First Refusal shall
not apply to a transfer of Transfer Shares to the Optionee's ancestors,
descendants, or spouse or to a trustee solely for the benefit of the Optionee
or Optionee's ancestors, descendants, or spouse, or to a charitable
institution;
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provided, however, that such transferee shall agree in writing (in a form
satisfactory to the Company) to take the stock subject to all the terms and
conditions of this paragraph 12 providing for a Right of First Refusal with
respect to any subsequent transfer.
(h) Assignment of Right of First Refusal. The
Company shall have the right to assign the Right of First Refusal at any time,
whether or not the Optionee has attempted a transfer, to one (1) or more
persons as may be selected by the Company.
(i) Early Termination of Right of First Refusal.
The other provisions of this paragraph 11 notwithstanding, the Right of First
Refusal shall terminate, and be of no further force and effect, upon (i) the
occurrence of a Transfer of Control, unless the surviving, continuing,
successor, or purchasing corporation or parent corporation thereof, as the case
may be, assumes the Company's rights and obligations under the Plan, or (ii)
the existence of a public market for the class of shares subject to the Right
of First Refusal. A "public market" shall be deemed to exist if (x) such
stock is listed on a national securities exchange (as that term is used in the
Exchange Act) or (y) such is traded on the over-the-counter market and prices
therefor are published daily on business days in a recognized financial
journal.
12. Escrow.
(a) Establishment of Escrow. To ensure that
shares subject to the Right of First Refusal and/or security for any promissory
note will be available for purchase, the Company may require the Optionee to
deposit the certificate or certificates evidencing the shares which the
Optionee purchases upon exercise of the Option with the Company or other escrow
agent designated by the Company under the terms and conditions of escrow and
security agreements approved by the Company. If the Company does not require
such deposit as a condition of exercise of the Option, or if the Company
releases the certificate or certificates from escrow prior to the lapsing of
all such restrictions and/or security interest, the Company reserves the right
at any time to require the Optionee to so deposit the certificates in escrow.
The Company shall bear the expenses of the escrow.
(b) Delivery of Shares to Optionee. As soon
as practicable after the expiration of the Right of First Refusal, and after
full repayment on any promissory note secured by the shares in escrow, the
escrow agent shall deliver to the Optionee the shares no longer subject to such
restrictions and no longer security for any promissory note.
(c) Notices and Payments. In the event the
shares held in escrow are subject to the Company's exercise of the Right of
First Refusal, the notices required to be given to the Optionee shall be given
to the escrow agent any payment required to be given to the Optionee shall be
given to the escrow agent. Within thirty (30) days after payment by the
Company, the escrow agent shall deliver the shares which the Company has
purchased to the Company and shall deliver the payment received from the
Company to the Optionee.
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13. Stock Dividends Subject to Option Agreement. If,
from time to time, there is any stock dividend, stock split, or other change in
the character or amount of any of the outstanding stock of the corporation the
stock of which is subject to the provisions of this Option Agreement, then in
such event any and all new, substituted or additional securities to which the
Optionee is entitled by reason of the Optionee's ownership of the shares
acquired upon exercise of the Option shall be immediately subject to the Right
of First Refusal, and/or any security interest held by the Company with the
same force and effect as the shares subject to the Right of First Refusal, and
such security interest immediately before such event.
14. Notice of Sales Upon Disqualifying Disposition.
The Optionee shall dispose of the shares acquired pursuant to the Option only
in accordance with the provisions of this Option Agreement. In addition, the
Optionee shall promptly notify the Chief Financial Officer of the Company if
the Optionee disposes of any of the shares acquired pursuant to the Option
within one (1) year from the date the Optionee exercises all or part of the
Option or within two (2) years of the date of grant of the Option. Until such
time as the Optionee disposes of such shares in a manner consistent with the
provisions of this Option Agreement, the Optionee shall hold all shares
acquired pursuant to the Option in the Optionee's name (and not in the name of
any nominee) for the one-year period immediately after exercise of the Option
and the two-year period immediately after grant of the Option. At any time
during the one-year or two-year periods set forth above, the Company may place
a legend or legends on any certificate or certificates representing shares
acquired pursuant to the Option requesting the transfer agent for the Company's
stock to notify the Company of any such transfers. The obligation of the
Optionee to notify the Company of any such transfer shall continue
notwithstanding that a legend has been placed on the certificate or
certificates pursuant to the preceding sentence.
15. Legends. The Company may at any time place
legends referencing the Right of First Refusal set forth in paragraph 11 above,
and any applicable federal, state or foreign securities law restrictions on all
certificates representing shares of stock subject to the provisions of this
Option Agreement. The Optionee shall, at the request of the Company, promptly
present to the Company any and all certificates representing shares acquired
pursuant to the Option in the possession of the Optionee in order to carry out
the provisions of this paragraph. Unless otherwise specified by the Company,
legends placed on such certificates may include, but shall not be limited to,
the following:
(a) "THE SECURITIES EVIDENCED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY
NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS
MADE IN ACCORDANCE WITH RULE 144 OR RULE 701 UNDER THE ACT, OR THE COMPANY
RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY
SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR
HYPOTHECATION IS EXEMPT FROM
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14
THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT."
(b) "THE SHARES REPRESENTED BY THIS CERTIFICATE
ARE SUBJECT TO A RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE CORPORATION OR
ITS ASSIGNEE SET FORTH IN AN AGREEMENT BETWEEN THE CORPORATION AND THE
REGISTERED HOLDER OR SUCH HOLDER'S PREDECESSOR IN INTEREST, A COPY OF WHICH IS
ON FILE AT THE PRINCIPAL OFFICE OF THIS CORPORATION."
(c) "THE SHARES EVIDENCED BY THIS CERTIFICATE
WERE ISSUED BY THE CORPORATION TO THE REGISTERED HOLDER UPON EXERCISE OF AN
INCENTIVE STOCK OPTION AS DEFINED IN SECTION 422 OF THE INTERNAL REVENUE CODE
OF 1986, AS AMENDED ("ISO"). IN ORDER TO OBTAIN THE PREFERENTIAL TAX TREATMENT
AFFORDED TO ISOs, THE SHARES SHOULD NOT BE TRANSFERRED PRIOR TO TWO YEARS AFTER
GRANT OF THE ISO AND ONE YEAR AFTER EXERCISE OF THE ISO. SHOULD THE REGISTERED
HOLDER ELECT TO TRANSFER ANY OF THE SHARES PRIOR THERETO AND FOREGO ISO TAX
TREATMENT, THE TRANSFER AGENT FOR THE SHARES SHALL NOTIFY THE CORPORATION
IMMEDIATELY. THE REGISTERED HOLDER SHALL HOLD ALL SHARES PURCHASED UNDER THE
INCENTIVE STOCK OPTION IN THE REGISTERED HOLDER'S NAME (AND NOT IN THE NAME OF
ANY NOMINEE) PRIOR TO THIS DATE OR UNTIL TRANSFERRED AS DESCRIBED ABOVE."
16. Initial Public Offering. The Optionee hereby agrees
that in the event of an initial public offering of stock made by the Company
pursuant to an effective registration statement filed under the Securities Act,
the Optionee shall not offer, sell, contract to sell, pledge, hypothecate,
grant any option to purchase or make any short sale of, or otherwise dispose of
any shares of stock of the Company or any rights to acquire stock of the
Company for such period of time from and after the effective date of such
registration statement as may be established by the underwriter for such
initial public offering; provided, however, that such period of time shall
not exceed two hundred seventy (270) days from the effective date of the
registration statement to be filed in connection with such initial public
offering. The foregoing limitation shall not apply to shares registered in the
initial public offering under the Securities Act. The Optionee shall be
subject to this paragraph provided and only if the officers and directors of
the Company are also subject to similar arrangements.
17. Binding Effect. This Option Agreement shall inure to
the benefit of and be binding upon the parties hereto and their respective
heirs, executors, administrators, successors and assigns.
18. Termination or Amendment. The Board, including any
duly appointed committee of the Board, may terminate or amend the Plan and /or
the Option at any time; provided, however, that no such termination or
amendment may adversely affect the Option or
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15
any unexercised portion hereof without the consent of the Optionee unless such
amendment is required to enable the Option to qualify as an Incentive Stock
Option.
19. Integrated Agreement. This Option Agreement
constitutes the entire understanding and agreement of the Optionee and the
Participating Company Group with respect to the subject matter contained
herein, and there are no agreement, understandings, restrictions,
representations, or warranties among the Optionee and the Company other than
those as set forth or provided for herein. To the extent contemplated herein,
the provisions of this Option Agreement shall survive any exercise of the
Option and shall remain in full force and effect.
20. Applicable Law. This Option Agreement shall be
governed by the laws of the State of Delaware as such laws are applied to
agreements between Delaware residents entered into and to be performed entirely
within the State of Delaware.
CIENA CORPORATION
By:
-----------------------------
Title: Vice President, Finance
Chief Financial Officer
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The Optionee represents that the Optionee is familiar with the
terms and provisions of this Option Agreement, including the Right of First
Refusal set forth in paragraph 11 and hereby accepts the Option subject to all
of the terms and provisions thereof. The Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the Board
upon any questions arising under this Option Agreement. The undersigned
acknowledges receipt of a copy of the Plan.
OPTIONEE
Date:
-------------------- ----------------------------
The undersigned, being the spouse of the above-named Optionee,
does hereby acknowledge that the undersigned has read and is familiar with the
provisions of the above Option Agreement, and the undersigned hereby agrees
thereto and joins therein to the extent, if any, that the agreement and joiner
of the undersigned may be necessary.
OPTIONEE
Date:
-------------------- ----------------------------
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EXHIBIT A
TO
STOCK OPTION AGREEMENT
(a) "Date of Option Grant" shall mean {grant date}.
(b) "Number of Option Shares" shall mean {shares} shares
of common stock of the Company.
(c) "Exercise Price" shall mean {price} per share.
(d) "Initial Vesting Date" shall be the last day of the
calendar month in which occurs the date one (1) year after the following date:
{vesting_date}.
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THE SECURITY REPRESENTED BY THIS CERTIFICATE HAS BEEN ACQUIRED FOR INVESTMENT
AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION
THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO
THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF
1933.
CIENA CORPORATION
IMMEDIATELY EXERCISABLE
NON-STATUTORY STOCK OPTION AGREEMENT
THIS IMMEDIATELY EXERCISABLE NON-STATUTORY STOCK OPTION AGREEMENT (the "Option
Agreement") is made and entered into as of ___________, 199___, by and between
CIENA Corporation, a Delaware corporation (the "Company"), and
___________________________ (the "Optionee").
The Company granted to the Optionee an option to purchase certain
shares of common stock of the Company, in the manner and subject to the
provisions of this Option Agreement (the "Option"). If the Optionee (and the
Optionee's spouse, if married) does not execute and return this Option
Agreement to the Company within sixty (60) days of the date first written
above, the Option shall terminate and be without further force and effect.
1. Definitions:
(a) "DATE OF OPTION GRANT" shall mean the date set forth
on Exhibit A annexed hereto and made a part hereof.
(b) "NUMBER OF OPTION SHARES" shall mean the number of
shares of common stock of the Company set forth on Exhibit A as adjusted from
time to time pursuant to paragraph 9 below.
(c) "EXERCISE PRICE" shall mean the price per share set
forth on Exhibit A as adjusted from time to time pursuant to paragraph 9 below.
(d) "INITIAL EXERCISE DATE" shall be the Date of Option
Grant.
19
(e) "INITIAL VESTING DATE" shall be the last day of the
calendar month in which occurs the date one (1) year after (check one):
____ the Date of Option Grant.
____ _______________ (specify other date).
(f) Determination of "VESTED PERCENTAGE":
Vested Ratio
------------
Prior to Initial Vesting Date 0
On Initial Vesting Date, provided the Optionee is 25%
continuously employed by a Participating Company from the
Date of Option Grant until the Initial Vesting Date
Plus
----
For each full month of the Optionee's continuous 2.084%
employment by a Participating Company from the
Initial Vesting Date
In no event shall the Vested Percentage exceed
100%.
(g) "OPTION TERM DATE" shall mean the date ten (10) years
after the Date of Option Grant.
(h) "CODE" shall mean the Internal Revenue Code of 1986,
as amended.
(i) "COMPANY" shall mean CIENA Corporation, a Delaware
corporation, or any successor corporation thereto.
(j) "PARTICIPATING COMPANY" shall mean (i) the Company
and (ii) any present or future parent and/or subsidiary corporation of the
Company while such corporation is a parent or subsidiary of the Company. For
purposes of this Option Agreement, a parent corporation and a subsidiary
corporation shall be as defined in sections 424(e) and 424(f) of the Code.
(k) "PARTICIPATING COMPANY GROUP" shall mean at any point
in time all corporations collectively which are then a Participating Company.
(l) "PLAN" shall mean the CIENA Corporation 1994 Stock
Option Plan.
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2. Status of the Option. This Option is intended to be a
non-statutory stock option and shall not be treated as an incentive stock
option as described in section 422 of the Code.
3. Administration. All questions of interpretation concerning
this Option Agreement shall be determined by the Board of Directors of the
Company (the "Board") and/or by a duly appointed committee of the Board having
such powers as shall be specified by the Board. Any subsequent references
herein to the Board shall also mean the committee if such committee has been
appointed and, unless the powers of the committee have been specifically
limited, the committee shall have all of the powers of the Board granted in the
Plan, including, without limitation, the power to terminate or amend the Plan
at any time, subject to the terms of the Plan and any applicable limitations
imposed by law. All determinations by the Board shall be final and binding
upon all persons having an interest in the Option. Any officer of a
Participating Company shall have the authority to act on behalf of the Company
with respect to any matter, right, obligation, or election which is the
responsibility of or which is allocated to the Company herein, provided the
officer has apparent authority with respect to such matter, right, obligation,
or election.
4. Exercise of the Option.
(a) Right to Exercise. The Option shall be immediately
exercisable in its entirety on and after the Initial Exercise Date subject to
the Optionee's agreement that any shares purchased upon exercise are subject to
the Company's repurchase rights set forth in paragraph 11 and paragraph 12
below. Notwithstanding the foregoing, the Option may be exercised only in
multiples of one hundred (100) shares unless all shares subject to the Option
are being exercised; provided, however, that the foregoing restriction shall
not apply so as to prevent an exercise (i) following the Optionee's termination
of employment as set forth in paragraph 7 below or (ii) during the thirty (30)
day periods immediately preceding and following an Ownership Change as defined
in paragraph 8 below. In addition to the foregoing, in the event that the
adoption of the Plan or any amendment of the Plan is subject to the approval of
the Company's stockholders in order for the Option to comply with the
requirements of Rule 16b-3, promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), the Option shall not be exercisable
prior to such stockholder approval if the Optionee is subject to Section 16(b)
of the Exchange Act, unless the Board, in its sole discretion, approves the
exercise of the Option prior to such stockholder approval.
(b) Method of Exercise. Exercise of the Option must be
by written notice to the Company which must state the election to exercise the
Option, the number of shares for which the Option is being exercised and such
other representations and agreements as to the Optionee's investment intent
with respect to such shares as may be required pursuant to the provisions of
this Option Agreement. The written notice must be signed by the Optionee and
must be delivered in person, by certified or registered mail, return receipt
requested, or by confirmed facsimile transmission, to the Chief Financial
Officer of the Company, or other authorized representative of the Participating
Company Group, prior to the termination of the Option as set forth in paragraph
6 below, accompanied by (i) full payment of the exercise price
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21
for the number of shares being purchased and (ii) an executed copy, if required
herein, of the then current forms of escrow and security agreements referenced
below.
(c) Payment of Exercise Price.
(i) Forms of Payment Authorized. Payment of the
exercise price for the number of shares for which the Option is being exercised
shall be made
(A) in cash, by check, or cash
equivalent;
(B) by tender to the Company of shares
of the Company's common stock owned by the Optionee having a fair market value,
as determined by the Board, not less than the exercise price, which either have
been owned by the Optionee for more than six (6) months or were not acquired,
directly or indirectly, from the Company;
(C) if expressly authorized by the
Company at the time of Option exercise, in its sole discretion, by the
Optionee's recourse promissory note in a form approved by the Company;
(D) by Immediate Sales Proceeds, as
defined below;
(E) by any combination of the foregoing.
(ii) Tender of Company Stock. Notwithstanding the
foregoing, the Option may not be exercised by tender to the Company of shares
of the Company's common stock to the extent such tender of stock would
constitute a violation of the provisions of any law, regulation and/or
agreement restricting the redemption of the Company's common stock.
(iii) Promissory Note. Unless otherwise specified
by the Board at the time the Option is granted, a promissory note permitted in
accordance with clause (c)(i)(C) above shall not exceed the amount permitted by
law to be paid by a promissory note and shall be a full recourse note in a form
satisfactory to the Company, with principal payable four (4) years after the
date the Option is exercised. Interest on the principal balance of the
promissory note shall be payable in annual installments at the minimum interest
rate necessary to avoid imputed interest pursuant to all applicable sections of
the Code. Such recourse promissory note shall be secured by the shares of
stock acquired pursuant to the then current form of security agreement as
approved by the Company. In the event the Company at any time is subject to
the regulations promulgated by the Board of Governors of the Federal Reserve
System or any other governmental entity affecting the extension of credit in
connection with the Company's securities, any promissory note shall comply with
such applicable regulations, and the Optionee shall pay the unpaid principal
and accrued interest, if any, to the extent necessary to comply with such
applicable regulations. Except as the Company in its sole discretion shall
determine, the Optionee shall pay the unpaid principal balance of the
promissory note and any accrued interest thereon upon termination of the
Optionee's employment with the Participating Company Group for any reason, with
or without cause.
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(iv) Immediate Sales Proceeds. "IMMEDIATE SALES
PROCEEDS" shall mean the assignment in form acceptable to the Company of the
proceeds of a sale of some or all of the shares acquired upon the exercise of
the Option pursuant to a program and/or procedure approved by the Company
(including, without limitation, through an exercise complying with the
provisions of Regulation T as promulgated from time to time by the Board of
Governors of the Federal Reserve System). The Company reserves, at any and all
times, the right, in the Company's sole and absolute discretion, to decline to
approve any such program and/or procedure.
(d) Tax Withholding. At the time the Option is
exercised, in whole or in part, or at any time thereafter as requested by the
Company, the Optionee hereby authorizes payroll withholding and otherwise
agrees to make adequate provision for foreign, federal and state tax
withholding obligations of the Company, if any, which arise in connection with
the Option, including, without limitation, obligations arising upon (i) the
exercise, in whole or in part, of the Option, (ii) the transfer, in whole or in
part, of any shares acquired on exercise of the Option, or (iii) the operation
of any law or regulation providing for the imputation of interest, or (iv) the
lapsing of any restriction with respect to any shares acquired on exercise of
the Option. The Optionee is cautioned that the Option is not exercisable
unless the Company's withholding obligations are satisfied. Accordingly, the
Optionee may not be able to exercise the Option when desired even though the
Option is vested and the Company shall have no obligation to issue a
certificate for such shares.
(e) Certificate Registration. Except in the event the
exercise price is paid by Immediate Sales Proceeds, the certificate or
certificates for the shares as to which the Option is exercised shall be
registered in the name of the Optionee, or, if applicable, the heirs of the
Optionee.
(f) Restrictions on Grant of the Option and Issuance of
Shares. The grant of the Option and the issuance of shares upon exercise of
the Option shall be subject to compliance with all applicable requirements of
federal, state or foreign law with respect to such securities. The Option may
not be exercised if the issuance of shares upon such exercise would constitute
a violation of any applicable federal, state or foreign securities laws or
other law or regulations. In addition, the Option may not be exercised unless
(i) a registration statement under the Securities Act of 1933, as amended (the
"SECURITIES ACT"), shall at the time of exercise of the Option be in effect
with respect to the shares issuable upon exercise of the Option, or (ii) in the
opinion of legal counsel to the Company, the shares issuable upon exercise of
the Option may be issued in accordance with the terms of an applicable
exemption from the registration requirements of the Securities Act. THE
OPTIONEE IS CAUTIONED THAT THE OPTION MAY NOT BE EXERCISABLE UNLESS THE
FOREGOING CONDITIONS ARE SATISFIED. ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE
TO EXERCISE THE OPTION WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED.
Questions concerning this restriction should be directed to the Chief Financial
Officer of the Company. As a condition to the exercise of the Option, the
Company may require the Optionee to satisfy any qualifications that may be
necessary or appropriate, to evidence compliance with any applicable law or
regulation, and to make any representation or warranty with respect thereto as
may be requested by the Company.
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(g) Fractional Shares. The Company shall not be required
to issue fractional shares upon the exercise of the Option.
5. Non-Transferability of the Option; Non-Alienation of Benefits.
The Option may be exercised during the lifetime of the Optionee only by the
Optionee and may not be assigned or transferred in any manner except by will or
by the laws of descent and distribution. Following the death of the Optionee,
the Option, to the extent unexercised and exercisable by the Optionee on the
date of death, may be exercised by the Optionee's legal representative or by
any person empowered to do so under the deceased Optionee's will or under the
then applicable laws of descent and distribution.
Except with the prior written consent of the Company, subject
to the foregoing, or as otherwise provided herein, no right or benefit under
this Option Agreement shall be subject to anticipation, alienation, sale,
assignment, pledge, encumbrance or charge, and any attempt to anticipate,
alienate, sell, assign, pledge, encumber or charge the same without such
consent, if applicable, shall be void. Except with such consent, no right or
benefit under this Option Agreement shall in any manner be liable for or
subject to the debts, contracts, liabilities or torts of the person entitled to
such benefit. Except to the extent previously approved by the Company in
writing, or as otherwise provided herein, if the Optionee should become
bankrupt or attempt to anticipate, alienate, sell, assign, pledge, encumber or
charge any right or benefit hereunder, then such right or benefit shall cease
and terminate, and in such event, the Company may hold or apply the same or any
part thereof for the benefit of the Optionee, the Optionee's spouse, children
or other dependents, or any of them, in such manner and in such proportion as
the Company may in its sole determination deem proper.
6. Termination of the Option. The Option shall terminate and may
no longer be exercised on the first to occur of (a) the Option Term Date as
defined above, (b) the last date for exercising the Option following
termination of employment as described in paragraph 7 below, or (c) a Transfer
of Control to the extent provided in paragraph 8 below.
7. Termination of Employment.
(a) Termination Other Than by Death or Disability.
Except as otherwise provided below, if the Optionee ceases to be an employee of
the Participating Company Group for any reason, except death or disability
within the meaning of section 422(c) of the Code, the Option, to the extent
unexercised and exercisable by the Optionee on the date on which the Optionee
ceased to be an employee, may be exercised by the Optionee within thirty (30)
days after the date on which the Optionee's employment terminated, but in any
event no later than the Option Term date.
(b) Termination by Death or Disability. Except as
otherwise provided below, if the Optionee's employment with the Company is
terminated because of the death or disability of the Optionee within the
meaning of section 422(c) of the Code, the Option, to the extent unexercised
and exercisable by the Optionee on the date on which the Optionee ceased to be
an employee, may be exercised by the Optionee (or the Optionee's legal
representative) at any time
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prior to the expiration of twelve (12) months from the date on which the
Optionee's employment terminated, but in any event no later than the Option
Term Date. The Optionee's employment shall be deemed to have terminated on
account of death if the Optionee dies within three (3) months after the
Optionee's termination of employment.
(c) Limitations on Exercise After Termination.
Notwithstanding the provisions of paragraphs 7(a) and (b), the Option may not
be exercised after the Optionee's termination of employment if the shares to be
acquired on exercise of the Option would be Unvested Shares as that term is
defined in paragraph 11 below. Except as provided in this paragraph 7, the
Option shall terminate and may not be exercised after the Optionee ceases to be
an employee of the Participating Company Group. Furthermore, the Board may at
any time after the Optionee's termination of employment cancel the Option with
respect to all or a portion of the shares otherwise remaining exercisable under
the Option, if the Company finds or has found that the Optionee:
(i) Engaged in willful, deliberate or gross
misconduct toward the Company;
(ii) Has violated the terms of any confidentiality
agreement or obligation between the Optionee and the Company; or
(iii) Has accepted employment with an entity which
the Company determines is in a business that could result in compromising any
confidentiality agreement or obligation between the Optionee and the Company.
(d) Employee and Termination of Employment Defined. For
purposes of this paragraph 7, the term "EMPLOYEE" shall mean any person,
including officers and directors, employed by a Participating Company or
performing services for a Participating Company as a director, consultant,
advisor or other independent contractor. For purposes of this paragraph 7, the
Optionee's employment shall be deemed to have terminated if the Optionee ceases
to be employed by a Participating Company (whether upon an actual termination
of employment or upon the Optionee's employer ceasing to be a Participating
Company). The Optionee's employment shall not be deemed to have terminated
merely because of a change in the capacity in which the Optionee serves as an
employee, provided that there is no interruption or termination of the
Optionee's service as an employee.
(e) Extension if Exercise Prevented by Law.
Notwithstanding the foregoing, if the exercise of the Option within the
applicable time periods set forth above is prevented by the provisions of
paragraph 4(f) above, the Option shall remain exercisable until three (3)
months after the date the Optionee is notified by the Company that the Option
is exercisable, but in any event no later than the Option Term Date.
(f) Extension if Optionee Subject to Section 16(b).
Notwithstanding the foregoing, if the exercise of the Option within the
applicable time periods set forth above would subject the Optionee to suit
under Section 16(b) of the Exchange Act, the Option shall remain exercisable
until the earliest to occur of (i) the tenth (10th) day following the date on
which the
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Optionee would no longer be subject to such suit, (ii) the one hundred and
ninetieth (190th) day after the Optionee's termination of employment, or (iii)
the Option Term Date.
(g) Leave of Absence. For purposes hereof, the
Optionee's employment with the Participating Company Group shall not be deemed
to terminate if the Optionee takes any military leave, sick leave, or other
bona fide leave of absence approved by the Company of ninety (90) days or less.
In the event of a leave in excess of ninety (90) days, the Optionee's
employment shall be deemed to terminate on the ninety-first (91st) day of the
leave unless the Optionee's right to reemployment with the Participating
Company Group remains guaranteed by statute or contract. Notwithstanding the
foregoing, unless otherwise designated by the Company (or required by law) a
leave of absence shall not be treated as employment for purposes of determining
the Optionee's Vested Percentage.
8. A Transfer of Control.
(a) A "TRANSFER OF CONTROL" shall be deemed to have
occurred in the event any of the events described in paragraph 11 of the Plan
occurs with respect to the Company.
(b) In the event of a Transfer of Control, the surviving,
continuing, successor, or purchasing corporation or parent corporation thereof,
as the case may be (the "ACQUIRING CORPORATION"), shall either assume the
Company's rights and obligations under this Option Agreement or substitute an
option for the Acquiring Corporation's stock for the Option. In the event the
Acquiring Corporation elects not to assume the Company's rights and obligations
under this Option Agreement or substitute an option for the Acquiring
Corporation's stock for the Option, all shares subject to this Option Agreement
shall become Vested Shares (as defined in paragraph 11(b) below) effective as
of the date thirty (30) days prior to the Proposed Effective Date.
(c) The exercise and/or vesting of any shares that was
permissible solely by reason of this paragraph 8 shall be conditioned upon the
consummation of the Transfer of Control. The Option shall terminate and cease
to be outstanding effective upon the Transfer of Control to the extent that the
Option is neither assumed or substituted for by the Acquiring Corporation in
connection with the Transfer of Control nor exercised as of the date of the
Transfer of Control.
9. Effect of Change in Stock Subject to the Option.
Appropriate adjustments shall be made in the number, exercise price, and class
of shares of stock subject to the Option in the event of a stock dividend,
stock split, reverse stock split, recapitalization, combination,
reclassification, or like change in the capital structure of the Company. In
the event a majority of the shares which are of the same class as the shares
that are subject to the Option are exchanged for, converted into, or otherwise
become (whether or not pursuant to an Ownership Change) shares of another
corporation (the "NEW SHARES"), the Company may unilaterally amend the Option
to provide that the Option is exercisable for New Shares. In the event of any
such amendment, the number of shares and the exercise price shall be adjusted
in a fair and equitable manner.
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10. Rights as a Stockholder or Employee.
The Optionee shall have no rights as a stockholder with respect to any shares
covered by the Option until the date of the issuance of a certificate or
certificates for the shares for which the Option has been exercised. No
adjustment shall be made for dividends or distributions or other rights for
which the record date is prior to the date such certificate or certificates
are issued, except as provided in paragraph 9 above. Nothing in the Option
shall confer upon the Optionee any right to continue in the employ of a
Participating Company or interfere in any way with any right of the
Participating Company Group to terminate the Optionee's employment at any time.
11. Unvested Share Repurchase Option.
(a) Unvested Share Repurchase Option. In the event the
Optionee's employment with the Participating Company Group is terminated for
any reason, with or without cause, or if the Optionee or the Optionee's legal
representative attempts to sell, exchange, transfer, pledge, or otherwise
dispose of (other than pursuant to an Ownership Change) any shares acquired
upon exercise of the Option which exceed the Optionee's Vested Shares as
defined in paragraph 11(b) below (the "UNVESTED SHARES"), the Company shall
have the right to repurchase the Unvested Shares under the terms and subject to
the conditions set forth in this paragraph 11 (the "UNVESTED SHARE REPURCHASE
OPTION").
(b) Vested Shares and Unvested Shares Defined. On any
given date, the number of "VESTED SHARES" shall be equal to the Number of
Option Shares multiplied by the Vested Percentage determined as of such date
pursuant to paragraph 1(f) above and rounded down to the nearest whole share.
On such date, the number of Unvested Shares shall be equal to the Number of
Option Shares reduced by the number of Vested Shares determined as of such
date.
(c) Exercise of Unvested Share Repurchase Option. The
Company may exercise the Unvested Share Repurchase Option by written notice to
the Optionee within six (6) months after (i) such termination of employment (or
exercise of the Option, if later), or (ii) the Company has received notice of
the attempted disposition. If the Company fails to give notice within such six
(6) month period, the Unvested Share Repurchase Option shall terminate unless
the Company and the Optionee have extended the time for the exercise of the
Unvested Share Repurchase Option. The Unvested Share Repurchase Option must be
exercised, if at all, for all of the Unvested Shares, except as the Company and
the Optionee otherwise agree.
(d) Payment for Shares and Return of Shares. Payment by
the Company to the Optionee shall be made in cash within thirty (30) days after
the date of the mailing of the written notice of exercise of the Unvested Share
Repurchase Option. For purposes of the foregoing, cancellation of any
indebtedness of the Optionee to any Participating Company shall be treated as
payment to the Optionee in cash to the extent of the unpaid principal and any
accrued interest canceled. The purchase price per share being repurchased by
the Company shall be an amount equal to the Optionee's original cost per share,
as adjusted pursuant to paragraph 9 above (the "REPURCHASE PRICE"). The shares
being repurchased shall be delivered to the Company by the Optionee at the same
time as the delivery of the Repurchase Price to the Optionee.
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(e) Assignment of Unvested Share Repurchase Option. The
Company shall have the right to assign the Unvested Share Repurchase Option at
any time, whether or not such option is then exercisable, to one (1) or more
persons as may be selected by the Company.
(f) Ownership Change. In the event of an Ownership
Change, any and all new, substituted or additional securities or other property
to which the Optionee is entitled by reason of his or her ownership of Unvested
Shares, determined after application of paragraph 8 above, shall be immediately
subject to the Unvested Share Repurchase Option and included in the terms
"shares" and "Unvested Shares" for all purposes of the Unvested Share
Repurchase Option with the same force and effect as the Unvested Shares
immediately prior to the Ownership Change. While the aggregate Repurchase
Price shall remain the same after such Ownership Change, the Repurchase Price
per Unvested Share upon exercise of the Unvested Share Repurchase Option
following such Ownership Change shall be appropriately adjusted. For purposes
of determining the Vested Percentage following an Ownership Change, credited
service shall include (i) all service with any corporation which is a
Participating Company at the time the services are rendered, whether or not
such corporation is a Participating Company both before and after the event
constituting the Ownership Change, and (ii) any additional service credited
pursuant to paragraph 8(c).
12. Right of First Refusal.
(a) Right of First Refusal. Except as provided in
paragraph 12(g) below, in the event the Optionee proposes to sell, pledge, or
otherwise transfer any Vested Shares (the "TRANSFER SHARES") to any person or
entity, including, without limitation, any stockholder of the Participating
Company Group, the Company shall have the right to repurchase the Transfer
Shares under the terms and subject to the conditions set forth in this
paragraph 12 (the "RIGHT OF FIRST REFUSAL").
(b) Notice of Proposed Transfer. Prior to any proposed
transfer of the Transfer Shares, the Optionee shall give a written notice (the
"TRANSFER NOTICE") to the Company describing fully the proposed transfer,
including the number of Transfer Shares, the name and address of the proposed
transferee (the "PROPOSED TRANSFEREE") and, if the transfer is voluntary, the
proposed transfer price and containing such information necessary to show the
bona fide nature of the proposed transfer. In the event of a bona fide gift or
involuntary transfer, the proposed transfer price shall be deemed to be the
fair market value of the Transfer Shares as determined by the Company in good
faith. In the event the Optionee proposes to transfer any Transfer Shares to
more than one (1) Proposed Transferee, the Optionee shall provide a separate
Transfer Notice for the proposed transfer to each Proposed Transferee. The
Transfer Notice shall be signed by both the Optionee and the Proposed
Transferee and must constitute a binding commitment of the Optionee and the
Proposed Transferee for the transfer of the Transfer Shares to the Proposed
Transferee subject only to the Right of First Refusal.
(c) Bona Fide Transfer. In the event that the Company
shall determine that the information provided by the Optionee in the Transfer
Notice is insufficient to establish the bona fide nature of a proposed
voluntary transfer, the Company shall give the Optionee written
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notice of the Optionee's failure to comply with the procedure described in this
paragraph 12 and the Optionee shall have no right to transfer the Transfer
Shares without first complying with the procedure described in this paragraph
12. The Optionee shall not be permitted to transfer the Transfer Shares if the
proposed transfer is not bona fide.
(d) Exercise of Right of First Refusal. In the event the
proposed transfer is deemed to be bona fide, the Company shall have the right
to purchase all, but not less than all, of the Transfer Shares (except as the
Company and the Optionee otherwise agree) at the purchase price and on the
terms set forth in the Transfer Notice by delivery to the Optionee of a notice
of exercise of the Right of First Refusal within thirty (30) days after the
date the Transfer Notice is delivered to the Company. The Company's exercise
or failure to exercise the Right of First Refusal with respect to any proposed
transfer described in a Transfer Notice shall not affect the Company's right to
exercise the Right of First Refusal with respect to any proposed transfer
described in any other Transfer Notice, whether or not such other Transfer
Notice is issued by the Optionee or issued by a person other than the Optionee
with respect to a proposed transfer to the same Proposed Transferee. If the
Company exercises the Right of First Refusal, the Company and the Optionee
shall thereupon consummate the sale of the Transfer Shares to the Company on
the terms set forth in the Transfer Notice within sixty (60) days after the
date the Transfer Notice is delivered to the Company (unless a longer period is
offered by the Proposed Transferee); provided, however, that in the event the
Transfer Notice provides for the payment for the Transfer Shares other than in
cash, the Company shall have the option of paying for the Transfer Shares by
the present value cash equivalent of the consideration described in the
Transfer Notice as reasonably determined by the Company. For purposes of the
foregoing, cancellation of any indebtedness of the Optionee to any
Participating Company shall be treated as payment to the Optionee in cash to
the extent of the unpaid principal and any accrued interest canceled.
(e) Failure to Exercise Right of First Refusal. If the
Company fails to exercise the Right of First Refusal in full within the period
specified in paragraph 12(d) above, the Optionee may conclude a transfer to the
Proposed Transferee of the Transfer Shares on the terms and conditions
described in the Transfer Notice, provided such transfer occurs not later than
ninety (90) days following delivery to the Company of the Transfer Notice. The
Company shall have the right to demand further assurances from the Optionee and
the Proposed Transferee (in a form satisfactory to the Company) that the
transfer of the Transfer Shares was actually carried out on the terms and
conditions described in the Transfer Notice. No Transfer Shares shall be
transferred on the books of the Company until the Company has received such
assurances, if so demanded, and has approved the proposed transfer as bona
fide. Any proposed transfer on terms and conditions different from those
described in the Transfer Notice, as well as any subsequent proposed transfer
by the Optionee, shall again be subject to the Right of First Refusal and shall
require compliance by the Optionee with the procedure described in this
paragraph 12.
(f) Transferees of Transfer Shares. All transferees of
the Transfer Shares or any interest therein, other than the Company, shall be
required as a condition of such transfer to agree in writing (in a form
satisfactory to the Company) that such transferee shall receive and hold such
Transfer Shares or interests subject to the provisions of this paragraph 12
providing for the Right of First Refusal with respect to any subsequent
transfer. Any sale or transfer of any
11
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shares acquired upon exercise of the Option shall be void unless the provisions
of this paragraph 12 are met.
(g) Transfers Not Subject to Right of First Refusal.
Notwithstanding the foregoing, the Right of First Refusal shall not apply to
any transfer or exchange of the shares acquired pursuant to the exercise of the
Option if such transfer or exchange is in connection with an Ownership Change.
If the consideration received pursuant to such transfer or exchange consists of
stock of a Participating Company, such consideration shall remain subject to
the Right of First Refusal unless the provisions of paragraph 12(i) below
result in a termination of the Right of First Refusal. Furthermore,
notwithstanding the foregoing, the Right of First Refusal shall not apply to a
transfer of Transfer Shares to the Optionee's ancestors, descendants, or spouse
or to a trustee solely for the benefit of the Optionee or the Optionee's
ancestors, descendants, or spouse, or to a charitable institution; provided,
however, that such transferee shall agree in writing (in a form satisfactory to
the Company) to take the stock subject to all the terms and conditions of this
paragraph 12 providing for a Right of First Refusal with respect to any
subsequent transfer.
(h) Assignment of Right of First Refusal. The Company
shall have the right to assign the Right of First Refusal at any time, whether
or not the Optionee has attempted a transfer, to one (1) or more persons as may
be selected by the Company.
(i) Early Termination of Right of First Refusal. The
other provisions of this paragraph 12 notwithstanding, the Right of First
Refusal shall terminate, and be of no further force and effect, upon (i) the
occurrence of a Transfer of Control, unless the surviving, continuing,
successor, or purchasing corporation or parent corporation thereof, as the case
may be, assumes the Company's rights and obligations under the Plan, or (ii)
the existence of a public market for the class of shares subject to the Right
of First Refusal. A "public market" shall be deemed to exist if (x) such stock
is listed on a national securities exchange (as that term is used in the
Exchange Act), or (y) such stock is traded on the over-the-counter market and
prices therefor are published daily on business days in a recognized financial
journal.
13. Escrow.
(a) Establishment of Escrow. To ensure that shares
subject to the Unvested Share Repurchase Option, the Right of First Refusal
and/or security for any promissory note will be available for repurchase, the
Company may require the Optionee to deposit the certificate or certificates
evidencing the shares which the Optionee purchases upon exercise of the Option
with the Company or other escrow agent designated by the Company under the
terms and conditions of escrow and security agreements approved by the Company.
If the Company does not require such deposit as a condition of exercise of the
Option, or if the Company releases the certificate or certificates from escrow
prior to the lapsing of all such restrictions and/or security interest, the
Company reserves the right at any time to require the Optionee to so deposit
the certificate or certificates in escrow. The Company shall bear the expenses
of the escrow.
(b) Delivery of Shares to Optionee. As soon as
practicable after the expiration of the Unvested Share Repurchase Option and
the Right of First Refusal, and after full repayment
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30
on any promissory note secured by the shares in escrow, the escrow agent shall
deliver to the Optionee the shares no longer subject to such restrictions and
no longer security for any promissory note.
(c) Notices and Payments. In the event the shares held
in escrow are subject to the Company's exercise of the Unvested Share
Repurchase Option or the Right of First Refusal, the notices required to be
given to the Optionee shall be given to the escrow agent and any payment
required to be given to the Optionee shall be given to the escrow agent.
Within thirty (30) days after payment by the Company, the escrow agent shall
deliver the shares which the Company has purchased to the Company and shall
deliver the payment received from the Company to the Optionee.
14. Stock Dividends Subject to Option Agreement.
If, from time to time, there is any stock dividend, stock split, or other
change in the character or amount of any of the outstanding stock of the
corporation the stock of which is subject to the provisions of this Option
Agreement, then in such event any and all new, substituted or additional
securities to which the Optionee is entitled by reason of the Optionee's
ownership of the shares acquired upon exercise of the Option shall be
immediately subject to the Unvested Share Repurchase Option, the Right of
First Refusal, and/or any security interest held by the Company with the same
force and effect as the shares subject to the Unvested Share Repurchase Option,
the Right of First Refusal, and such security interest immediately before such
event.
15. Legends.
The Company may at any time place legends referencing the Unvested Share
Repurchase Option set forth in paragraph 11 above, the Right of First Refusal
set forth in paragraph 12 above, and any applicable federal, state or foreign
securities law restrictions on all certificates representing shares of stock
subject to the provisions of this Option Agreement. The Optionee shall, at
the request of the Company, promptly present to the Company any and all
certificates representing shares acquired pursuant to the Option in the
possession of the Optionee in order to carry out the provisions of this
paragraph. Unless otherwise specified by the Company, legends placed on such
certificates may include, but shall not be limited to, the following:
(a) "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT
BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS
MADE IN ACCORDANCE WITH RULE 144 OR RULE 701 UNDER THE ACT, OR THE COMPANY
RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY
SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR
HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF SUCH ACT."
(b) "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO AN UNVESTED SHARE REPURCHASE OPTION IN FAVOR OF THE CORPORATION OR
ITS ASSIGNEE SET FORTH IN AN AGREEMENT BETWEEN THE
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CORPORATION AND THE REGISTERED HOLDER, OR SUCH HOLDER'S PREDECESSOR IN
INTEREST, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THIS
CORPORATION."
(c) "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO A RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE CORPORATION OR ITS
ASSIGNEE SET FORTH IN AN AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED
HOLDER, OR SUCH HOLDER'S PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT
THE PRINCIPAL OFFICE OF THIS CORPORATION."
16. Initial Public Offering.
The Optionee hereby agrees that in the event of an initial public offering of
stock made by the Company pursuant to an effective registration statement
filed under the Securities Act, the Optionee shall not offer, sell, contract
to sell, pledge, hypothecate, grant any option to purchase or make any short
sale of, or otherwise dispose of any shares of stock of the Company or any
rights to acquire stock of the Company for such period of time from and after
the effective date of such registration statement as may be established by the
underwriter for such initial public offering; provided, however, that such
period of time shall not exceed two hundred seventy (270) days from the
effective date of the registration statement to be filed in connection with
such initial public offering. The foregoing limitation shall not apply to
shares registered in the initial public offering under the Securities Act.
The Optionee shall be subject to this paragraph provided and only if the
officers and directors of the Company are also subject to similar arrangements.
17. Binding Effect.
This Option Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective heirs, executors, administrators,
successors and assigns.
18. Termination or Amendment.
The Board, including any duly appointed committee of the Board, may terminate
or amend the Plan and/or the Option at any time; provided, however, that no
such termination or amendment may adversely affect the Option or any
unexercised portion hereof without the consent of the Optionee.
19. Integrated Agreement.
This Option Agreement constitutes the entire understanding and agreement of
the Optionee and the Participating Company Group with respect to the subject
matter contained herein, and there are no agreements, understandings,
restrictions, representations, or warranties among the Optionee and the
Company other than those as set forth or provided for herein. To the extent
contemplated herein, the provisions of this Option Agreement shall survive any
exercise of the Option and shall remain in full force and effect.
20. Applicable Law.
This Option Agreement shall be governed by the laws of the State of Maryland
as such laws are applied to agreements between Maryland residents entered into
and to be performed entirely within the State of Maryland.
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CIENA CORPORATION
By:
---------------------------------
Title: Vice President, Finance
Chief Financial Officer
The Optionee represents that the Optionee is familiar with the terms
and provisions of this Option Agreement including the Unvested Share Repurchase
Option set forth in paragraph 11 and the Right of First Refusal set forth in
paragraph 12 and hereby accepts the Option subject to all of the terms and
provisions thereof. The Optionee hereby agrees to accept as binding,
conclusive and final all decisions or interpretations of the Board upon any
questions arising under this Option Agreement. The undersigned acknowledges
receipt of a copy of the Plan.
OPTIONEE
Date:
------------------------ --------------------------
The undersigned, being the spouse of the above-named Optionee, does
hereby acknowledge that the undersigned has read and is familiar with the
provisions of the above Option Agreement, and the undersigned hereby agrees
thereto and joins therein to the extent, if any, that the agreement and joinder
of the undersigned may be necessary.
OPTIONEE
Date:
------------------------- --------------------------
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EXHIBIT A
TO
STOCK OPTION AGREEMENT
(a) "Date of Option Grant" shall mean {grant_date}.
(b) "Number of Option Shares" shall mean {shares} shares
of common stock of the Company.
(c) "Exercise Price" shall mean {price} per share.
(d) "Initial Vesting Date" shall be the last day of the
calendar month in which occurs the date one (1) year after the following date:
{vesting_date}.
16
1
CIENA CORPORATION
1996 OUTSIDE DIRECTORS STOCK OPTION PLAN
1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN.
1.1 ESTABLISHMENT. The Ciena Corporation 1996 Outside
Directors Stock Option Plan (the "Plan") is hereby established effective as of
June 21, 1996 (the "Effective Date").
1.2 PURPOSE. The purpose of the Plan is to advance the
interests of the Participating Company Group and its stockholders by providing
an incentive to attract and retain highly qualified persons to serve as Outside
Directors of the Company and by creating additional incentive for Outside
Directors to promote the growth and profitability of the Participating Company
Group.
1.3 TERM OF PLAN. The Plan shall continue in effect
until the earlier of its termination by the Board or the date on which all of
the shares of Stock available for issuance under the Plan have been issued and
all restrictions on such shares under the terms of the Plan and the agreements
evidencing Options granted under the Plan have lapsed.
2. DEFINITIONS AND CONSTRUCTION.
2.1 DEFINITIONS. Whenever used herein, the following
terms shall have their respective meanings set forth below:
(a) "BOARD" means the Board of Directors of the
Company. If one or more Committees have been appointed by the Board to
administer the Plan, "Board" also means such Committee(s).
(b) "CODE" means the Internal Revenue Code of
1986, as amended, and any applicable regulations promulgated thereunder.
(c) "COMMITTEE" means a committee of the Board
duly appointed to administer the Plan and having such powers as shall be
specified by the Board. Unless the powers of the Committee have been
specifically limited, the Committee shall have all of the powers of the Board
granted herein, including, without limitation, the power to amend or terminate
the Plan at any time, subject to the terms of the Plan and any applicable
limitations imposed by law.
1
2
(d) "COMPANY" means Ciena Corporation, a
Delaware corporation, or any successor corporation thereto.
(e) "CONSULTANT" means any person, including an
advisor, engaged by a Participating Company to render services other than as an
Employee or a Director.
(f) "DIRECTOR" means a member of the Board or the
board of directors of any other Participating Company.
(g) "EMPLOYEE" means any person treated as an
employee (including an officer or a Director who is also treated as an
employee) in the records of a Participating Company; provided, however, that
neither service as a Director nor payment of a director's fee shall be
sufficient to constitute employment for purposes of the Plan.
(h) "EXCHANGE ACT" means the Securities Exchange
Act of 1934, as amended.
(i) "FAIR MARKET VALUE" means, as of any date, if
there is then a public market for the Stock, the closing price of the Stock (or
the mean of the closing bid and asked prices of the Stock if the Stock is so
reported instead) as reported on the National Association of Securities Dealers
Automated Quotation ("NASDAQ") System, the NASDAQ National Market System or
such other national or regional securities exchange or market system
constituting the primary market for the Stock. If the relevant date does not
fall on a day on which the Stock is trading on NASDAQ, the NASDAQ National
Market System or other national or regional securities exchange or market
system, the date on which the Fair Market Value shall be established shall be
the last day on which the Stock was so traded prior to the relevant date. If
there is then no public market for the Stock, the Fair Market Value on any
relevant date shall be as determined by the Board without regard to any
restriction other than a restriction which, by its terms, will never lapse.
(j) "OPTION" means a right to purchase Stock
(subject to adjustment as provided in Section 4.2) pursuant to the terms and
conditions of the Plan.
(k) "OPTIONEE" means a person who has been
granted one or more Options.
(l) "OPTION AGREEMENT" means a written agreement
between the Company and an Optionee setting forth the terms, conditions and
restrictions of the Option granted to the Optionee.
2
3
(m) "OUTSIDE DIRECTOR" means a Director of the
Company who is not an Employee.
(n) "PARENT CORPORATION" means any present or
future "parent corporation" of the Company, as defined in Section 424(e) of the
Code.
(o) "PARTICIPATING COMPANY" means the Company or
any Parent Corporation or Subsidiary Corporation.
(p) "PARTICIPATING COMPANY GROUP" means, at any
point in time, all corporations collectively which are then Participating
Companies.
(q) "RULE 16B-3" means Rule 16b-3 as promulgated
under the Exchange Act, as amended from time to time, or any successor rule or
regulation.
(r) "SERVICE" means the Optionee's service with
the Participating Company Group, whether in the capacity of an Employee, a
Director or a Consultant. The Optionee's Service shall not be deemed to have
terminated merely because of a change in the capacity in which the Optionee
renders Service to the Participating Company Group or a change in the
Participating Company for which the Optionee renders such Service, provided
that there is no interruption or termination of the Optionee's Service. The
Optionee's Service shall be deemed to have terminated either upon an actual
termination of Service or upon the corporation for which the Optionee performs
Service ceasing to be a Participating Company.
(s) "STOCK" means the common stock, par value
$0.01, of the Company, as adjusted from time to time in accordance with Section
4.2.
(t) "SUBSIDIARY CORPORATION" means any present or
future "subsidiary corporation" of the Company, as defined in Section 424(f) of
the Code.
2.2 CONSTRUCTION. Captions and titles contained herein
are for convenience only and shall not affect the meaning or interpretation of
any provision of the Plan. Except when otherwise indicated by the context, the
singular shall include the plural, the plural shall include the singular, and
use of the term "or" shall include the conjunctive as well as the disjunctive.
3
4
3. ADMINISTRATION.
3.1 ADMINISTRATION BY THE BOARD. The Plan shall be
administered by the Board, including any duly appointed Committee of the Board.
All questions of interpretation of the Plan or of any Option shall be
determined by the Board, and such determinations shall be final and binding
upon all persons having an interest in the Plan or such Option. Any officer of
a Participating Company shall have the authority to act on behalf of the
Company with respect to any matter, right, obligation, determination or
election which is the responsibility of or which is allocated to the Company
herein, provided the officer has apparent authority with respect to such
matter, right, obligation, determination or election.
3.2 LIMITATIONS ON AUTHORITY OF THE BOARD.
Notwithstanding any other provision herein to the contrary, the Board shall
have no authority, discretion, or power to select the Outside Directors who
will receive Options, to set the exercise price of the Options, to determine
the number of shares of Stock to be subject to an Option or the time at which
an Option shall be granted, to establish the duration of an Option, or to alter
any other terms or conditions specified in the Plan, except in the sense of
administering the Plan subject to the provisions of the Plan.
4. SHARES SUBJECT TO PLAN.
4.1 MAXIMUM NUMBER OF SHARES ISSUABLE. Subject to
adjustment as provided in Section 4.2, the maximum aggregate number of shares
of Stock that may be issued under the Plan shall be ONE HUNDRED FIFTY THOUSAND
(150,000) and shall consist of authorized but unissued shares or reacquired
shares of Stock or any combination thereof. If an outstanding Option for any
reason expires or is terminated or canceled or shares of Stock acquired,
subject to repurchase, upon the exercise of an Option are repurchased by the
Company, the shares of Stock allocable to the unexercised portion of such
Option, or such repurchased shares of Stock, shall again be available for
issuance under the Plan.
4.2 ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the
event of any stock dividend, stock split, reverse stock split,
recapitalization, combination, reclassification or similar change in the
capital structure of the Company, appropriate adjustments shall be made in the
number and class of shares subject to the Plan, to the "Initial Option" and
"Annual Option" (as defined in Section 6.1), and to any outstanding Options,
and in the exercise price of any outstanding Options. If a majority of the
shares which are of the same class as the shares that are subject to
outstanding Options are exchanged for, converted into, or otherwise become
(whether or not pursuant to an "Ownership Change Event" as defined in Section
8.1) shares of another corporation (the "New Shares"), the Board may
unilaterally amend the outstanding Options to provide that such Options are
exercisable for New Shares. In the event of any such amendment,
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the number of shares subject to, and the exercise price of, the outstanding
Options shall be adjusted in a fair and equitable manner as determined by the
Board, in its sole discretion. Notwithstanding the foregoing, any fractional
share resulting from an adjustment pursuant to this Section 4.2 shall be
rounded down to the nearest whole number, and in no event may the exercise
price of any Option be decreased to an amount less than the par value, if any,
of the stock subject to the Option.
5. ELIGIBILITY AND TYPE OF OPTIONS.
5.1 PERSONS ELIGIBLE FOR OPTIONS. An Option shall be
granted only to a person who, at the time of grant, is an Outside Director.
5.2 OPTIONS AUTHORIZED. Options shall be nonstatutory
stock options; that is, options which are not treated as incentive stock
options within the meaning of Section 422(b) of the Code.
6. TERMS AND CONDITIONS OF OPTIONS. Options shall be evidenced
by Option Agreements specifying the number of shares of Stock covered thereby,
in such form as the Board shall from time to time establish. Option Agreements
may incorporate all or any of the terms of the Plan by reference and shall
comply with and be subject to the following terms and conditions:
6.1 AUTOMATIC GRANT OF OPTIONS. Subject to execution by
an Outside Director of the appropriate Option Agreement, Options shall be
granted automatically and without further action of the Board, as follows:
(a) INITIAL OPTION. Each person who (i) is
elected an Outside Director on the Effective Date, or (ii) first becomes an
Outside Director after the Effective Date shall be granted an Option to
purchase FIFTEEN THOUSAND (15,000) shares of Stock on the Effective Date or the
date he or she first becomes an Outside Director, respectively (an "Initial
Option"). Notwithstanding anything herein to the contrary, an Initial Option
shall not be granted to a Director of the Company who previously did not
qualify as an Outside Director but subsequently becomes an Outside Director as
a result of the termination of his or her status as an Employee.
(b) ANNUAL OPTION. Effective after the Company
has a class of its securities registered under the Securities Exchange Act of
1934, as amended, each Outside Director (including any Director of the Company
who previously did not qualify as an Outside Director but who subsequently
becomes an Outside Director) shall be granted, on the date immediately
following the date of each annual meeting of the stockholders of the Company
(an "Annual Meeting") following which such person remains an Outside Director,
an Option to purchase FIVE THOUSAND (5,000) shares of Stock (an "Annual
Option"). Notwithstanding the foregoing, the number of shares that
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may be purchased under an Annual Option by an Outside Director who has not
served continuously as a Director of the Company for at least twelve (12)
months as of the date immediately following the date of such Annual Meeting
shall be FIVE THOUSAND (5,000) times a fraction, the numerator of which is the
number of complete months the Outside Director has continuously served as a
Director of the Company as of the date immediately following the Annual Meeting
and the denominator of which is twelve (12).
(c) RIGHT TO DECLINE OPTION. Notwithstanding the
foregoing, any person may elect not to receive an Option by delivering written
notice of such election to the Board no later than the day prior to the date
such Option would otherwise be granted. A person so declining an Option shall
receive no payment or other consideration in lieu of such declined Option. A
person who has declined an Option may revoke such election by delivering
written notice of such revocation to the Board no later than the day prior to
the date such Option would be granted pursuant to Section 6.1(a) or (b), as the
case may be.
6.2 DISCRETION TO VARY OPTION SIZE. Notwithstanding any
provision of the Plan to the contrary, the Board may, in its sole discretion,
increase or decrease the number of shares of Stock that would otherwise be
subject to one or more Initial Options or Annual Options to be granted pursuant
to Section 6.1 if, at the time of such exercise of discretion, (a) the
"disinterested administration" provisions contained in paragraph (c)(2)(i) of
Rule 16b-3 are no longer applicable to any employee benefit plan maintained by
a Participating Company and (b) the exercise of such discretion would not
otherwise preclude any transaction in an equity security of the Company by an
officer or Director of a Participating Company from being exempt from Section
16(b) of the Exchange Act pursuant to Rule 16b-3.
6.3 EXERCISE PRICE. The exercise price per share of
Stock subject to an Option shall be the Fair Market Value of a share of Stock
on the date the Option is granted.
6.4 EXERCISE PERIOD. Each Option shall terminate and
cease to be exercisable on the date ten (10) years after the date of grant of
the Option unless earlier terminated pursuant to the terms of the Plan or the
Option Agreement.
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6.5 RIGHT TO EXERCISE OPTIONS.
(a) INITIAL OPTION. Except as otherwise provided
in the Plan or in the Option Agreement, an Initial Option shall (i) first
become exercisable on the date which is one (1) year after the date on which
the Initial Option was granted (the "Initial Option Vesting Date"); and (ii) be
exercisable on and after the Initial Option Vesting Date and prior to the
termination thereof in an amount equal to the number of shares of Stock
initially subject to the Initial Option multiplied by the Vested Ratio as set
forth below, less the number of shares previously acquired upon exercise
thereof. The Vested Ratio described in the preceding sentence shall be
determined as follows:
Vested Ratio
------------
Prior to Initial Option Vesting Date 0
On Initial Option Vesting Date, 1/3
provided the Optionee's Service
is continuous from the date of grant
of the Initial Option until the
Initial Option Vesting Date
Plus
----
For each full year of 1/3
of the Optionee's continuous
Service from the Initial Option
Vesting Date until the Vested
Ratio equals 1/1, an additional
(b) ANNUAL OPTION. Each Annual Option grant
shall be exercisable in full one year after the date of grant of such Annual
Option.
6.6 PAYMENT OF EXERCISE PRICE.
(a) FORMS OF CONSIDERATION AUTHORIZED. Except as
otherwise provided below, payment of the exercise price for the number of
shares of Stock being purchased pursuant to any Option shall be made (i) in
cash, by check, or cash equivalent, (ii) by tender to the Company of shares of
Stock owned by the Optionee having a Fair Market Value not less than the
exercise price, (iii) by the assignment of the proceeds of a sale or loan with
respect to some or all of the shares being acquired upon the exercise of the
Option (including, without limitation, through an exercise complying with the
provisions of Regulation T as promulgated from time to time by the Board of
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Governors of the Federal Reserve System) (a "Cashless Exercise"), or (iv) by
any combination thereof.
(b) TENDER OF STOCK. Notwithstanding the
foregoing, an Option may not be exercised by tender to the Company of shares of
Stock to the extent such tender of Stock would constitute a violation of the
provisions of any law, regulation or agreement restricting the redemption of
the Company's stock. Unless otherwise provided by the Board, an Option may not
be exercised by tender to the Company of shares of Stock unless such shares
either have been owned by the Optionee for more than six (6) months or were not
acquired, directly or indirectly, from the Company.
(c) CASHLESS EXERCISE. The Company reserves, at
any and all times, the right, in the Company's sole and absolute discretion, to
establish, decline to approve or terminate any program or procedures for the
exercise of Options by means of a Cashless Exercise.
6.7 TAX WITHHOLDING. The Company shall have the right,
but not the obligation, to deduct from the shares of Stock issuable upon the
exercise of an Option, or to accept from the Optionee the tender of, a number
of whole shares of Stock having a Fair Market Value equal to all or any part of
the federal, state, local and foreign taxes, if any, required by law to be
withheld by the Participating Company Group with respect to such Option or the
shares acquired upon exercise thereof. Alternatively or in addition, in its
sole discretion, the Company shall have the right to require the Optionee to
make adequate provision for any such tax withholding obligations of the
Participating Company Group arising in connection with the Option or the shares
acquired upon exercise thereof. The Company shall have no obligation to
deliver shares of Stock until the Participating Company Group's tax withholding
obligations have been satisfied.
7. STANDARD FORM OF OPTION AGREEMENT.
7.1 INITIAL OPTION. Unless otherwise provided for by the
Board at the time an Initial Option is granted, each Initial Option shall
comply with and be subject to the terms and conditions set forth in the form of
Nonstatutory Stock Option Agreement for Outside Directors (Initial Option)
adopted by the Board concurrently with its adoption of the Plan and as amended
from time to time.
7.2 ANNUAL OPTION. Unless otherwise provided for by the
Board at the time an Annual Option is granted, each Annual Option shall comply
with and be subject to the terms and conditions set forth in the form of
Nonstatutory Stock Option Agreement for Outside Directors (Annual Option)
adopted by the Board concurrently with its adoption of the Plan and as amended
from time to time.
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7.3 AUTHORITY TO VARY TERMS. Subject to the limitations
set forth in Section 3.2, the Board shall have the authority from time to time
to vary the terms of any of the standard forms of Option Agreement described in
this Section 7 either in connection with the grant or amendment of an
individual Option or in connection with the authorization of a new standard
form or forms; provided, however, that the terms and conditions of any such
new, revised or amended standard form or forms of Option Agreement are not
inconsistent with the terms of the Plan. Such authority shall include, but not
by way of limitation, the authority to grant Options which are immediately
exercisable subject to the Company's right to repurchase any unvested shares of
Stock acquired by the Optionee upon the exercise of an Option in the event such
Optionee's Service is terminated for any reason. In no event, however, shall
the Board be permitted to vary the terms of any standard form of Option
Agreement if such change would cause the Plan to cease to qualify as a formula
plan pursuant to Rule 16b-3 at any such time as any class of equity security of
the Company is registered pursuant to Section 12 of the Exchange Act.
8. TRANSFER OF CONTROL. A "TRANSFER OF CONTROL" shall be deemed
to have occurred in the event any of the following occurs with respect to the
Company.
(a) the direct or indirect sale or exchange by
the stockholders of the Company of all or substantially all of the stock of the
Company where the stockholders of the Company before such sale or exchange do
not retain, directly or indirectly, at least a majority of the beneficial
interest in the voting stock of the Acquiring Corporation as defined below
after such sale or exchange;
(b) a merger or consolidation where the
stockholders of the Company before such merger or consolidation do not retain,
directly or indirectly, at least a majority of the beneficial interest in the
voting stock of the Acquiring Corporation as defined below after such merger or
consolidation;
(c) the sale, exchange, or transfer of all or
substantially all of the assets of the Company (other than a sale, exchange, or
transfer to one (1) or more subsidiary corporations (as defined in paragraph 1
above) of the Company); or
(d) a liquidation or dissolution of the Company.
Thirty (30) days prior the proposed effective date of any
Transfer of Control, each Optionee under a stock option agreement outstanding
for 335 days or more shall be credited, as of the proposed effective date of
the Transfer of Control, and if still serving as a director of the Company on
that date, with 100% of such shares, for purposes of determining the percentage
of shares which shall be immediately
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exercisable and/or fully vested under each such stock option agreement. Other
options, except as set forth below, shall not be affected.
Furthermore, in the event of a Transfer of Control, the
surviving, continuing, successor, or purchasing corporation or parent
corporation thereof, as the case may be (the "ACQUIRING CORPORATION"), shall
either assume the Company's rights and obligations under outstanding stock
option agreements or substitute options for the Acquiring Corporation's stock
for such outstanding Options. In the event the Acquiring Corporation elects
not to assume or substitute for such outstanding Options in connection with the
Transfer of Control, any unexercisable and/or unvested shares subject to such
outstanding stock option agreements shall be immediately exercisable and fully
vested as of the date thirty (30) days prior to the proposed effective date of
the Transfer of Control. The exercise and/or vesting of any Option that was
permissible solely by reason of this paragraph 8 shall be conditioned upon the
consummation of the Transfer of Control. Any Options which are neither assumed
or substituted for by the Acquiring Corporation in connection with the Transfer
of Control nor exercised as of the date of the Transfer of Control shall
terminate and cease to be outstanding effective as of the date of the Transfer
of Control.
9. NONTRANSFERABILITY OF OPTIONS. During the lifetime of the
Optionee, an Option shall be exercisable only by the Optionee or the Optionee's
guardian or legal representative. No Option shall be assignable or
transferable by the Optionee, except by will or by the laws of descent and
distribution.
10. INDEMNIFICATION. In addition to such other rights of
indemnification as they may have as members of the Board or officers or
employees of the Participating Company Group, members of the Board and any
officers or employees of the Participating Company Group to whom authority to
act for the Board is delegated shall be indemnified by the Company against all
reasonable expenses, including attorneys' fees, actually and necessarily
incurred in connection with the defense of any action, suit or proceeding, or
in connection with any appeal therein, to which they or any of them may be a
party by reason of any action taken or failure to act under or in connection
with the Plan, or any right granted hereunder, and against all amounts paid by
them in settlement thereof (provided such settlement is approved by independent
legal counsel selected by the Company) or paid by them in satisfaction of a
judgment in any such action, suit or proceeding, except in relation to matters
as to which it shall be adjudged in such action, suit or proceeding that such
person is liable for gross negligence, bad faith or intentional misconduct in
duties; provided, however, that within sixty (60) days after the institution of
such action, suit or proceeding, such person shall offer to the Company, in
writing, the opportunity at its own expense to handle and defend the same.
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11. TERMINATION OR AMENDMENT OF PLAN. The Board may terminate or
amend the Plan at any time. However, subject to changes in the law or other
legal requirements that would permit otherwise, without the approval of the
Company's stockholders, there shall be (a) no increase in the total number of
shares of Stock that may be issued under the Plan (except by operation of the
provisions of Section 4.2), and (b) no expansion in the class of persons
eligible to receive Options. Furthermore, to the extent required by Rule
16b-3, provisions of the Plan addressing eligibility to participate in the Plan
and the amount, price and timing of Options shall not be amended more than once
every six (6) months, other than to comport with changes in the Code, the
Employee Retirement Income Security Act of 1974, as amended, or the rules
thereunder. In any event, no termination or amendment of the Plan may
adversely affect any then outstanding Option, or any unexercised portion
thereof, without the consent of the Optionee, unless such termination or
amendment is necessary to comply with any applicable law or government
regulation.
IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies
that the foregoing Ciena Corporation 1996 Outside Directors Stock Option Plan
was duly adopted by the Board on June 21, 1996.
Secretary
/s/ G. ERIC GEORGATOS
--------------------------------
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STANDARD FORM OF
CIENA CORPORATION
NONSTATUTORY STOCK OPTION AGREEMENT
FOR OUTSIDE DIRECTORS
(INITIAL OPTION)
2
STANDARD FORM OF
CIENA CORPORATION
NONSTATUTORY STOCK OPTION AGREEMENT
FOR OUTSIDE DIRECTORS
(INITIAL OPTION)
THIS NONSTATUTORY STOCK OPTION AGREEMENT FOR OUTSIDE DIRECTORS (INITIAL
OPTIONS) (the "Option Agreement") is made and entered into as of _________,
199_, by and between Ciena Corporation and _______________ (the "Optionee")
The Company has granted to the Optionee an option to purchase certain
shares of Stock, upon the terms and conditions set forth in this Option
Agreement (the "Option").
A. DEFINITIONS AND CONSTRUCTION.
1. DEFINITIONS. Whenever used herein, the following terms shall
have their respective meanings set forth below:
a. "DATE OF OPTION GRANT" means ______ ,199_.
b. "NUMBER OF OPTION SHARES" means ______________ (____)
shares of Stock (the number of shared set forth in Section 6.1(a) of the Plan),
as adjusted from time to time pursuant to Section I.
c. "EXERCISE PRICE" means $______ per share of Stock, as
adjusted from time to time pursuant to Section I.
d. "INITIAL EXERCISE DATE" means the Initial Vesting Date.
e. "INITIAL VESTING DATE" means the date occurring one (1)
year after the Date of Option Grant.
f. "VESTED RATIO" means, on any relevant date, the ratio
determined as follows:
3
Vested Ratio
------------
Prior to Initial Vesting Date 0
On Initial Vesting Date, provided 1/3
the Optionee's Service is
continuous from the Date of
Option Grant until the Initial
Vesting Date
Plus
----
For each full year of the 1/3
Optionee's continuous Service
from the Initial Vesting Date until
the Vested Ratio equals 1/1, an
additional
g. "OPTION EXPIRATION DATE" means the date ten (10) years
after the Date of Option Grant
h. "BOARD" means the Board of Directors of the Company. If one
or more Committees have been appointed by the Board to administer the Plan,
"Board" shall also mean such Committee(s).
i. "CODE" means the Internal Revenue Code of 1986, as amended,
and any applicable regulations promulgated thereunder.
j. "COMMITTEE" means a committee of the Board duly appointed
to administer the Plan and having such powers as shall be specified by the
Board. Unless the powers of the Committee have been specifically limited, the
Committee shall have all of the powers of the Board granted in the Plan,
including, without limitation, the power to amend or terminate the Plan at any
time, subject to the terms of the Plan and any applicable limitations imposed
by law.
k. "COMPANY" means Ciena Corporation a Delaware corporation,
or any successor corporation thereto.
l. "CONSULTANT" means any person, including an advisor,
engaged by a Participating Company to render services other than as an Employee
or a Director.
m. "DIRECTOR" means a member of the Board or the board of
directors of any other Participating Company.
n. "DISABILITY" means the permanent and total disability of
the Optionee within the meaning of Section 22(e)(3) of the Code.
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o. "EMPLOYEE" means the person treated as an employee
(including an officer or a Director who is also treated as an employee) in the
records of a Participating Company; provided, however, that neither service as
a Director nor payment of a director's fee shall be sufficient to constitute
employment for purposes of the Plan.
p. "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.
q. "FAIR MARKET VALUE" means, as of any date, if there is then
a public market for the Stock, the closing price of the Stock (or the mean of
the closing bid and asked prices of the Stock if the Stock is so reported
instead) as reported on the National Association of Securities Dealers
Automated Quotation ("NASDAQ") System, the NASDAQ National Market System or
such other national or regional securities exchange or market system
constituting the primary market for the Stock. If the relevant date does not
fall on a day on which the Stock is trading on NASDAQ, the NASDAQ National
Market System or other national or regional securities exchange or market
system, the date on which the Fair Market Value shall be established shall be
the last day on which the Stock was so traded prior to the relevant date. If
there is then no public market for the Stock, the Fair Market Value on any
relevant date shall be as determined by the Board without regard to any
restriction other than a restriction which, by its terms, will never lapse.
r. "PARENT CORPORATION" means any present or future "parent
corporation" of the Company, as defined in Section 424(e) of the Code.
s. "PARTICIPATING COMPANY" means the Company or any Parent
Corporation or Subsidiary Corporation.
t. "PARTICIPATING COMPANY GROUP" means, at any point in time,
all corporations collectively which are then Participating Companies.
u. "PLAN" means the Ciena Corporation 1996 Outside Directors
Stock Option Plan.
v. "RULE 16B-3" means Rule 16b-3 as promulgated under the
Exchange Act, as amended from time to time, or any successor rule or
regulation.
w. "SECURITIES ACT" means the Securities Act of 1933, as
amended.
x. "SERVICE" means the Optionee's service with the
Participating Company Group, whether in the capacity of an Employee, a Director
or a Consultant. The Optionee's Service shall not be deemed to have terminated
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merely because of a change in the capacity in which the Optionee renders
Service to the Participating Company Group or a change in the Participating
Company for which the Optionee renders such Service, provided that there is no
interruption or termination of the Optionee's Service. The Optionee's Service
shall be deemed to have terminated either upon an actual termination of Service
or upon the corporation for which the Optionee performs Service ceasing to be a
Participating Company.
y. "STOCK" means the common stock, par value $0.01, of the
Company, as adjusted from time to time in accordance with Section I.
z. "SUBSIDIARY CORPORATION" means any present or future
"subsidiary corporation" of the Company, as defined in Section 424(f) of the
Code.
2. CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of this Option Agreement. Except when otherwise indicated by the
context, the singular shall include the plural, the plural shall include the
singular, and the term "or" shall include the conjunctive as well as the
disjunctive.
B. TAX STATUS OF THE OPTION. This Option is intended to be a
nonstatutory stock option and shall not be treated as an incentive stock option
within the meaning of Section 422(b) of the Code.
C. ADMINISTRATION. All questions of interpretation concerning this
Option Agreement shall be determined by the Board, including any duly appointed
Committee of the Board. All determinations by the Board shall be final and
binding upon all persons having an interest in the Option. Any officer of a
Participating Company shall have the authority to act on behalf of the Company
with respect to any matter, right, obligation, or election which is the
responsibility of or which is allocated to the Company herein, provided the
officer has apparent authority with respect to such matter, right, obligation,
or election.
D. EXERCISE OF THE OPTION.
1. RIGHT TO EXERCISE.
a. Except as otherwise provide herein, the Option, shall be
exercisable on and after the Initial Exercise Date and prior to the termination
of the Option (as provided in Section F) in an amount not to exceed the Number
of Option Shares multiplied by the Vested Ratio less the number of shares
previously acquired upon exercise of the Option. In no event shall the Option
be exercisable for more shares than the Number of Option Shares.
b. Notwithstanding the foregoing, in the event that the
adoption of the Plan or any amendment of the Plan is subject to the approval of
the
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Company's stockholders in order for the Plan or the grant of the Option to
comply with the requirements of Rule 16b-3, the Option shall not be exercisable
prior to such stockholder approval.
2. METHOD OF EXERCISE. Exercise of the Option shall be by written
notice to the Company which must state the election to exercise the Option, the
number of whole shares of Stock for which the Option is being exercised and
such other representations and agreements as to the Optionee's investment
intent with respect to such shares as may be required pursuant to the
provisions of this Option Agreement. The written notice must be signed by the
Optionee and must be delivered in person, by certified or registered mail,
return receipt requested, by confirmed facsimile transmission, or by such other
means as the Company may permit, to the Chief Financial Officer of the Company,
or other authorized representative of the Participating Company Group, prior to
the termination of the Option as set forth in Section F, accompanied by full
payment of the aggregate Exercise Price for the number of shares of Stock being
purchased. The Option shall be deemed to be exercised upon receipt by the
Company of such written notice and the aggregate Exercise Price.
3. PAYMENT OF EXERCISE PRICE.
a. FORMS OF CONSIDERATION AUTHORIZED. Except as otherwise
provided below, payment of the aggregate Exercise Price for the number of
shares of Stock for which the Option is being exercised shall be made (i) in
cash, by check, or cash equivalent, (ii) by tender to the Company of whole
shares of Stock owned by the Optionee having a Fair Market Value not less than
the aggregate Exercise Price, (iii) by means of a Cashless Exercise, as defined
in Section D.3(c), or (iv) by any combination of the foregoing.
b. TENDER OF STOCK. Notwithstanding for foregoing, he Option
may not be exercised by tender to the Company of shares of Stock to the extent
such tender of Stock would constitute a violation of the provisions of any law,
regulation or agreement restricting the redemption of the Company's stock. The
Option may not be exercised by tender to the Company of shares of Stock unless
such shares either have been owned by the Optionee for more than six (6) months
or were not acquired, directly or indirectly, from the Company.
c. CASHLESS EXERCISE. A "Cashless Exercise" means the
assignment in a form acceptable to the Company of the proceeds of a sale or
loan with respect to some or all of the shares of Stock acquired upon the
exercise of the Option pursuant to a program or procedure approved by the
Company (including, without limitation, through an exercise complying with the
provisions of Regulation T as promulgated from time to time by the Board of
Governors of the Federal Reserve System). The Company reserves, at any and all
times, the right, in the
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Company's sole and absolute discretion, to decline to approve or terminate any
such program or procedure.
4. TAX WITHHOLDING. At the time the Option is exercised, in whole
or in part, or at any time thereafter as requested by the Company, the Optionee
agrees to make adequate provision for any sums required to satisfy the federal,
state, local and foreign tax withholding obligations of the Participating
Company Group, if any, which arise in connection with the Option, including,
without limitation, obligations arising upon (i) the exercise, in whole or in
part, of the Option, (ii) the transfer, in whole or in part, of any shares
acquired upon exercise of the Option, or (iii) the lapsing of any restriction
with respect to any shares acquired upon exercise of the Option.
5. CERTIFICATE REGISTRATION. Except in the event the Exercise
Price is paid by means of a Cashless Exercise, the certificate for the shares
as to which the Option is exercised shall be registered in the name of the
Optionee, or, if applicable, the heirs of the Optionee.
6. RESTRICTIONS ON GRANT OF THE OPTION AND ISSUANCE OF SHARES. The
grant of the Option and the issuance of shares of Stock upon exercise of the
Option shall be subject to compliance with all applicable requirements of
federal, state or foreign law with respect to compliance with all applicable
requirements of federal, state or foreign law with respect to such securities.
The Option may not be exercised if the issuance of shares of Stock upon
exercise would constitute a violation of any applicable federal, state or
foreign securities laws or other law or regulations or the requirements of any
stock exchange or market system upon which the Stock may not be listed. In
addition, the Option may not be exercised unless (i) a registration statement
under the Securities Act shall at the time of exercise of the Option be in
effect with respect to the shares issuable upon exercise of the Option or (ii)
in the opinion of legal counsel to the Company, the shares issuable upon
exercise of the Option may be issued in accordance with the terms of an
application exemption from the registration requirements of the Securities Act.
THE OPTIONEE IS CAUTIONED THAT THE OPTION MAY NOT BE EXERCISED UNLESS THE
FOREGOING CONDITIONS ARE SATISFIED. ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE
TO EXERCISE THE OPTION WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED. The
inability of the Company to obtain from any regulatory body having jurisdiction
the authority, if any, deemed by the Company's legal counsel to be necessary to
the lawful issuance and sale of any shares subject to the Option shall relieve
the Company of any liability in respect of the failure to issue or sell such
shares as to which such requisite authority shall not have been obtained. As a
condition to the exercise of the Option, the Company may require the Optionee
to satisfy any qualifications that may be necessary or appropriate, to evidence
compliance with any applicable law or regulation and to make any representation
or warranty with respect thereto as may be requested by the Company.
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7. FRACTIONAL SHARES. The Company shall not be required to issue
fractional shares upon the exercise of the Option.
E. NONTRANSFERABILITY OF THE OPTION. The Option may be exercised during
the lifetime of the Optionee only by the Optionee or the Optionee's guardian or
legal representative and may be not be assigned or transferred in any manner
except by will or by the laws of descent and distribution. Following the death
of the Optionee, the Option, to the extent provided in Section G, may be
exercised by the Optionee's legal representative or by any person empowered to
do so under the deceased Optionee's will or under the then applicable laws of
descent and distribution.
F. TERMINATION OF THE OPTION. The Option shall terminate and may no
longer be exercised on the first to occur of (a) the Option Expiration Date,
(b) the last date for exercising the Option following termination of the
Optionee's Service as described in Section G, or (c) a Transfer of Control to
the extent provided in Section H.
G. EFFECT OF TERMINATION OF SERVICE.
1. OPTION EXERCISABILITY.
a. DISABILITY. If the Optionee's Service with the
Participating Company Group is terminated because of the Disability of the
Optionee, the Option, to the extent unexercised and exercisable on the date on
which the Optionee's Service terminated, may be exercised by the Optionee (or
the Optionee's guardian or legal representative) at any time prior to the
expiration of twelve (12) months after the date on which the Optionee's Service
terminated, but in any event no later than the Option Expiration Date.
b. DEATH. If the Optionee's Service with the Participating
company Group is terminated because of the death of the Optionee, the Option,
to the extent unexercised and exercisable on the date on which the Optionee's
Service terminated, may be exercised by the Optionee's legal representative or
other person who acquired to right to exercise the Option by reason of the
Optionee's death at any time prior to the expiration of twelve (12) months
after the date on which the Optionee's Service terminated, but in any event no
later than the Option Expiration Date. The Optionee's Service shall be deemed
to have terminated on account of death if the Optionee dies within three (3)
months after the Optionee's termination of Service.
c. OTHER TERMINATION OF SERVICE. If the Optionee's Service
with the Participating Company Group terminates for any reason, except
Disability or death, the Option, to the extent unexercised or exercisable by
the Optionee on the date on which the Optionee's Service terminated, may be
exercised
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by the Optionee within three (3) months after the date on which the Optionee's
Service terminated, but in any event no later than the Option Expiration Date.
2. EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding the
foregoing, if the exercise of the Option within the applicable time periods set
forth in Section G.1 is prevented by the provisions of Section D.6, the Option
shall remain exercisable until three (3) months after the date the Optionee is
notified by the Company that the Option is exercisable, but in any event no
later than the Option Expiration Date.
3. EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(B). Notwithstanding
the foregoing, if a sale, within the applicable time periods set forth in
Section G.1, of shares acquired upon the exercise of the Option would subject
the Optionee to suit under Section 16(b) of the Exchange Act, the Option shall
remain exercisable until the earliest to occur of (i) the tenth (10th) day
following the date on which a sale of such shares by the Optionee would no
longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day
after the Optionee's termination of Service, or (iii) the Option Expiration
Date.
H. TRANSFER OF CONTROL. A "TRANSFER OF CONTROL" shall be deemed to have
occurred in the event any of the foregoing occurs with respect to the Company.
(a) the direct or indirect sale or exchange by the stockholders
of the Company of all or substantially all of the stock of the Company where
the stockholders of the Company before such sale or exchange do not retain,
directly or indirectly, at least a majority of the beneficial interest in the
voting stock of the Acquiring Corporation as defined below after such sale or
exchange;
(b) a merger or consolidation where the stockholders of the
Company before such merger or consolidation do not retain, directly or
indirectly, at least a majority of the beneficial interest in the voting stock
of the Acquiring Corporation as defined below after such merger or
consolidation;
(c) the sale, exchange, or transfer of all or substantially all
of the assets of the Company (other than a sale, exchange, or transfer to one
(1) or more subsidiary corporations (as defined in paragraph A.1 above) of the
Company); or
(d) a liquidation or dissolution of the Company.
Thirty (30) days prior the proposed effective date of any Transfer
of Control, each Optionee under a stock option agreement outstanding for 335
days or more shall be credited, as of the proposed effective date of the
Transfer of Control, and if still serving as a director of the Company on that
date, with 100% of such shares, for purposes of determining the percentage of
shares which shall be
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immediately exercisable and/or fully vested under each such stock option
agreement. Other options, except as set forth below, shall not be affected.
Furthermore, in the event of a Transfer of Control, the surviving,
continuing, successor, or purchasing corporation or parent corporation thereof,
as the case may be (the "ACQUIRING CORPORATION"), shall either assume the
Company's rights and obligations under outstanding stock option agreements or
substitute options for the Acquiring Corporation's stock for such outstanding
Options. In the event the Acquiring Corporation elects not to assume or
substitute for such outstanding Options in connection with the Transfer of
Control, any unexercisable and/or unvested shares subject to such outstanding
stock option agreements shall be immediately exercisable and fully vested as of
the date thirty (30) days prior to the proposed effective date of the Transfer
of Control. The exercise and/or vesting of any Option that was permissible
solely by reason of this paragraph H shall be conditioned upon the consummation
of the Transfer of Control. Any Options which are neither assumed or
substituted for by the Acquiring Corporation in connection with the Transfer of
Control nor exercised as of the date of the Transfer of Control shall terminate
and cease to be outstanding effective as of the date of the Transfer of
Control.
I. ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of any
stock dividend, stock split, reverse stock split, recapitalization,
combination, reclassification, or similar change in the capital structure of
the Company, appropriate adjustments shall be made in the number, Exercise
Price and class of shares of stock subject to the Option. If a majority of the
shares which are of the same class as the shares that are subject to the Option
are exchanged for, converted into, or otherwise become (whether or not pursuant
to an Ownership Change Event) shares of another corporation (the "New Shares"),
the Board may unilaterally amend the Option to provide that the Option is
exercisable for New Shares. In the event of any such amendment, the Number of
Option Shares and the Exercise price shall be adjusted in a fair and equitable
manner, as determined by the Board, in its sole discretion. Notwithstanding
the foregoing, any fractional share resulting from an adjustment pursuant to
this Section I shall be rounded down to the nearest whole number, and in no
event may the Exercise Price be decreased to an amount less than the par value,
if any, of the stock subject to the Option.
J. RIGHTS AS A STOCKHOLDER. The Optionee shall have no rights as a
stockholder with respect to any shares covered by the Option until the date of
the issuance of a certificate for the shares for which the Option has been
exercised (as evidenced by the appropriate entry on the books of the Company or
of a duly authorized transfer agent of the Company). No adjustment shall be
made for dividends, distributions or other rights for which the record date is
prior to the date such certificate is issued, except as provided in Section I.
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K. LEGENDS. The Company may at any time place legends referencing any
applicable federal, state or foreign securities law restrictions on all
certificates representing shares of stock subject to the provisions of this
Option Agreement. The Optionee shall, at the request of the Company, promptly
present to the Company any and all certificates representing shares acquired
pursuant to the Option in the possession of the Optionee in order to carry out
the provisions of this Section.
L. BINDING EFFECT. Subject to the restrictions on transfer set forth
herein, this Option Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective heirs, executors, administrators,
successors and assigns.
M. TERMINATION OR AMENDMENT. The Board may terminate or amend the Plan
or the Option at any time; provided, however, that no such termination or
amendment may adversely affect the Option or any unexercised portion hereof
without the consent of the Optionee unless such termination or amendment is
necessary to comply with any applicable law or government regulation. No
amendment or addition to this Option Agreement shall be effective unless in
writing.
N. INTEGRATED AGREEMENT. This Option Agreement constitutes the entire
understanding and agreement of the Optionee and the Participating Company Group
with respect to the subject matter contained herein, and there are no
agreements, understandings, restrictions, representations, or warranties among
the Optionee and the Participating Company Group with respect to such subject
matter other than those as set forth or provided for herein. To the extent
contemplated herein, the provisions of this Option Agreement shall survive any
exercise of the Option and shall remain in full force and effect.
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O. APPLICABLE LAW. This Option Agreement shall be governed by the laws
of the State of Maryland as such laws are applied to agreements between
Maryland residents entered into and to be performed entirely within the State
of Maryland.
CIENA CORPORATION
By:
------------------------------
Title:
---------------------------
The Optionee represents that the Optionee is familiar with the terms and
provisions of this Option Agreement and hereby accepts the Option subject to
all of the terms and provisions thereof. The Optionee hereby agrees to accept
as binding, conclusive and final all decisions or interpretations of the Board
upon any questions arising under this Option Agreement.
OPTIONEE
Date:
---------------------------------------------------------
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STANDARD FORM OF
CIENA CORPORATION
NONSTATUTORY STOCK OPTION AGREEMENT
FOR OUTSIDE DIRECTORS
(ANNUAL OPTION)
14
CIENA CORPORATION
NONSTATUTORY STOCK OPTION AGREEMENT
FOR OUTSIDE DIRECTORS
(ANNUAL OPTION)
THIS NONSTATUTORY STOCK OPTION AGREEMENT FOR OUTSIDE DIRECTORS
(INITIAL OPTION) (the "Option Agreement") is made and entered into as of
__________, 199__, by and between Ciena Corporation and _____________________
(the "Optionee").
The Company has granted to the Optionee an option to purchase certain
shares of Stock, upon the terms and conditions set forth in this Option
Agreement (the "Option").
A. DEFINITIONS AND CONSTRUCTION.
1. DEFINITIONS. Whenever used herein, the following terms shall
have their respective meanings set forth below:
a. "DATE OF OPTION GRANT" means __________,199 __.
b. "NUMBER OF OPTION SHARES" means __________ (_____) shares of
Stock (the number of shares set forth in Section 6.1(a) of the Plan), as
adjusted from time to time pursuant to Section I.
c. "EXERCISE PRICE" means $________ per share of Stock, as
adjusted from time to time pursuant to Section I.
d. "INITIAL EXERCISE DATE" means the Initial Vesting Date.
e. "INITIAL VESTING DATE" means the date occurring one (1) year
after the Date of Option Grant.
f. "VESTED RATIO" means, on any relevant date, the ratio
determined as follows:
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Vested Ratio
------------
Prior to Initial Vesting Date 0
On Initial Vesting Date, provided 1/3
the Optionee's Service is
continuous from the Date of
Option Grant until the Initial
Vesting Date
Plus
----
For each full year of the 1/3
Optionee's continuous Service
from the Initial Vesting Date until
the Vested Ratio equals 1/1, an
additional
g. "OPTION EXPIRATION DATE" means the date ten (10) years
after the Date of Option Grant.
h. "BOARD" means the Board of Directors of the Company. If
one or more Committees have been appointed by the Board to administer the Plan,
"Board" shall also mean such Committee(s).
i. "CODE" means the Internal Revenue Code of 1986, as amended,
and any applicable regulations promulgated thereunder.
j. "COMMITTEE" means a committee of the Board duly appointed
to administer the Plan and having such powers as shall be specified by the
Board. Unless the powers of the Committee have been specifically limited, the
Committee shall have all of the powers of the Board granted in the Plan,
including, without limitation, the power to amend or terminate the Plan at any
time, subject to the terms of the Plan and any applicable limitations imposed
by law.
k. "COMPANY" means Ciena Corporation, a Delaware corporation,
or any successor corporation thereto.
l. "CONSULTANT" means any person, including an advisor,
engaged by a Participating Company to render services other than as an
Employee or a Director.
m. "DIRECTOR" means a member of the Board or of the board of
directors of any other Participating Company.
n. "DISABILITY" means the permanent and total disability of
the Optionee within the meaning of Section 22(e)(3) of the Code.
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o. "EMPLOYEE" means any person treated as an employee
(including an officer or a Director who is also treated as an employee) in the
records of a Participating Company; provided, however, that neither service as
a Director nor payment of a director's fee shall be sufficient to constitute
employment for purposes of the Plan.
p. "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.
q. "FAIR MARKET VALUE" means, as of any date, if there is then
a public market for the Stock, the closing price of the Stock (or the mean of
the closing bid and asked prices of the Stock if the Stock is so reported
instead) as reported on the National Association of Securities Dealers
Automated Quotation ("NASDAQ") System, the NASDAQ National Market System or
such other national or regional securities exchange or market system
constituting the primary market for the Stock. If the relevant date does not
fall on a day on which the Stock is trading on NASDAQ, the NASDAQ National
Market System or other national or regional securities exchange or market
system, the date on which the Fair Market Value shall be established shall be
the last day on which the Stock was so traded prior to the relevant date. If
there is then no public market for the Stock, the Fair Market Value on any
relevant date shall be as determined by the Board without regard to any
restriction other than a restriction which, by its terms, will never lapse.
r. "PARENT CORPORATION" means any present or future "parent
corporation" of the Company, as defined in Section 424(e) of the Code.
s. "PARTICIPATING COMPANY" means the Company or any Parent
Corporation or Subsidiary Corporation.
t. "PARTICIPATING COMPANY GROUP" means, at any point in time,
all corporations collectively which are then Participating Companies.
u. "PLAN" means the Ciena Corporation 1996 Outside Directors
Stock Option Plan.
v. "RULE 16b-3" means Rule 16b-3 as promulgated under the
Exchange Act, as amended from time to time, or any successor rule or
regulation.
w. "SECURITIES ACT" means the Securities Act of 1933, as
amended.
x. "SERVICE" means the Optionee's service with the
Participating Company Group, whether in the capacity of an Employee, a Director
or a Consultant. The Optionee's Service shall not be deemed to have terminated
merely because of a change in the capacity in which the Optionee renders
Service to
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the Participating Company Group or a change in the Participating Company for
which the Optionee renders such Service, provided that there is no interruption
or termination of the Optionee's Service. The Optionee's Service shall be
deemed to have terminated either upon an actual termination of Service or upon
the corporation for which the Optionee performs Service ceasing to be a
Participating Company.
y. "STOCK" means the common stock, par value $0.01, of the
Company, as adjusted from time to time in accordance with Section I.
z. "SUBSIDIARY CORPORATION" means any present or future
"subsidiary corporation" of the Company, as defined in Section 424(f) of the
Code.
2. CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of this Option Agreement. Except when otherwise indicated by the
context, the singular shall include the plural, the plural shall include the
singular, and the term "or" shall include the conjunctive as well as the
disjunctive.
B. TAX STATUS OF THE OPTION. This Option is intended to be a
nonstatutory stock option and shall not be treated as an incentive stock option
within the meaning of Section 422(b) of the Code.
C. ADMINISTRATION. All questions of interpretation concerning this
Option Agreement shall be determined by the Board, including any duly appointed
Committee of the Board. All determinations by the Board shall be final and
binding upon all persons having an interest in the Option. Any officer of a
Participating Company shall have the authority to act on behalf of the Company
with respect to any matter, right, obligation, or election which is the
responsibility of or which is allocated to the Company herein, provided the
officer has apparent authority with respect to such matter right obligation or
election.
D. EXERCISE OF THE OPTION.
1. RIGHT TO EXERCISE.
a. Except as otherwise provided herein, the Option shall be
exercisable on and after the Initial Exercise Date and prior to the termination
of the Option (as provided in Section F) in an amount not to exceed the Number
of Option Shares multiplied by the Vested Ratio less the number of shares
previously acquired upon exercise of the Option. In no event shall the Option
be exercisable for more shares than the Number of Option Shares.
b. Notwithstanding the foregoing, in the event that the
adoption of the Plan or any amendment of the Plan is subject to the approval of
the Company's stockholders in order for the Plan or the grant of the Option to
comply
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with the requirements of Rule 16b-3, the Option shall not be exercisable prior
to such stockholder approval.
2. METHOD OF EXERCISE. Exercise of the Option shall be by written
notice to the Company which must state the election to exercise the Option, the
number of whole shares of Stock for which the Option is being exercised and
such other representations and agreements as to the Optionee's investment
intent with respect to such shares as may be required pursuant to the
provisions of this Option Agreement. The written notice must be signed by the
Optionee and must be delivered in person, by certified or registered mail,
return receipt requested, by confirmed facsimile transmission, or by such other
means as the Company may permit, to the Chief Financial Officer of the Company,
or other authorized representative of the Participating Company Group, prior to
the termination of the Option as set forth in Section F, accompanied by full
payment of the aggregate Exercise Price for the number of shares of Stock being
purchased. The Option shall be deemed to be exercised upon receipt by the
Company of such written notice and the aggregate Exercise Price.
3. PAYMENT OF EXERCISE PRICE
a. FORMS OF CONSIDERATION AUTHORIZED. Except as otherwise
provided below, payment of the aggregate Exercise Price for the number of
shares of Stock for which the Option is being exercised shall be made (i) in
cash, by check, or cash equivalent, (ii) by tender to the Company of whole
shares of Stock owned by the Optionee having a Fair Market Value not less than
the aggregate Exercise Price, (iii) by means of a Cashless Exercise, as defined
in Section D.3(c), or (iv) by any combination of the foregoing.
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b. TENDER OF STOCK. Notwithstanding the foregoing, the Option
may not be exercised by tender to the Company of shares of Stock to the extent
such tender of Stock would constitute a violation of the provisions of any law,
regulation or agreement restricting the redemption of the Company's stock. The
Option may not be exercised by tender to the Company of shares of Stock unless
such shares either have been owned by the Optionee for more than six (6) months
or were not acquired, directly or indirectly, from the Company.
c. CASHLESS EXERCISE. A "Cashless Exercise" means the
assignment in a form acceptable to the Company of the proceeds of a sale or
loan with respect to some or all of the shares of Stock acquired upon the
exercise of the Option pursuant to a program or procedure approved by the
Company (including, without limitation, through an exercise complying with the
provisions of Regulation T as promulgated from time to time by the Board of
Governors of the Federal Reserve System). The Company reserves, at any and all
times, the right, in the Company's sole and absolute discretion, to decline to
approve or terminate any such program or procedure.
4. TAX WITHHOLDING. At the time the Option is exercised, in whole
or in part, or at any time thereafter as requested by the Company, the
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Optionee agrees to make adequate provision for any sums required to satisfy the
federal, state, local and foreign tax withholding obligations of the
Participating Company Group, if any, which arise in connection with the Option,
including , without limitation, obligations arising upon (i) the exercise, in
whole or in part, of the Option, (ii) the transfer, in whole or in part, of any
shares acquired upon exercise of the Option or (iii) the lapsing of any
restriction with respect to any shares acquired upon exercise of the Option.
5. CERTIFICATE REGISTRATION. Except in the event the Exercise
Price is paid by means of a Cashless Exercise, the certificate for the shares
as to which the Option is exercised shall be registered in the name of the
Optionee, or, if applicable, the heirs of the Optionee.
6. RESTRICTIONS ON GRANT OF THE OPTION AND ISSUANCE OF SHARES. The
grant of the Option and the issuance of shares of Stock upon exercise of the
Option shall be subject to compliance with all applicable requirements of
federal, state or foreign law with respect to such securities. The Option may
not be exercised if the issuance of shares of Stock upon exercise would
constitute a violation of any applicable federal, state or foreign securities
laws or other law or regulations or the requirements of any stock exchange or
market system upon which the Stock may then be listed. In addition, the Option
may not be exercised unless (i) a registration statement under the Securities
Act shall at the time of exercise of the Option be in effect with respect to
the shares issuable upon exercise of the Option or (ii) in the opinion of legal
counsel to the Company, the shares issuable upon exercise of the Option may be
issued in accordance with the terms of an applicable exemption from the
registration requirements of the Securities Act. THE OPTIONEE IS CAUTIONED
THAT THE OPTION MAY NOT BE EXERCISED UNLESS THE FOREGOING CONDITIONS ARE
SATISFIED. ACCORDINGLY, THE OPTIONEE MAY NOT BE A ABLE TO EXERCISE THE OPTION
WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED. The inability of the Company to
obtain from any regulatory body having jurisdiction the authority, if any,
deemed by the Company's legal counsel to be necessary to the lawful issuance
and sale of any shares subject to the Option shall relieve the Company of any
liability in respect of the failure to issue or sell such shares as to which
such requisite authority shall not have been obtained. As a condition to the
exercise of the Option, the Company may require the Optionee to satisfy any
qualifications that may be necessary or appropriate, to evidence compliance
with any applicable law or regulation and to make any representation or
warranty with respect thereto as may be requested by the Company.
7. FRACTIONAL SHARES. The Company shall not be required to issue
fractional shares upon the exercise of the Option.
E. NONTRANSFERABILITY OF THE OPTION. The Option may be exercised during
the lifetime of the Optionee only by the Optionee or the Optionee's guardian
7
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or legal representative and may not be assigned or transferred in any manner
except by will or by the laws of descent and distribution. Following the death
of the Optionee, the Option, to the extent provided in Section G, may be
exercised by the Optionee's legal representative or by any person empowered to
do so under the deceased Optionee's will or under the then applicable laws of
descent and distribution.
F. TERMINATION OF THE OPTION. The Option shall terminate and may no
longer be exercised on the first to occur of (a) the Option Expiration Date,
(b) the last date for exercising the Option following termination of the
Optionee's Service as described in Section G, or (c) a Transfer of Control to
the extent provided in Section H.
G. EFFECT OF TERMINATION OF SERVICE.
1. OPTION EXERCISABILITY.
a. DISABILITY. If the Optionee's Service with the
Participating Company Group is terminated because of the Disability of the
Optionee, the Option, to the extent unexercised and exercisable on the date on
which the Optionee's Service terminated, may be exercised by the Optionee (or
the Optionee's guardian or legal representative) at any time prior to the
expiration of twelve (12) months after the date on which the Optionee's Service
terminated, but in any event no later than the Option Expiration Date.
b. DEATH. If the Optionee's Service with the Participating
Company Group is terminated because of the death of the Optionee, the Option,
to the extent unexercised and exercisable on the date on which the Optionee's
Service terminated, may be exercised by the Optionee's legal representative or
other person who acquired the right to exercise the Option by reason of the
Optionee's death at any time prior to the expiration of twelve (12) months
after the date on which the Optionee's Service terminated, but in any event no
later than the Option Expiration Date. The Optionee's Service shall be deemed
to have terminated on account of death if the Optionee dies within three (3)
months after the Optionee's termination of Service.
c. OTHER TERMINATION OF SERVICE. If the Optionee's Service
with the Participating Company Group terminates for any reason, except
Disability or death, the Option, to the extent unexercised and exercisable by
the Optionee on the date on which the Optionee's Service terminated, may be
exercised by the Optionee within three (3) months after the date on which the
Optionee's Service terminated, but in any event no later than the Option
Expiration Date.
2. EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding the
foregoing, if the exercise of the Option within the applicable time periods set
forth in Section G.1 is prevented by the provisions of Section D.6, the Option
shall
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remain exercisable until three (3) months after the date the Optionee is
notified by the Company that the Option is exercisable, but in any event no
later than the Option Expiration Date.
3. EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(B). Notwithstanding
the foregoing, if a sale, within the applicable time periods set forth in
Section G.1, of shares acquired upon the exercise of the Option would subject
the Optionee to suit under Section 16(b) of the Exchange Act, the Option shall
remain exercisable until the earliest to occur of (i) the tenth (10th) day
following the date on which a sale of such shares by the Optionee would no
longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day
after the Optionee's termination of Service, or (iii) the Option Expiration
Date.
H. TRANSFER OF CONTROL. A "TRANSFER OF CONTROL" shall be deemed to have
occurred in the event any of the following occurs with respect to the Company.
(a) the direct or indirect sale or exchange by the
stockholders of the Company of all or substantially all of the stock of the
company where the stockholders of the Company before such sale or exchange do
not retain, directly or indirectly, at least a majority of the beneficial
interest in the voting stock of the Acquiring Corporation as defined below
after such sale or exchange;
(b) a merger or consolidation where the stockholders of
the Company before such merger or consolidation do not retain, directly or
indirectly, at least a majority of the beneficial interest in the voting stock
of the Acquiring Corporation as defined below after such member or
consolidation;
(c) the sale, exchange, or transfer of all or
substantially all of the assets of the Company (other than a sale, exchange, or
transfer to one (1) or more subsidiary corporations (as defined in paragraph
A.1 above) of the Company); or
(d) a liquidation or dissolution of the Company.
Thirty (30) days prior the proposed effective date of any
Transfer of Control, each Optionee under a stock option agreement outstanding
for 335 days or more shall be credited, as of the proposed effective date of
the Transfer of Control, and if still serving as a director of the Company on
that date, with 100% of such shares, for purposes of determining the percentage
of shares which shall be immediately exercisable and/or fully vested under each
such stock option agreement. Other options, except as set forth below, shall
not be affected.
Furthermore, in the event of a Transfer of Control, the
surviving, continuing, successor, or purchasing corporation or parent
corporation thereof, as the case may be (the "ACQUIRING CORPORATION"), shall
either assume the Company's rights and obligations under outstanding stock
option agreements or
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substitute options for the Acquiring Corporation's stock for such outstanding
Options. In the event the Acquiring Corporation elects not to assume or
substitute for such outstanding Options in connection with the Transfer of
Control, any unexercisable and/or unvested shares subject to such outstanding
stock option agreements shall be immediately exercisable and fully vested as of
the date thirty (30) days prior to the proposed effective date of the Transfer
of Control. The exercise and/or vesting or any Option that was permissible
solely by reason of this paragraph H shall be conditioned upon the consummation
of the Transfer of Control. Any Options which are neither assumed or
substituted for by the Acquiring Corporation in connection with the Transfer of
Control nor exercised as of the date of the Transfer of Control shall terminate
and cease to be outstanding effective as of the date of the Transfer of
Control.
I. ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of any
stock dividend, stock split, reverse stock split, recapitalization, combination,
reclassification, or similar change in the capital structure of the Company,
appropriate adjustments shall be made in the number, Exercise Price and class
of shares of stock subject to the Option. If a majority of the shares which
are of the same class as the shares that are subject to the Option are
exchanged for, converted into, or otherwise become (whether or not pursuant to
an Ownership Change Event) shares of another corporation (the "New Shares"),
the Board may unilaterally amend the Option to provide that the Option is
exercisable for New Shares. In the event of any such amendment, the Number of
Option Shares and the Exercise Price shall be adjusted in a fair and equitable
manner, as determined by the Board, in its sole discretion. Notwithstanding
the foregoing, any fractional share resulting from an adjustment pursuant to
this Section I shall be rounded down to the nearest whole number, and in no
event may the Exercise Price be decreased to an amount less than the par value,
if any, of the stock subject to the Option.
J. RIGHTS AS A STOCKHOLDER. The Optionee shall have no rights as a
stockholder with respect to any shares covered by the Option until the date of
the issuance of a certificate for the shares for which the Option has been
exercised (as evidenced by the appropriate entry on the books of the Company or
of a duly authorized transfer agent of the Company). No adjustment shall be
made for dividends, distributions or other rights for which the record date is
prior to the date such certificate is issued, except as provided in Section I.
K. LEGENDS. The Company may at any time place legends referencing any
applicable federal, state or foreign securities law restrictions on all
certificates representing shares of stock subject to the provisions of this
Option Agreement. The Optionee shall, at the request of the Company, promptly
present to the Company any and all certificates representing shares acquired
pursuant to the Option in the possession of the Optionee in order to carry out
the provisions of this Section.
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L. BINDING EFFECT. Subject to the restrictions on transfer set forth
herein, this Option Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective heirs, executors, administrators,
successors and assigns.
M. TERMINATION OR AMENDMENT. The Board may terminate or amend the Plan
or the Option at any time; provided, however, that no such termination or
amendment may adversely affect the Option or any unexercised portion hereof
without the consent of the Optionee unless such termination or amendment is
necessary to comply with any applicable law or government regulation. No
amendment or addition to this Option Agreement shall be effective unless in
writing.
N. INTEGRATED AGREEMENT. This Option Agreement constitutes the entire
understanding and agreement of the Optionee and the Participating Company Group
with respect to the subject matter contained herein, and there are no
agreements, understandings, restrictions, representations, or warranties among
the Optionee and the Participating Company Group with respect to such subject
matter other than those as set forth or provided for herein. To the extent
contemplated herein, the provisions of this Option Agreement shall survive any
exercise of the Option and shall remain in full force and effect.
O. APPLICABLE LAW. This Option Agreement shall be governed by the laws
of the State of Maryland as such laws are applied to agreements between
Maryland residents entered into and to be performed entirely within the State
of Maryland.
CIENA CORPORATION
By:
------------------------------
Title:
---------------------------
The Optionee represents that the Optionee is familiar with the terms
and provisions of this Option Agreement and hereby accepts the Option subject
to all of the terms and provisions thereof. The Optionee hereby agrees to
accept as binding, conclusive and final all decisions or interpretations of the
Board upon any questions arising under this Option Agreement.
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OPTIONEE
Date:
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12
1
EXHIBIT 10.6
CIENA CORPORATION
PREFERRED STOCK PURCHASE AGREEMENT
DATED AS OF DECEMBER 20, 1995
2
TABLE OF CONTENTS
1. Purchase and Sale................................................2
2. Closing of Purchase and Sale.....................................2
2.1 Closing; Closing Date......................................2
2.2 Transactions at Closing....................................2
3. Representations and Warranties of the Company....................2
3.1 Organization, Standing and Qualification...................2
3.2 Capitalization.............................................2
3.3 Validity of Stock..........................................4
3.4 Subsidiaries...............................................4
3.5 Financial Statements.......................................4
3.6 Authorization; Approvals.................................. 6
3.7 No Conflict with Other Instruments........................ 6
3.8 Labor Agreements and Actions.............................. 6
3.9 Title to Properties; Liens and Encumbrances............... 7
3.10 Compliance with Other Instruments......................... 7
3.11 Patents, Trademarks and Other Intangible
Assets.................................................... 8
3.12 Taxes.....................................................10
3.13 Contracts.................................................10
3.14 Litigation................................................11
3.15 Private Offering..........................................11
3.16 Full Disclosure...........................................11
3.17 Fees and Commissions......................................12
3.18 Interested Party Transactions.............................12
3.19 ERISA.....................................................12
3.20 Section 83(b) Elections...................................13
3.21 Company Transactions......................................13
3.22 Permits...................................................13
3.23 Insurance.................................................13
3.24 Certain Tax-Related Provisions............................14
3.25 Environmental Matters.....................................14
4. Representations, Warranties and Covenants of the
Purchasers......................................................15
4.1 Authorization.............................................15
4.2 Investment Representations................................16
4.3 Investment Experience; Access to Information............. 16
4.4 Absence of Registration...................................16
4.5 Restrictions on Transfer..................................17
4.6 Transfer Instructions.....................................17
4.7 Economic Risk.............................................17
4.8 Fees and Commissions......................................17
3
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5. Conditions to Closing of the Purchasers.........................18
5.1 Representations and Warranties............................18
5.2 Performance...............................................18
5.3 Consents, etc.............................................18
5.4 Compliance Certificates...................................18
5.5 Proceedings and Documents.................................18
5.6 Co-Sale Agreement.........................................18
5.7 Composition of Board of Directors.........................19
5.8 Opinion of Counsel........................................19
6. Conditions to Closing of Company................................19
7. Affirmative Covenants...........................................19
7.1 Inspection; Business Reports; Annual
Operating Plan............................................19
7.2 Accounting................................................20
7.3 Monthly and Annual Financial Statements...................20
7.4 Projections; Budgets; Reports.............................21
7.5 Use of Proceeds...........................................22
7.6 Public Information........................................22
7.7 Insurance.................................................22
7.8 Employee Stock Options....................................22
7.9 Confidentiality...........................................23
7.10 Right of First Refusal....................................24
7.11 Maintenance of Existence and Properties, etc..............27
7.12 Termination of Covenants..................................27
8. Registration....................................................27
8.1 Definitions...............................................27
8.2 Required Registration.....................................29
8.3 Registration Procedures...................................30
8.4 Limitations on Required Registrations.....................31
8.5 Incidental Registration...................................33
8.6 Limitations on Incidental Registration....................34
8.7 Designation of Underwriter................................35
8.8 Form S-3..................................................35
8.9 Cooperation by Prospective Sellers........................36
8.10 Expenses of Registration..................................37
8.11 Indemnification...........................................38
8.12 Rights That May Be Granted to Subsequent
Investors.................................................41
8.13 Transfer of Registration Rights.......................... 42
8.14 "Stand-Off" Agreement.....................................42
8.15 Delay of Registration.....................................42
9. Negative Covenants..............................................42
10. Board of Directors..............................................44
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11. Expenses........................................................46
12. Survival of Agreements..........................................46
13. Notices.........................................................46
14. Modifications; Waiver...........................................48
15. Exculpation Among Purchasers....................................49
16. Entire Agreement................................................49
17. Successors and Assigns..........................................50
18. Enforcement.....................................................51
19. Prior Agreements............................................... 51
20. Execution and Counterparts..................................... 52
21. Governing Law and Severability................................. 52
22. Headings....................................................... 52
Schedules
3.1 - Organization, Standing and Qualification
3.2 - Security Holders of the Company
3.4 - Joint Venture, Partnership, or Similar Arrangement
3.5 - Exceptions of the Financial Statements and List of
Liabilities
3.7 - Conflicts with Other Instruments
3.8 - List of Officers and Employees
3.9 - Real and Personal property of the Company
3.10 - Non-Compliance
3.11 - Patents, Trademarks and Other Intangible Assets of
the Company
3.12 - Taxes
3.13 - Contracts
3.14 - Litigation
3.17 - Fees and Commissions
3.23 - Insurance
3.25 - Environmental Matters
Exhibits
A - Form of Third Restated Certificate of
Incorporation
B - Form of Proprietary Information, Inventions and
Non-Solicitation Agreement
C - Form of Amended and Restated Co-Sale Agreement
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D - Form of Opinion of Paul, Weiss, Rifkind, Wharton &
Garrison
6
PREFERRED STOCK PURCHASE AGREEMENT
AGREEMENT, dated as of December 20, 1995, among (a) CIENA Corporation, a
Delaware corporation (the "Company"), with an office at 8530 Corridor Road,
Savage, Maryland 20763, (b) the parties identified as Purchasers on Schedule 1
hereto (individually, a "Purchaser" and collectively, the "Purchasers"), (c)
solely for the purposes of Sections 7 through 10, 13, and 17 through 22, the
parties identified as prior investors on Schedule 2.1 hereto (the "Series A
Investors"), (d) solely for the purposes of Sections 7 through 10, 13, and 17
through 22, the parties identified as prior investors on Schedule 2.2 hereto
(the "Series B Investors," together with the Series A Investors, "Prior
Investors" and, together with the Series A Investors and the Purchasers, the
"Investors"), and (e) solely for the purposes of Sections 8, 10, and 17 through
22 hereof, David Huber and Patrick Nettles (collectively, the "Key Employees").
W I T N E S S E T H :
WHEREAS, the Purchasers desire to purchase shares of Convertible Preferred
Stock, Series C, par value $.01 per share (the "Series C Preferred"), of the
Company, having the rights, preferences, privileges and restrictions set forth
in the Company's Third Restated Certificate of Incorporation in the form
attached hereto as Exhibit A (the "Third Restated Certificate") and incorporated
herein by reference, and the Company desires to sell to the Purchasers shares of
Series C Preferred;
WHEREAS, the Series A Investors are parties to a Preferred Stock Purchase
Agreement, dated as of April 9, 1994, as amended by Amendment No. 1 thereto,
dated as of July 28, 1994 (as so amended, the "Series A Agreement"), among the
Company, the Series A Investors and, as to certain provisions therein, the Key
Employees;
WHEREAS, the Series B Investors are parties to a Preferred Stock Purchase
Agreement, dated as of December 22, 1994, as amended by Amendment No. 1 thereto,
dated as of January 31, 1995, and by Amendment No. 2 thereto, dated as of June
23, 1995 (as amended, the "Series B Agreement" and, together with the Series A
Agreement, the "Prior Agreements"),
7
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among the Company, the Prior Investors and, as to certain provisions therein,
the Key Employees;
WHEREAS, the Prior Investors who are parties to this Agreement and the Key
Employees desire to amend the Prior Agreements in the manner set forth in this
Agreement;
NOW, THEREFORE, the parties agree as follows:
1. PURCHASE AND SALE. Subject to the provisions of this Agreement, on the
Closing Date (as hereinafter defined) the Company will sell to the Purchasers,
and the Purchasers will purchase from the Company, an aggregate of up to
3,750,000 shares of Series C Preferred (the "Shares"), each Purchaser to
purchase the number of Shares set forth in the first column opposite such
Purchaser's name on Schedule 1 annexed hereto, at a purchase price of $7.00 per
share on the Closing Date as is specified on Schedule 1.
2. CLOSING OF PURCHASE AND SALE.
2.1 CLOSING; CLOSING DATE. The purchase and sale of the Shares
pursuant to Section 1 shall take place at a closing (the "Closing") at the
offices of Paul, Weiss, Rifkind, Wharton & Garrison, 1615 L Street, N.W.,
Suite 1300, Washington, D.C. 20036, or at such other place as may be
agreed upon by the Company and the Purchasers, at 11:00 a.m. Eastern
Standard Time on December 21, 1995, or at such other time as may be agreed
upon by the Company and the Purchasers (the "Closing Date").
2.2 TRANSACTIONS AT CLOSING. At the Closing, the Company shall
deliver to each Purchaser one or more certificates representing the Shares
being purchased hereunder at the Closing, against delivery by the
Purchaser of a wire transfer of immediately available funds or a certified
check in the amount of the purchase price therefor.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants that:
8
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3.1 ORGANIZATION, STANDING AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under
the laws of the State of Delaware and has full corporate power and
authority to own, lease and operate its property and assets and to conduct
its business as proposed to be conducted by it. The Company has all
requisite corporate power and authority to enter into and perform its
obligations under this Agreement and to carry out the transactions
contemplated by this Agreement. Except as set forth in Schedule 3.1, the
Company is duly qualified to do business as a foreign corporation and is
in good standing in each jurisdiction in which the nature of its business
and its ownership or leasing of property require that the Company become
so qualified.
3.2 CAPITALIZATION. The authorized capital stock of the Company, as
of the Closing Date, will consist of (a) 16,250,000 shares of preferred
stock, of which (i) 3,750,000 shares are designated Series C Preferred,
none of which are issued or outstanding as of the date of this Agreement;
(ii) 8,000,000 shares are designated Series B Preferred (the "Series B
Preferred"), 7,354,092 of which are issued and outstanding as of the date
of this Agreement and 300,000 of which are reserved for issuance upon
exercise of outstanding warrants; (iii) 4,500,000 shares are designated
Series A Preferred (the "Series A Preferred"; together with Series B
Preferred and Series C Preferred, the "Preferred Shares"), 3,542,520 of
which are issued and outstanding as of the date of this Agreement, and
170,000 of which are reserved for issuance upon exercise of outstanding
warrants; and (b) 22,500,000 shares of Common Stock, of which (i)
2,437,083 shares are issued and outstanding as of the date of this
Agreement; (ii) up to 3,750,000 shares are reserved for issuance upon
conversion of the Series C Preferred; (iii) up to 8,000,000 shares are
reserved for issuance upon conversion of the Series B Preferred; (iv) up
to 4,500,000 shares are reserved for
9
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issuance upon conversion of the Series A Preferred; (v) up to 470,000
shares are reserved for issuance upon exercise of outstanding warrants to
purchase Series B Preferred or Series A Preferred; (vi) 125,636 shares are
reserved for issuance upon exercise of an option granted by the Company to
GI Corporation; (vii) 2,051,250 shares are reserved for issuance pursuant
to employee stock purchase and/or option ownership plans that have been or
will be adopted by the Company for key employees; and (viii) 6,667 shares
are reserved for issuance upon exercise of an outstanding warrant for
Common Stock held by Kim Larsen (all of which in clauses (i) through
(viii) are referred to collectively as the "Reserved Shares"). The list
set forth in Schedule 3.2 hereto is a complete and correct list of all
security holders of the Company, showing their holdings of issued and
outstanding Company securities (including options) as of the date of this
Agreement. The outstanding shares of Common Stock, Series A Preferred and
Series B Preferred are duly authorized and validly issued in accordance
with applicable law (including federal and state securities laws), and are
fully paid and non-assessable. Except as set forth in this Agreement and
the Prior Agreements, holders of shares of the Company's capital stock
have no preemptive rights. Except for the transactions contemplated by
this Agreement and the Prior Agreements and as set forth on Schedule 3.2
hereto, there are (a) no outstanding warrants, options, convertible
securities or rights to subscribe for or purchase any capital stock or
other securities from the Company, (b) no voting trusts or voting
agreements among, or irrevocable proxies executed by, stockholders of the
Company, (c) no existing rights of stockholders to require the Company to
register any securities of the Company or to participate with the Company
in any registration by the Company of its securities, (d) no agreements
among stockholders providing for the purchase or sale of the Company's
capital stock and (e) no obligations (contingent or otherwise) of the
Company to purchase, redeem or otherwise acquire any shares of its capital
stock or any interest therein or to pay any dividend or make any other
distribution in respect thereof.
3.3 VALIDITY OF STOCK. The Series C Preferred, when issued, sold,
and delivered in accordance with the terms of this Agreement, will be duly
and validly issued, fully paid and non-assessable. The shares of Common
10
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Stock issuable upon conversion of the Series C Preferred have been duly
authorized and reserved for issuance by all necessary corporate action and
when issued and delivered in accordance with the terms of the Third
Restated Certificate, will be duly and validly issued, fully paid and
non-assessable.
3.4 SUBSIDIARIES. The Company does not own or control, directly or
indirectly, any other corporation, partnership, association or business
entity. Except as set forth in Schedule 3.4, the Company is not a
participant in any joint venture, partnership, or similar arrangement.
3.5 FINANCIAL STATEMENTS. Schedule 3.5 contains the Company's: (i)
unaudited balance sheet as of November 30, 1995 (the "Balance Sheet"),
(ii) unaudited statements of income (loss) for the eleven-month period
then ended (the "Statements of Income"), and (iii) audited financial
statements as of and for the year ended December 31, 1994 (the "Audited
Financial Statements") (all of which in (i), (ii) and (iii) are
collectively referred to as the "Financial Statements"). Except as
described in Schedule 3.5, the Financial Statements are true and correct
in all material respects, are in accordance with the books and records of
the Company and have been prepared in accordance with generally accepted
accounting principles ("GAAP") consistently applied, and fairly and
accurately present in all material respects the financial position of the
Company as of such dates and the results of its operations for the periods
then ended, provided that the Financial Statements may not contain all
footnotes required by GAAP and the Balance Sheet and Statements of Income
are subject to normal year-end audit adjustments. Except as described in
Schedule 3.5, the Company has no liabilities, debts or obligations,
whether accrued, absolute or contingent totalling in each case in excess
of $15,000. Since November 30, 1995, except as contemplated by this
Agreement or as set forth on Schedule 3.5, the Company has been operated
in the ordinary and usual course of business, and there has not been:
11
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(i) any change in the (x) assets, liabilities, condition (financial
or otherwise) or business of the Company from that reflected in the
Balance Sheet, other than those incurred in the ordinary and usual course
of business, or (y) trend of operating results of the Company from that
reflected in the Statements of Income;
(ii) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the assets, properties,
condition (financial or otherwise), operating results, prospects or
business of the Company (as such business is presently conducted and as it
is proposed to be conducted) as set forth in the Ciena Corporation
1996-1998 Business Plan dated October 16, 1995 (the "Operating Plan");
(iii) any waiver by the Company of a valuable right or of a material
debt owed to it;
(iv) any satisfaction or discharge of any lien, claim or encumbrance
or payment of any obligation by the Company, except in the ordinary course
of business and that is not individually or in the aggregate adverse to
the assets, properties, condition (financial or otherwise), operating
results or business of the Company (as such business is presently
conducted and as it is proposed to be conducted);
(v) any change or amendment to a material contract or arrangement by
which the Company or any of its assets or properties is bound or subject;
(vi) any material change in any compensation arrangement or
agreement with any employee;
(vii) any loans made by the Company to its employees, officers, or
directors other than travel advances made in the ordinary course of
business;
(viii) any sale, transfer or lease of, except in the ordinary course
of business, or mortgage or pledge or imposition of lien on, any of the
Company's assets; or
12
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(ix) to the Company's knowledge, any other event or condition of any
character that would materially adversely affect the assets, properties,
condition (financial or otherwise), operating results, prospects or
business of the Company (as such business is presently conducted and as it
is proposed to be conducted).
3.6 AUTHORIZATION; APPROVALS. All corporate action on the part of
the Company necessary for the authorization, execution, delivery, and
performance of all its obligations under this Agreement and for the
authorization, issuance, and delivery of the Series C Preferred being sold
under this Agreement and of the Common Stock issuable upon conversion of
the Preferred Shares has been (or will be) taken prior to the Closing
Date. This Agreement, when executed and delivered by or on behalf of the
Company, shall constitute the valid and legally binding obligation of the
Company, legally enforceable against the Company in accordance with its
terms. The Company has obtained or will obtain prior to the Closing Date
all necessary consents, authorizations, approvals and orders, and has made
all registrations, qualifications, designations, declarations or filings
with all federal, state, or other relevant governmental authorities
required on the part of the Company in connection with the consummation of
the transactions contemplated by this Agreement, except for those federal
and/or state securities law filings that are required under applicable law
to be filed after the Closing.
3.7 NO CONFLICT WITH OTHER INSTRUMENTS. The execution, delivery and
performance of the Agreement and the conduct of the Company's business as
described in the Operating Plan will not result in any violation of, be in
conflict with, or constitute a default under any terms or provision of (i)
the Third Restated Certificate or By-laws; (ii) any judgment, decree or
order to which the Company is a party; (iii) any agreement, contract,
understanding, indenture or other instrument to which the Company is a
party, the effect of which would give rise to a material adverse effect on
the Company; or (iv) any statute, rule or governmental regulation
applicable to the Company. The Company waives any right under the
13
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Third Restated Certificate to treat any transaction contemplated by this
Agreement as an Additional Automatic Conversion Event.
3.8 LABOR AGREEMENTS AND ACTIONS. The Company is not bound by or
subject to (and none of its assets or properties is bound by or subject
to) any written or oral, express or implied, contract, commitment or
arrangement with any labor union, and no labor union has requested or, to
the best knowledge of the Company, has sought to represent any of the
employees, representatives or agents of the Company. There is no strike or
other
14
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labor dispute involving the Company pending, or to the best knowledge
of the Company threatened, which could have a material adverse effect on
the assets, properties, condition (financial or otherwise), operating
results, prospects or business of the Company (as such business is
presently conducted and as it is proposed to be conducted), nor is the
Company aware of any labor organization activity involving its employees.
The Company is not aware that any officer or key employee, or that any
group of key employees, intends to terminate such person's employment
with the Company, nor does the Company have a present intention to
terminate the employment of any of the foregoing persons. The employment
of each officer and employee of the Company is terminable at the will of
the Company. Schedule 3.8 hereto sets forth the name of and annual rate
of compensation (including salary, bonuses and other compensation)
payable for the current year to each (i) officer and (ii) employee who is
paid an annual salary greater than $100,000.
3.9 TITLE TO PROPERTIES; LIENS AND ENCUMBRANCES. Set forth on
Schedule 3.9 hereto is a list of all of the real property, capital assets
and intellectual property owned, leased or licensed to or by the Company,
excluding items with an original cost (or in the case of intellectual
property a fair market value) of less than $1,000. In the case of leased
or licensed property, complete and correct copies of all leases and
licenses have been furnished to counsel to the Purchasers. Except as set
forth on Schedule 3.9 and Schedule 3.11 hereto, (i) the Company has good
and marketable title to all of the properties and assets, both real and
personal, tangible and intangible, that it purports to own, including the
properties and assets reflected on the Balance Sheet, and they are not
subject to any mortgage, pledge, lien, security interest, conditional sale
agreement, encumbrance or charge except routine statutory liens securing
liabilities not yet due and payable and minor liens, encumbrances,
restrictions, exceptions, reservations, limitations and other
imperfections which do not materially detract from the value of the
specific asset affected or the present use of such asset; and (ii)
15
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the Company is not in default or in breach of any material provision of
its leases or licenses and holds a valid leasehold or licensed interest in
the property it leases or that is licensed to it.
3.10 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in
default (a) under its Third Restated Certificate or its By-laws or, in any
material respect, under any material note, indenture, mortgage, lease,
agreement, contract, purchase order or other instrument, document or
agreement to which the Company is a party or by which it or any of its
property is bound or affected or (b) with respect to any order, writ,
injunction or decree of any court or any federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, which default, in any such case,
would materially and adversely affect or in the future is reasonably
likely to materially and adversely affect the Company's business,
prospects, condition (financial or otherwise), affairs, operations or
assets. To the best of the Company's knowledge, no third party is in
material default under any material agreement, contract or other
instrument, document or agreement to which the Company is a party or by
which it or any of its property is affected.
3.11 PATENTS, TRADEMARKS AND OTHER INTANGIBLE ASSETS. (a) Schedule
3.11 hereto is a true and complete list and summary description of all
patents, patent applications, trademarks, service marks, trade names and
copyrights, and licenses and rights to the foregoing presently owned or
held by the Company, none of which is in dispute or in any conflict with
the right of any other person or entity except as indicated on Schedule
3.11. Except as set forth in Schedule 3.11, the Company to the best of its
knowledge (i) owns or has the right to use, free and clear of all liens,
claims and restrictions, all patents, trademarks, service marks, trade
names and copyrights, and licenses and rights with respect to the
foregoing, used and sufficient for use in the conduct of its business as
now conducted and proposed to be conducted as described in the Operating
Plan without infringing upon or otherwise acting adversely to the
16
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right or claimed right of any person, corporation or other entity under or
with respect to any of the foregoing and (ii) is not obligated or under
any liability whatsoever to make any payments by way of royalties, fees or
otherwise to any owner or licensee of, or other claimant to, any patent,
trademark, service mark, trade name, copyright or other intangible asset,
with respect to the use thereof or in connection with the conduct of its
business or otherwise.
(b) Except as set forth on Schedule 3.11, the Company owns and/or
has the unrestricted right to use all trade secrets, including know-how,
inventions, designs, processes, works of authorship, computer programs
(with the exception of normal software purchased and sold as such) and
technical data and information (collectively herein "intellectual
property") required for or incident to the development, manufacture,
operation and sale of all products and services sold or proposed to be
sold by the Company, to the best of its knowledge free and clear of and
without violating any right, lien, or claim of others, including without
limitation, former employees and former employers of its past and present
employees.
(c) The Company has taken security measures to protect the secrecy,
confidentiality and value of all the Company's intellectual property,
which measures are reasonable and customary in the industry in which it
intends to operate. Each of the Company's employees and other persons who,
either alone or in concert with others, developed, invented, discovered,
derived, programmed or designed the Company's intellectual property, or
who has knowledge of or access to information about the Company's
intellectual property, has entered into a written agreement with the
Company in the form of Exhibit B hereto, (i) providing that the
intellectual property and other information are proprietary to the Company
and are not to be divulged or misused and (ii) transferring to the
Company, without any further consideration being given therefor by the
Company, all of such employee's or other person's right, title and
interest in and to such intellectual property and other information and to
all patents, trademarks,
17
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service marks, trade names, copyrights, licenses and rights with respect
to such intellectual property and information.
(d) The Company has not received any communications alleging that
the Company has violated or by conducting its business as proposed, would
violate any of the patents, trademarks, service marks, trade names,
copyrights or trade secrets or other proprietary rights of any other
person or entity. The Company is not aware that any of its employees is
obligated under any contract (including licenses, covenants or commitments
of any nature) or other agreement, or subject to any judgment, decree or
order of any court or administrative agency, that would interfere with the
use of his best efforts to promote the interests of the Company or that
would conflict with the Company's business as proposed to be conducted.
Neither the execution nor delivery of this Agreement, nor the carrying on
of the Company's business by the employees of the Company, nor the conduct
of the Company's business as proposed, will, to the Company's knowledge,
conflict with or result in a breach of the terms, conditions or provisions
of, or constitute a default under, any contract, covenant or instrument
under which any of such employees is now obligated. The Company does not
believe it is or will be necessary to utilize any inventions of any of its
employees (or people it currently intends to hire) made prior to their
employment by the Company other than those that have been assigned to, or
licensed by the Company, as described in Schedule 3.11.
3.12 TAXES. The Company has accurately prepared and timely filed all
federal income and payroll tax returns and filings and all state and
municipal tax returns that are required to be filed by it (the "Tax
Returns") and has paid or made provision for the payment of all amounts
due pursuant to such returns. The Tax Returns are true and complete in all
material respects. None of the Tax Returns have been audited by the
Internal Revenue Service or any state taxing authority, as the case may
be, the Company has not been advised that any of such Tax Returns will be
so audited, and there are no waivers in effect of
18
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the applicable statute of limitations for any period. No deficiency
assessment or proposed adjustment of federal income taxes or state or
municipal taxes of the Company is pending and the Company has no knowledge
of any proposed liability for any tax to be imposed. The Company has not
elected pursuant to the Internal Revenue Code of 1986, as amended (the
"Code"), to be treated as an S corporation or a collapsible corporation
pursuant to Section 1362(a) or Section 341(f) of the Code, nor has it made
any other elections pursuant to the Code (other than elections that
related solely to methods of accounting, depreciation or amortization)
that would have a material effect on the Company, its financial condition,
its business as presently conducted or proposed to be conducted or any of
its properties or material assets.
3.13 CONTRACTS. Schedule 3.13 contains a true and complete list of
all contracts and agreements to which the Company is a party or by which
its property is bound. Except as set forth on Schedule 3.13 hereto, the
Company has no employment or consulting contracts, deferred compensation
agreements or bonus, incentive, profit-sharing, or pension plans currently
in force and effect, or any understanding with respect to any of the
foregoing. Schedule 3.13 hereto also lists all employment, non-competition
and confidentiality agreements (i) between the Company and any employee or
consultant of the Company or any other entity and (ii) to the Company's
best knowledge between any employee of the Company and any former employer
or person for whom such employee or consultant performed consulting or
other services. All of the contracts listed on Schedule 3.13 and on other
Schedules hereto are in full force and effect, and the Company, or to the
best of the Company's knowledge any other party, is not in default under
any of them, nor does any event or condition exist which after notice or
lapse of time or both would constitute a material default thereunder. The
Company has delivered to the Purchasers true, correct and complete copies
of each contract and agreement listed on Schedule 3.13.
3.14 LITIGATION. No action, proceeding or governmental inquiry or
investigation is pending or to
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the best knowledge of the Company threatened against the Company or any of
its officers, directors or employees (in their capacity as such) or any of
the Company's properties before any court, arbitration board or tribunal
or administrative or other governmental agency, nor is the Company aware
that there is any basis for the foregoing. The foregoing includes, without
limiting its generality, actions pending or known to the Company to be
threatened involving the prior employment of any of the Company's
employees or use by any of them in connection with the Company's business
of any information, property or techniques allegedly proprietary to any of
their former employers. The Company is not a party to or subject to the
provisions of any order, writ, injunction, judgment or decree of any court
or governmental agency or instrumentality. There is no action, suit,
proceeding or investigation by the Company currently pending or that the
Company intends to initiate.
3.15 PRIVATE OFFERING. The Company agrees that neither the Company
nor anyone acting on its behalf has offered or will offer any securities
of the Company or any part thereof or any similar securities for issuance
or sale to, or solicit any offer to acquire any of the same from, anyone
so as to make the issuance and sale of the Series C Preferred not exempt
from the registration requirements of Section 5 of the Securities Act of
1933, as amended (the "Securities Act"). None of the shares of the
Company's capital stock issued and outstanding has been offered or sold in
such a manner as to make the issuance and sale of such shares not exempt
from such registration requirements, and all such shares of capital stock
have been offered and sold in compliance with all applicable federal and
state securities laws.
3.16 FULL DISCLOSURE. Neither this Agreement nor any certificates
made or delivered in connection herewith contains any untrue statement of
a material fact or omits to state a material fact necessary to make the
statements herein or therein not misleading, in view of the circumstances
in which they were made, provided, however, that the Company makes no
representation or warranty with respect to any projections, other than
that any such
20
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projections were prepared in good faith and that the Company reasonably
believes there is a reasonable basis for such projections. There is no
material fact known to the Company relating to the business, prospects,
condition (financial or otherwise), affairs, operations, or assets of the
Company that has not been disclosed to the Purchasers in writing by the
Company.
3.17 FEES AND COMMISSIONS. The Company has not retained, or
otherwise authorized to act, any finder, broker, agent, financial advisor
or other intermediary (collectively "Intermediary") in connection with the
transactions contemplated by this Agreement and the Company shall
indemnify and hold harmless the Purchasers from liability for any
compensation to any Intermediary retained or otherwise authorized to act
by, or on behalf of, the Company, and the fees and expenses of defending
against such liability or alleged liability.
3.18 INTERESTED PARTY TRANSACTIONS. No officer, director or
stockholder of the Company or any "affiliate" or "associate" (as these
terms are defined in Rule 405 promulgated under the Securities Act) of any
such person or entity or the Company has or has had, either directly or
indirectly, (a) an interest in any person or entity which (i) furnishes or
sells services or products which are furnished or sold or are proposed to
be furnished or sold by the Company, or (ii) purchases from or sells or
furnishes to the Company any goods or services, or (b) except as set forth
on Schedule 3.13, a beneficial interest in any contract or agreement to
which the Company is a party or by which it may be bound or affected.
Except as set forth on Schedule 3.13 hereto, there are no existing
material arrangements or proposed material transactions between the
Company and any officer, director, or holder of more than 5% of the
capital stock of the Company, or any affiliate or associate of any such
person.
3.19 ERISA. Except as set forth in Schedule 3.19, the Company does
not maintain, sponsor, or contribute to any program or arrangement that is
an "employee pension benefit plan," an "employee welfare benefit plan," or
a
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"multiemployer plan", as those terms are defined in Sections 3(2), 3(1),
and 3(37) of the Employee Retirement Income Security Act of 1974, as
amended. Except as listed in Schedule 3.13, the Company does not maintain
or contribute to any material incentive or benefit arrangements for its
employees. All incentive or benefit arrangements listed in Schedule 3.13
are, and have heretofore been, operated in compliance, in all material
respects, with the terms of such arrangements and with the requirements
prescribed by any and all applicable laws.
3.20 SECTION 83(b) ELECTIONS. Except as set forth in Schedule 3.20,
to the best of the Company's knowledge, all elections and notices
permitted by Section 83(b) of the Code, and any analogous provisions of
applicable state tax laws have been timely filed by all individuals who
have purchased shares of the Company's Common Stock other than pursuant to
any stock option plans of the Company. The Company makes no representation
or warranty regarding the content or accuracy of any such election or
notice.
3.21 COMPANY TRANSACTIONS. The Company has not engaged in the past
eleven (11) months in any discussion (i) with any representative of any
corporation or corporations regarding the merger of the Company with or
into any such corporation or corporations, (ii) with any corporation,
partnership, association or other business entity or any individual
regarding the sale, conveyance or disposition of all or substantially all
of the assets of the Company or a transaction or series of related
transactions in which more than fifty percent (50%) of the voting power of
the Company is disposed of, or (iii) regarding any other form of
liquidation, dissolution or winding up of the Company.
3.22 PERMITS. The Company has all franchises, permits, licenses, and
any similar authority necessary for the conduct of its business as now
being conducted by it, the lack of which could materially and adversely
affect the business, properties, prospects, or financial condition of the
Company, and the Company believes it can
22
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obtain, without undue burden or expense, any similar authority for the
conduct of its business as planned to be conducted. The Company is not in
default in any material respect under any of such franchises, permits,
licenses, or other similar authority.
3.23 INSURANCE.(i) The Company has in full force and effect life
insurance upon the lives of the Key Employees in a minimum amount of
$1,000,000 each, with the proceeds payable to the Company, (ii) the
Company has in full force and effect fire and casualty insurance policies,
with extended coverage, sufficient in amount (subject to reasonable
deductibles) to allow it to replace any of its properties that might be
damaged or destroyed, (iii) the Company has in full force and effect
liability and umbrella liability insurance policies sufficient in amount
(subject to reasonable deductibles) to cover all reasonably foreseeable
liability claims that may be made against the Company and the expenses
thereof, (iv) no claims under any of such policies of insurance are
23
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pending or have been denied, and (v) no notices of cancellation regarding
any of such policies have been received by the Company.
3.24 CERTAIN TAX-RELATED PROVISIONS. The Company has not made any
purchase of its capital stock within the one (1) year period preceding the
Closing Date and the Company covenants and agrees with the Purchasers that
the Company will not within the one (1) year period following the Closing
Date make any purchase of its capital stock that would result in the
shares of Series C Preferred issued and sold pursuant to this Agreement
not being treated as "qualified business stock" within the meaning of
Subpart B, Section 13113 of the 1993 Tax Reform Act, without the prior
written approval of the holders of at least fifty percent (50%) of the
Series C Preferred. The Company agrees to submit such reports to the
Commissioner of Internal Revenue and to the Purchasers as the Commissioner
may require to carry out the purposes of such provisions.
3.25 ENVIRONMENTAL MATTERS. Except as set forth in Schedule 3.25:
(a) Neither the Company, nor, to the knowledge of the Company
without investigation other than as set forth on Schedule 3.25, any
operator of its past or present properties is in material violation, or
alleged material violation, of any judgment, decree, order, law, license,
rule or regulation pertaining to environmental matters, including without
limitation the Resource Conservation and Recovery Act, as amended, the
Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA"), and the Superfund Amendments and
Reauthorization Act of 1986, as amended (hereinafter "Environmental
Laws").
(b) The Company has not received notice from any third party
including without limitation any governmental authority, (i) that the
Company or any predecessor in interest has been identified by the
Environmental Protection Agency ("EPA") as a potentially responsible party
under CERCLA with respect to a site
24
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listed on the National Priorities List, 40 C.F.R. Part 300 Appendix B
(1986); (ii) that a material quantity of hazardous materials or substances
regulated by any Environmental Laws ("Hazardous Substances") which either
the Company or any predecessor in interest has generated, transported or
disposed of have been found at any site at which a remedial investigation,
removal or other response action pursuant to any Environmental Law has
been ordered or conducted; or (iii) that the Company is or shall be a
named party to any claim, action or administrative proceeding arising out
of any third party's incurrence of costs or damages in connection with the
release of Hazardous Substances.
(c) No portion of the property owned, leased or controlled by
the Company has been used by the Company or, to the knowledge of the
Company without investigation other than as set forth on Schedule 3.25, by
any past or present owners or operators of its properties for the
handling, manufacturing, processing, storage or disposal of Hazardous
Substances in a manner that would materially violate applicable
Environmental Laws. In the course of any activities conducted by the
Company or, to the knowledge of the Company without investigation other
than as set forth on Schedule 3.25, by any past or present owners or
operators of its properties, no Hazardous Substances have been generated
or are being used on such properties in a manner that would materially
violate applicable Environmental Laws. There have been no releases or
threatened releases of Hazardous Substances by the Company or, to the
knowledge of the Company without investigation other than as set forth on
Schedule 3.25, by any past or present owners or operators of its
properties on, upon, into or from such properties of the Company, which
releases would have a material adverse effect on the value of such
properties, any adjacent properties or the environment. Any Hazardous
Substances that have been generated by the Company or, to the knowledge of
the Company without investigation other than as set forth on Schedule
3.25, by any past or present owners or operators of its properties on such
properties of the Company, have been transported offsite only by carriers
having an identification number issued by the
25
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EPA and treated or disposed of only by treatment or disposal facilities
maintaining valid permits as required under applicable Environmental Laws,
which transporters and facilities have been and are, to the best of the
Company's knowledge, operating in compliance with such permits and
applicable Environmental Laws.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASERS. Each
Purchaser, severally and not jointly, represents and warrants that:
4.1 AUTHORIZATION. It has full power and authority to enter into and
to perform this Agreement in accordance with its terms. This Agreement has
been duly executed and delivered by it and constitutes its valid and
legally binding obligation.
4.2 INVESTMENT REPRESENTATIONS. It is acquiring the Shares for its
own account, for investment purposes and not with a view to, or for sale
in connection with, any distribution of such Shares or any part thereof.
4.3 INVESTMENT EXPERIENCE; ACCESS TO INFORMATION. It (a) is an
"accredited investor" as that term is defined in Rule 501(a) promulgated
under the Securities Act, (b) is an investor experienced in the evaluation
of businesses similar to the Company, (c) is able to fend for itself in
the transactions contemplated by this Agreement, (d) has such knowledge
and experience in financial, business and investment matters as to be
capable of evaluating the merits and risks of this investment, (e) has the
ability to bear the economic risks of this investment, (f) was not
organized or reorganized for the specific purpose of acquiring the Shares
purchased by it, and (g) has been afforded prior to the Closing Date the
opportunity to ask questions of, and to receive answers from, the Company
and to obtain any additional information, to the extent the Company has
such information or could have acquired it without unreasonable effort or
expense, all as necessary for the Purchaser to make an informed investment
decision with respect to the purchase of the Shares. The foregoing,
however, does not limit or modify the representations and
26
-21-
warranties of the Company in Section 3 of this Agreement or the right of
such Purchaser to rely thereon.
4.4 ABSENCE OF REGISTRATION. It understands that:
(a) The Shares to be sold and issued hereunder (and the Common Stock
to which such shares may be converted) are unregistered and may be
required to be held indefinitely unless they are subsequently registered
under the Securities Act, or an exemption from such registration is
available.
(b) Except as provided in Section 8, the Company is under no
obligation to file a registration statement with the Securities and
Exchange Commission (the "Commission") with respect to the Shares (or the
Common Stock to which such shares may be converted).
(c) Rule 144 promulgated under the Securities Act ("Rule 144"),
which provides for certain limited sales of unregistered securities, is
not presently available with respect to the Shares (or the Common Stock to
which such shares may be converted), and the Company is under no
obligation to make Rule 144 available except as otherwise provided in
Section 7.6.
4.5 RESTRICTIONS ON TRANSFER. (a) It will not offer, sell, pledge,
hypothecate, or otherwise dispose of the Shares (or the Common Stock to
which such shares may be converted) unless such offer, sale, pledge,
hypothecation or other disposition is (i) registered under the Securities
Act, or (ii) in compliance with an opinion of counsel to the Purchaser,
delivered to the Company and reasonably acceptable to the Company, to the
effect that such offer, sale, pledge, hypothecation or other disposition
thereof does not violate the Securities Act, and (b) the certificate(s)
representing the Shares (and any Common Stock to which such shares may be
converted) shall bear a legend stating in substance:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE
27
-22-
TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED
UNDER SAID ACT OR, IN THE OPINION OF COUNSEL IN FORM AND SUBSTANCE
SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR
TRANSFER, PLEDGE OR HYPOTHECATION DOES NOT VIOLATE THE PROVISIONS
THEREOF.
Upon request of a holder of Series C Preferred, the Company shall
remove the legend set forth above from the certificates evidencing such
Shares, or issue to such holder new certificates therefor free of such
legend, if with such request the Company shall have received an opinion of
counsel selected by the holder and reasonably satisfactory to the Company,
in form and substance reasonably satisfactory to the Company, to the
effect that such Shares are not required by the Securities Act to continue
to bear the legend.
4.6 TRANSFER INSTRUCTIONS. It agrees that the Company may provide
for appropriate transfer instructions to implement the provisions of
Section 4.5 hereof.
4.7 ECONOMIC RISK. It understands that it must bear the economic
risk of the investment represented by the purchase of Shares for an
indefinite period.
4.8 FEES AND COMMISSIONS. It represents and warrants that it has not
retained, or otherwise authorized to act, any Intermediary in connection
with the transactions contemplated by this Agreement and agrees to
indemnify and hold harmless the Company from liability for any
compensation to any Intermediary retained or otherwise authorized to act
by, or on behalf of, the Purchaser and the fees and expenses of defending
against such liability or alleged liability.
5. CONDITIONS TO CLOSING OF THE PURCHASERS. The obligation of each
Purchaser on the Closing Date to purchase the Shares to be purchased under this
Agreement on the Closing Date by it shall be subject to each of the following
conditions precedent, any one or more of which may be waived by Purchasers
purchasing at least 66-2/3% of the Shares to be purchased at the Closing:
28
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5.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties made by the Company herein shall be true and accurate on and as
of the Closing Date as if made on such Date, except to the extent that
such representations and warranties are made as of a specified date, in
which case such representations and warranties shall be true in all
material respects as of the specified date.
5.2 PERFORMANCE. The Company shall have performed and complied with
all agreements and conditions contained herein or in other ancillary
documents incident to the transactions contemplated by this Agreement
required to be performed or complied with by it prior to or at the Closing
Date.
5.3 CONSENTS, ETC. The Company shall have secured all permits,
consents and authorizations that shall be necessary or required lawfully
prior to the Closing to consummate this Agreement and to issue the Shares
to be purchased by each Purchaser at the Closing, and the Third Restated
Certificate shall have been duly filed with the Secretary of State of the
State of Delaware.
5.4 COMPLIANCE CERTIFICATES. The Company shall have delivered to the
Purchasers or their representative at the Closing an Officer's Certificate
to the effect that all conditions specified in Sections 5.1 through 5.3
have been fulfilled.
5.5 PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings
in connection with the transactions contemplated by this Agreement and all
documents and instruments incident to such transactions shall be
reasonably satisfactory in substance and form to the Purchasers and their
counsel, and the Purchasers and their counsel shall have received all such
counterpart originals or certified or other copies of such documents as
the Purchasers or their counsel may reasonably request.
5.6 CO-SALE AGREEMENT. Each of the Key Employees, the Prior
Investors and the Company shall have entered
29
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into a Co-Sale Agreement with the Purchasers, substantially in the form
annexed hereto as Exhibit C.
5.7 COMPOSITION OF BOARD OF DIRECTORS. The Board of Directors shall
consist of seven members, initially including: Berry Cash, Jon W. Bayless,
Patrick Nettles, David Huber, Clifford Higgerson, and Michael J. Zak. The
seventh Board seat shall be filled in accordance with Section 10(a) of
this Agreement.
5.8 OPINION OF COUNSEL. The Company shall have delivered to the
Purchasers the opinion of Paul, Weiss, Rifkind, Wharton & Garrison,
counsel to the Company, in the form annexed hereto as Exhibit D.
6. CONDITIONS TO CLOSING OF COMPANY. The obligation of the Company on the
Closing Date to issue and sell the Shares to be purchased under this Agreement
on the Closing Date shall be subject to the representations and warranties made
by the Purchasers herein being true and accurate on and as of the Closing Date
as if made on such Date, except to the extent that such representations and
warranties are made as of a specified date, in which case such representations
and warranties shall be true in all material respects as of the specified date.
7. AFFIRMATIVE COVENANTS.
7.1 INSPECTION; BUSINESS REPORTS; ANNUAL OPERATING PLAN. The Company
covenants and agrees that, for so long as an Investor (together with its
affiliates) holds at least (a) 100,000 shares of Series C Preferred and/or
Common Stock issued upon conversion of Series C Preferred, or (b) 750,000
of the Preferred Shares and/or Common Stock issued upon conversion of
Preferred Shares, other than shares of Common Stock issued upon an
Additional Automatic Conversion Event (as defined in Article Fifth,
Section (d)(ii)(B) of the Third Restated Certificate) (the "Investor
Shares"), as adjusted for stock splits, stock dividends,
recapitalizations, reclassifications and similar events (together herein
called "Recapitalization Events"):
30
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(a) the Company will permit any authorized representatives of any
such Investor free and full access at normal business hours and upon
advance notification to all of the books, records, personnel and
properties of the Company, for any purpose whatsoever, subject to Section
7.9 hereof;
(b) the Company shall provide to all such Investors by December 31,
1995, and by December 31 of each fiscal year thereafter, an operating
plan, setting forth the operational and strategic plans of the Company for
the coming fiscal year; and
(c) any such Investor shall be entitled to have one designee attend
(but not to vote at) meetings of the Board of Directors (and business
discussions immediately prior to such meetings) as an observer, provided
that such designee shall not be entitled to be present at those portions
of any such meetings in which the Board of Directors will be discussing
issues that are competitive with the business of the Investor, such
determination to be made in the Board's good faith business judgment.
7.2 ACCOUNTING. The Company will maintain and cause each of its
Subsidiaries (other than inactive Subsidiaries) to maintain a system of
accounting established and administered in accordance with GAAP
consistently applied, and will set aside on its books and cause each of
its operating Subsidiaries to set aside on its books all such proper
reserves as shall be required by GAAP. For purposes of this Agreement,
"Subsidiary" means any corporation or entity at least a majority of whose
voting securities are at the time owned by the Company, or by one or more
Subsidiaries, or by the Company and one or more Subsidiaries.
7.3 MONTHLY AND ANNUAL FINANCIAL STATEMENTS. The Company will deliver to
each Investor holding at least (i) 100,000 shares of Series C Preferred and/or
Common Stock issued upon conversion of Series C Preferred, or (ii) 750,000
Investor Shares:
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(a) within 30 business days after the end of each calendar month, an
unaudited consolidated balance sheet of the Company and its Subsidiaries
as at the end of each such month and unaudited consolidated statements of
(i) income and (ii) cash flow of the Company and its Subsidiaries for each
such month and for the period from the beginning of the current fiscal
year to the end of such month. Such financial statements shall be in
reasonable detail and certified by the chief financial officer of the
Company that such financial statements were prepared in accordance with
GAAP (subject to (x) there being no footnotes contained therein and (y)
changes resulting from year-end audit adjustments), applied on a basis
consistent (except as otherwise disclosed therein and consented to by a
majority of the Board of Directors) with that of preceding periods, and
except as otherwise stated therein, shall present fairly the financial
position of the Company as of their date; and
(b) within 90 days after the end of each fiscal year of the Company,
a consolidated balance sheet of the Company and its Subsidiaries as of the
end of such year and statements of income and statements of cash flow of
the Company and its Subsidiaries for such year, setting forth in each case
in comparative form the figures for the previous fiscal year, all in
reasonable detail and accompanied by the opinion thereon of a firm of
independent public accountants of nationally recognized standing, which
opinion shall state that such balance sheet and statements of income and
cash flow have been prepared in accordance with GAAP applied on a basis
consistent with that of the preceding fiscal year (except as otherwise
approved by the Board of Directors), and present fairly and accurately the
financial position of the Company as of their date, and that the audit by
such accountants in connection with such financial statements has been
made in accordance with GAAP.
7.4 PROJECTIONS; BUDGETS; REPORTS. The Company will deliver, upon
request, to each Investor (together with its affiliates) that holds at
least 100,000 shares
32
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of Series C Preferred and/or 750,000 Investor Shares, as adjusted for
Recapitalization Events:
(a) within the first 45 days after the beginning of each fiscal
year, projections of the statements referred to in paragraph (a) of
Section 7.3 of this Agreement for each month in such year;
(b) within the first 30 days after the beginning of each fiscal
quarter, revised projections of the statements referred to in paragraph
(a) of Section 7.3 of this Agreement.
(c) at least 30 days prior to the beginning of each fiscal year, a
budget for such fiscal year, substantially in the form of the prior budget
delivered to the Investors, setting forth in detail reasonably acceptable
to the Investors the Company's budget for such fiscal year; provided,
however, that the Company will deliver the budget for 1996 by January 30,
1996;
(d) promptly upon the filing thereof, reports and statements filed
by the Company or any of its Subsidiaries with the Commission (or any
governmental authority succeeding to any of its functions) or with any
securities exchange; and
(e) with reasonable promptness, such other information and data with
respect to the Company or any of its Subsidiaries as from time to time may
be reasonably requested.
7.5 USE OF PROCEEDS. The Company shall use the proceeds from the
sale of the Shares in order to fund operating losses and working capital
requirements.
7.6 PUBLIC INFORMATION. At any time and from time to time after the
earlier of the close of business on such date as (a) a registration
statement filed by the Company under the Securities Act becomes effective,
(b) the Company registers a class of securities under Section 12 of the
Securities Exchange Act of 1934, as amended, or any federal statute or
code which is a successor thereto
33
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(the "Exchange Act"), or (c) the Company issues an offering circular
meeting the requirements of Regulation A under the Securities Act, the
Company shall undertake to make publicly available and available to the
Holders (as hereinafter defined in Section 8), pursuant to Rule 144, such
information as is necessary to enable the Holders to make sales of
Registrable Stock (as hereinafter defined in Section 8) pursuant to that
Rule. The Company shall comply with the current public information
requirements of Rule 144 and shall furnish thereafter to any Holder, upon
request, a written statement executed by the Company as to the steps it
has taken to so comply.
7.7 INSURANCE. The Company will maintain life insurance upon the
lives of the Key Employees in a minimum amount of $1,000,000 each, with
the proceeds payable to the Company, unless the Board of Directors
determines that such insurance is no longer required to protect the
interests of the Company. The Company also shall obtain and keep in effect
so long as the Board of Directors deems advisable, term life insurance on
the lives of such other employees as, and in the principal amounts as, the
Board of Directors shall determine, in each case with proceeds payable to
the Company. The Company will keep and maintain in full force and effect
fire, casualty and umbrella liability insurance policies, with extended
coverage, reasonably sufficient in amount to allow it to replace any of
its properties that might be damaged or destroyed or pay reasonably
foreseeable liabilities to which it may be subject.
7.8 EMPLOYEE STOCK OPTIONS. From and after the date of this
Agreement, except as specifically approved by the Company's Board of
Directors, all shares of Common Stock and all options granted by the
Company to employees, consultants, officers and non-investor directors for
shares of Common Stock (a) shall, until an IPO (as defined in Section
7.12), be subject to a right of first refusal in favor of the Company, (b)
shall vest over a four-year period as follows: (i) 1/4 at the end of the
twelfth calendar month following the commencement of such person's
employment or other retention, and (ii)
34
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1/48 at the end of each month for the next 36 months of such employment or
other retention, and shall be subject to the right of the Company to
repurchase any non-vested stock at the price paid by the employee prior to
full vesting; provided that upon a sale of the Company (whether pursuant
to a stock or asset transaction) or a merger of the Company with and into
another company (unless the Company is the surviving corporation), all
non-vested shares shall immediately become vested and (c) shall be subject
to a restriction against transfer of non-vested stock, other than to a
family trust. The rights of the Company in (a) and (b) hereof are
assignable by the Company, subject to the approval of a majority of the
Board of Directors, except that any assignment pursuant to Section 7.10(e)
hereof shall not require Board approval.
7.9 CONFIDENTIALITY. Any information provided pursuant to Sections
7.1, 7.3 and 7.4 shall be used by each Investor solely in furtherance of
its interests as an investor in the Company, and each Investor shall
(except as otherwise required by law) maintain the confidentiality of all
confidential information of the Company obtained under said sections,
provided that (a) the Company makes an appropriate designation of any such
confidential information, and (b) any other term of this Agreement to the
contrary notwithstanding, the Company shall not be obligated to disclose
any information under such Sections, the disclosure of which it believes
in good faith would be detrimental to the business of the Company, except
that nothing in this clause (b) will limit in any way the obligation of
the Company and its officers to fully disclose the business affairs of the
Company to the members of the Board of Directors that have entered into
confidentiality agreements for the benefit of the Company. The term
"confidential information" shall not include such information that (i) is
or becomes generally available to the public other than as a result of a
disclosure by an Investor or its agents, representatives or employees
in violation of its obligations hereunder; (ii) is or becomes available
to an Investor on a non-confidential basis from a source (other than the
Company or one of its directors, officers,
35
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agents, representatives or employees) that is not prohibited from
disclosing such information by a legal, contractual or fiduciary
obligation; or (iii) was known to an Investor on a non-confidential basis
prior to its disclosure to such Investor by the Company.
In the event that an Investor, or anyone to whom an Investor
transmits any confidential information, becomes legally compelled to
disclose any confidential information, such person will provide the
Company with prompt notice so that it may seek a protective order or other
appropriate remedy and/or waive compliance with the provisions of this
Section 7.9. In the event that such protective order or other remedy is
not obtained, or the Company waives compliance with the provisions of this
Section 7.9, the Investor will furnish only that portion of the
confidential information that it is advised by counsel is legally required
and will exercise its reasonable efforts to obtain reliable assurance that
confidential treatment will be accorded the confidential information.
7.10 RIGHT OF FIRST REFUSAL. The Company hereby grants to each
Investor the right of first refusal to purchase, pro-rata, all (or any
part) of (x) New Securities (as defined in Section 7.10(a) below) that the
Company may, from time to time, propose to sell and issue and (y) Employee
Stock (as defined in Section 7.10(d) below) that the Company is entitled
to, but shall not, repurchase from an employee. The Investor's pro rata
share shall be the ratio of the number of Preferred Shares then held by
the Investor as of the date of the Rights Notice (as defined in Section
7.10(b)) or the Repurchase Notice (as defined in Section 7.10(e)), as the
case may be, to the sum of the total number of Preferred Shares then held
by all Investors (including for this purpose permitted transferees of the
Investor pursuant to Section 7.10(f) hereof) as of such date. This right
of first refusal shall be subject to the following provisions:
(a) "New Securities" shall mean any Common Stock or preferred shares
of any kind of the Company, whether now
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or hereafter authorized, and rights, options, or warrants to purchase said
Common Stock or preferred shares, and securities of any type whatsoever
that are, or may become, convertible into said Common Stock or preferred
shares; provided, however, that "New Securities" shall not include (i)
securities issuable with respect to the Preferred Shares issued on or
prior to the date hereof and shares of Series C Preferred issued
hereunder; (ii) securities issuable upon exercise of warrants, options and
rights issued prior to the date hereof and Common Stock issuable upon
conversion of any securities issued under this clause (ii); (iii)
securities offered to the public pursuant to a registration statement
filed under the Securities Act; (iv) securities issued in connection with
the acquisition of another corporation, business entity or line of
business of another business entity by the Company by merger,
consolidation, purchase of all or substantially all of the assets, or
other reorganization as a result of which the Company owns not less than
fifty-one percent (51%) of the voting power of such corporation; (v)
shares of the Company's Common Stock or preferred shares issued in
connection with any Recapitalization Event by the Company; (vi) securities
authorized by the Company's Board of Directors to be issued in connection
with the leasing or acquisition of assets by the Company or supply
arrangements for the Company; (vii) options, warrants or rights issued
pursuant to employee stock purchase and/or stock ownership plans that have
been or will be adopted by the Company for Key Employees; (viii)
securities reserved, not to exceed 2,110,000 shares of Common Stock, under
employee stock option or purchase plans, or securities to be issued to
consultants of the Company or in connection with an acquisition or the
formation of a joint venture, in each case as approved by the Board of
Directors; or (ix) securities issued pursuant to Section 18 hereof.
(b) If the Company proposes to issue New Securities, it shall give
the Investors written notice (the "Rights Notice") of its intention,
describing the New Securities, the price, the general terms upon which the
Company proposes to issue them, and the number of shares that the Investor
has the right to purchase under
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this Section 7.10. Each Investor (including for this purpose any permitted
transferee of an Investor under Section 7.10(f) hereof) shall have
twenty-five (25) days from delivery of the Rights Notice to agree to
purchase (i) all or any part of its pro-rata share of such New Securities
and (ii) all or any part of the pro-rata share of any other Investor to
the extent that such other Investor does not elect to purchase its full
pro-rata share, in each case for the price and upon the general terms
specified in the Rights Notice, by giving written notice to the Company
setting forth the quantity of New Securities to be purchased. If the
Investors who elect to purchase their full pro-rata shares also elect to
purchase in the aggregate more than 100% of the New Securities, such New
Securities shall be sold to such Investors in accordance with their
respective pro-rata shares.
(c) If the Investors fail to exercise in full the right of first
refusal within the period or periods specified in Section 7.10(b), the
Company shall have one hundred twenty (120) days after delivery of the
Rights Notice to sell the unsold New Securities at a price and upon
general terms no more favorable to the purchasers thereof than specified
in the Company's notice. If the Company has not sold the New Securities
within said one hundred twenty (120) day period the Company shall not
thereafter issue or sell any New Securities without first offering such
securities to the Investors in the manner provided above.
(d) "Employee Stock" shall mean any Common Stock of the Company,
whether now or hereafter authorized, that the Company has issued or sold
to an employee pursuant to an employee stock purchase, option or benefit
plan, agreement or other offering or arrangement, including, without
limitation, all shares sold by the Company to employees of the Company
subject to agreements of restriction by the Company and all Reserved
Shares described in Section 3.2(b).
(e) If the Company has the right to repurchase any Employee Stock
from any employee for any reason,
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including, without limiting the generality of the foregoing, the
termination of such employee's employment, and if it shall not repurchase
all of the shares of such Employee Stock, it shall promptly give each
Investor written notice (the "Repurchase Notice") of the Investor's right
to repurchase, describing the Employee Stock, the price, the general terms
upon which such Employee Stock is available for repurchase, and the number
of shares that the Investor has the right to purchase under this Section
7.10. Each Investor shall have fifteen (15) days from delivery of any such
notice in accordance with Section 13 to agree to purchase (i) all or any
part of its pro-rata share of such Employee Stock and (ii) all or any part
of the pro-rata share of any other Investor (including, for this purpose,
any assignee of an Investor's rights of first refusal under Section
7.10(f) hereof) to the extent that such other Investor does not elect to
purchase his full pro-rata share, in each case for the price and upon the
general terms specified in the notice by giving written notice to the
Company setting forth the quantity of Employee Stock to be purchased. If
the Investors who elect to purchase their full pro-rata shares also elect
to purchase in the aggregate more than 100% of the Employee Stock, such
Employee Stock shall be sold to such Investors in accordance with their
respective pro-rata shares.
(f) The rights of first refusal described in this Section 7.10 are
nonassignable except to an affiliate of each Investor or any of such
Investor's beneficial owners, including without limitation partners of a
general or limited partnership, shareholders of a corporation, and
beneficiaries of a trust (a "Beneficial Owner"). Each Investor shall be
entitled to apportion the rights of first refusal hereby granted among
itself and its affiliates and Beneficial Owners in such proportions as it
deems appropriate.
7.11 MAINTENANCE OF EXISTENCE AND PROPERTIES, ETC.. The Company
will, and will cause each of its Subsidiaries to (a) maintain its
corporate existence, rights, governmental approvals and franchises
necessary to the conduct of its business, (b) keep its properties in good
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repair, working order and condition, reasonable wear and tear excepted,
(c) give appropriate notice of events of default pursuant to any
agreements of the Company, (d) enter into transactions with "affiliates"
or "associates" (as those terms are defined in Rule 405 promulgated under
the Securities Act) only on fair and reasonable terms and (e) promptly pay
and discharge, or cause to be paid and discharged, when due and payable,
all lawful taxes, assessments and governmental charges or levies imposed
upon the income, profits, property or business of the Company or any
Subsidiary; provided, however, that any such tax, assessment, charge or
levy need not be paid if the validity thereof shall at the time be
contested in good faith by appropriate proceedings and provided further
that, unless otherwise approved by the Board of Directors, the Company
will pay all such taxes, assessments, charges or levies forthwith upon the
commencement of proceedings to foreclose any lien which may have attached
as security therefor.
7.12 TERMINATION OF COVENANTS. The covenants set forth in Sections
7.1 through 7.4, 7.10 and 7.11 shall terminate and be of no further force
or effect on the consummation of the first firm commitment underwritten
public offering of securities of the Company pursuant to a registration
statement filed by the Company under the Securities Act (an "IPO") or with
respect to shares of Common Stock held by an Investor that have been
issued upon conversion of Preferred Shares pursuant to an Additional
Automatic Conversion Event (as defined in Article Fifth, Section
(d)(ii)(B) of the Third Restated Certificate).
8. REGISTRATION. The following provisions govern the registration of
Common Stock:
8.1 DEFINITIONS. As used herein, the following terms have the
following meanings:
Forms S-1, S-2 and S-3: The forms so designated, promulgated by the
Commission for registration of securities under the Securities Act,
and any forms
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succeeding to the functions of such forms, whether or not bearing
the same designation.
Holder: A holder of Registrable Stock (subject to Section 8.13
hereof), provided that anyone who acquires any Registrable Stock in
a distribution pursuant to a registration statement filed by the
Company under the Securities Act shall not thereby be deemed to be a
"Holder".
Key Employees: The Key Employees and certain employees of the
Company designated by a majority of the Board of Directors from time
to time as "Key Employees"; provided that in no event shall a person
be considered a Key Employee if such person is no longer employed by
the Company.
"Register", "registered" and "registration" refer to a registration
effected by filing a registration statement in compliance with the
Securities Act and the declaration or ordering by the Commission of
effectiveness of such registration statement.
Registrable Stock: All shares of Common Stock issued or issuable
upon conversion of the Preferred Shares (other than shares converted
pursuant to an Additional Automatic Conversion Event) or held by a
person to whom registration rights have been transferred pursuant to
the provisions of this Section 8, all shares of Common Stock issued
by the Company in respect of such shares and all shares of Common
Stock that the Investors may hereafter purchase pursuant to their
rights of first refusal or otherwise, or Common Stock issued on
conversion or exercise of securities so purchased.
Required Demand Amount: 51% of the Registrable Stock then
outstanding, in the case of the first registration effected pursuant
to Section 8.2, and 25% of the Registrable Stock then outstanding,
in the case of the second registration effected pursuant to Section
8.2.
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Subject Stock: All Registrable Stock held by the Investors or by a
person to whom registration rights have been transferred pursuant to
this Section 8, and the shares of Common Stock held by the Key
Employees. Subject Stock shall not include shares acquired in a
distribution pursuant to a registration statement filed by the
Company under the Securities Act.
8.2 REQUIRED REGISTRATION. (a) If (i) the holder or holders of an
aggregate of at least the Required Demand Amount propose to dispose of at
least 20% of the then outstanding Registrable Stock (such holder or
holders being herein called the "Initiating Holders"), and (ii) such
disposition may not, in the opinion of such Initiating Holders, be
effected in the public marketplace (as opposed to a private transaction
under the Securities Act) on equally favorable net terms to the Initiating
Holders without registration of such shares under the Securities Act, the
Initiating Holders may request the Company in writing to effect such
registration, stating the number of shares of Registrable Stock to be
disposed of by such Initiating Holders (which, in the aggregate, shall be
not less than 20% of the then outstanding Registrable Stock) and the
intended method of disposition. Upon receipt of such request, the Company
will give prompt written notice thereof to all other Holders whereupon
such other Holders shall give written notice to the Company within 20 days
after the date of the Company's notice (the "Notice Period") if they
propose to dispose of any shares of Registrable Stock pursuant to such
registration, stating the number of shares of Registrable Stock to be
disposed of by such Holder or Holders and the intended method of
disposition.
(b) The Key Employees may register securities for sale for their own
account in the registration requested pursuant to this Section 8.2,
subject to limitations on the number of shares which may be imposed by the
underwriter as set forth in Section 8.4(d) below. At the time the Company
shall give the notice to Holders required by Section 8.2(a), it shall also
give the same notice to the Key Employees whereupon each Key Employee
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shall give written notice to the Company within the Notice Period if such
Key Employee proposes to dispose of any shares of Common Stock held by him
or her pursuant to such registration, stating the number of shares of
Common Stock to be disposed of by such Key Employee and the intended
method of disposition.
(c) The Company will use its best efforts to effect promptly after
the Notice Period the registration under the Securities Act of all shares
of Subject Stock specified in the requests of the Initiating Holders, the
requests of the other Holders and the requests of the Key Employees,
subject, however, to the limitations set forth in Section 8.4.
8.3 REGISTRATION PROCEDURES. Whenever the Company is required by the
provisions of this Section 8 to use its best efforts to effect promptly
the registration of shares of Registrable Stock, the Company will:
(a) prepare and file with the Commission a registration statement
with respect to such shares and use its best efforts to cause such
registration statement to become and remain effective as provided herein;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective and current and to comply with the provisions of the
Securities Act with respect to the disposition of all shares covered by
such registration statement, including such amendments and supplements as
may be necessary to reflect the intended method of disposition from time
to time of the prospective seller or sellers of such shares, but for no
longer than one hundred twenty (120) days subsequent to the effective date
of such registration in the case of a registration statement on Form S-1
or S-2 and for no longer than ninety (90) days in the case of a
registration statement on Form S-3;
(c) furnish to each prospective seller such number of copies of a
prospectus, including a preliminary
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prospectus, in conformity with the requirements of the Securities Act, and
such other documents, as such seller may reasonably request in order to
facilitate the public sale or other disposition of the shares owned by
such seller;
(d) use its best efforts to register or qualify the shares covered
by such registration statement under such other securities or blue sky or
other applicable laws of such jurisdiction within the United States as
each prospective seller shall reasonably request, to enable such seller to
consummate the public sale or other disposition in such jurisdictions of
the shares owned by such seller; provided, however, that in no event shall
the Company be obligated to qualify to do business in any jurisdiction
where it is not at the time so qualified or to take any action which would
subject it to service of process in suits other than those arising out of
the offer or sale of the Subject Stock covered by such registration
statement in any jurisdiction where it is not at the time so subject;
(e) furnish to each prospective seller (i) a signed counterpart,
addressed to the prospective sellers, of an opinion of counsel for the
Company, dated the effective date of the registration statement, covering
substantially the same matters with respect to the registration statement
(and the prospectus included therein) as are customarily covered (at the
time of such registration) in opinions of issuer's counsel delivered to
the underwriters in underwritten public offerings of securities, and (ii)
a letter dated such date, from the independent certified public
accountants of the Company, in form and substance as is customarily given
by independent certified public accountants to underwriters in an
underwritten public offering, addressed to the underwriters, if any, and
to the Holders requesting registration of Registrable Stock;
(f) in the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering; each
Holder
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participating in such underwriting shall also enter into and perform its
obligations under such an agreement;
(g) notify each Holder of Registrable Stock covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any
event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material
fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of
the circumstances then existing; and
(h) apply for listing and use its best efforts to list the
Registrable Stock being registered on any national securities exchange on
which a class of the Company's equity securities are listed or, if the
Company does not have a class of equity securities listed on a national
securities exchange, apply for qualification and use its best efforts to
qualify the Registrable Stock being registered for inclusion on the
automated quotation system of the National Association of Securities
Dealers, Inc. or on a national securities exchange.
8.4 LIMITATIONS ON REQUIRED REGISTRATIONS. (a) The Company shall not
be required to effect more than two registrations on behalf of the
Investors pursuant to Section 8.2.
(b) The Company shall not be required to cause a registration
requested pursuant to Section 8.2 to become effective prior to the earlier
of (i) December 1, 1998 and (ii) the expiration of six (6) months after
the effective date of the first registration statement initiated by the
Company (other than a registration effected solely to implement an
employee benefit plan or a transaction to which Rule 145 of the Commission
is applicable).
(c) The Company shall not register securities for sale for its own
account in any registration requested pursuant to Section 8.2 unless
permitted to do so by the
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written consent of Holders who hold at least 51% of the Registrable Stock
as to which registration has been requested. The Company may not cause any
other registration of securities for sale for its own account (other than
a registration effected solely to implement an employee benefit plan) to
be initiated after a registration requested pursuant to Section 8.2,
unless such other registration becomes effective at least 120 days after
the effective date of any registration requested pursuant to Section 8.2.
(d) Whenever a requested registration is for an underwritten
offering, only shares which are to be included in the underwriting may be
included in the registration. Notwithstanding the provisions of Sections
8.2(b) and 8.4(c), if the underwriter determines that (i) marketing
factors require a limitation of the total number of shares to be
underwritten or a limitation of the total number of shares of the Key
Employees to be underwritten, or (ii) the offering price per share would
be reduced by the inclusion of the shares of the Key Employees and/or the
Company, then the number of shares to be included in the registration and
underwriting shall first be allocated among all Holders who indicated to
the Company their decision to distribute any of their Registrable Stock
through such underwriting, in proportion, as nearly as practicable, to the
respective numbers of shares of Registrable Stock owned by such Holders at
the time of filing the registration statement, then to the Key Employees
who have indicated to the Company their decision to distribute any of
their Subject Stock through such underwriting, in proportion, as nearly as
practicable, to the respective numbers of shares of Subject Stock owned by
the Key Employees at the time of filing of the registration statement, and
the remainder, if any, to the Company; provided, however, that if the
underwriter determines that marketing factors require a limitation of the
number of shares of the Key Employees to be underwritten or that the
offering price per share would be reduced by the inclusion of the shares
of the Key Employees, then the number of shares of the Key Employees that
may be so included shall be reduced, or eliminated from registration, as
the underwriter shall
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advise. No stock excluded from the underwriting by reason of the
underwriter's marketing limitation shall be included in such registration.
If any Holder, Key Employee or the Company disapproves of any such
underwriting, such person may elect to withdraw therefrom by written
notice to the Initiating Holders and the underwriter. The securities so
withdrawn from such underwriting shall also be withdrawn from such
registration.
(e) The Company shall not be required to effect a registration
pursuant to Section 8.2 unless the proposed disposition of shares of
Subject Stock has an aggregate expected offering price (before deduction
of underwriting discounts and expenses of sale) of not less than
$5,000,000.
(f) If at the time of any request to register Registrable Stock
pursuant to Section 8.2 hereof, the Company is engaged, or has fixed plans
to engage within 90 days of the time of the request, in a registered
public offering as to which the Holders may include such Stock pursuant to
Section 8.5 hereof or is engaged in any other activity which, in the good
faith determination of the Company's Board of Directors, would be
adversely affected by the requested registration to the material detriment
of the Company, then the Company may at its option direct that such
request be delayed for a period not in excess of six months from the
effective date of such offering, or the date of commencement of such other
material activity, as the case may be, such right to delay a request to be
exercised by the Company not more than once while the rights set forth in
Section 8.2 are in effect.
(g) The registration rights granted under Section 8.2 shall
terminate as to any Holder or permissible transferees or assignee of such
rights if such person (i) holds one percent (1%) or less of the
outstanding shares of Common Stock of the Company and (ii) would be
permitted to sell all of the Subject Stock held by it pursuant to Rule
144(k).
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8.5 INCIDENTAL REGISTRATION. If the Company at any time proposes to
register any of its securities under the Securities Act (other than a
registration effected solely to implement an employee benefit plan or a
transaction to which Rule 145 of the Commission is applicable), it will
each such time give prompt written notice to all Holders and to the Key
Employees of its intention so to do. Upon the written request of a Holder
or Holders or a Key Employee or Key Employees given within 20 days after
receipt of any such notice (stating the number of shares of Subject Stock
to be disposed of by such Holder or Holders or such Key Employee or Key
Employees and the intended method of disposition), the Company will use
its best efforts to cause all such shares of Subject Stock intended to be
disposed of, the Holders or the Key Employees owners of which shall have
requested registration thereof, to be registered under the Securities Act
so as to permit the disposition (in accordance with the methods in said
request) by such Holder or Holders or such Key Employee or Key Employees
of the shares so registered, subject, however, to the limitations set
forth in Section 8.6.
8.6 LIMITATIONS ON INCIDENTAL REGISTRATION. If the registration of
which the Company gives notice pursuant to Section 8.5 is for an
underwritten offering, only securities that are to be included in the
underwriting may be included in the registration. Notwithstanding any
provision of Section 8.5, if the underwriter determines that marketing
factors require a limitation of the number of shares to be underwritten,
the underwriter may eliminate or reduce the number of shares of Subject
Stock to be included in the registration and underwriting. The Company
shall so advise all Holders and the Key Employees (except those Holders
and Key Employees who have not indicated to the Company their decision to
distribute any of their Subject Stock through such underwriting), and the
number of shares of Subject Stock that may be included in the registration
and underwriting shall be allocated among such Holders and Key Employees
in proportion, as nearly as practicable, to the respective amounts of
Subject Stock owned by such Holders and Key Employees at the time of
filing the registration
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statement. No Subject Stock excluded from the underwriting by reason of
the underwriter's marketing limitation shall be included in such
registration. If any Holder or Key Employee disapproves of any such
underwriting, such person may elect to withdraw therefrom by written
notice to the Company and the underwriter. The Subject Stock and/or other
securities so withdrawn from such underwriting shall also be withdrawn
from such registration. The registration rights granted under Section 8.5
shall terminate as to any Key Employee or Holder or permissible
transferees or assignee of such rights if such person (a) holds one
percent (1%) or less of the outstanding shares of Common Stock of the
Company and (b) would be permitted to sell all of the Subject Stock held
by him pursuant to Rule 144(k).
8.7 DESIGNATION OF UNDERWRITER. (a) In the case of any registration
effected pursuant to Section 8.2 or 8.8, a majority in interest of the
requesting Holders shall have the right to designate the managing
underwriter(s) in any underwritten offering.
(b) In the case of any registration initiated by the Company, the
Company shall have the right to designate the managing underwriter in any
underwritten offering.
8.8 FORM S-3. (a) The Company shall register its Common Stock under
the Exchange Act as soon as legally permissible following the effective
date of the first registration of any securities of the Company on Form
S-1 and the Company shall thereafter file all reports and effect all
qualifications and compliances as would permit or facilitate the sale and
distribution of its stock on Form S-3. After the Company has qualified for
the use of Form S-3, the Holders shall have the right to request up to six
(6) registrations on Form S-3 (such requests shall be in writing and shall
state the number of shares of Registrable Stock to be disposed of and the
intended method of disposition) subject only to the following:
(i) The Company shall not be required to effect a registration
pursuant to this Section 8.8
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unless the Holder or Holders requesting registration propose
to dispose of shares of Registrable Stock having an aggregate
expected public offering price (before deduction of
underwriting discounts and expenses of sale) of at least
$500,000.
(ii) The Company shall not be required to effect a registration
pursuant to this Section 8.8 more frequently than once during
any twelve-month period.
The Company shall give prompt written notice to all Holders and Key
Employees of the receipt of a request for registration pursuant to this
Section 8.8 and shall provide a reasonable opportunity for other Holders
and Key Employees to participate in the registration, provided that if the
registration is for an underwritten offering, the terms of paragraph (d)
of Section 8.4 shall apply to all participants in such offering. Subject
to the foregoing, the Company will use its best efforts to effect promptly
the registration of all shares of Subject Stock on Form S-3 to the extent
requested by the Holder or Holders thereof or by a Key Employee.
(b) The registration rights granted under this Section 8.8 shall
terminate as to any Holder or permissible transferees or assignee of such
rights if such person (a) holds one percent (1%) or less of the
outstanding shares of Common Stock of the Company and (b) would be
permitted to sell all of the Subject Stock held by it pursuant to Rule
144(k).
8.9 COOPERATION BY PROSPECTIVE SELLERS. (a) Each prospective seller
of Subject Stock, and each underwriter designated by a majority in
interest of the requesting Holders, will furnish to the Company such
information as the Company may reasonably require from such seller or
underwriter in connection with the registration statement (and the
prospectus included therein).
(b) Failure of a prospective seller of Subject Stock to furnish the
information and agreements described
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in this Section 8.9 shall (i) with respect to registration rights under
Section 8.2, terminate such prospective seller's registration rights, and
(ii) with respect to registration rights under Section 8.5, terminate such
prospective seller's registration rights with respect to the registration
at issue. However, such failure shall not affect the obligations of the
Company under this Section 8 to remaining sellers who furnish such
information and agreements unless, in the reasonable opinion of counsel to
the Company or the underwriters, such failure impairs or may impair the
viability of the offering or the legality of the registration statement or
the underlying offering.
(c) The Holders and the Key Employees holding shares included in the
registration statement will not (until further notice) effect sales
thereof after receipt of telegraphic or written notice from the Company to
suspend sales to permit the Company to correct or update a registration
statement or prospectus; but the obligations of the Company with respect
to maintaining any registration statement current and effective shall be
extended by a period of days equal to the period such suspension is in
effect unless (i) such extension would result in the Company's inability
to use the financial statements in the registration statement initially
filed pursuant to the Holder or Holders' request and (ii) such correction
or update did not result from the Company's acts or failures to act.
At the end of the period during which the Company is obligated to
keep the registration statement current and effective as described in
paragraph (b) of Section 8.3 (and any extensions thereof required by the
preceding sentence), the Holders and the Key Employees holding shares
included in the registration statement shall discontinue sales of shares
pursuant to such registration statement upon receipt of notice from the
Company of its intention to remove from registration the shares covered by
such registration statement which remain unsold, and such Holders and Key
Employees shall notify the Company of the number of shares registered
which remain unsold immediately upon receipt of such notice from the
Company.
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8.10 EXPENSES OF REGISTRATION. (a) All expenses incurred in
effecting any registration pursuant to Sections 8.2 and 8.5 including,
without limitation, all registration and filing fees, printing expenses,
expenses of compliance with blue sky laws, fees and disbursements of
counsel for the Company, expenses, fees and disbursements of one special
counsel retained by the Holders and/or the Key Employees not to exceed
$10,000, and expenses of any audits incidental to or required by any such
registration, shall be borne by the Company, except (i) that all expenses,
fees and disbursements of any additional counsel retained by the Holders
and/or the Key Employees, and all underwriting discounts and commissions
shall be borne by the Holders of and the Key Employees holding the
securities registered pursuant to such registration, pro rata according to
the quantity of their securities so registered; (ii) the Company shall not
be required to pay for any expenses of any registration proceeding begun
pursuant to Section 8.2 if the registration request is subsequently
withdrawn at the unilateral written request, not concurred in by the
Company, of the Holders of a majority of the Registrable Securities to be
registered (in which case all participating Holders shall bear such
expenses), unless the Holders of a majority of the Registrable Securities
agree to forfeit their right to one demand registration pursuant to
Section 8.2; provided, however, that if immediately prior to the time of
such withdrawal, the Holders have learned of a materially adverse change
in the condition, business or prospects of the Company from that known to
the Holders at the time of their request, then the Holders shall not be
required to pay any of such expenses and shall retain their rights
pursuant to Section 8.2; and (iii) with respect to registrations
effectuated under Section 8.2, the Company shall be required to pay
expenses only in respect of the first two such registrations.
(b) All expenses incurred in effecting any registration pursuant to
Section 8.8, including without limitation all registration and filing
fees, printing expenses, expenses of compliance with blue sky laws, fees
and disbursements of counsel for the Company, expenses,
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fees and disbursements of special counsel retained by the Holders and/or
the Key Employees, all underwriting discounts and commissions, and
expenses of any audits incidental to or required by any such registration,
shall be borne by the Holders of, and the Key Employees holding, the
securities registered pursuant to such registration, pro rata according to
the quantity of their securities so registered.
8.11 INDEMNIFICATION. (a) To the extent permitted by law, the
Company will indemnify and hold harmless each Holder and Key Employee
requesting or joining in a registration, each agent, officer and director
of such Holders, each person controlling (within the meaning of Section 15
of the Securities Act) such Holder and each underwriter and selling broker
of the securities so registered (collectively, "Indemnitees") against all
claims, losses, damages and liabilities (or actions in respect thereof)
arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any prospectus, offering
circular or other document incident to any registration, qualification or
compliance (or in any related registration statement, notification or the
like) or any omission (or alleged omission) to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, or any violation (or alleged violation) by the
Company of the Securities Act, the Exchange Act or state securities laws
or any rule or regulation promulgated under the Securities Act, the
Exchange Act or a state securities law, in each case applicable to the
Company, and will reimburse each such Indemnitee for any legal and any
other fees and expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or
action, provided, however, that the Company will not be liable to any
Indemnitee in any such case to the extent that any such claim, loss,
damage or liability is caused by any untrue statement or omission so made
in strict conformity with written information furnished to the Company by
an instrument duly executed by such Indemnitee and stated to be
specifically for use therein and except that the foregoing indemnity
agreement
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is subject to the condition that, insofar as it relates to any such untrue
statement (or alleged untrue statement) or omission (or alleged omission)
made in the preliminary prospectus but eliminated or remedied in the
amended prospectus on file with the Commission at the time the
registration statement becomes effective or in the amended prospectus
filed with the Commission pursuant to Rule 424(b) (the "Final
Prospectus"), such indemnity agreement shall not inure to the benefit of
any underwriter, or any Indemnitee if there is no underwriter, if a copy
of the Final Prospectus was not furnished to the person or entity
asserting the loss, liability, claim or damage at or prior to the time
such furnishing is required by the Securities Act; provided, further, that
this indemnity shall not be deemed to relieve any underwriter of any of
its due diligence obligations; provided, further, that the indemnity
agreement contained in this subsection 8.11(a) shall not apply to amounts
paid in settlement of any such claim, loss, damage, liability or action if
such settlement is effected without the consent of the Company, which
consent shall not be unreasonably withheld.
(b) To the extent permitted by law, each Holder and each Key
Employee requesting or joining in a registration and each underwriter and
selling broker of the securities so registered will indemnify and hold
harmless the Company and its officers and directors and each person, if
any, who controls any thereof within the meaning of Section 15 of the
Securities Act and their respective successors against all claims, losses,
damages and liabilities (or actions in respect thereof) arising out of or
based on any untrue statement (or alleged untrue statement) of a material
fact contained in any prospectus, offering circular or other document
incident to any registration, qualification or compliance (or in any
related registration statement, notification or the like) or any 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 the Company and each other person indemnified pursuant
to this paragraph (b) for any legal and any other fees and expenses
reasonably incurred in
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connection with investigating or defending any such claim, loss, damage,
liability or action, provided, however, that this paragraph (b) shall
apply only if (and only to the extent that) such statement or omission was
made in reliance upon and in strict conformity with written information
(including, without limitation, written negative responses to inquiries)
furnished to the Company by an instrument duly executed by such Holder,
Key Employee, underwriter or selling broker and stated to be specifically
for use in such prospectus, offering circular or other document (or
related registration statement, notification or the like) or any amendment
or supplement thereto; and except that the foregoing indemnity agreement
is subject to the condition that, insofar as it relates to any such untrue
statement (or alleged untrue statement) or omission (or alleged omission)
made in the preliminary prospectus but eliminated or remedied in the
amended prospectus on file with the Commission at the time the
registration statement becomes effective or in the Final Prospectus, such
indemnity agreement shall not inure to the benefit of (i) the Company and
(ii) any underwriter, Holder or Key Employee, if there is no underwriter,
if a copy of the Final Prospectus was not furnished to the person or
entity asserting the loss, liability, claim or damage at or prior to the
time such furnishing is required by the Securities Act; provided, further,
that this indemnity shall not be deemed to relieve any underwriter of any
of its due diligence obligations; provided, further, that the indemnity
agreement contained in this subsection 8.11(b) shall not apply to amounts
paid in settlement of any such claim, loss, damage, liability or action if
such settlement is effected without the consent of the Holder, Key
Employee or underwriter, as the case may be, which consent shall not be
unreasonably withheld; and provided, further, that the obligations of such
Holders or Key Employees shall be limited to an amount equal to the net
proceeds received by such Holder or Key Employee from the sale of Subject
Stock in such offering as contemplated herein, unless such claim, loss,
damage, liability or action resulted from such Holder's or Key Employee's
intentional fraudulent misconduct.
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(c) Each party entitled to indemnification hereunder (the
"indemnified party") shall give notice to the party required to provide
indemnification (the "indemnifying party") promptly after such indemnified
party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the indemnifying party (at its expense) to assume
the defense of any claim or any litigation resulting therefrom, provided
that counsel for the indemnifying party, who shall conduct the defense of
such claim or litigation, shall be reasonably satisfactory to the
indemnified party, and the indemnified party may participate in such
defense at such party's expense, and provided further that the omission by
any indemnified party to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Section 8.11 except
to the extent that the omission results in a failure of actual notice to
the indemnifying party and such indemnifying party is damaged as a result
of the failure to give notice. No indemnifying party, in the defense of
any such claim or litigation, shall consent, except with the consent of
each indemnified party, to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such indemnified party of a release
from all liability in respect to such claim or litigation.
(d) The reimbursement required by this Section 8.11 shall be made by
periodic payments during the course of the investigation or defense, as
and when bills are received or expenses incurred.
(e) The obligation of the Company under this Section 8.11 shall
survive the redemption, if any, of the Preferred Shares, and the
completion of any offering of Subject Stock in a registration statement
under this Section 8, or otherwise.
8.12 RIGHTS THAT MAY BE GRANTED TO SUBSEQUENT INVESTORS. (a) Within
the limitations prescribed by this paragraph (a), but not otherwise, the
Company may grant to subsequent investors in the Company rights of
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incidental registration (such as those provided in Section 8.5). Such
rights may only pertain to shares of Common Stock, including shares of
Common Stock into which any other securities may be converted. Such rights
may be granted with respect to (i) registrations actually requested by
Initiating Holders pursuant to Section 8.2, but only in respect of that
portion of any such registration as remains after inclusion of all
Registrable Stock requested by Holders but before inclusion of any Subject
Stock requested by the Key Employees and (ii) registrations initiated by
the Company, but only in respect of that portion of such registration as
remains after inclusion of all Subject Stock. With respect to
registrations which are for underwritten public offerings, the number of
shares held by subsequent investors that may be included in the
underwriting shall be allocated as specified in clauses (i) and (ii) of
the third sentence of this paragraph (a). Shares not included in such
underwriting shall not be registered.
(b) The Company may not grant to subsequent investors in the Company
rights of registration upon request (such as those provided in Sections
8.2 and 8.8) unless (i) such rights are limited to shares of Common Stock,
(ii) all Holders and the Key Employees are given enforceable contractual
rights to participate in registrations requested by such subsequent
investors (but subordinate to the rights of priority of registration set
forth in Sections 8.4(d) and 8.6), such participation to be on a pro-rata
basis, and subject to the limitations, described in the final three
sentences of paragraph (a) of this Section 8.12, (iii) such rights shall
not become effective prior to 90 days after the effective date of the
first registration pursuant to Section 8.2 and (iv) such rights shall not
be more favorable than those granted to the Holders.
8.13 TRANSFER OF REGISTRATION RIGHTS. The registration rights
granted to the Investors under this Section 8 may be transferred but only
to (i) a transferee who shall acquire not less than 500,000 shares of
Registrable Stock, as adjusted for Recapitalization
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Events, (ii) affiliates of the Investors, (iii) Beneficial Owners, and
(iv) spouses, ancestors, lineal descendants, and siblings (and lineal
descendants and siblings of such spouses who acquire Registrable Stock by
gift, will or intestate succession) if all such transferees or assignees
agree in writing to appoint a single representative as their attorney in
fact for the purpose of receiving any notices and exercising their rights
under this Section 8.
8.14 "STAND-OFF" AGREEMENT. In consideration for the Company
performing its obligations under this Section 8, each Investor and each
Key Employee severally agrees for such period of time (not to exceed 270
days) as is determined by the underwriters managing any underwritten
offering of the Company's securities (the "Managing Underwriter") from the
effective date of any registration (other than a registration effected
solely to implement an employee benefit plan) of securities of the Company
(upon request of the Company or of the Managing Underwriter) not to sell,
make any short sale of, loan, grant any option for the purchase of, or
otherwise dispose of any Subject Stock or any other stock of the Company
held by each Investor or Key Employee, other than shares of Subject Stock
included in the registration, without the prior written consent of the
Company or such underwriters, as the case may be, provided that all
officers and directors of the Company and each holder of more than 2% of
the outstanding Common Stock shall enter into similar agreements.
8.15 DELAY OF REGISTRATION. The Investors and the Key Employees
shall have no right to take any action to restrain, enjoin, or otherwise
delay any registration as the result of any controversy that might arise
with respect to the interpretation or implementation of this Section 8.
9. NEGATIVE COVENANTS. (a) So long as not less than 500,000 Preferred
Shares (as adjusted for Recapitalization Events) are outstanding, the Company
shall not, without the affirmative vote of the holders of record of at least 51%
of
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the outstanding Preferred Shares, voting together as one class:
(i) declare or pay any dividends or make any other distributions on
shares of Common Stock;
(ii) repurchase, or permit any corporation, firm or entity under its
control (a "Controlled Entity") to repurchase any shares of Series C
Preferred, Series B Preferred, Series A Preferred or Common Stock (other
than Employee Stock or redemptions effected upon the terms contained in
the Third Restated Certificate);
(iii) make, or permit any Controlled Entity to make, any investments
in, loans, advances, capital contributions, or transfers of property to
any person or entity (other than to the Company, a wholly-owned subsidiary
of the Company or to their respective employees in the ordinary course of
business as advances against salary, as employee expense advances or to
enable such employees to either purchase Employee Stock or exercise
options for Common Stock issued to them pursuant to stock option plans by
giving a promissory note therefor);
(iv) create, incur, assume, guaranty or become liable for, or permit
any Controlled Entity to create, incur, assume, guaranty or become liable
for, any Indebtedness other than (A) current liabilities of the Company
not incurred through the borrowing of money or the obtaining of credit
except credit on an open account customarily extended; (B) Indebtedness in
respect of taxes or other governmental charges not yet due and payable or
being contested in good faith and by appropriate proceedings; (C)
refinancings of the Indebtedness listed in Schedule 3.5 in a principal
amount not exceeding the outstanding principal and accrued interest on
such Indebtedness; and (D) Indebtedness incurred in the ordinary course of
business in connection with the acquisition by the Company after the date
hereof of any personal property of the Company, provided that the amount
of such Indebtedness in respect of any such acquisition shall not exceed
$3,000,000 without the
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consent of at least 66-2/3% of the Board of Directors (for purposes of
this subparagraph (a)(iv), Indebtedness shall include all obligations,
contingent or otherwise, that in accordance with GAAP should be classified
as liabilities on the balance sheet of the Company);
(v) engage in any business other than the business engaged in at the
Closing Date, or provided for in the Operating Plan, or liquidate or
wind-up its business or its assets;
(vi) merge with or consolidate into any corporation, firm or entity,
or sell, lease or otherwise dispose of all or substantially all of its
assets unless the Company is the surviving or acquiring entity;
(vii) mortgage or pledge, or create a security interest in, or
permit any Controlled Entity to mortgage, pledge or create a security
interest in, all or substantially all of the property of the Company or
such Controlled Entity, unless unanimously approved by the entire Board of
Directors of the Company; or
(ix) own, or permit any Controlled Entity to own, any stock or other
securities of any Controlled Entity or other corporation, partnership or
entity unless it is wholly owned by the Company, except certificates of
deposit, high quality commercial paper, United States government
securities and other short-term, high quality liquid investment grade
securities.
10. BOARD OF DIRECTORS. (a) The Investors and the Key Employees (in
respect of the designations in clause (iv) below) shall act in all
capacities and vote the shares of stock of the Company now or hereafter
owned or controlled by them so as to cause and maintain the election to
the Board of Directors of (i) one designee of the holders of a majority in
interest of the Series C Preferred, voting as a single class, which
designee shall be a designee of Weiss, Peck & Greer (the "WP&G Designee"),
subject to the approval of the remaining directors, which approval shall
not be unreasonably withheld, and which WP&G Designee Weiss, Peck & Greer
may
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at any time and from time to time, in its sole discretion, remove; (ii)
one designee of the holders of a majority in interest of the Series B
Preferred, voting as a single class, which designee shall be a designee of
Charles River Partnership VII; (iii) three designees of the holders of a
majority in interest of the Series A Preferred, voting as a single class;
and (iv) David Huber and Patrick Nettles. Weiss, Peck & Greer agrees to
act with reasonable promptness to propose as a replacement of the initial
WP&G Designee an outside director of recognized standing in the industry
in which the Company operates, and thereafter, with respect to nominations
of any subsequent WP&G Designees, to propose for consideration only
candidates satisfying this same qualification criterion.
(b) The Investors and Key Employees shall act in all capacities
and/or vote the shares of stock of the Company now or hereafter owned or
controlled by them so as to maintain the number of directors on the Board
of Directors to be limited to seven members.
(c) Each certificate for shares of capital stock of the Company
owned by an Investor or Key Employee shall bear thereon substantially the
following legend:
"THE STOCK REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE TERMS
OF A PREFERRED STOCK PURCHASE AGREEMENT DATED AS OF DECEMBER 20,
1995 WITH RESPECT TO THE VOTING OF THE SHARES REPRESENTED BY THIS
CERTIFICATE, OR ANY INTEREST THEREIN, WHICH MAY BE EXAMINED AT THE
OFFICES OF THE COMPANY."
(d) Until the earlier of (i) the fifth anniversary of the date of
this Agreement and (ii) the consummation by the Company of an IPO, neither
Key Employee shall offer, sell, transfer, assign, pledge, hypothecate or
otherwise dispose of in the aggregate, in one or more transactions, more
than 10% of the shares of Common Stock owned by such Key Employee at the
date of this Agreement (and without giving effect to any of the
transactions contemplated hereby) without the prior consent of the Board
of Directors, provided this provision shall not
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apply to any transactions exempted from the Amended and Restated Co-Sale
Agreement of even date herewith pursuant to Section 2.05(a)(i)or (iv).
(e) Each party shall act in all capacities to cause any transferee
of the shares of its stock in the Company to assume the obligations of its
or his transferor hereunder.
(f) Any designee of any holder or holders of the Company's stock who
shall serve as a member of the Board shall have full authority to exercise
his discretion and business judgment to perform his duty as Director and
shall incur no special obligation or liability to any of such holders as a
result of such exercise. No party shall have any claim against any such
designee, or the holder or holders who selected such designee, with regard
to such selection. The Company shall take all actions as may be necessary
to cause the Company to indemnify the members of the Board of Directors to
the fullest extent permitted under applicable law.
(g) The provisions of this Section 10 shall continue in effect until
the earlier of (i) an Automatic Conversion Event (as defined in the Third
Restated Certificate) or (ii) ten years from the date hereof.
11. EXPENSES. The Company will pay (a) all the costs and expenses of the
reproduction of this Agreement, of all agreements and documents referred to
herein and of the certificates for the Shares; (b) all taxes (if any) payable
with respect to this Agreement and the issuance of the Shares; (c) all costs of
complying with the securities or Blue Sky laws of any jurisdiction with respect
to the offering or sale of the Shares; (d) the cost of delivering to such
address as each Purchaser shall specify the certificates for the Shares
purchased by each such Purchaser; (e) the reasonable fees of special counsel for
the Purchasers, not to exceed $17,500 plus actual expenses and disbursements, in
connection with the subject matter of this Agreement and the transactions
contemplated hereby (other than events described in Section 8 hereof) and
payable at the Closing Date; and (f) the fees and expenses incurred with respect
to any amendments to this
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Agreement or the Third Restated Certificate proposed by the Company (whether or
not the same become effective).
12. SURVIVAL OF AGREEMENTS. All representations and warranties contained
herein or made in writing by or on behalf of the Company in connection with the
transactions contemplated hereby shall survive the execution and delivery of
this Agreement (despite any investigation at any time made by the Purchasers or
on their behalf) for a period of thirty-six months, and all agreement and
covenants contained herein or made in writing by or on behalf of the Company in
connection with the transactions contemplated hereby shall survive the execution
and delivery of this Agreement (despite any investigation at any time made by
the Investors or on their behalf). All statements contained in any certificate
or other instrument executed and delivered by the Company or its duly authorized
officers or representatives pursuant hereto in connection with the transactions
contemplated hereby shall be deemed representations by the Company hereunder.
13. NOTICES. All notices, requests, consents and other communications
herein (except as stated in the last sentence of this Section 13) shall be in
writing and shall be deemed to be delivered (i) on the date delivered, if
personally delivered or transmitted via facsimile with return confirmation of
such transmission; (ii) on the business day after the date sent, if sent by
recognized overnight courier service and (iii) on the fifth day after the date
sent, if mailed by first-class certified mail, postage prepaid and return
receipt requested, as follows:
(a) If to the Company:
CIENA Corporation
8530 Corridor Road
Savage, Maryland 20763
Attention: Patrick Nettles, President
Facsimile: (301) 317-5441
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1615 L Street, N.W., Suite 1300
Washington, D.C. 20036-5694
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Attention: Phillip L. Spector, Esq.
Facsimile: (202) 223-7420
(b) If to the Investors, at their respective addresses set forth in
Schedules 1, 2.1 and 2.2 hereto; with a copy to:
Venture Law Group
2800 Sand Hill Road
Menlo Park, CA 94025
Attention: Mark B. Weeks, Esq.
Facsimile: (415) 854-1121
and
SVM Star Ventures Management GmSbH
Leopoldstrasse 28A
80802 Munich
Federal Republic of Germany
Facsimile: 49-89-381-70555
and
Leeway & Co.
State Street Bank and Trust Company
Master Trust Division
One Monarch Drive
Willard Building, 6th Floor, W6C
North Quincy, MA 02171
Attn: William M. Mahoney
Facsimile: (617) 847-2308
and
Leeway & Co.
c/o ATTIMCO
One Oak Way
Berkeley Heights, New Jersey 07922
Attn: Paul D. Fetsch
Investment Management
Organization
Facsimile: (908) 771-9614
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and
Leeway & Co.
c/o Actuarial Sciences Associates, Inc.
295 North Maple Avenue
Basking Ridge, New Jersey 07920
Attn: Clarin Schwartz, Esq.
Facsimile: (908) 953-8360
and
Ropes & Gray
One International Place
Boston, Massachusetts 02110-2624
Attn: Arthur G. Siler, Esq.
Facsimile: (617) 951-7050
or such other addresses as each of the parties hereto may provide from time to
time in writing to the other parties. The financial statements and other reports
required by Section 7 may be mailed by first-class regular mail.
14. MODIFICATIONS; WAIVER. (a) Except as set forth in Section 14(b),
neither this Agreement nor any provision hereof may be changed, waived,
discharged or terminated orally or in writing, except that any provision of this
Agreement may be amended and the observance of any such provision may be waived
(either generally or in a particular instance and either retroactively or
prospectively) with (but only with) the written consent of (i) the Company, (ii)
except for modifications of Sections 7 through 10, 13 and 17 through 22, the
holders of at least 67% of the outstanding shares of the Preferred Shares
(excluding from both the numerator and denominator of the fraction from which
such percentage is derived all shares theretofore disposed of by the Investors
or their Transferees pursuant to one or more registration statements under the
Securities Act or pursuant to Rule 144 or otherwise) acting together as a single
class, (iii) in the case of any modification of Sections 7 through 10, 13 and 17
through 22, the holders of at least 67% of the Investor Shares (excluding from
both the numerator and denominator of the fracton from which such percentage is
derived all shares therefore disposed of by the Investors or their Transferees
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pursuant to one or more registration statements under the Securities Act or
pursuant to Rule 144 or otherwise) acting together as a single class, (iv) in
the event of any modification of Section 8, Investors holding at least 67% of
the Registrable Stock (with any shares of Preferred Shares voting as the number
of shares of Common Stock into which they are then convertible) then held by the
Investors, and (v) in the event the Key Employees' registration rights in
Section 8 are modified, waived or terminated, the holders of at least 51% of the
aggregate number of shares of Common Stock outstanding as of the date of such
modification, waiver or termination that are held by the Key Employees who at
such time are stockholders of the Company; provided that this Section 14 may not
be modified or amended without the written consent of all the parties hereto;
and provided, further, that the Board of Directors shall be permitted to grant
to any officer of the Company registration rights that are the equivalent of the
Key Employees' registration rights and the granting of such officer registration
rights shall not be deemed a modification of the Key Employees' registration
rights, for purposes of this Section 14(a) if granted with the approval of a
majority of the Board of Directors.
(b) Notwithstanding anything to the contrary contained in Section 14(a),
the Board of Directors of the Company may, from time to time, designate
additional employees of the Company as "Key Employees," as such term is used in
this Agreement. Each person so designated shall execute all such documents as
shall be necessary so that he or she shall be considered a "Key Employee" within
the meaning of this Agreement, and thereafter, all references to "Key Employees"
in this Agreement shall be deemed to include such designee; provided that in no
event shall a person be considered a Key Employee if such person is no longer
employed by the Company.
15. EXCULPATION AMONG PURCHASERS. Each Purchaser acknowledges that it is
not relying upon any statements or instruments made or issued by any person,
firm or corporation, other than the Company and its officers, directors and
agents, in making its decision to invest in the Company. Each Purchaser agrees
that no other Purchaser nor the respective controlling persons, officers,
directors, partners, agents, or employees of any Purchaser shall be liable to
such Purchaser
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for any action heretofore or hereafter taken or omitted to be taken by any of
them in connection with the Preferred Shares (and Common Stock issued upon
conversion thereof).
16. ENTIRE AGREEMENT. This Agreement, together with the schedules and
exhibits attached hereto and made a part hereof, contains the entire agreement
between the parties with respect to the transactions contemplated hereby, and
supersedes all negotiations, agreements, representations, warranties,
commitments, whether in writing or oral, prior to the date hereof.
17. SUCCESSORS AND ASSIGNS.
(a) Except as otherwise expressly provided in this Agreement, all of
the terms of this Agreement shall be binding upon and inure to the benefit
of and be enforceable by the respective successors and transferees of the
parties hereto, except that the rights set forth in Sections 7.1, 7.3 and
7.4 hereof may be assigned but only
(i) to an assignee who shall acquire not less than 100,000
Investor Shares or not less than 100,000 shares of Series C
Preferred, as adjusted for Recapitalization Events; or
(ii) in connection with the distribution by a holder
of Investor Shares to a Beneficial Owner who holds at least
100,000 shares of Series C Investor Shares or Registrable
Stock or not less than 100,000 shares of Series C Preferred,
that has been distributed to it, as adjusted for
Recapitalization Events.
(b) Any other provision of this Agreement to the contrary
notwithstanding, but at all times subject to the provisions of Sections
4.5(a) and (b) hereof, any of the STAR Purchasers (as defined in Schedule
1) shall be entitled to transfer its shares and to freely assign all of
its rights under this Agreement to any legal entity
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that controls, is controlled by, or is under common control with any of
the STAR Purchasers, or that is managed by the Manager (as defined below),
and such shares shall remain subject to the provisions of this Agreement.
For purposes of this Section 17(b), the "Manager" means the entity that
makes investment decisions for any of the STAR Purchasers, or any entity
that controls, is controlled by, or is under common control with, such
entity. For all purposes under this Agreement, the STAR Purchasers and any
permitted transferee of any such STAR Purchaser shall be deemed together
to be a single purchaser. Any other provision of this Agreement to the
contrary notwithstanding, Leeway & Co. shall be entitled to transfer its
shares and to freely assign all of its rights under this Agreement to any
successor trustee or nominee or successor by reorganization of a qualified
pension trust.
18. ENFORCEMENT. (a) Remedies at Law or in Equity. If the Company shall
default in any of its obligations under this Agreement or if any representation
or warranty made by or on behalf of the Company in this Agreement or in any
certificate, report or other instrument delivered under or pursuant to any term
hereof shall be untrue or misleading in any material respect as of the date of
this Agreement or as of the date it was made, furnished or delivered, the
Purchasers or the Investors, as appropriate, may proceed to protect and enforce
their rights by suit in equity or action at law, whether for the specific
performance of any term contained in this Agreement or the Third Restated
Certificate, injunction against the breach of any such term or in furtherance of
the exercise of any power granted in this Agreement or the Third Restated
Certificate, or to enforce any other legal or equitable right of such Investors
or to take any one or more of such actions. In the event the Purchasers or the
Investors bring such an action against the Company, the prevailing party in such
dispute shall be entitled to recover from the losing party all fees, costs and
expenses of enforcing any right or asserting any defense of such prevailing
party under or with respect to this Agreement or the Third Restated Certificate,
including without limitation such reasonable fees and expenses of attorneys and
accountants, which shall include, without limitation, all fees, costs and
expenses of appeals.
68
-63-
(b) Remedies Cumulative; Waiver. No remedy referred to herein is
intended to be exclusive, but each shall be cumulative and in addition to any
other remedy referred to above or otherwise available to the Purchasers or the
Investors at law or in equity. No express or implied waiver by the Purchasers or
the Investors of any default shall be a waiver of any future or subsequent
default, unless otherwise specified. The failure or delay of the Purchasers or
the Investors in exercising any rights granted them hereunder shall not
constitute a waiver of any such right and any single or partial exercise of any
particular right by the Purchasers or the Investors shall not exhaust the same
or constitute a waiver of any other right provided herein.
19. PRIOR AGREEMENTS. Sections 7 through 10, 13, and 17 through 21 of the
Series A Agreement and Sections 7 through 10, 13 and 17 through 22 of the Series
B Agreement are hereby replaced in their entirety by Sections 7 through 10, 13,
and 17 through 22 of this Agreement, respectively. Except as amended and
modified hereby, the Prior Agreements shall continue in full force and effect in
accordance with their respective terms. By execution of this Agreement, (a) the
Prior Investors and the Key Employees hereby consent to the amendment of the
Prior Agreements as contemplated herein, and (b) the Prior Investors waive the
rights of first refusal under Section 7.10 of the Prior Agreements in respect of
the issuances of Series C Preferred hereunder, such waiver to be effective on
behalf of all the Investors referred to in the Prior Agreements pursuant to
Section 14 thereof.
20. EXECUTION AND COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which when so executed and delivered shall be
deemed an original, and all such counterparts together shall constitute one
instrument. Each party shall receive a duplicate original of the counterpart
copy or copies executed by it and by the Company.
21. GOVERNING LAW AND SEVERABILITY. Except for matters directly in the
purview of the General Corporation Law of the State of Delaware, this Agreement
shall be governed by and construed in accordance with the laws of the State of
New York, without regard to principles of conflicts of law. In the event any
provision of this Agreement or the application
69
-64-
of any such provision to any party shall be held by a court of competent
jurisdiction to be contrary to law, the remaining provisions of this agreement
shall remain in full force and effect.
22. HEADINGS. The descriptive headings of the Sections hereof and the
Schedules and Exhibits hereto are inserted for convenience only and do not
constitute a part of this Agreement.
[Remainder of Page Intentionally Left Blank]
70
-65-
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by
their duly authorized officers as of the date first above written.
KEY EMPLOYEES:
/s/ PATRICK NETTLES
- -----------------------------
Patrick Nettles
/s/ DAVID HUBER
- -----------------------------
David Huber
THE COMPANY:
CIENA CORPORATION
By: /s/ PATRICK NETTLES
-------------------------
Patrick Nettles
President
INVESTORS:
OSHKIM LIMITED PARTNERSHIP
By:
-------------------------
Name:
Title:
/s/ L.J. SEVIN
- ------------------------------
L.J. Sevin
SEVIN ROSEN BAYLESS
MANAGEMENT CO.
By: /s/ JOHN V. JAGGERS
-------------------------
John V. Jaggers
Vice President
71
-66-
SEVIN ROSEN MANAGEMENT CO.
By: /s/ JOHN V. JAGGERS
-------------------------
John V. Jaggers
Vice President
SEVIN ROSEN FUND IV
By: SRB Associates IV L.P., its General Partner
By: /s/ JOHN V. JAGGERS
---------------------------
John V. Jaggers
General Partner
SEVIN ROSEN FUND IV, L.P.
By: SRB ASSOCIATES IV L.P.,its General Partner
By:/s/ JOHN V. JAGGERS
----------------------------
John V. Jaggers
General Partner
SVM STAR VENTURES MANAGEMENTGESELLSCHAFT MBH NR. 3
By: /s/ MEIR BAREL
-------------------------
Dr. Meir Barel
Managing Partner
SVE STAR VENTURES NO. II, III, IIIA, RESPECTIVELY
By: SVM Star Ventures Managementgesellschaft mbH Nr. 3
Managing Partner
By:/s/ MEIR BAREL
----------------------------
Dr. Meir Barel
Managing Partner
72
-67-
SVM STAR VENTURES MANAGEMENTGESELLSCHAFT MBH NR. 3 & CO.
BETEILIGUNGS KG
By: SVM Star Ventures Managementgesellschaft mbH Nr. 3
Managing Partner
By: /s/ DR. MEIR BAREL
----------------------------
Dr. Meir Barel
Managing Partner
CHARLES RIVER PARTNERSHIP VII
By: /s/ MICHAEL ZAK
-------------------------
Michael Zak, General Partner
INTERWEST MANAGEMENT PARTNERS V
By: /s/ W.J. HAWLEY
-------------------------
General Partner
INTERWEST PARTNERS V
By: InterWest Management Partners V,
General Partner
By: /s/ W.J. HAWLEY
----------------------------
General Partner
73
-68-
INTERWEST INVESTORS V
By: /s/ W.J. HAWLEY
-------------------------
General Partner
/s/ THOMAS ASCHENBRENNER
- -----------------------------
Thomas Aschenbrenner
UVCC FUND II
By: Arete Ventures, Inc.,
General Partner
By: /s/ WILLIAM T. HEFLIN
----------------------------
William T. Heflin
Vice President
UVCC II PARALLEL FUND, L.P.
By: Arete Ventures, Inc.,
General Partner
By: /s/ WILLIAM T. HEFLIN
----------------------------
William T. Heflin
Vice President
JAPAN ASSOCIATED FINANCE CO., LTD.
By: /s/ MASAKI YOSHIDA
-------------------------
Name: Masaki Yoshida
Title: President
74
-69-
JAFCO R-1 (A) INVESTMENT ENTERPRISE PARTNERSHIP
By: /s/ M. YOSHIDA
--------------------------
Name: Masaki Yoshida
Title: President, Japan Associated Finance Co., Ltd.
JAFCO R-1 (B) INVESTMENT ENTERPRISE PARTNERSHIP
By: /s/ M. YOSHIDA
--------------------------
Name: Masaki Yoshida
Title: President
JAFCO G-5 INVESTMENT ENTERPRISE PARTNERSHIP
By: /s/ M. YOSHIDA
--------------------------
Name: Masaki Yoshida
Title: President
U.S.INFORMATION TECHNOLOGY INVESTMENT ENTERPRISE PARTNERSHIP
By: /s/ M. YOSHIDA
--------------------------
Name: Masaki Yoshida
Title: President
VANGUARD VENTURE PARTNERS
By: /s/ CLIFFORD H. HIGGERSON
--------------------------
Name: Clifford Higgerson
Title: General Partner
VANGUARD IV, L.P.
By: /s/ CLIFFORD H. HIGGERSON
--------------------------
Name: Clifford Higgerson
Title: General Partner
75
-70-
INVESTMENT ADVISERS, INC.
By: /s/ NOEL P. RAHN
--------------------------
Name: Noel P. Rahn
Title: Chief Executive Officer
GIBRALTAR TRUST
By: /s/ JOSHUA RICH
--------------------------
Joshua Ruch
Attorney-in-fact for Trustee
WA & H INVESTMENT, L.L.C.
By: Wessels, Arnold, & Henderson Group, L.L.C.
By: /s/ KENNETH J. WESSELS
--------------------------
Kenneth J. Wessels
President/CEO
DOMINION VENTURES
By: /s/ RANDOLPH D. VERNON
--------------------------
Name: Randolph D. Vernon
Title: Vice President
TECHNOPARTNERS
By: /s/ MIKE ORSAK
--------------------------
Name: Mike Orsak
Title: Partner
WEISS, PECK & GREER
By: /s/ CHRISTOPHER J. SCHAEPE
--------------------------
Name: Christopher J. Schaepe
Title: Venture Partner
76
-71-
TEKNOINVEST MANAGEMENT A.S.
By: /s/ BJORN BYORN
--------------------------
Name: Bjorn Byorn
Title: Managing Director
MOSVOLD FARSUND A.S.
By: /s/ BJORN BYORN
--------------------------
Name: Bjorn Byorn
Title: Attorney-In-Fact
LEEWAY & CO.
By: /s/ JOHN MUIR
--------------------------
Name: John Muir
Title: Assistant Secretary
COWEN INVESTMENT PARTNERS XXIII
By: /s/ DAVID R. SARUS
--------------------------
Name: David R. Sarus
Title: Managing Director
HARVEY B. CASH SELF-DIRECTED IRA
By: /s/ HARVEY B. CASH
--------------------------
Harvey B. Cash
HARVEY B. CASH
By: /s/ HARVEY B. CASH
--------------------------
Harvey B. Cash
Executor/Trustee
MAHUMA, N.V.
By: /s/ BENJAMIN O'SULLIVAN
--------------------------
Name: Benjamin O'Sullivan
Title: Attorney-In-Fact
77
-72-
BESSEMER VENTURE PARTNERS III, L.P.
By: Deer III & Co., General Partner
By: /s/ ROBERT BUESCHER
----------------------, Partner
BELISARIUS CORPORATION
By: /s/ ROBERT BUESCHER
--------------------------
Name: Robert Buescher
Title:
QUENTIN CORPORATION
By: /s/ ROBERT BUESCHER
--------------------------
Name: Robert Buescher
Title:
BVP III SPECIAL SITUATIONS, L.P.
By: Deer III & Co., General Partner
By: /s/ ROBERT BUSECHER
----------------------, Partner
ROBERT H. BUESCHER
- ------------------------------
* /s/ ROBERT H. BUESCHER
-----------------------------
Robert H. Buescher
Atty-in-fact, for those so marked
78
-73-
CHRISTOPHER GABRIELI
*/s/ ROBERT H. BUESCHER
-----------------------------
GABRIELI FAMILY FOUNDATION
*/s/ ROBERT H. BUESCHER
-----------------------------
NEILL H. BROWNSTEIN
*/s/ ROBERT H. BUESCHER
-----------------------------
FELDA G. HARDYMON
*/s/ ROBERT H. BUESCHER
-----------------------------
MICHAEL I. BARACH
*/s/ ROBERT H. BUESCHER
-----------------------------
THOMAS F. RUHM
*/s/ ROBERT H. BUESCHER
-----------------------------
RICHARD R. DAVIS
*/s/ ROBERT H. BUESCHER
-----------------------------
WARD W. WOODS
*/s/ ROBERT H. BUESCHER
-----------------------------
79
-74-
ROBERT D. LINDSAY
*/s/ ROBERT H. BUESCHER
-----------------------------
BARBARA M. HENAGAN
*/s/ ROBERT H. BUESCHER
-----------------------------
/s/ JAN LUKENS
- ------------------------------
Jan Lukens
/s/ STEPHEN L. DOMENIK
- ------------------------------
Stephen L. Domenik
/s/ DIETRICH ERDMANN
- ------------------------------
Dietrich Erdmann
/s/ FREDERIC A. RUBINSTEIN
- -----------------------------
Frederic A. Rubinstein
/s/ EDWIN A . ALLBRITTON
- ------------------------------
Edwin A. Allbritton
/s/ CHRIS APPLE
- ------------------------------
C. Chris Apple
/s/ DAVID BELLET
- ------------------------------
FBO David Bellet
/s/ STEVEN FINN
- ------------------------------
Steven Finn
80
-75-
/s/ GERARDO ROSENKRANZ
- ------------------------------
Gerardo Rosenkranz
/s/ KEVIN KIMBERLIN
- ------------------------------
Kevin Kimberlin
/s/ SETH HARRISON
- ------------------------------
Seth Harrison
81
-76-
*/s/ ROBERT H. BUESCHER
-----------------------------
Robert H. Buescher
Atty-in-fact, for those so marked
RODNEY A. COHEN
*/s/ ROBERT H. BUESCHER
-----------------------------
ADAM P. GODFREY
*/s/ ROBERT H. BUESCHER
-----------------------------
ROBERT J. RORISTON
*/s/ ROBERT H. BUESCHER
-----------------------------
RUSSELL D. STERNLICHT
*/s/ ROBERT H. BUESCHER
-----------------------------
82
-77-
KEVIN KIMBERLIN PARTNERS, L.P.
By: /s/ KEVIN KIMBERLIN
-------------------------
Kevin Kimberlin
General Partner
83
SCHEDULE 3.2
SECURITY HOLDERS OF THE COMPANY
Series A Series B
Common Common Stock Series A Preferred Series B Preferred
Stock Warrants, Preferred Warrants, Preferred Warrants,
Issued & Options & Issued & Options and Issued & Options
Stockholder Outstanding Rights Outstanding Rights Outstanding and Rights
- ----------- ----------- ------ ----------- ------ ----------- -----------
David Huber 1,209,590(1)
James R. & Margaret M. Huber 6,000
Braden Huber 7,000
Davis Christopher Huber 7,000
Alyssa Nicole Huber 7,000
Brock Larson Huber 7,000
Kim Larsen 13,817 6,667
Patrick Nettles 695,427(2)
Celeste Baker 10,000
Alan Nettles 10,000
Garrett Baker 10,000
Management (other)* 1,851,250
Gary P. Johnson 8,750
- --------------
(1) 300,054 of these shares remain subject to vesting, at the rate of 1/48th of
1,200,000 shares per month, so long as Dr. Huber is still employed by the
Company.
(2) 408,352 of these shares remain subject to vesting, at the rate of 1/48th of
such shares per month thereafter, so long as Dr. Nettles is still employed
by the Company.
84
Series A Series B
Common Common Stock Series A Preferred Series B Preferred
Stock Warrants, Preferred Warrants, Preferred Warrants,
Issued & Options & Issued & Options and Issued & Options
Stockholder Outstanding Rights Outstanding Rights Outstanding and Rights
- ----------- ----------- ------ ----------- ------ ----------- -----------
General Instrument 125,636(3)
Kevin Kimberlin Partners, L.P. 221,520
Kevin Kimberlin 15,312 200,000 131,733 250,000
Spencer Trask Holdings Inc. 45,000
Laura M. MacNamara 5,000
Sevin Rosen Fund IV 40,865 1,125,000 25,000 740,998
SRB Management Company 182 5,000 3,293
InterWest Partners Fund V 40,865 1,125,000 740,998
InterWest Investors V 218 6,000 25,000 3,952
Vanguard Venture Partners 27,244 750,000
Vanguard IV, L.P. 493,999
Dominion Ventures 120,000
Thomas Aschenbrenner 55,449(4) 100,000 65,866
Chris Apple 182 5,000 3,293
Seth Harrison 182 5,000 3,293
Charles River Partnership VII 1,500,000
- --------
(3) This number is subject to further adjustment upon any issuance of additional
common stock, so that it will continue to represent 5% of issued and
outstanding common stock, up to January 11, 1996.
(4) 31,943 of these shares remain subject to vesting, at the rate of 1/36th of
50,000 shares per month, so long as Mr. Aschenbrenner is still retained as a
consultant to the Company.
-2-
85
Series A Series B
Common Common Stock Series A Preferred Series B Preferred
Stock Warrants, Preferred Warrants, Preferred Warrants,
Issued & Options & Issued & Options and Issued & Options
Stockholder Outstanding Rights Outstanding Rights Outstanding and Rights
- ----------- ----------- ------ ----------- ------ ----------- -----------
SVE Star Ventures Enterprises 256,000
No. II Limited Partnership
SVE Star Ventures Enterprises 687,100
No. III Limited Partnership
SVE Star Ventures Enterprises 56,900
No. IIIA Limited Partnership
William K. Woodruff III 82,577
William K. Woodruff & 31,637
Company Inc. Profit Sharing
Trust
Jack N. Greenman 12,826
William K. Barnard 6,413
Andrew W. May 3,420
Cass G. Caspary 3,420
Jeffrey R. Ohl 2,138
John Wallace 49,700
Darren B. vonBehren 855
Lawrence N. Goldstein 428
J. Scott Blome 86
Barton W. Stuck 21,500
Investment Advisors, Inc. 333,333
UVCC Fund II 250,000
UVCC II Parallel Fund, L.P. 250,000
-3-
86
Series A Series B
Common Common Stock Series A Preferred Series B Preferred
Stock Warrants, Preferred Warrants, Preferred Warrants,
Issued & Options & Issued & Options and Issued & Options
Stockholder Outstanding Rights Outstanding Rights Outstanding and Rights
- ----------- ----------- ------ ----------- ------ ----------- -----------
Edwin A. Allbritton 16,667
Mahuma N.V. (Rosenkranz) 33,333
FBO David Bellet 50,000
Frederic A. Rubinstein 16,667
Steven Finn 16,667
Neili. H. Brownstein 6,667
Robert H. Buescher 3,000
Felda G. Hardymon 23,666(5)
Christopher Gabrieli 33,333
Gabrieli Family Foundation 3,333
Michael I. Barach 3,333
Richard R. Davis 6,667
Barbara M. Henagan 3,333
Robert D. Lindsay 3,333
Thomas F. Ruhm 667
Ward W. Woods, Jr. 10,000
BVP III Special Situations L.P. 22,222
- --------
(5) Mr. Hardymon has initiated a transfer of certain of his Series B Preferred
Shares to the following Bessemer employes: David J. Cowan (5,333 shares);
Samantha Chen (1,333 shares); Gautam A. Prakash (2,667 shares); John K.
Rodakis (2,000 shares); and Robi L. Soni (2,333 shares).
-4-
87
Series A Series B
Common Common Stock Series A Preferred Series B Preferred
Stock Warrants, Preferred Warrants, Preferred Warrants,
Issued & Options & Issued & Options and Issued & Options
Stockholder Outstanding Rights Outstanding Rights Outstanding and Rights
- ----------- ----------- ------ ----------- ------ ----------- -----------
Bessemer Venture Partners III 580,446
L.P.
Japan Associated Finance Co., 40,000
Ltd.
JAFCO G-5 Investment 82,712
Enterprise Partnership
JAFCO R-1 (A) Investment 38,644
Enterprise Partnership
JAFCO R-1 (B) Investment 38,644
Enterprise Partnership
U.S. Information Technology 800,000
Investment Enterprise
Partnership
Michael Fagan 50,000
-5-
88
Schedule 1
- ---------------------------------------------------------------------------
Shares to be
Purchased at
Purchaser's Name and Address Closing Purchase Price
- ---------------------------- ------- --------------
- ---------------------------------------------------------------------------
InterWest Partners V 248,438 $1,739,066
3000 Sand Hill Road
Building 3, Suite 255
Menlo Park, CA 94025
Facsimile: (415) 854-4706
- ---------------------------------------------------------------------------
InterWest Investors V 1,562 10,934
3000 Sand Hill Road
Building 3, Suite 255
Menlo Park, CA 94025
Facsimile: (415) 854-4706
- ---------------------------------------------------------------------------
Harvey B. Cash 14,500 101,500
Self-Directed IRA
Two Galleria Tower
13455 Noel Road
Suite 1670, LB-5
Dallas, Texas 75240
Phone: (214) 392-7279
Facsimile: (214) 490-6349
- ---------------------------------------------------------------------------
Sevin Rosen Fund IV L.P. 285,714 1,999,998
c/o Sevin Rosen Management Co.
Two Galleria Tower
13455 Noel Road
Suite 1670, LB-5
Dallas, Texas 75240
Facsimile: (214) 702-1103
- ---------------------------------------------------------------------------
Sevin Rosen Fund V L.P. 142,857 999,999
c/o Sevin Rosen Management Co.
Two Galleria Tower
13455 Noel Road
Suite 1670, LB-5
Dallas, Texas 75240
Facsimile: (214) 960-1749
- ---------------------------------------------------------------------------
89
2
- ---------------------------------------------------------------------------
Shares to be
Purchased at
Purchaser's Name and Address Closing Purchase Price
- ---------------------------- ------- --------------
- ---------------------------------------------------------------------------
Sevin Rosen Bayless 714 4,998
Management Company
Two Galleria Tower
13455 Noel Road
Suite 1670, LB-5
Dallas, Texas 75240
Facsimile: (214) 960-1749
- ---------------------------------------------------------------------------
L.J. Sevin 25,000 175,000
c/o Sevin Rosen Management Co.
Two Galleria Tower
13455 Noel Road
Suite 1670, LB-5
Dallas, Texas 75240
Facsimile: (214) 960-1749
- ---------------------------------------------------------------------------
Dietrich Erdmann 25,000 175,000
c/o Sevin Rosen Management Co.
Malstrasse 18
6052 Hergiswie, NW
Switzerland
Facsimile: 011-4141-951372
- ---------------------------------------------------------------------------
Harvey Cash Trust 14,286 100,002
Two Galleria Tower
13455 Noel Road
Suite 1670, LB-5
Dallas, Texas 75240
Facsimile: (214) 392-7279
- ---------------------------------------------------------------------------
Stephen L. Domenik 6,429 45,003
Sevin Rosen Funds
550 Lytton Avenue
Suite 200
Palo Alto, CA 94301
Phone: (415) 326-0550
Facsimile: (415) 326-0707
- ---------------------------------------------------------------------------
90
3
- ---------------------------------------------------------------------------
Shares to be
Purchased at
Purchaser's Name and Address Closing Purchase Price
- ---------------------------- ------- --------------
- ---------------------------------------------------------------------------
Charles River Partnership VII 250,000 1,750,000
c/o Charles River Ventures
10 Post Office Square
Suite 1330
Boston, Massachusetts 02109
Phone: (617) 292-7717
Facsimile: (617) 292-7718
- ---------------------------------------------------------------------------
Vanguard IV L.P. 142,850 999,950
525 University Avenue
Suite 600
Palo Alto, California 94301
Phone: (415) 321-2900
Facsimile: (415) 321-2902
- ---------------------------------------------------------------------------
SVM Star Ventures 83,898 587,286
Managementgesellschaft mbH Nr.
3
Possartstr. 9
D-81679 Munchen
Germany
Facsimile: (011) 49-89-41-
943-030
- ---------------------------------------------------------------------------
SVE Star Ventures Enterprises 33,548 234,836
No. II
Limited Partnership
Possartstr. 9
D-81679 Munchen
Germany
Facsimile: (011) 49-89-41-
943-030
- ---------------------------------------------------------------------------
SVE Star Ventures Enterprises 90,026 630,182
No. III
Limited Partnership
Possartstr. 9
D-81679 Munchen
Germany
Facsimile: (011) 49-89-41-
943-030
- ---------------------------------------------------------------------------
91
4
- ---------------------------------------------------------------------------
Shares to be
Purchased at
Purchaser's Name and Address Closing Purchase Price
- ---------------------------- ------- --------------
- ---------------------------------------------------------------------------
SVE Star Ventures Enterprises 7,528 52,696
No. IIIA
Limited Partnership
Possartstr. 9
D-81679 Munchen
Germany
Facsimile: (011) 49-89-41-
943-030
- ---------------------------------------------------------------------------
SVM Star Ventures 107,143 750,001
Managementgesellschaft mbH Nr.
3 & Co. Beteiligungs KG
Possartstr. 9
D-81679 Munchen
Germany
Facsimile: (011) 49-89-41-
943-030
- ---------------------------------------------------------------------------
Techno Partners 3,571 24,997
555 California Street, #4380
San Francisco, California 94104
Telephone: (415) 788-0706
Facsimile: (415) 788-0709
- ---------------------------------------------------------------------------
Japan Associated Finance Co., 6,857 47,999
Ltd.
c/o JAFCO American Ventures
555 California Street, #4380
San Francisco, CA 94104
Phone: (415) 788-0706
Facsimile: (415) 788-0709
- ---------------------------------------------------------------------------
JAFCO G-5 Investment 14,179 99,253
Enterprise Partnership
c/o JAFCO American Ventures
555 California Street, #4380
San Francisco, CA 94104
Phone: (415) 788-0706
Facsimile: (415) 788-0709
- ---------------------------------------------------------------------------
92
5
- ---------------------------------------------------------------------------
Shares to be
Purchased at
Purchaser's Name and Address Closing Purchase Price
- ---------------------------- ------- --------------
- ---------------------------------------------------------------------------
JAFCO R-1(A) Investment 6,625 46,375
Enterprise Partnership
c/o JAFCO American Ventures
555 California Street, #4380
San Francisco, CA 94104
Phone: (415) 788-0706
Facsimile: (415) 788-0709
- ---------------------------------------------------------------------------
JAFCO R-1(B) Investment 6,625 46,375
Enterprise Partnership
c/o JAFCO American Ventures
555 California Street, #4380
San Francisco, CA 94104
Phone: (415) 788-0706
Facsimile: (415) 788-0709
- ---------------------------------------------------------------------------
U.S. Information Technology 137,143 960,001
Investment Enterprise Partnership
c/o JAFCO American Ventures
555 California Street, #4380
San Francisco, CA 94104
Phone: (415) 788-0706
Facsimile: (415) 788-0709
- ---------------------------------------------------------------------------
Neill Brownstein 1,428 9,996
c/o Bessemer Venture Partners
1025 Old Country Road
Suite 205
Westbury, NY 11590
Phone: (516) 997-2300
- ---------------------------------------------------------------------------
Robert H. Buescher 1,000 7,000
c/o Bessemer Venture Partners
1025 Old Country Road
Suite 205
Westbury, NY 11590
Phone: (516) 997-2300
- ---------------------------------------------------------------------------
93
6
- ---------------------------------------------------------------------------
Shares to be
Purchased at
Purchaser's Name and Address Closing Purchase Price
- ---------------------------- ------- --------------
- ---------------------------------------------------------------------------
G. Felda Hardymon 3,000 21,000
c/o Bessemer Venture Partners
1025 Old Country Road
Suite 205
Westbury, NY 11590
Phone: (516) 997-2300
- ---------------------------------------------------------------------------
Michael I. Barach 1,430 10,010
c/o Bessemer Venture Partners
1025 Old Country Road
Suite 205
Westbury, NY 11590
Phone: (516) 997-2300
- ---------------------------------------------------------------------------
Rodney A. Cohen 358 2,506
c/o Bessemer Venture Partners
1025 Old Country Road
Suite 205
Westbury, NY 11590
Phone: (516) 997-2300
- ---------------------------------------------------------------------------
Richard R. Davis 1,333 9,331
c/o Bessemer Venture Partners
1025 Old Country Road
Suite 205
Westbury, NY 11590
Phone: (516) 997-2300
- ---------------------------------------------------------------------------
Adam P. Godfrey 430 3,010
c/o Bessemer Venture Partners
1025 Old Country Road
Suite 205
Westbury, NY 11590
Phone: (516) 997-2300
- ---------------------------------------------------------------------------
Barbara M. Henagan 1,000 7,000
c/o Bessemer Venture Partners
1025 Old Country Road
Suite 205
Westbury, NY 11590
Phone: (516) 997-2300
- ---------------------------------------------------------------------------
94
7
- ---------------------------------------------------------------------------
Shares to be
Purchased at
Purchaser's Name and Address Closing Purchase Price
- ---------------------------- ------- --------------
- ---------------------------------------------------------------------------
Belisarius Corporation 1,000 7,000
c/o Bessemer Venture Partners
1025 Old Country Road
Suite 205
Westbury, NY 11590
Phone: (516) 997-2300
- ---------------------------------------------------------------------------
Robert J. Roriston 300 2,100
c/o Bessemer Venture Partners
1025 Old Country Road
Suite 205
Westbury, NY 11590
Phone: (516) 997-2300
- ---------------------------------------------------------------------------
Thomas F. Ruhm 300 2,100
c/o Bessemer Venture Partners
1025 Old Country Road
Suite 205
Westbury, NY 11590
Phone: (516) 997-2300
- ---------------------------------------------------------------------------
Quentin Corporation 1,429 10,003
c/o Bessemer Venture Partners
1025 Old Country Road
Suite 205
Westbury, NY 11590
Phone: (516) 997-2300
- ---------------------------------------------------------------------------
BVP III Special Situations L.P. 9,523 66,661
1025 Old Country Road
Suite 205
Westbury, NY 11590
Phone: (516) 997-2300
- ---------------------------------------------------------------------------
Bessemer Venture 410,326 2,872,282
Partners III L.P.
1025 Old Country Road
Suite 205
Westbury, NY 11590
Telephone: (516) 997-2300
- ---------------------------------------------------------------------------
95
8
- ---------------------------------------------------------------------------
Shares to be
Purchased at
Purchaser's Name and Address Closing Purchase Price
- ---------------------------- ------- --------------
- ---------------------------------------------------------------------------
Kevin Kimberlin 72,533 507,731
c/o Spencer Trask Securities, Inc.
535 Madison Avenue
18th Floor
New York, New York 10022
Facsimile: (212) 751-3483
- ---------------------------------------------------------------------------
UVCC Fund II 32,775 229,425
Arete Ventures, Inc.
Suite 1040
6110 Executive Boulevard
Rockville, Maryland 20852
Phone: (301) 881-2555
Facsimile: (301) 770-2877
- ---------------------------------------------------------------------------
UVCC II Parallel Fund, L.P. 32,775 229,425
Arete Ventures, Inc.
Suite 1040
6110 Executive Boulevard
Rockville, Maryland 20852
Phone: (301) 881-2555
facsimile: (301) 770-2877
- ---------------------------------------------------------------------------
Investment Advisers, Inc. 43,701 305,907
3800 First Bank Place
601 Second Avenue
Minneapolis, Minnesota 55402
Facsimile: (612) 376-2616
- ---------------------------------------------------------------------------
Thomas Aschenbrenner 21,745 152,215
6016 Oakcrest
Dallas, Texas 75248
Facsimile: (214) 931-2495
- ---------------------------------------------------------------------------
FBO David Bellet 6,555 45,885
c/o Crown Advisors Ltd.
The Lincoln Building
60 East 42nd Street
Suite 3405
New York, New York 10165
Facsimile: (212) 808-9073
- ---------------------------------------------------------------------------
96
9
- ---------------------------------------------------------------------------
Shares to be
Purchased at
Purchaser's Name and Address Closing Purchase Price
- ---------------------------- ------- --------------
- ---------------------------------------------------------------------------
Mahuma, N.V. 4,370 30,590
Holtzman, Wise & Sheppard
1271 Avenue of the Americas
Suite 4500
New York, New York 10020
Facsimile: (212) 554-8181
- ---------------------------------------------------------------------------
Frederic A. Rubinstein 2,185 15,295
Kelley, Drye & Warren
101 Park Avenue
New York,
New York 10178-0002
Facsimile: (212) 808-7897
- ---------------------------------------------------------------------------
Edwin A. Allbritton 2,185 15,295
c/o Allbritton Capital
Management Assoc. Inc.
One Galleria Tower
13355 Noel Road
Suite 1375, LB 71
Dallas, Texas 75240-6615
Facsimile: (214) 661-8108
- ---------------------------------------------------------------------------
Steven G. Finn 2,185 15,295
2 Barry Drive
Framingham,
Massachusetts 01701
Facsimile: (617) 258-8553
- ---------------------------------------------------------------------------
C. Chris Apple 1,087 7,609
3460 Lotus Drive, Suite 123
Plano, Texas 75075
Phone: (214) 612-5136
Facsimile: (214) 612-5198
- ---------------------------------------------------------------------------
Dominion Ventures 25,596 179,172
44 Montgomery Street,
Suite 4200
San Francisco, CA 94104
- ---------------------------------------------------------------------------
97
10
- ---------------------------------------------------------------------------
Shares to be
Purchased at
Purchaser's Name and Address Closing Purchase Price
- ---------------------------- ------- --------------
- ---------------------------------------------------------------------------
WPG Enterprise Fund II, L.P. 725,000 5,075,000
555 California Street
Suite 4760
San Francisco, CA 94104
Phone: (415) 854-5381
Facsimile: (415) 989-5108
- ---------------------------------------------------------------------------
Technoinvest Management A.S. 8,286 58,002
Eiken Industripark
Gamleveien #32
N-1394 Horten
Norway
- ---------------------------------------------------------------------------
Mosvold Farsund A.S. 135,714 949,998
Gamleveien #32
P.O. Box 1004
N-1394 Horten
Norway
- ---------------------------------------------------------------------------
Leeway & Co. 285,714 1,999,998
State Street Bank and Trust
Company
Master Trust Division
One Monarch Drive
Willard Building, 6th Floor, W6C
North Quincy,
Massachusetts 02171
Facsimile: (617) 847-2308
- ---------------------------------------------------------------------------
Gilbraltar Trust 142,857 999,999
Rho Management
767 5th Avenue, 43rd Floor
New York, New York 10053
- ---------------------------------------------------------------------------
Cowen Investment Partners 36,000 252,000
XXIII
Financial Square
30th Floor
New York, NY 10005
Phone: (212) 495-6830
Facsimile: (212) 495-8436
- ---------------------------------------------------------------------------
98
11
- ---------------------------------------------------------------------------
Shares to be
Purchased at
Purchaser's Name and Address Closing Purchase Price
- ---------------------------- ------- --------------
- ---------------------------------------------------------------------------
Jan Lukens 14,286 100,002
1761 Friar Tuck Road
Atlanta, Georgia 30309
Phone: (404) 876-0806
- ---------------------------------------------------------------------------
WA & H Investment, L.L.C. 36,000 252,000
901 Marquette Street
Suite 2700
Minneapolis, MN 55402
Phone: (612) 373-6203
Facsimile: (612) 373-6285
- ---------------------------------------------------------------------------
1
CIENA
C&S CORRIDOR-32 LIMITED PARTNERSHIP
LEASE AGREEGMENT
CIENA CORPORATION
COVER LETTER
DATED: October 5, 1995
This Lease Agreement (the "Lease") is made between C&S CORRIDOR-32 LIMITED
PARTNERSHIP ("Landlord") and CIENA CORPORATION ("Tenant"), and consists of this
Cover Letter, the attached General Terms and Conditions of the Lease Agreement,
and any exhibits and/or riders hereto. For purposes of this Lease, the following
terms, when used in the attached General Terms and Conditions, shall have the
meaning set forth below.
1. THE PARTIES
A. Tenant: CIENA CORPORATION, a Delaware Corporation
B. Tenant's Current Address
1340-C Ashton Road
Hanover, MD 21076
C. Tenant's Address and Contact at the Premises
Name: Joseph R. Chinnici, CFO
Address: 8530 Corridor Road
Savage, MD 21076
D. Landlord C&S Corridor-32 Limited Partnership
E. Landlord's Address:
2200 Broening Highway, Suite 110
Baltimore, Maryland 21224
(410) 631-7100 FAX (410) 633-0236
F. Landlord's Representative: Mr. John Knauff
G. Managing Agent: Creaney & Smith Properties, Inc.
2. DESCRIPTION OF PREMISES:
A. Premises: 50,550 gross square feet, being the entirety of
the Building, along with parking spaces more
particularly described on the plans by Hoffmann
dated September 28, 1995 for the Premises and
landscaped areas around the Building, all as
shown on Exhibit A.
B. Building: The building located at 8530 Corridor Road,
Savage, MD 21076.
Ciena Cover Letter - Page 1
2
CIENA
C. Real Property: The Building and Lot C-2 as shown on the plat
entitled Corridor Industrial Park, Section 1,
Parcels C-2, C-3, C-4, a Resubdivision of Parcel
C-1, Sheet 1 of 1," which plat is recorded among
the Land Records of Howard County, Maryland, as
Plat No. 6013, the lot upon which the Building
is situated, together with the non-exclusive
access rights reflected on such plat as more
particularly described in Exhibit G attached
hereto and made a part hereof. Lot C-2 contains
approximately 4.115 acres, more or less.
D. Project Corridor 32 Business Center
E. Permitted Uses: office, research, manufacturing and storage, and
uses incidental thereto
F. Project Covenants: The Project covenants of record are available
for inspection in the offices of the
Landlord.
3. TERM:
A. Term: An initial term of six (6) years; one five-year renewal
option
B. Commencement Date: January 1, 1996 (as same may be adjusted
pursuant to the provisions of Section 7.4 of
the Lease).
C. Estimated Commencement Date: January 1, 1996
Estimated Expiration Date: December 31, 2001
4. RENT:
A. Total Basic Rent Schedule:
Monthly
Rate Per Gross Installment Period
Period Square Ft Square Ft of Basic Rent Total
------ --------- --------- ------------- -----
Months 1-12 $9.00 38,850* $29,137.50 $349,650.00
Months 13-24 8.57 50,550 36,118.75 433,425.00
Months 25-36 8.57 50,550 36,118.75 433,425.00
Months 37-48 8.92 50,550 37,575.67 450,908.00
Months 49-60 8.98 50,550 37,848.67 454,184.00
Months 61-72 8.98 50,550 37,848.67 454,184.00
*Although Tenant will have access to and use of the entire Building, Tenant
will not be obligated to pay Basic Rent on the 11,700 square feet portion of the
Building (the "Unfinished Space") for the f
