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STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of June 2, 1998 (the
"Agreement"), between Tellabs, Inc., a Delaware corporation ("Parent"), and
CIENA Corporation, a Delaware corporation (the "Company").
W I T N E S E T H:
WHEREAS, simultaneously with the execution and delivery of
this Agreement, Parent, White Oak Merger Corp., a newly formed Delaware
corporation and a direct wholly owned subsidiary of Parent ("Sub"), and the
Company are entering into an Agreement and Plan of Merger, dated as of the date
hereof (the "Merger Agreement"), which provides for the merger of Sub with and
into the Company;
WHEREAS, as a condition to Parent's willingness to enter into
the Merger Agreement, Parent has requested that the Company grant to Parent an
option to purchase up to 20,200,000 authorized and unissued shares of Company
Common Stock, upon the terms and subject to the conditions hereof; and
WHEREAS, in order to induce Parent to enter into the Merger
Agreement, the Company has agreed to grant Parent the requested option.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements set forth herein, the parties hereto agree as
follows:
1. The Option; Exercise; Adjustments. The Company
hereby grants to Parent an irrevocable option (the "Option") to purchase from
time to time up to 20,200,000 authorized and unissued shares of common stock,
par value $.01 per share, of the Company (the "Company Common Stock"), upon the
terms and subject to the conditions set forth herein (the "Optioned Shares").
Subject to the conditions set forth in Section 2(a), the Option may be
exercised by Parent in whole or from time to time in part, at any time after
the date hereof and prior to the termination of the Option in accordance with
Section 19. In the event Parent wishes to exercise the Option, Parent shall
send a written notice to the Company (the "Stock Exercise Notice") specifying
the total number of Optioned Shares it wishes to purchase and a date (not later
than 20 business days and not earlier than two business days from the date such
notice is given) for the closing of such purchase (the "Closing Date"). Parent
may revoke an exercise of the Option at any time prior to the Closing Date by
written notice to the Company. In the event of any change in Company Common
Stock by reason of any stock dividend, stock split, split-up, recapitalization,
merger or other change in the corporate or capital structure of the Company,
the number and type of Optioned Shares subject to the Option and the Exercise
Price (as hereinafter defined) per Optioned Share shall be appropriately
adjusted. In the event that any additional shares of Company Common Stock are
issued after the date of this Agreement (other than pursuant to an event
described in the preceding sentence or pursuant to this Agreement), the number
of
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Optioned Shares subject to the Option shall be adjusted so that, after such
issuance, it equals (but does not exceed) 19.9% of the number of shares of
Company Common Stock then issued and outstanding and 19.9% of the voting power
of shares of capital stock of the Company then issued and outstanding, after
reduction, to the extent necessary to comply with the exception to the
shareholder approval requirements of NASDAQ (as hereinafter defined), for any
shares issued pursuant to the Option.
2. Conditions to Exercise of Option and Delivery of
Optioned Shares. (a) Parent's right to exercise the Option is subject to the
following conditions:
(i) Neither Parent nor Sub shall have breached any of its
material obligations under the Merger Agreement;
(ii) No preliminary or permanent injunction or other order
issued by any federal or state court of competent jurisdiction in the
United States invalidating the grant or prohibiting the exercise of
the Option shall be in effect;
(iii) A Third Party Acquisition Event shall have occurred
or the Company shall have entered into a letter of intent, agreement
in principle, acquisition agreement or other similar agreement with
respect to a Third Party Acquisition Event; and
(iv) This Agreement and the Option shall not have
terminated pursuant to Section 19 hereof.
(b) Parent's obligation to purchase the Optioned Shares
following the exercise of the Option, and the Company's obligation to deliver
the Optioned Shares, are subject to the following conditions:
(i) No preliminary or permanent injunction or other order
issued by any federal or state court of competent jurisdiction in the
United States prohibiting the delivery of the Optioned Shares shall be
in effect;
(ii) The purchase of the Optioned Shares will not violate
Rule 10b-13 promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"); and
(iii) All applicable waiting periods under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), shall have expired or been terminated.
3. Exercise Price for Optioned Shares. At any Closing
Date, the Company will deliver to Parent a certificate or certificates
representing the Optioned Shares in the denominations designated by Parent in
its Stock Exercise Notice and
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Parent will purchase the Optioned Shares from the Company at a price per
Optioned Share equal to $65.875 (the "Exercise Price"), payable in common
stock, par value $.01 per share, of Parent (the "Parent Common Stock"), cash or
a combination of Parent Common Stock or cash, in each case at Parent's option,
as specified in the Stock Exercise Notice. Any cash payment made by Parent to
the Company pursuant to this Agreement shall be made by wire transfer of
federal funds to a bank designated by the Company or a check payable in
immediately available funds. If Parent elects to pay the Exercise Price or a
portion thereof in Parent Common Stock, the Parent Common Stock shall be valued
at the average of the last reported sales prices of the Parent Common Stock on
The Nasdaq Stock Market ("NASDAQ") for the five trading days immediately prior
to the date of the Stock Exercise Notice. After payment of the Exercise Price
for the Optioned Shares covered by the Stock Exercise Notice, the Option shall
be deemed exercised to the extent of the Optioned Shares specified in the Stock
Exercise Notice as of the date such Stock Exercise Notice is given to the
Company. Notwithstanding anything to the contrary herein, the Exercise Price
shall from time to time be adjusted so that in no event shall the Aggregate
Spread Value, together with the Termination Fee, exceed $200,000,000 (it being
understood that, if the Exercise Price has been increased from time to time as
a result of this sentence, the Exercise Price shall from time to time be
adjusted downward to the extent of any decrease in the price of the Company
Common Stock). "Spread Value" with respect to an Optioned Share means the
excess, if any, of (i) the average of the last reported sales prices on NASDAQ
of the Company Common Stock during the five trading days immediately preceding
the written notice of exercise (in the case of an Optioned Share previously
exercised) or the date of determination (in the case of an Optioned Share as to
which the Option has not yet been exercised) over (ii) the Exercise Price. The
Aggregate Spread Value shall be the sum of the Spread Values of all Optioned
Shares.
4. Representations and Warranties of the Company. The
Company represents and warrants to Parent that (a) the execution and delivery
of this Agreement by the Company and the consummation by it of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of the Company and this Agreement has been duly executed and
delivered by the Company and constitutes a valid and binding obligation of
the Company enforceable against the Company in accordance with its terms; (b)
the Company has taken all necessary corporate action to authorize and reserve
the Optioned Shares for issuance upon exercise of the Option, and the Optioned
Shares, when issued and delivered by the Company to Parent upon exercise of the
Option, will be duly authorized, validly issued, fully paid and nonassessable
and free of preemptive rights; (c) except as otherwise required by the HSR Act,
except for routine filings and subject to Section 7, the execution and delivery
of this Agreement by the Company and the consummation by it of the transactions
contemplated hereby do not require the consent, approval or authorization of,
or filing with, any person or public authority and will not violate or conflict
with the Company's Third Restated Certificate of Incorporation, as amended, or
Amended and Restated By-Laws, or result in the acceleration or termination of,
or constitute a default under, any indenture, license, approval, agreement,
understanding or other instrument, or any statute, rule, regulation, judgment,
order or other
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restriction binding upon or applicable to the Company or any of its
subsidiaries or any of their respective properties or assets; (d) the Company
is a corporation duly organized, validly existing and in good standing under
the laws of the State of Delaware and has all requisite corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby; and (e) the Company has taken all appropriate
actions so that the restrictions on business combinations contained in Section
203 of the General Corporation Law of the State of Delaware, as amended, will
not apply with respect to or as a result of the transactions contemplated
hereby.
5. Representations and Warranties of Parent. Parent
represents and warrants to the Company that (a) the execution and delivery of
this Agreement by Parent and the consummation by it of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of Parent and this Agreement has been duly executed and delivered
by Parent and constitutes a valid and binding agreement of Parent; and (b)
Parent is acquiring the Option and, if and when it exercises the Option, will
be acquiring the Optioned Shares issuable upon the exercise thereof for its own
account and not with a view to distribution or resale in any manner which would
be in violation of the Securities Act of 1933, as amended (the "Securities
Act"), and will not sell or otherwise dispose of the Optioned Shares except
pursuant to an effective registration statement under the Securities Act or a
valid exemption from registration under the Securities Act.
6. The Closing. Any closing hereunder shall take place
on the Closing Date specified by Parent in its Stock Exercise Notice pursuant
to Section 1 at 10:00 A.M., local time, or the first business day thereafter on
which all of the conditions in Section 2(b) are met, at the principal executive
office of the Company, or at such other time and place as the parties hereto
may agree.
7. Filings Related to Optioned Shares. The Company will
make such filings with the Securities and Exchange Commission and the National
Association of Securities Dealers, Inc. as are required by the Exchange Act in
connection with the execution and delivery of this Agreement and the exercise
of the Option, and will use its best efforts to effect all necessary filings by
the Company under the HSR Act and to have the Optioned Shares approved for
quotation on NASDAQ.
8. Registration Rights. (a) If the Company effects any
registration or registrations of shares of Company Common Stock under the
Securities Act for its own account or for any other stockholder of the Company
at any time after the exercise of the Option (other than a registration on Form
S-4, Form S-8 or any successor forms), it will allow Parent to participate in
such registration or registrations with respect to any or all of the Optioned
Shares acquired upon the exercise of the Option, subject to any existing
priority registration rights granted to existing holders of Company Common
Stock; provided, however, that if the managing underwriters in such offering
advise the Company that, in their written opinion, the number of Optioned
Shares requested by Parent to be included in such registration exceeds the
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number of shares of Company Common Stock which can be sold in such offering,
the Company may exclude from such registration all or a portion, as may be
appropriate, of the Optioned Shares requested for inclusion by Parent.
(b) At any time after the exercise of the Option, upon
the request of Parent, the Company will promptly file and use its best efforts
to cause to be declared effective a registration statement under the Securities
Act (and applicable Blue Sky statutes) with respect to any or all of the
Optioned Shares acquired upon the exercise of the Option; provided, however,
that the Company shall not be required to have declared effective more than
three registration statements hereunder and shall be entitled to delay the
effectiveness of each such registration statement, for a period not to exceed
90 days in the aggregate, if the commencement of such offering would, in the
reasonable good faith judgment of the Board of Directors of the Company,
require premature disclosure of any material corporate development or otherwise
materially interfere with or materially adversely affect any pending or
proposed offering of securities of the Company. In connection with any such
registration requested by Parent, the costs of such registration shall be borne
by the Company; provided, however, that if Parent is eligible to sell the
Optioned Shares under Rule 144(k) of the Securities Act, Parent shall pay the
costs of such registration. The Company and Parent each shall provide the
other and any underwriters with customary indemnification and contribution
agreements.
9. Optional Put. Prior to the termination of the Option
in accordance with Section 19, if any event set forth in Section 2(a)(iii) has
occurred and the other conditions set forth in Section 2(a) are met, Parent
shall have the right, upon three business days' prior written notice to the
Company, to require the Company to purchase the Option from Parent (the "Put
Right") at a cash purchase price (the "Put Price") equal to the product
determined by multiplying (A) the number of Optioned Shares as to which the
Option has not yet been exercised by (B) the Spread (as defined below). As
used herein, the term "Spread" shall mean the excess, if any, of (i) the
greater of (x) the highest price (in cash or fair market value of securities or
other property) per share of Company Common Stock paid or to be paid within 12
months preceding the date of exercise of the Put Right for any shares of
Company Common Stock beneficially owned by any Person who shall have acquired
or become the beneficial owner of 20% or more of the outstanding shares of
Company Common Stock after the date hereof or (y) the average of the last
reported sales prices on NASDAQ of the Company Common Stock during the five
trading days immediately preceding the written notice of exercise of the Put
Right over (ii) the Exercise Price. Notwithstanding anything herein to the
contrary, in no event shall the aggregate Put Price, together with the
Aggregate Spread Value of any Optioned Shares previously exercised and the
amount of the Termination Fee then payable or previously paid, exceed
$200,000,000.
10. Expenses. Each party hereto shall pay its own
expenses incurred in connection with this Agreement, except as otherwise
provided in Section 8 or as specified in the Merger Agreement.
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11. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions hereof in any court of the
United States or any state thereof having jurisdiction, this being in addition
to any other remedy to which they are entitled at law or in equity.
12. Notice. All notices, requests, demands and other
communications hereunder shall be deemed to have been duly given and made if in
writing and if served by personal delivery upon the party for whom it is
intended or if sent by telex or telecopier (and also confirmed in writing) to
the person at the address set forth below, or such other address as may be
designated in writing hereafter, in the same manner, by such person:
(a) if to Parent, to
Tellabs, Inc.
4951 Indiana Avenue
Lisle, Illinois 60532
Attention: General Counsel
Facsimile No.: (630) 512-7293
with a copy to:
Sidley & Austin
One First National Plaza
Chicago, Illinois 60603
Attention: Thomas A. Cole, Esq.
Imad I. Qasim, Esq.
Facsimile No.: (312) 853-7036
(b) if to the Company, to
CIENA Corporation
1201 Winterson Road
Linthicum, Maryland 21090
Attention: General Counsel
Facsimile No.: (410) 865-8900
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with a copy to:
Hogan & Hartson L.L.P.
111 S. Calvert Street
Baltimore, MD 21202
Attention: Michael J. Silver, Esq.
Facsimile No.: (410) 539-6981
13. Parties in Interest. This Agreement shall inure to
the benefit of and be binding upon the parties named herein and their
respective successors and assigns. Nothing in this Agreement, expressed or
implied, is intended to confer upon any Person other than Parent or the
Company, or their permitted successors or assigns, any rights or remedies under
or by reason of this Agreement.
14. Entire Agreement; Amendments. This Agreement,
together with the Merger Agreement and the other documents referred to therein,
contains the entire agreement between the parties hereto with respect to the
subject matter hereof and supersedes all prior and contemporaneous agreements
and understandings, oral or written, with respect to such transactions. This
Agreement may not be changed, amended or modified orally, but only by an
agreement in writing signed by the party against whom any waiver, change,
amendment, modification or discharge may be sought. Capitalized terms not
otherwise defined in this Agreement shall have the meanings set forth in the
Merger Agreement.
15. Assignment. No party to this Agreement may assign
any of its rights or delegate any of its obligations under this Agreement
(whether by operation of law or otherwise) without the prior written consent of
the other party hereto, except that Parent may, without a written consent,
assign its rights and delegate its obligations hereunder in whole or in part to
one or more of its direct or indirect wholly owned subsidiaries, but no such
assignment shall relieve Parent of its obligations hereunder.
16. Headings. The section headings herein are for
convenience only and shall not affect the construction of this Agreement.
17. Counterparts. This Agreement may be executed in
counterparts, each of which, when executed, shall be deemed to be an original
and all of which together shall constitute one and the same document.
18. Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware, without
giving effect to the principles of conflicts of laws thereof.
19. Termination. This Agreement and the Option shall
terminate upon the earlier of (i) the Effective Time and (ii) the termination
of the Merger Agreement in accordance with its terms; provided, however, that
(w) in the case of a termination of the Merger Agreement by Parent or the
Company pursuant to Section
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7.1(e) thereof (if a Takeover Proposal existed between the date hereof and the
date of the Company Stockholder Meeting), this Agreement and the Option shall
terminate on the first anniversary of such termination of the Merger Agreement,
(x) in the case of a termination by Parent or the Company pursuant to Section
7.1(g) of the Merger Agreement, this Agreement and the Option shall terminate
on the earlier of the first anniversary of such termination of the Merger
Agreement or the date of consummation of the Superior Proposal contemplated
thereby, (y) in the case of a termination by Parent pursuant to Section
7.1(h)(i) of the Merger Agreement in connection with which no Termination Fee
is payable pursuant to Section 5.7(d) thereof, this Agreement and the Option
shall terminate upon such termination of the Merger Agreement and (z) in the
case of a termination by Parent pursuant to Sections 7.1(h)(i) (except as
provided in clause (y) above), (ii), (iii) or (iv) of the Merger Agreement,
this Agreement and the Option shall terminate on the first anniversary of such
termination.
20. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of
law, or public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic and
legal substance of the transactions contemplated hereby are not affected in any
manner materially adverse to any party. Upon such determination that any term
or other provision is invalid, illegal or incapable of being enforced, the
parties shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible in a mutually
acceptable manner in order that the transactions contemplated by this Agreement
may be consummated as originally contemplated to the fullest extent possible.
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IN WITNESS WHEREOF, Parent and the Company have caused this
Agreement to be duly executed and delivered on the day and year first above
written.
TELLABS, INC.
By: /s/ Michael J. Birck
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Name: Michael J. Birck
Title: President and
Chief Executive Officer
CIENA CORPORATION
By: /s/ Patrick H. Nettles
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Name: Patrick H. Nettles
Title: President and
Chief Executive Officer