Tellium and Zhone announce definitive merger agreement

Fiber Optics Weekly Update, August 1, 2003

Tellium and Zhone Technologies Inc., a privately-held company dedicated to developing the full spectrum of next-generation access infrastructure Solutions, announced that the two companies have signed a definitive merger agreement. Under the terms of the agreement, the security holders of Zhone would receive 60 percent of the combined company's outstanding fully-converted shares at closing and the security holders of Tellium would continue to hold the remaining 40 percent of the combined company's outstanding fully-converted shares as of closing. Based on Tellium's current number of fully-converted shares outstanding, Zhone would receive approximately 197 million newly issued shares, options and warrants to purchase shares of Tellium common stock as of closing. The exact number of Tellium shares to be issued will depend on Tellium's fully-converted shares outstanding immediately prior to closing. The proposed stock-for-stock transaction is intended to qualify as tax-free to the stockholders of Tellium and Zhone.

The combined company will benefit from its combined cash position of over $150 million as of June 30, 2003. The combined company will have a customer base that includes some of the world's largest carriers representing more than 250 existing carrier customers on six continents. The combined company will deliver a broad array of products for access, metro and core network applications, with employees operating in 14 countries around the globe. The combined company will also bring the current customers of Tellium and Zhone advanced new access and transport offerings which provide a bridge between existing copper-based loops and fiber optics. The transaction is subject to the approval of each company's security holders, regulatory review as well as other customary closing conditions. The transaction is expected to close in the fall of 2003. Following receipt of all required regulatory approvals, Tellium and Zhone will each convene special meetings of their respective security holders to vote on the merger. Time, location and other details regarding these meetings will be communicated to security holders at a later date. Tellium retained Morgan Stanley as its financial adviser. Zhone enlisted the assistance of Credit Suisse First Boston and Lehman Brothers to facilitate the transaction.