EXHIBIT 2.8
EXECUTION COPY
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STOCK PURCHASE AND SALE AGREEMENT
by and among
ZHONE TECHNOLOGIES, INC.,
NEC ELUMINANT TECHNOLOGIES, INC.,
NEC USA, Inc., NEC America, Inc., NEC Corporation, ITOCHU Corporation,
Technology Ventures I Venture Capital Investment Limited Partnership,
ITV Side Fund, L.L.C., The Yasuda Enterprise Development I, Limited Partnership
and The Investment Enterprise Partnership YNED
With respect to all of the issued and
outstanding shares of capital stock of NEC eLuminant
Technologies, Inc.
February 14, 2003
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TABLE OF CONTENTS
PAGE
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ARTICLE I PURCHASE AND SALE OF THE SHARES............................................................1
SECTION 1.01 Purchase and Sale of the Shares....................................................1
SECTION 1.02 Purchase Price.....................................................................2
SECTION 1.03 Purchase Price Adjustment..........................................................2
SECTION 1.04 Closing............................................................................4
SECTION 1.05 Certain Excluded Assets and Liabilities............................................5
SECTION 1.06 Assignment of Certain Contracts....................................................6
SECTION 1.07 Legends............................................................................6
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE SELLERS AND THE COMPANY..............................7
SECTION 2.01 Title to Shares....................................................................7
SECTION 2.02 Sellers' Organization..............................................................7
SECTION 2.03 Sellers' Authority to Execute and Perform Agreement................................7
SECTION 2.04 Purchase For Investment............................................................8
SECTION 2.05 No Seller Brokers' Fees............................................................8
SECTION 2.06 Capitalization.....................................................................8
SECTION 2.07 Organization and Qualification.....................................................9
SECTION 2.08 Subsidiaries.......................................................................9
SECTION 2.09 Corporate Power and Authority......................................................9
SECTION 2.10 Validity, Etc......................................................................9
SECTION 2.11 Company Financial Statements......................................................10
SECTION 2.12 Absence of Undisclosed Liabilities................................................10
SECTION 2.13 Absence of Adverse Change; Conduct of Business....................................10
SECTION 2.14 Taxes.............................................................................10
SECTION 2.15 Litigation........................................................................13
SECTION 2.16 Compliance with Law...............................................................13
SECTION 2.17 Licenses and Permits..............................................................13
SECTION 2.18 Labor and Employee Relations......................................................13
SECTION 2.19 ERISA.............................................................................14
SECTION 2.20 Current Employees.................................................................14
SECTION 2.21 Properties........................................................................14
SECTION 2.22 Insurance.........................................................................14
SECTION 2.23 Material Contracts................................................................15
SECTION 2.24 Intellectual Property.............................................................15
SECTION 2.25 Records...........................................................................17
SECTION 2.26 Inventory.........................................................................18
SECTION 2.27 Notes and Accounts Receivable.....................................................18
SECTION 2.28 Powers of Attorney................................................................18
SECTION 2.29 Product Warranty..................................................................18
SECTION 2.30 Environmental, Health and Safety..................................................18
SECTION 2.31 Business Relationships with the Company...........................................19
SECTION 2.32 No Company Brokers' Fees..........................................................19
SECTION 2.33 Disclosure........................................................................19
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PAGE
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ARTICLE III REPRESENTATIONS AND WARRANTIES OF BUYER...................................................19
SECTION 3.01 Organization......................................................................19
SECTION 3.02 Buyer Power and Authority.........................................................19
SECTION 3.03 Validity, Etc.....................................................................20
SECTION 3.04 Capitalization....................................................................20
SECTION 3.05 Buyer Financial Statements........................................................20
SECTION 3.06 Absence of Undisclosed Liabilities................................................21
SECTION 3.07 Taxes.............................................................................21
SECTION 3.08 Litigation........................................................................21
SECTION 3.09 Compliance with Law...............................................................21
SECTION 3.10 Purchase For Investment...........................................................21
SECTION 3.11 Disclosure........................................................................22
ARTICLE IV COVENANTS OF THE SELLERS..................................................................22
SECTION 4.01 Best Efforts Cooperation..........................................................22
SECTION 4.02 Access............................................................................22
SECTION 4.03 Keeping of Books and Records......................................................22
SECTION 4.04 Actions Prior to Closing..........................................................23
SECTION 4.05 Notice of Changes.................................................................23
SECTION 4.06 Preservation of Business..........................................................23
SECTION 4.07 Termination of Employees and Company Plans........................................24
SECTION 4.08 Litigation........................................................................24
SECTION 4.09 Obligations of Affiliates.........................................................24
SECTION 4.10 Seller Release....................................................................25
SECTION 4.11 Non-Competition...................................................................25
SECTION 4.12 Liabilities.......................................................................25
SECTION 4.13 Notices and Consents..............................................................25
SECTION 4.14 Covenant Not To Xxx...............................................................25
SECTION 4.15 U.S. Patent No. 4,835,763.........................................................26
SECTION 4.16 Stock Option Exercises............................................................26
ARTICLE V COVENANTS OF THE BUYER....................................................................26
SECTION 5.01 Cooperation.......................................................................26
SECTION 5.02 Amendment of Rights Agreement.....................................................26
SECTION 5.03 Amendment of Zhone Certificate of Incorporation...................................26
SECTION 5.04 NEC Name..........................................................................27
SECTION 5.05 Covenant not to Xxx...............................................................27
ARTICLE VI POST-CLOSING COVENANTS....................................................................27
SECTION 6.01 Post-Closing Covenants............................................................27
ARTICLE VII CONDITIONS TO THE BUYER'S OBLIGATIONS.....................................................30
SECTION 7.01 Consents..........................................................................30
SECTION 7.02 Representations and Warranties True...............................................30
SECTION 7.03 Performance.......................................................................31
SECTION 7.04 No Adverse Change.................................................................31
SECTION 7.05 Obligations of the Sellers........................................................31
SECTION 7.06 Resignations......................................................................31
SECTION 7.07 No Actions, Suits or Proceedings..................................................31
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SECTION 7.08 Closing Documents.................................................................31
SECTION 7.09 Escrow Agreement..................................................................31
SECTION 7.10 Patent Assignments................................................................31
SECTION 7.11 Transition Services Agreement.....................................................32
ARTICLE VIII CONDITIONS TO THE SELLERS' OBLIGATIONS....................................................32
SECTION 8.01 Representations and Warranties True...............................................32
SECTION 8.02 Performance.......................................................................32
SECTION 8.03 No Adverse Change.................................................................32
SECTION 8.04 No Actions, Suits or Proceedings..................................................32
SECTION 8.05 Closing Documents.................................................................32
SECTION 8.06 Rights Agreement..................................................................33
SECTION 8.07 Escrow Agreement..................................................................33
SECTION 8.08 Financing.........................................................................33
SECTION 8.09 Zhone Certificate of Incorporation................................................33
SECTION 8.10 Transition Services Agreement.....................................................33
ARTICLE IX INDEMNIFICATION...........................................................................33
SECTION 9.01 Survival of Representations, Warranties, Covenants and Agreements.................33
SECTION 9.02 Indemnification...................................................................34
SECTION 9.03 General Procedures; Third Party Claims............................................36
ARTICLE X TERMINATION...............................................................................37
SECTION 10.01 Termination.......................................................................37
SECTION 10.02 Effect of Termination.............................................................38
ARTICLE XI MISCELLANEOUS.............................................................................38
SECTION 11.01 Notices...........................................................................38
SECTION 11.02 Entire Agreement..................................................................39
SECTION 11.03 Modifications and Amendments......................................................40
SECTION 11.04 Waivers and Consents..............................................................40
SECTION 11.05 Assignment........................................................................40
SECTION 11.06 Parties in Interest...............................................................40
SECTION 11.07 Governing Law.....................................................................40
SECTION 11.08 Severability......................................................................40
SECTION 11.09 Interpretation....................................................................41
SECTION 11.10 Headings and Captions.............................................................41
SECTION 11.11 Expenses..........................................................................41
SECTION 11.12 Confidentiality...................................................................41
SECTION 11.13 Public Disclosure.................................................................42
SECTION 11.14 Counterparts......................................................................42
SECTION 11.15 Appointment of Representative.....................................................42
SECTION 11.16 Representation....................................................................43
SECTION 11.17 Specific Performance..............................................................43
SECTION 11.18 Consent to Jurisdiction; Waiver of Jury Trial.....................................43
SECTION 11.19 Attorneys' Fees...................................................................44
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List of Defined Terms Section
Asset Purchase Agreement Section 1.05
Audited Financial Statements Section 2.11
Buyer Preamble
Buyer Damages Section 9.02
Buyer Financial Statements Section 3.05
Buyer General Representations Section 9.01
Buyer Indemnified Party Section 9.02
Buyer Organizational Representations Section 9.01
Claims Section 1.01
Closing Section 1.04
Closing Date Section 1.04
Company Preamble
Company Balance Sheet Section 2.11
Company Certificate of Incorporation Section 2.06
Company Financial Statements Section 2.11
Company Intellectual Property Section 2.24
Contracts Section 2.23
Damages Section 9.02
Disclosure Schedule Article IIB
Environmental, Health and Safety Laws Section 2.30
Escrow Agent Section 1.02
Escrow Agreement Section 1.02
Escrow Period Section 1.02
Escrowed Securities Section 1.02
Excluded Assets Section 1.05
Excluded Liabilities Section 1.05
Final Closing Date Balance Sheet Section 1.03
GAAP Section 2.11
Indemnified Party Section 9.03
Indemnifying Party Section 9.03
Indemnity Period Section 9.01
Independent Accounting Firm Section 1.03
Intellectual Property Section 2.24
Interim Balance Sheet Section 2.11
ITOCHU Preamble
TVI Preamble
ITVSF Preamble
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List of Defined Terms Section
Xxxxx Xxxxx Section 11.16
NEC America Contracts Section 1.06
NEC USA Preamble
Noncompetition Agreement Section 4.11
Patent Assignments Section 7.10
Permits Section 2.17
Pre-Closing Matter Section 4.10
Purchase Price Section 1.02
Rights Agreement Section 5.02
Securities Act Section 1.07
Seller Damages Section 9.02
Seller General Representations Section 9.01
Seller Indemnified Party Section 9.02
Seller IP Non-Infringement Representations Section 9.01
Seller IP Representations Section 9.01
Seller Organizational Representations Section 9.01
Seller Tax Representations Section 9.01
Sellers' Representative Section 11.15
Sellers Preamble
Series B Stockholder Section 8.06
Shares Recital A
Shortfall Section 1.03
Tangible Personal Property Section 2.21
Tax Returns Section 2.14
Taxes Section 2.14
Third Party Claim Section 9.03
Third Party Licenses Section 2.24
YED Preamble
YNED Preamble
Zhone Certificate of Incorporation Section 1.02
Zhone Preferred Stock Section 1.02
Zhone Shares Section 1.02
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List of Exhibits
Exhibit 1.02A - Escrow Agreement
Exhibit 1.02B - Zhone Certificate of Incorporation
Exhibit 1.05 - Asset Purchase Agreement
Exhibit 2.06 - Company Certificate of Incorporation
Exhibit 4.11 - Noncompetition Agreement
Exhibit 7.10 - Patent Assignments
Exhibit 7.11 - Transition Services Agreement
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This STOCK PURCHASE AND SALE AGREEMENT (this "Agreement") entered into this
14th day of February, 2003 by and among Zhone Technologies, Inc., a Delaware
corporation ("Zhone" or the "Buyer"), NEC eLuminant Technologies, Inc., a
Delaware corporation (the "Company"), NEC USA, Inc., a Delaware corporation
("NEC USA"), NEC America, Inc., a Delaware corporation ("NEC America"), NEC
Corporation, a Japanese corporation ("NEC Japan"), ITOCHU Corporation, a
Japanese corporation ("ITOCHU"), Technology Ventures I Venture Capital
Investment Limited Partnership ("TVI"), ITV Side Fund, L.L.C., a Delaware
limited liability company ("ITVSF"), The Yasuda Enterprise Development I,
Limited Partnership, a Japanese limited partnership ("YED"), and The Investment
Enterprise Partnership YNED, a Japanese limited partnership ("YNED") (each of
NEC USA, NEC Japan, ITOCHU, TVI, ITVSF, YED and YNED a "Seller" and collectively
the "Sellers"; and ITOCHU, ITVSF, YED and YNED from time to time collectively
the "Non-NEC Sellers").
RECITALS:
A. The Sellers are the owners of all of the issued and outstanding shares
of capital stock of every kind and description of the Company (said shares being
herein referred to as the "Shares").
B. The Sellers desire to sell the Shares and the Buyer desires to
purchase the Shares upon the terms and conditions set forth herein.
C. Simultaneous with or prior to the Closing, certain assets and
liabilities of the Company will be sold and transferred to NEC USA or an
affiliate thereof pursuant to the Asset Purchase Agreement. After giving effect
to such transaction, the Company's business as in effect on the Closing will
consist of its Access Solutions Division, although the assets of the Company
will also include certain fixed assets (but not prototypes related to the
fiberSlam product) that were formerly used in the Company's Advance Broadband
Technology Division, which is no longer active.
D. The Buyer and the Sellers desire to enter into certain other
agreements for their mutual benefit.
NOW THEREFORE, in consideration of the premises and of the mutual covenants
and agreements contained herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby mutually acknowledged, intending
to be legally bound the parties hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF THE SHARES
SECTION 1.01 Purchase and Sale of the Shares. On the basis of the
representations, warranties and undertakings set forth in this Agreement, and on
the terms and subject to the conditions set forth in this Agreement, at the
Closing, each Seller shall sell the Shares listed next to such Seller's name on
Schedule A hereto to the Buyer, and the Buyer shall purchase such Shares from
each Seller, free and clear of all claims, charges, liens, contracts, rights,
options,
security interests, mortgages, encumbrances and restrictions of every kind and
nature (together, "Claims").
SECTION 1.02 Purchase Price. Subject to the terms and conditions of
this Agreement, in consideration of the sale and transfer of the Shares, at the
Closing (i) the Buyer shall pay to the Sellers cash in the total amount of
$1,000, in accordance with the allocation set forth on Schedule A, and (ii) the
Buyer shall issue to Sellers 9,000,000 shares (the "Zhone Shares" and together
with the amount set forth in clause (i) above, the "Purchase Price") of its
Series B Preferred Stock, par value $.001 per share ("Zhone Preferred Stock"),
in accordance with the allocation set forth on Schedule A, of which 900,000
shares (such shares, allocated to the Sellers in accordance with Schedule A, the
"Escrowed Securities") shall be deposited with an agent, which shall be a bank
or a trust company organized under the laws of the United States of America or
any of the States, having a combined capital and surplus of not less than
$100,000,000 selected by the Buyer and the Sellers (the "Escrow Agent"), to be
held in escrow from the Closing Date through February 14, 2004 (the "Escrow
Period"), in accordance with the terms of the escrow agreement in the form
attached hereto as Exhibit 1.02A (the "Escrow Agreement"). The Zhone Preferred
Stock will have the rights, preferences and privileges set forth in the Fourth
Amended and Restated Certificate of Incorporation, attached hereto as Exhibit
1.02B (the "Zhone Certificate of Incorporation"). Notwithstanding the foregoing,
the Escrow Period shall terminate upon a liquidation, dissolution or winding up
of the Buyer (including any deemed liquidation, dissolution or winding up) as
contemplated in Article IV, Section 2(b)(1) of the Zhone Certificate of
Incorporation.
SECTION 1.03 Purchase Price Adjustment. The Purchase Price shall be
subject to adjustment as follows:
(a) Final Closing Date Balance Sheet. Within twenty (20) business
days after the Closing Date, the Buyer shall prepare and deliver to NEC USA an
unaudited balance sheet of the Company as of the Closing Date (the "Final
Closing Date Balance Sheet"), which shall be prepared on the same basis and in
the same form as the Interim Balance Sheet. The Purchase Price delivered as of
the Closing shall be adjusted as follows:
(i) In the event that the assets of the Company reflected
on the Final Closing Date Balance Sheet equal or exceed
the liabilities of the Company reflected on the Final
Closing Date Balance Sheet, then the Purchase Price
shall not be adjusted.
(ii) In the event that the assets of the Company reflected
on the Final Closing Date Balance Sheet are less than
the liabilities of the Company reflected on the Final
Closing Date Balance Sheet (such amount a "Shortfall"),
then the Purchase Price shall be reduced such that the
number of shares of Zhone Preferred Stock to be issued
to NEC USA shall be reduced by the quotient of: (X) the
amount of the Shortfall divided by (Y) $2.0238, rounded
to the nearest whole share of Zhone Preferred Stock.
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(iii) The Purchase Price adjustment set forth in this Section
1.03(a) shall be allocated solely to the shares of
Zhone Preferred Stock delivered to NEC USA at the
Closing in accordance with Schedule A hereto.
(b) Disputes.
(i) Subject to clause (ii) of this Section 1.03(b), the
Final Closing Date Balance Sheet delivered by the Buyer
to NEC USA shall be deemed to be and shall be final,
binding and conclusive on the parties hereto.
(ii) NEC USA may dispute any amounts reflected on the Final
Closing Date Balance Sheet; provided, however, that NEC
USA shall have notified the Buyer in writing of each
disputed item, specifying the estimated amount thereof
in dispute and setting forth, in reasonable detail, the
basis for such dispute, within twenty (20) calendar
days of the Buyer's delivery of the Final Closing Date
Balance Sheet to NEC USA. In the event of such a
dispute, NEC USA and the Buyer shall use reasonable
efforts to resolve such dispute, provided that if such
dispute is not resolved within ten (10) business days
of NEC USA's notice to Buyer set forth above, the
parties shall submit the items in dispute for
resolution to an independent accounting firm of
national reputation mutually acceptable to NEC USA and
the Buyer (the "Independent Accounting Firm"), which
shall, within thirty (30) calendar days after such
submission, determine and report to NEC USA and the
Buyer upon such remaining disputed items, and such
report shall be final, binding and conclusive on NEC
USA and the Buyer. The fees and disbursements of the
Independent Accounting Firm shall be allocated between
NEC USA and the Buyer in the same proportion that the
aggregate amount of such disputed items so submitted to
the Independent Accounting Firm that is unsuccessfully
disputed by each such party (as finally determined by
the Independent Accounting Firm) bears to the total
amount of such remaining disputed items so submitted.
(c) Final Purchase Price Adjustment. The Final Closing Date Balance
Sheet shall be deemed final for the purposes of this Section 1.03 upon the
earlier of (x) the failure of NEC USA to notify the Buyer of a dispute within
the twenty (20) calendar day period following the Buyer's delivery of the Final
Closing Date Balance Sheet to NEC USA, and (y) the resolution of all disputes,
pursuant to Section 1.03(b)(ii), by the Independent Accounting Firm. Within ten
(10) business days after the Final Closing Date Balance Sheet is deemed final,
NEC USA shall return to the Buyer the requisite number of shares of Zhone
Preferred Stock, if any, required pursuant to Section 1.03(a); provided that,
ten percent (10%) of the number of shares so returned (rounded to the nearest
whole share number) shall simultaneously be released to NEC USA by the Escrow
Agent pursuant to the Escrow Agreement. In the event such shares are not
returned
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to Buyer within the ten (10) business day period, the Buyer may obtain
such shares out of the Escrowed Securities in accordance with the terms of the
Escrow Agreement.
(d) Cooperation. The parties agree and undertake to provide each
other with reasonable access to their books and records and personnel to the
extent reasonably necessary to assist in the preparation of the statements
referred to in this Section 1.03.
SECTION 1.04 Closing. Subject to the satisfaction or waiver of each of
the conditions set forth in Articles VII and VIII of this Agreement, the closing
of the transactions contemplated by this Agreement (the "Closing") shall take
place at the offices of Xxxxxx & Xxxxxxx LLP, 000 Xxxxxxxxxxxx Xxxxx, Xxxxx
Xxxx, Xxxxxxxxxx, at 12:00 p.m., on February 14, 2003, or such other location,
date and time as may be agreed upon by the parties (such date and time being
called the "Closing Date"). At the Closing:
A. The Sellers and the Company shall deliver or cause to be
delivered to the Buyer the following:
(i) By each Seller: certificates for the Shares in the
names of the Sellers duly endorsed to the Buyer, or
accompanied by separate stock assignments reasonably
satisfactory to the Buyer;
(ii) By the Company: the resignations (or other evidence of
necessary corporate action) referred to in Section
7.06;
(iii) By each Seller: a copy of the resolutions of each
Seller (to the extent required by applicable law or
such Seller's governing documents) which is a
corporation, partnership, trust or other entity, and of
the Company, certified by its respective Secretary,
authorizing and approving the execution, delivery and
performance of this Agreement and the transactions
contemplated hereby and the acts of the officers and
employees of the Company and each such Seller in
carrying out the terms and provisions hereof;
(iv) By the Company: all of the books, data, documents,
instruments and other records relating to the Company
including without limitation the original incorporation
documents, foreign qualifications, bylaws, minute book,
and stock record book;
(v) By the Company and NEC USA: the Asset Purchase
Agreement, duly executed by the Company and NEC USA;
and
(vi) By NEC Japan and NEC America: the Patent Assignments.
B. The Buyer shall deliver or cause to be delivered to the Sellers
the following:
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(i) Stock certificates in respect of the Zhone Preferred
Stock (other than the Escrowed Securities, which shall
be delivered to the Escrow Agent) and the cash amount
set forth in Section 1.02;
(ii) A copy of the resolutions of the Buyer certified by its
Secretary, authorizing and approving the execution,
delivery and performance of this Agreement and the
transactions contemplated hereby and the acts of the
officers and employees of the Buyer in carrying out the
terms and provisions hereof; and
(iii) A file-stamped copy from the Secretary of State of the
State of Delaware of the amendments to the Zhone
Certificate of Incorporation contemplated in Section
8.09.
C. The parties shall deliver:
(i) Except for the Non-NEC Sellers, the Escrow Agreement
and the Transition Services Agreement;
(ii) The Rights Agreement; and
(iii) Such further documents, resolutions, certificates and
instruments as any party or his, her or its counsel
reasonably requests to facilitate the consummation of
the transactions contemplated hereby.
SECTION 1.05 Certain Excluded Assets and Liabilities. Prior to or
simultaneous with the Closing, pursuant to an Asset Purchase Agreement
substantially in the form attached hereto as Exhibit 1.05 (the "Asset Purchase
Agreement"), NEC USA or one of its affiliates shall (i) acquire the assets of
the Company which are listed on Schedule 1.05 (the "Excluded Assets"), and (ii)
assume the liabilities listed on Schedule 1.05 (the "Excluded Liabilities"),
provided that NEC USA or its affiliates may elect at their option to pay or
otherwise discharge any of the Excluded Liabilities as of the Closing. In that
regard, for purposes of this Agreement, except where the context would require
otherwise, the expressions "material adverse effect on the business of the
Company," "material adverse change to the business of the Company," and
"ordinary course of business consistent with past practice" shall be deemed to
include only the business of the Company as in effect on the Closing, which is
as described in Recital C, and excluding the Excluded Assets and Excluded
Liabilities. In the event that any of the Excluded Assets inadvertently includes
any assets of the Company which are reasonably required to permit the Company to
operate the business as in effect on the Closing, or if any other assets or
services used in the operation of the business as in effect on the Closing are
not transferred to the Company as of the Closing, NEC USA agrees to negotiate
with Buyer on a good faith basis the transfer or license of such assets and the
provision of such services on terms and conditions substantially similar to
those set forth in this Agreement and the Transition Services Agreement.
Notwithstanding anything to the contrary contained in this Agreement, including
this Section 1.05, neither the Company nor Buyer or any of its affiliates shall
have any rights following the Closing to the intellectual property (other than
the rights to use and otherwise commercially
5
exploit (1) the know-how retained in the unaided memory of any ex-employee of
the Company who is subsequently hired by the Company or Buyer; and (2) know-how
learned by the Company or Buyer as a result of a review of any tangible
materials delivered to Buyer or the Company on or before the Closing) related to
the Company's Advance Broadband Technology Division.
SECTION 1.06 Assignment of Certain Contracts. As of the Closing, NEC
America hereby assigns to the Company all of its rights, title and interest in
and to, and the Company hereby assumes all of, NEC America's obligations under
the Contracts listed on Schedule 1.06 hereto (the "NEC America Contracts"). Each
of the Company, the Buyer and NEC America agree to use reasonable best efforts
to substitute in all respects the Company, the Buyer or any of its affiliates
for NEC America as a party to the NEC America Contracts. To the extent that any
of the NEC America Contracts is by its terms not assignable without the consent
of another party, and such consent has not been obtained as of the Closing, this
Agreement shall not constitute an assignment or an attempted assignment thereof
if such assignment or attempted assignment would constitute a breach thereof.
Each of the Company, the Buyer and NEC America agree to use reasonable best
efforts to obtain the consent of such other party to the assignment of any such
agreement to the Company following the Closing; provided that, if any such
consent shall not be obtained despite the parties' efforts, NEC America shall,
to the extent permitted by law, permit the Company and Buyer to receive the
benefits under such NEC America Contract and, provided that such benefits are
made available to the Company or Buyer, the Company and Buyer agree to indemnify
and hold harmless NEC America and its affiliates from any liabilities or
obligations under such NEC America Contracts which are due and payable in the
ordinary course of business following the Closing.
SECTION 1.07 Legends. The shares of Zhone Preferred Stock to be issued
to the Sellers pursuant to this Agreement shall not have been registered and
shall be characterized as "restricted securities" under the federal securities
laws, and under such laws such shares may be resold without registration under
the Securities Act of 1933, as amended (the "Securities Act"), only in certain
limited circumstances. Each certificate evidencing shares of Zhone Preferred
Stock to be issued pursuant hereto shall bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933. SUCH SHARES MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION
WITHOUT AN EXEMPTION UNDER THE SECURITIES ACT OR AN OPINION
OF LEGAL COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY THAT
SUCH REGISTRATION IS NOT REQUIRED."
and any legends required by applicable state securities laws or as set forth in
the Rights Agreement. Notwithstanding the foregoing, no opinion of counsel shall
be necessary in connection with any transfer of Zhone Preferred Stock by any
Seller to any other Seller, or by any Seller to any of its affiliates which
provide to Buyer the necessary securities law representations under Section 2.04
hereof.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLERS AND THE COMPANY
A. As an inducement to the Buyer to enter into this Agreement and to
consummate the transactions contemplated hereby, each Seller, severally, and not
jointly and severally, hereby represents and warrants to and agrees with the
Buyer with respect to the Shares listed next to the name of such Seller on
Schedule A hereto that:
SECTION 2.01 Title to Shares. Such Seller owns the Shares beneficially
and of record, free and clear of all Claims. Other than restrictions on transfer
imposed under federal or state securities laws, there is no restriction
affecting the ability of such Seller to transfer the legal and beneficial title
and ownership of the Shares to the Buyer and, upon delivery thereof to the Buyer
pursuant to the terms of this Agreement and of payment of the Purchase Price at
the Closing, the Buyer will acquire beneficial title to the Shares free and
clear of all Claims. Such Seller is not a party to any option, warrant, purchase
right or other contract or commitment that could require such Seller to sell,
transfer or otherwise dispose of any capital stock of the Company (other than
this Agreement). Such Seller is not a party to any voting trust, proxy or other
agreement or understanding with respect to the voting of any capital stock of
the Company.
SECTION 2.02 Sellers' Organization. Such Seller is duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization.
SECTION 2.03 Sellers' Authority to Execute and Perform Agreement. Said
Seller has the full legal right and power and all authority and approval
required by law to enter into this Agreement and the other documents and
instruments contemplated hereby and to perform its obligations hereunder and
thereunder. Said Seller has duly executed and delivered this Agreement and the
other documents and instruments contemplated hereby to which it is a party, and
this Agreement and such other documents and instruments constitute the legal,
valid and binding obligation of said Seller enforceable in accordance with their
terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization or other similar laws affecting creditor's rights
generally and by general equitable principles. Neither the execution and
delivery of this Agreement and the other documents and instruments contemplated
hereby, the consummation of the transactions contemplated hereby or thereby, nor
the performance of this Agreement and such other documents and instruments in
compliance with the terms and conditions hereof and thereof by said Seller will
(a) conflict with or result in any violation of any certificate of
incorporation, by-law or other governing document of said Seller, or any
judgment, decree, order, statute, law, rule or regulation applicable to said
Seller or to the Shares of said Seller, (b) require any consent, approval,
authorization or permit of, or filing with or notification to, any governmental
or regulatory authority or other person or entity, (c) violate, conflict with or
result in a breach, default or termination (or give rise to any right of
termination, cancellation or acceleration) under any of the terms, conditions or
provisions of any mortgage, indenture, note, lease, license, agreement or other
instrument or obligation to which said Seller is a party or by which said Seller
or its Shares is bound, or (d) result in the creation of any Claim of any kind
or nature on, or with respect to its Shares.
7
SECTION 2.04 Purchase For Investment. Such Seller is acquiring the
shares of Zhone Preferred Stock for investment for its own account and not with
a view to the distribution or public offering thereof within the meaning of the
Securities Act. Such Seller understands that the shares of Zhone Preferred Stock
have not been registered under the Securities Act and may not be sold or
transferred without such registration or an exemption therefrom. Such Seller is
sufficiently experienced in financial and business matters to be capable of
evaluating the risk of investment in Zhone Preferred Stock and to make an
informed decision relating thereto. Such Seller has the financial capability for
making the investment, can afford a complete loss of the investment, and the
investment is a suitable one for such Seller. Such Seller is an Accredited
Investor as defined in Regulation D under the Securities Act.
SECTION 2.05 No Seller Brokers' Fees. Such Seller has no liability or
obligation to pay any fees or commissions to any broker, finder or agent with
respect to the transactions contemplated by this Agreement for which the Buyer
or the Company could become liable or obligated.
B. As a further inducement to the Buyer to enter into this Agreement and
to consummate the transactions contemplated hereby, and except as set forth in
the Disclosure Schedule provided by Sellers to the Buyer on the date hereof and
accepted in writing by the Buyer (the "Disclosure Schedule"), NEC USA hereby
further represents and warrants to Buyer that the statements contained in the
following sections of this Article II are true, complete and correct. The
Disclosure Schedule shall be arranged in paragraphs corresponding to the
numbered and lettered paragraphs contained in this Article II, and the
disclosure in any paragraph shall be deemed to qualify only the corresponding
paragraph unless a reasonable person would determine that the disclosure
contains enough information to qualify or otherwise apply to the other
paragraphs of this Article II.
SECTION 2.06 Capitalization. The authorized, issued and outstanding
capital stock of the Company consists on the date hereof, and will on the
Closing Date consist solely of 20,000,000 shares of Preferred Xxxxx, x.0000 par
value, of which 6,091,281 are issued and outstanding and owned by the Sellers,
as set forth on Schedule A, free and clear of all Claims, and 55,000,000 shares
of Common Stock, par value $.0001 per share, of which 21,760,000 shares are
issued and outstanding and owned by the Sellers, as set forth on Schedule A,
free and clear of all Claims, in each case with no personal liability attaching
to the ownership thereof. All of such shares are duly authorized, validly
issued, fully paid and non-assessable and were issued in full compliance with
all federal, state and local rules, laws and regulations. The designations,
powers, preferences, rights, qualifications, limitations and restrictions in
respect of each class and series of authorized capital stock of the Company are
as set forth in the Company's Amended and Restated Certificate of Incorporation,
as amended, a copy of which has been provided to the Buyer and is attached
hereto as Exhibit 2.06 (the "Company Certificate of Incorporation"), and all
such designations, powers, preferences, rights, qualifications, limitations and
restrictions are valid, binding and enforceable in accordance with all
applicable laws. There are, and at the Closing Date there will be, no shares
held in the corporate treasury of the Company and no shares reserved for
issuance. As of the date hereof there are, and as of the Closing Date there will
be, no outstanding subscriptions, options, warrants, rights, calls or
convertible securities, stock appreciation rights (phantom or otherwise), joint
venture, partnership or other commitments of any nature relating to shares of
the capital stock of the
8
Company. As of the date hereof there is, and as of the Closing Date the Company
will have, no obligation (contingent or other) to issue, sell or otherwise cause
to become outstanding any of its capital stock, or to purchase, redeem or
otherwise acquire any of its capital stock or any interest therein or to pay any
dividend or make any other distribution in respect thereof. There are no voting
trusts, proxies or other agreements or understandings with respect to the voting
of the Company's capital stock.
SECTION 2.07 Organization and Qualification.
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and is duly licensed or
qualified to transact business as a foreign corporation and is in good standing
in each jurisdiction in which the nature of the Company's business or the
character of the properties owned or leased by the Company requires such
licensing or qualification, except in such jurisdictions where the failure to be
so qualified or licensed and in good standing would not in the aggregate be
expected to have a material adverse effect on the business or operations of the
Company.
(b) The Company is not in default under or in violation of any
provision of the Company Certificate of Incorporation or the Company's By-laws.
SECTION 2.08 Subsidiaries. The Company does not (a) own of record or
beneficially, directly or indirectly, (i) any shares of capital stock or
securities convertible into capital stock of any other corporation or (ii) any
participating interest in any partnership, joint venture or other non-corporate
business enterprise or (b) control, directly or indirectly, any other entity.
SECTION 2.09 Corporate Power and Authority. The Company has the
corporate power and authority to own and hold its properties and to carry on its
business as presently conducted and contemplated to be conducted. The Company
has the corporate power and authority to execute, deliver and perform this
Agreement and the other documents and instruments contemplated hereby. The
execution, delivery and performance of this Agreement and the documents
contemplated hereby and the consummation of the transactions contemplated hereby
and thereby have been duly authorized and approved by the Company. This
Agreement, and each of the other agreements, documents and instruments to be
executed and delivered by the Company have been duly executed and delivered by,
and constitute the legal, valid and binding obligation of, the Company
enforceable against the Company in accordance with their terms.
SECTION 2.10 Validity, Etc. Neither the execution and delivery of this
Agreement and the other documents and instruments contemplated hereby, the
consummation of the transactions contemplated hereby or thereby, nor the
performance of this Agreement and such other agreements in compliance with the
terms and conditions hereof and thereof will (i) conflict with or result in
violation of the Company Certificate of Incorporation or the Company's By-laws,
or any judgment, decree, order, statute, law, rule or regulation applicable to
the Company, (ii) require any consent, approval, authorization or permit of, or
filing with or notification to, any governmental or regulatory authority or
other person or entity, or (iii) violate, conflict with or result in a breach,
default or termination (or give rise to any right of termination, cancellation
or acceleration) under any of the terms, conditions or provisions of any
mortgage, indenture, note,
9
lease, license, agreement or other instrument or obligation related to the
Company or any of its assets or the consummation of the transactions
contemplated hereby or thereby, except in the case of this clause (iii) for such
defaults (or rights of termination, cancellation or acceleration) (x) as to
which requisite waivers or consents have been obtained in writing and provided
to the Buyer, or (y) which would not reasonably be expected to have a material
adverse effect on the business or operations of the Company.
SECTION 2.11 Company Financial Statements. The Company has previously
furnished to the Buyer the audited balance sheet of the Company as at March 31,
2002 (the "Company Balance Sheet"), and the related statements of income and
cash flow and notes thereto for the fiscal year ended March 31, 2002 (the
"Audited Financial Statements"), which have been prepared in accordance with
U.S. generally accepted accounting principles consistently applied ("GAAP"), and
fairly present in all material respects the financial position of the Company as
of the date thereof, and the results of its operations and cash flows for the
periods ended on the date thereof. The Company has also previously furnished to
the Buyer an unaudited balance sheet as of January 31, 2003 (the "Interim
Balance Sheet" and together with the "Audited Financial Statements," the
"Company Financial Statements"), which fairly presents in all material respects
the financial position of the Company as of the date thereof. The Company
Financial Statements are attached hereto as Schedule 2.11.
SECTION 2.12 Absence of Undisclosed Liabilities. Except as and to the
extent of the amounts specifically reflected or reserved against in the Company
Balance Sheet or the Interim Balance Sheet, the Company does not have any
liabilities or obligations of any nature whatsoever, due or to become due,
accrued, absolute, contingent or otherwise except for liabilities and
obligations incurred since the date of the Interim Balance Sheet in the ordinary
course of business consistent with past practice and reflected accurately in its
books and records (none of which results from, arises out of or relates to any
breach of contract, breach of warranty, infringement or violation of law).
SECTION 2.13 Absence of Adverse Change; Conduct of Business. Except as
contemplated in this Agreement, since January 31, 2003, the Company has
conducted its business only in the ordinary course of business consistent with
past practice, and there has been no material adverse change in the business,
operations or financial condition of the Company. Without limiting the
foregoing, since January 31, 2003, there has not been, occurred or arisen any
event which would require the consent of the Buyer under Section 4.04 had such
action been taken after the date of this Agreement.
SECTION 2.14 Taxes.
(a) Filing of Tax Returns. The Company has duly and timely filed with
the appropriate taxing authorities all Tax Returns required to be filed through
the date hereof. All such Tax Returns filed are complete and accurate in all
material respects. Except as set forth on Schedule 2.14, the Company is not
currently the beneficiary of any extension of time within which to file any Tax
Return. No claim has ever been made by an authority in a jurisdiction where the
Company does not file Tax Returns that it is or may be subject to taxation by
that jurisdiction.
10
(b) Payment of Taxes. The unpaid Taxes of the Company will not, as of
the Closing Date, exceed the reserve for Tax liability (excluding any reserve
for deferred Taxes established to reflect timing differences between book and
Tax income) set forth on the face of the Final Closing Date Balance Sheet. The
Company has withheld and paid all Taxes required to have been withheld and paid
in connection with amounts paid or owing to any employee, independent
contractor, creditor, stockholder or other third party.
(c) Asset Purchase Agreement Transactions. No liability for Taxes has
or will be incurred by the Company in connection with the purchase of the
Excluded Assets, the assumption of the Excluded Liabilities or any other
transaction consummated pursuant to the Asset Purchase Agreement, beyond amounts
reserved therefor on the Final Closing Date Balance Sheet.
(d) Audits, Investigations, Disputes or Claims. No deficiencies for
Taxes have been claimed, proposed or assessed by any taxing or other
governmental authority against the Company. There are no pending or, to the
knowledge of the Company or NEC USA, threatened audits, investigations, disputes
or claims or other actions for or relating to any liability for Taxes with
respect to the Company, and there are no matters under discussion with any
governmental authorities, or known to the Company or NEC USA, with respect to
Taxes that are likely to result in an additional liability for Taxes with
respect to the Company. Audits of federal, state and local Tax Returns by the
relevant taxing authorities have been completed for the periods set forth on
Schedule 2.14 and, except as set forth in such Schedule, neither the Company,
any predecessor nor NEC USA has been notified that any taxing authority intends
to audit a Tax Return for any other period. NEC USA has delivered or made
available to Buyer complete and accurate copies of federal, state and local Tax
Returns of the Company and its predecessors for the years ended December 31,
1999, 2000 and 2001, and complete and accurate copies of all examination reports
and statements of deficiencies assessed against or agreed to by the Company
since December 31, 1999. The Company has not waived any statute of limitations
in respect of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.
(e) Lien. There are no encumbrances for Taxes (other than for current
Taxes not yet due and payable) on any of the assets of the Company or any shares
of Company capital stock.
(f) Tax Elections. All material elections with respect to Taxes
affecting the Company, or its assets, as of the date hereof are set forth on
Schedule 2.14. The Company has not: (i) consented at any time under Section
341(f)(1) of the Code to have the provisions of Section 341(f)(2) of the Code
apply to any disposition of any of its assets; (ii) agreed, or is required, to
make any adjustment under Section 481(a) of the Code by reason of a change in
accounting method or otherwise; (iii) made an election, or is required, to treat
any of its assets as owned by another person pursuant to the provisions of
Section 168(f) of the Code or as tax-exempt bond financed property or tax-exempt
use property within the meaning of Section 168 of the Code; (iv) acquired and
does not own any assets that directly or indirectly secure any debt the interest
on which is tax exempt under Section 103(a) of the Code; (v) made and will not
make a consent dividend election under Section 565 of the Code; (vi) or made any
of the foregoing elections or is required to apply any of the foregoing rules
under any comparable state or local Tax provision.
11
(g) Affiliated Groups. The Company (i) is not currently a member of a
group of corporations which files a combined, consolidated or unitary Tax Return
and (ii) has never been a member of an affiliated group of corporations within
the meaning of Section 1504 of the Code or any group that has filed a combined,
consolidated or unitary Tax Return other than a group the common parent of which
was NEC USA. No Seller will, as of the Closing Date, qualify as a "selling
affiliate" within the meaning of Treasury Regulations Section
1.338(h)(10)-1(b)(3). The Company has no liability for the Taxes of any person
(other than the Company) (i) under Treasury Regulations Section 1.1502-6 (or any
similar provision of state, local or foreign law), (ii) as a transferee or
successor, (iii) by contract, or (iv) otherwise.
(h) Tax Sharing Agreements. There are no Tax-sharing agreements or
similar arrangements (including indemnity arrangements) with respect to or
involving the Company, or its assets, and, after the Closing Date, neither the
Company nor its assets shall be bound by any such Tax-sharing agreements or
similar arrangements or have any liability thereunder for amounts due in respect
of periods up to and including the Closing Date.
(i) Partnerships and Single Member LLC's. The Company (i) is not
subject to any joint venture, partnership, or other arrangement or contract
which is treated as a partnership for Tax purposes, (ii) does not own a single
member limited liability company which is treated as a disregarded entity, and
(iii) is not a shareholder of a "controlled foreign corporation" as defined in
Section 957 of the Code (or any similar provision of state, local or foreign
law).
(j) No Withholding. The Company has not been a United States real
property holding corporation within the meaning of Section 897(c)(2) of the Code
during the applicable period specified in Section 897 of the Code. The
transactions contemplated herein are not subject to the tax withholding
provisions of Section 3406 of the Code, or of Subchapter A of Chapter 3 of the
Code or of any other provision of law.
(k) Permanent Establishment. The Company does not have and has not
had a permanent establishment in any foreign country, as defined in any
applicable Tax treaty or convention between the United States of America and
such foreign country.
(l) Employee Compensation. The Company has not made any payments, is
not obligated to make any payments, and is not a party to any agreement that
under certain circumstances could obligate it to make any payments that will not
be deductible under Section 280G of the Code.
(m) Definitions. For purposes of this Agreement, (i) "Taxes" means
all taxes, including without limitation income, gross receipts, profits,
premium, windfall profits, license, ad valorem, value-added, excise, real
property, personal property, sales, use, transfer, withholding, social security,
unemployment, disability, registration, payroll, employment, franchise,
environmental, customs duties, capital stock, alternative or add-on minimum,
estimated or other tax of any kind whatsoever, imposed by the United States of
America or any state, local or foreign government, or any agency thereof, or
other political subdivision of the United States of America or any such
government, including any interest, penalties, assessments
12
or additions to tax resulting from, attributable to or incurred in connection
with any tax or any contest or dispute thereof, (ii) "Tax Returns" means all
reports, returns, declarations, statements, claims for refund, forms or other
information required to be supplied to a taxing authority in connection with
Taxes, including any schedule or attachment thereto, and including any amendment
thereof, and (iii) "Code" means the Internal Revenue Code of 1986, as amended.
SECTION 2.15 Litigation. There is no (a) action, suit, claim or
proceeding pending or, to the knowledge of NEC USA or the Company, threatened,
nor to the knowledge of NEC USA or the Company any investigation pending or
threatened against the Company (whether or not the Company is a party or
prospective party thereto), at law or in equity, or before or by any Federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, (b) arbitration proceeding
relating to the Company or (c) governmental inquiry pending or, to the knowledge
of NEC USA or the Company, threatened against, involving or affecting the
Company, and there is, to the knowledge of NEC USA or the Company no basis for
any of the foregoing. There are no outstanding orders, writs, judgments,
injunctions or decrees of any court, governmental agency or arbitration tribunal
against, involving or affecting the Company. The Company is not in default with
respect to any order, writ, injunction or decree known to or served upon it from
any court or of any Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign. There
is no action or suit by the Company pending or threatened against others.
SECTION 2.16 Compliance with Law. The Company is not subject to any
judgment, order, writ, injunction, or decree that materially adversely affects,
individually or in the aggregate, its businesses, operations, properties, assets
or condition (financial or otherwise). The Company is in compliance with and is
not in default under, all laws, ordinances, legal requirements, rules,
regulations and orders applicable to it, its operations, properties, assets,
products and services except for such instances of noncompliance or default
which, individually or in the aggregate would not reasonably be expected to have
a material adverse effect on the business or operations of the Company.
SECTION 2.17 Licenses and Permits. The Company has all material
licenses, permits, consents, approvals and authorizations of or from any public
or governmental agency used in or necessary for the conduct of the Company's
business (collectively, the "Permits"), all of which are listed on Schedule
2.17. The Company is in material compliance with all of the Permits, and neither
the Company nor NEC USA has received any notice of, nor have reason to believe,
that any appropriate authority intends to cancel or terminate any of the Permits
or that valid grounds for such cancellation or termination exist.
SECTION 2.18 Labor and Employee Relations. The Company is not a party
to or bound by any collective bargaining agreement with any labor organization,
group or association covering any of its employees, and neither the Company nor
NEC USA has knowledge of any attempt to organize any of the Company's employees
by any person, unit or group seeking to act as their bargaining agent. The
Company is not currently, and has not within the last three years been, involved
in labor negotiations with any unit or group seeking to become the bargaining
unit for any of the Company's employees. The Company has not experienced any
work stoppages during the last three years. The Company is not delinquent in
payments to any of its
13
employees for any wages, salaries, commissions, bonuses or other direct
compensation for any services performed for it or amounts required to be
reimbursed to such employees. Schedule 2.18 identifies and the Company has
delivered to Buyer true and complete copies of (i) all severance agreements with
employees; (ii) all severance programs and policies applicable to its employees;
(iii) all plans, programs, agreements and other arrangements with or relating
to, employees which contain change in control provisions; (iv) any written
material relating to the material personnel policies of the Company and (v) any
employment or other agreement of any employee.
SECTION 2.19 ERISA. The Company does not sponsor any "employee benefit
plan", as defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended. To the knowledge of the Company or NEC USA, there is no
basis upon which it could be reasonably expected that the Company would have any
liability arising out of or related to any employee benefits plan sponsored or
maintained by NEC America.
SECTION 2.20 Current Employees. Set forth on Schedule 2.20 is a list of
the names of all of the Company's current employees and consultants, together
with the title or job classification of each such person. Except as specifically
described on Schedule 2.20, none of such persons has an employment agreement or
understanding, whether oral or written, with the Company which is not terminable
on notice by the Company without cost or other liability to the Company.
SECTION 2.21 Properties.
(a) Tangible Property. The Company has good and marketable title to,
or a valid leasehold interest in, free and clear of all Claims, all tangible
personal property used in or necessary for the conduct of its business, which is
reflected on the Company Balance Sheet (other than property sold, consumed or
otherwise disposed of in the ordinary course of business consistent with past
practice since the date of the Balance Sheet) (the "Tangible Personal
Property"). The Company's possession and use of such property has not been
disturbed and no claim has been asserted against the Company adverse to its
rights in such ownership or leasehold interests. All Tangible Personal Property
is adequate and usable for the purposes for which it is currently used and has
been properly maintained and repaired and each item of Tangible Personal
Property, whether owned or leased, is in good operating condition and repair and
has been properly maintained.
(b) Real Property. The Company does not own any real property, and as
of the Closing Date, after giving effect to the transactions contemplated by the
Asset Purchase Agreement, the Company will not have any liabilities or
obligations with respect to any real property.
SECTION 2.22 Insurance. Schedule 2.22 contains a correct and complete
list of each insurance policy maintained by the Company. All of such insurance
policies are in full force and effect, and the Company is not in default with
respect to its obligations under any such insurance policies, except for any
failures to be in full force and effect or defaults that would not reasonably be
expected to have a material adverse effect on the business or operations of the
Company. With respect to such insurance policies, (a) neither NEC USA nor the
Company has
14
received any notice from the insurer under any such policy disclaiming coverage,
reserving rights with respect to a particular claim or such policy in general or
canceling or materially amending any such policy, (b) there is no claim, suit or
other matter currently pending, and (c) all premiums due and payable have been
duly paid.
SECTION 2.23 Material Contracts. Schedule 2.23 lists all material
existing contracts, agreements, understandings, commitments, licenses and
franchises (whether written or oral) (collectively "Contracts"), relating to the
Company, including without limitation (a) the NEC America Contracts; (b) any
agreement (or group of related agreements) for the lease of personal property to
or from any person or entity providing for lease payments in excess of $100,000
per annum; (c) any agreement (or group of related agreements) for the purchase
or sale of supplies, products or other personal property, or for the furnishing
or receipt of services, the performance of which will extend over a period of
more than one year or involve consideration in excess of $100,000; (d) any
agreement concerning a partnership or joint venture; (e) any agreement (or group
of related agreements) under which it has created, incurred, assumed or
guaranteed any indebtedness for borrowed money, or any capitalized lease
obligation, in excess of $100,000 or under which it has imposed a security
interest on any of its assets, tangible or intangible; (f) any agreement
concerning noncompetition; (g) any agreement with any of the Sellers or their
affiliates; (h) any agreement under which the consequences of a default or
termination could have a material adverse effect on the business, assets,
operations, financial condition or prospects of the Company; or (i) any other
agreement (or group of related agreements) the performance of which involves
consideration in excess of $100,000. The Company has made available to the Buyer
true, correct and complete copies of all of the Contracts specified on Schedule
2.23 which are in writing. All of the Contracts described in Schedule 2.23 are
in full force and effect. None of such Contracts has been terminated, the
Company is not in breach or default thereunder, to the knowledge of NEC USA or
the Company no other party is in breach or default thereunder, and neither NEC
USA nor the Company is aware of any intention or right of any party to default
another party to any such Contract. There exists no actual or, to the knowledge
of the Company or NEC USA, threatened termination, cancellation or limitation of
the business relationship of the Company with any party to any such Contract.
SECTION 2.24 Intellectual Property.
(a) For purposes of this Agreement, "Intellectual Property" means:
(i) inventions and discoveries (whether or not patentable and whether or not
reduced to practice), improvements thereto, and patents, patent applications,
invention disclosures, and other rights of invention, including without
limitation any reissues, divisions, continuations and continuations-in-part,
provisionals, reexamined patents or other applications or patents claiming the
benefit of the filing date of any such application or patent; (ii) trademarks,
service marks, trade names, trade dress, logos, domain names, product names and
slogans, including any common law rights, registrations, and applications for
registration for any of the foregoing, and the goodwill associated with all of
the foregoing, worldwide; (iii) copyrightable works, copyrights, website
content, and other rights of authorship, and any applications, registrations and
renewals in connection therewith, worldwide; (iv) trade secrets and any other
confidential business and technical information, including, without limitation,
web site user information, customer and supplier lists and related information,
pricing and cost information, business and marketing plans, advertising
statistics, any other financial, marketing and business data, technical data,
15
specifications, schematics and know-how; (v) to the extent not covered by
subsections (i) through (iv), above, software and web sites (including all
related computer code and content); (vi) rights to exclude others from
appropriating any of such Intellectual Property, including the rights to xxx for
and remedies against past, present and future infringements of any or all of the
foregoing and rights of priority and protection of interests therein; and (vii)
any other proprietary, intellectual property and other rights relating to any or
all of the foregoing anywhere in the world.
(b) Schedule 2.24(a) contains a correct and complete list of all
patents, registered trademarks, registered service marks, registered copyrights
and registered trade names (and any applications therefore), and all written
invention disclosures, owned by the Company (after giving effect to the Patent
Assignments from each of NEC Japan and NEC America to the Company) ("Company
Intellectual Property"); Schedule 2.24(b) contains a correct and complete list
of all license agreements to which the Company is a party whereby the Company
licenses Intellectual Property from a third party ("Third Party Licenses").
(c) To the Knowledge of NEC USA and the Company, the Company
Intellectual Property and the licensed Intellectual Property covered by the
Third Party Licenses constitutes all the Intellectual Property used by the
Company in its operations as presently conducted, with the exception of:
information in the form of know-how that may reside within the knowledge of the
Company employees who were made available to Buyer; and information that may be
contained in files and records that have been and will be provided to Buyer at
or prior to Closing. For the purposes of this subsection (c) only, the term
"Knowledge" shall mean actual knowledge, or such knowledge that a similarly
situated company would be expected to have in the ordinary and prudent conduct
of its business.
(d) (i) The Company owns all right, title and interest in the Company
Intellectual Property; (ii) the rights of the Company to the Company
Intellectual Property are free and clear of all liens and encumbrances; (iii)
all registrations with and applications to governmental or regulatory bodies in
respect of the Company Intellectual Property are, to the knowledge of NEC USA
and the Company, valid and in full force and effect and the Company has taken
all action reasonably required to maintain their validity and effectiveness,
except where the failure to do so would not result in a material adverse effect
on the Company; (iv) at or prior to closing, the Company shall have delivered to
the Buyer all existing documentation with respect to any invention, process,
design, computer program or other know-how or trade secret included in the
Company Intellectual Property that are in the Company's possession, custody or
control; and (v) the Company has taken reasonable measures to protect the
secrecy, confidentiality and value of its trade secrets.
(e) The Company has made available to the Buyer true, correct and
complete copies of all of the Third Party Licenses specified on Schedule 2.24(b)
which are in writing. All of the Third Party Licenses described in Schedule
2.24(b) are in full force and effect. None of the Third Party Licenses have been
terminated, no party is in breach or default thereunder, and neither NEC USA nor
the Company is aware of any intention or right of any party to default to
another party to any of the Third Party Licenses. There exists no actual or, to
the knowledge of NEC USA and the Company, threatened termination, cancellation
or limitation of any of the Third Party Licenses. There are no restrictions on
the direct or indirect transfer of any Third
16
Party License. No licensing fees, royalties or payments are due or payable by
the Company in connection with the use of any licensed Intellectual Property
covered by any Third Party License.
(f) No approval or consent of any person or entity is needed so that
the interest of Buyer in the Company Intellectual Property shall continue to be
in full force and effect following the transactions contemplated by this
Agreement.
(g) The Company's products and the use thereof does not interfere
with, infringe upon or misappropriate any third party's Intellectual Property
rights. In addition to the foregoing, to the knowledge of NEC USA and the
Company, the Company has not interfered with, infringed upon or misappropriated
any Intellectual Property rights of any third party, and the Company has not
received any charge, complaint, claim, demand or notice alleging any such
interference, infringement, misappropriation or violation (including any claim
that the Company must license or refrain from using any intellectual property
rights of any third party).
(h) To the knowledge of NEC USA and the Company, no third party has
interfered with, infringed upon or misappropriated any item of Company
Intellectual Property.
(i) All Intellectual Property owned or used by the Company and for
which confidentiality is appropriate has been maintained in confidence in
accordance with protection procedures reasonably believed by NEC USA and the
Company to be adequate for protection customarily used in the industry to
protect rights of like importance. All former and current employees who have
contributed or participated in the conception or development of the Intellectual
Property owned or used by the Company have executed and delivered to the Company
a written invention assignment agreement, assigning all their right, title, and
interest in the Intellectual Property to the Company. All agents and independent
contractors who have contributed or participated in the conception or
development of the Intellectual Property owned or used by the Company have done
so pursuant to a written agreement.
(j) The Company and NEC USA have in their possession or control: (i)
correct and complete, fully-executed copies of all of the Third Party Licenses
(as amended to date) that are identified on Schedule 2.24(b) and which are in
writing; and (ii) correct and complete copies of all documents submitted to or
received from the relevant patent, copyright, trademark, service xxxx and trade
name foreign or domestic authorities relating to each item of the Company
Intellectual Property identified on Schedule 2.24(a). At or prior to the
Closing, NEC USA shall have delivered to Buyer correct and complete,
fully-executed copies of all of the documents described in this subsection.
(k) NEC USA has received an offer for license from Telcordia
Technologies, Inc., with respect to U.S. Patent 4,835,763 only, as it applies to
any alleged infringement of such patent attributable to past and current
products sold by the Company as of the Closing Date. Neither NEC USA nor the
Company has received notice from Telcordia alleging infringement of any other
Intellectual Property of Telcordia.
SECTION 2.25 Records. The minute books, stock certificate books and
stock transfer ledgers of the Company are complete and correct in all material
respects with respect to the
17
matters set forth therein and have been maintained in a manner consistent with
good business practice.
SECTION 2.26 Inventory. A correct and complete list of the inventory of
the Company as of the date of the Interim Balance Sheet has been made available
to the Buyer.
SECTION 2.27 Notes and Accounts Receivable. All notes and accounts
receivable of the Company are reflected properly on its books and records, are
valid receivables subject to no setoffs or counterclaims, and are current and
collectible, subject only to the reserve for bad debts set forth on the face of
the Company Balance Sheet (rather than in any notes thereto) and the Interim
Balance Sheet.
SECTION 2.28 Powers of Attorney. There are no outstanding powers of
attorney executed on behalf of the Company.
SECTION 2.29 Product Warranty. Each product manufactured, sold, leased,
licensed or delivered by the Company has been in conformity with all applicable
contractual commitments and all applicable warranties, and the Company has no
liability or obligation for replacement or repair thereof or other damages in
connection therewith, other than in the ordinary course of business and subject
only to the reserve for product warranty claims set forth on the face of the
Company Balance Sheet (rather than in any notes thereto) and the Interim Balance
Sheet.
SECTION 2.30 Environmental, Health and Safety.
(a) The Company has materially complied with all Environmental,
Health and Safety Laws, and no action, suit, proceeding, hearing, demand or
notice has been filed or commenced against it, nor to the knowledge of NEC USA
or the Company, any investigation, charge or complaint filed or commenced
against it, alleging any failure to comply or, to the knowledge of NEC USA or
the Company, is any such action, suit, proceeding, hearing, investigation,
charge, complaint, demand or notice threatened. Without limiting the generality
of the preceding sentence, the Company has obtained and is in compliance with
all of the terms and conditions of all permits, licenses and other
authorizations which are required under, and all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables which are contained in, all Environmental, Health and
Safety Laws, except where the failure to obtain or be in compliance with the
terms and conditions of any of the foregoing would not reasonably be expected to
have a material adverse effect on the business or operations of the Company. To
the knowledge of NEC USA and the Company (i) no hazardous or toxic substance has
been released and there are no threatened releases of any hazardous or toxic
substance from the Company's facilities as a result of the operation of the
Company's business that constitutes the material violation of any Environmental,
Health and Safety Laws, and (ii) there are no pollutants, hazardous or toxic
substances or conditions relating to pollutants, hazardous or toxic substances
at the Company's facilities which presently require investigation, remediation,
assessment, cleanup, removal or other response action under any Environmental,
Health and Safety Laws.
18
(b) For purposes of this Agreement, "Environmental, Health and Safety
Laws" means the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, the Resource Conservation and Recovery Act of 1976, the Clean Air
Act, the Clean Water Act, the Toxic Substances Control Act, the Oil Pollution
Act and the Occupational Safety and Health Act of 1970, each as amended,
together with all other laws (including rules, regulations, codes, plans,
injunctions, judgments, orders, decrees, rulings and charges thereunder) of
governmental authorities (and all agencies thereof) concerning pollution or
protection of the environment, public health and safety, or employee health and
safety, including laws relating to emissions, discharges, releases, or
threatened releases of pollutants, contaminants, or chemical, industrial,
hazardous or toxic materials, substances or wastes into ambient air, surface
water, ground water, or lands or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport, or
handling of pollutants, contaminants, or chemical, industrial, hazardous or
toxic materials, substances or wastes.
SECTION 2.31 Business Relationships with the Company. Except as
contemplated in this Agreement, as of the Closing Date, none of the Sellers or
their affiliates will have any agreement, arrangement or other business
relationship with the Company; all liabilities or obligations owed or required
to be performed by the Sellers or their affiliates to the Company will have been
paid or discharged in full; and the Company will have no liabilities or
obligations of any kind or nature to the Sellers or their affiliates.
SECTION 2.32 No Company Brokers' Fees. The Company has no liability or
obligation to pay any fees or commissions to any broker, finder or agent with
respect to the transactions contemplated by this Agreement.
SECTION 2.33 Disclosure. No representation or warranty by NEC USA or
the Company contained in this Article II contains any untrue statement of a
material fact or omits a material fact necessary to make the statements
contained herein or therein, in light of the circumstances in which made, not
misleading. Except for the representations and warranties of the Sellers and the
Company contained in this Article II, no Seller or any other person or entity
acting on behalf of any Seller or the Company makes any representation or
warranty, express or implied.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
The Buyer represents and warrants to the Sellers as follows:
SECTION 3.01 Organization. Buyer is duly incorporated, validly existing
and in good standing under the laws of the State of Delaware and is duly
qualified to transact business as a foreign corporation in each jurisdiction in
which the failure to so qualify would have a material adverse effect on the
Buyer's ability to purchase the Shares.
SECTION 3.02 Buyer Power and Authority. Buyer has the corporate power
and authority to execute, deliver and perform this Agreement and the other
documents and instruments contemplated hereby. The execution, delivery and
performance of this Agreement
19
and the documents contemplated hereby and the consummation of the transactions
contemplated hereby and thereby have been duly authorized and approved by Buyer.
This Agreement, and each of the other agreements, documents and instruments to
be executed and delivered by Buyer have been duly executed and delivered by, and
constitute the valid and binding obligation of Buyer enforceable against Buyer
in accordance with their terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization or other similar laws
affecting creditor's rights generally and by general equitable principles.
SECTION 3.03 Validity, Etc. Neither the execution and delivery of this
Agreement and the other documents and instruments contemplated hereby, the
consummation of the transactions contemplated hereby or thereby, nor the
performance of this Agreement and such other agreements in compliance with the
terms and conditions hereof and thereof will (i) conflict with or result in any
violation of the Zhone Certificate of Incorporation or Zhone's By-laws, or any
judgment, decree, order, statute, law, rule or regulation applicable to Buyer,
(ii) require any consent, approval, authorization or permit of, or filing with
or notification to, any governmental or regulatory authority or other person or
entity, other than compliance with applicable federal and state securities laws,
or (iii) violate, conflict with or result in a breach, default or termination
(or give rise to any right of termination, cancellation or acceleration) under
any of the terms, conditions or provisions of any mortgage, indenture, note,
lease, license, agreement or other instrument or obligation to which Buyer is a
party, except in the case of this clause (iii) for such defaults (or rights of
termination, cancellation or acceleration) which would not reasonably be
expected to have a material adverse effect on Buyer's ability to purchase the
Shares.
SECTION 3.04 Capitalization. The authorized, issued and outstanding
capital stock of Buyer consists on the date hereof, and will on the Closing Date
consist solely of 113,500,000 shares of Preferred Stock, $.001 par value, of
which 73,969,338 are issued and outstanding, and 135,000,000 shares of Common
Stock, par value $.001 per share, of which 15,523,593 shares are issued and
outstanding. All of such shares are duly authorized, validly issued, fully paid
and non-assessable and were issued in full compliance with all federal, state
and local rules, laws and regulations. The designations, powers, preferences,
rights, qualifications, limitations and restrictions in respect of each class
and series of authorized capital stock of the Company are as set forth in the
Zhone Certificate of Incorporation, and all such designations, powers,
preferences, rights, qualifications, limitations and restrictions are valid,
binding and enforceable in accordance with all applicable laws. Except for the
Rights Agreement, there are no voting trusts, proxies or other agreements or
understandings with respect to the voting of, or providing for registration
rights, preemptive rights or rights of first refusal with regard to, the
Company's capital stock.
SECTION 3.05 Buyer Financial Statements. The Buyer has previously
furnished to the Sellers, and attached hereto as Schedule 3.05 are the Buyer's
audited balance sheet as of December 31, 2001 and the related statements of
income and cash flow and notes thereto for the fiscal year ended December 31,
2001, and an unaudited balance sheet as of November 30, 2002 and the related
statements of income and cash flows for the eleven (11) month period ended
November 30, 2002. All such financial statements (the "Buyer Financial
Statements") have been prepared in accordance with GAAP, and present fairly in
all material respects the financial position of the Buyer as of the dates
thereof and the results of its operations and cash flows for the periods ended
on the dates thereof. Since November 30, 2002, there has been no material
20
adverse change in the business, operations or financial condition of the Buyer
from that reflected in the Buyer Financial Statements.
SECTION 3.06 Absence of Undisclosed Liabilities. Except as and to the
extent of the amounts specifically reflected or reserved against in the Buyer
Financial Statements and in connection with the financing arrangements described
in Section 8.08 hereof, the Buyer does not have any material liabilities or
obligations of any nature whatsoever, due or to become due, accrued, absolute,
contingent or otherwise except for liabilities and obligations incurred since
the date of the Buyer Financial Statements in the ordinary course of business
consistent with past practice.
SECTION 3.07 Taxes. The Buyer has duly and timely filed with the
appropriate taxing authorities all Tax Returns required to be filed through the
date hereof. All such Tax Returns filed are complete and accurate in all
material respects and all Taxes shown thereon as due have been paid. The Buyer
has withheld and paid all Taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, independent contractor,
creditor, stockholder or other third party.
SECTION 3.08 Litigation. There is no (a) action, suit, claim or
proceeding pending or, to the knowledge of the Buyer any investigation pending
or threatened against or affecting the Buyer (whether or not the Buyer is a
party or prospective party thereto), at law or in equity, or before or by any
Federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, (b) arbitration
proceeding relating to the Buyer or (c) governmental inquiry pending or, to the
Buyer's knowledge, threatened against, involving or affecting the Buyer, and
there is, to the knowledge of the Buyer, no basis for any of the foregoing,
except in each case for such actions, suits, proceedings, investigations or
inquiries which, individually or in the aggregate, would not reasonably be
expected to have a material adverse effect on the business or operations of the
Buyer. There are no outstanding orders, writs, judgments, injunctions or decrees
of any court, governmental agency or arbitration tribunal against, involving or
affecting the Buyer. The Buyer is not in default with respect to any order,
writ, injunction or decree known to or served upon it from any court or of any
Federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign.
SECTION 3.09 Compliance with Law. The Buyer is not subject to any
judgment, order, writ, injunction, or decree that materially adversely affects,
individually or in the aggregate, its businesses, operations, properties, assets
or condition (financial or otherwise). The Buyer has complied with and is not in
default under, all laws, ordinances, legal requirements, rules, regulations and
orders applicable to it, its operations, properties, assets, products and
services except for such instances of noncompliance or default which,
individually or in the aggregate would not reasonably be expected to have a
material adverse effect on the business or operations of the Buyer.
SECTION 3.10 Purchase For Investment. Buyer is acquiring the Shares for
investment for its own account and not with a view to the distribution or public
offering thereof within the meaning of the Securities Act. Buyer understands
that the Shares have not been registered under the Securities Act and may not be
sold or transferred without such registration
21
or an exemption therefrom. Buyer is sufficiently experienced in financial and
business matters to be capable of evaluating the risk of investment in the
Shares and to make an informed decision relating thereto. Buyer has the
financial capability for making the investment, can afford a complete loss of
the investment, and the investment is a suitable one for Buyer. Buyer is an
Accredited Investor as defined in Regulation D under the Securities Act.
SECTION 3.11 Disclosure. No representation or warranty by the Buyer
contained in this Article III contains any untrue statement of a material fact
or omits a material fact necessary to make the statements contained herein or
therein, in light of the circumstances in which made, not misleading. Except for
the representations and warranties of the Buyer contained in this Article III,
neither the Buyer nor any other person or entity acting on behalf of the Buyer
makes any representation or warranty, express or implied.
ARTICLE IV
COVENANTS OF THE SELLERS
The Company and the Sellers covenant and agree with the Buyer as follows;
provided, however, that for purposes of this Article IV (except for Sections
4.09 and 4.10), the terms "Seller" and "Sellers" shall not include the Non-NEC
Sellers:
SECTION 4.01 Best Efforts Cooperation. Each Seller shall use its
respective reasonable best efforts to perform and fulfill and to cause the
Company to perform and fulfill, all conditions and obligations to be fulfilled
or performed by it hereunder, to the end that the transactions contemplated
hereby will be fully and timely consummated.
SECTION 4.02 Access. Until the Closing, each Seller shall give and
shall cause the Company to give, the Buyer, its attorneys, accountants and other
authorized representatives complete access, upon reasonable notice and at
reasonable times, to the Company's offices, properties, customers, suppliers,
employees, products, technology, business and financial records, contracts,
business plans, budgets and projections, agreements, commitments and other
documents and information concerning the Company and persons employed by or
doing business with the Company. Following the Closing, each Seller shall
provide the Buyer with access to any and all records relating to the Company
which remain in the possession of accountants, attorneys and other third
parties, unless in the good faith opinion of counsel of any such Seller such
records incorporate attorney-client privileged information. In order that the
Buyer may have full opportunity to make such examination and investigation as it
may desire of the business and affairs of the Company, the Company will, and the
Sellers will cause the Company to furnish the Buyer and its representatives
during such period with all such information as such representatives may
reasonably request and cause the respective officers, employees, consultants,
agents, accountants and attorneys of the Company and the Sellers to cooperate
fully with the representatives of the Buyer in connection with such review and
examination and to make full disclosure to the Buyer of all material facts
affecting the Company's financial condition, business operations, properties and
prospects; provided, however, that the foregoing is subject to the provisions of
Section 11.12 hereof regarding confidentiality.
22
SECTION 4.03 Keeping of Books and Records. Until the Closing, the
Company shall keep adequate records and books of account, in which complete
entries will be made in accordance with generally accepted accounting principles
consistently applied, reflecting all financial transactions and in which all
proper reserves for depreciation, depletion, obsolescence, amortization, taxes,
bad debts and other purposes in connection with its business shall be made.
SECTION 4.04 Actions Prior to Closing. Except as expressly contemplated
in this Agreement, the Company shall conduct its business pending the Closing
only in the ordinary course of business consistent with past practice. Without
limiting the generality of the foregoing, NEC USA shall cause the Company to
conduct its business in a manner such that on the Closing Date the Company will
have no obligations or liabilities except (a) those set forth on the Company
Balance Sheet and (b) those incurred in the ordinary course of business
consistent with past practice after the date of the Company Balance Sheet and
prior to the Closing Date and reflected accurately in its books and records.
Except as expressly contemplated by this Agreement or as consented to in writing
by the Buyer, during the period from the date of this Agreement to the Closing
Date, the Company shall not, (i) issue, sell or pledge, or authorize or propose
the issuance, sale or pledge of additional shares of capital stock of any class,
or securities convertible into any such shares, or any rights, warrants or
options to acquire any such shares or other convertible securities, or grant or
accelerate any right to convert or exchange any securities of the Company for
shares of capital stock of the Company; (ii) redeem, purchase or otherwise
acquire any of its outstanding securities (including the Shares); (iii) declare,
set aside, make or pay any dividend or distribution (whether in cash, stock or
property) on or in respect of any share of capital stock of the Company; (iv)
other than in the ordinary course of the Company's business consistent with past
practice, make any acquisition of assets or securities, any disposition of
assets or securities or any change in its capitalization; (v) enter into any
contract or release or relinquish any contract or other rights either involving
more than $100,000 or outside the ordinary course of the Company's business;
(vi) impose any security interest upon any of its assets, tangible or
intangible; (vii) make any capital expenditure (or series of related capital
expenditures) either involving more than $100,000 or outside the ordinary course
of the Company's business; (viii) incur any long-term debt for borrowed money or
any short-term debt for borrowed money, or guarantee any such debt; (ix) propose
or adopt any amendments to the Company Certificate of Incorporation or the
Company's By-Laws; (x) make any loan or advance to any of its officers,
directors, consultants, agents or employees or to any member of their families
or any other loan or advance otherwise than in the ordinary course of business
consistent with past practice; or (xi) agree in writing or orally to take any of
the foregoing actions or any other action which would have made any
representation or warranty in this Agreement untrue.
SECTION 4.05 Notice of Changes. Until the Closing, each Seller shall
notify the Buyer of any material change in the business of the Company, or any
other change causing a breach of any of the representations and warranties in
Article II above, as soon as it becomes apparent to such Seller that any such
change has or may occur. No disclosure by any Seller pursuant to this Section
4.05, however, shall be deemed to amend or supplement the Disclosure Schedule or
to prevent or cure any misrepresentation, breach of warranty or breach of
covenant.
SECTION 4.06 Preservation of Business. Except as contemplated in this
Agreement, until the Closing, the Company will, and NEC USA will cause the
Company to, use its reasonable best efforts to preserve its business
organization intact, and to preserve its goodwill.
23
Without limiting the generality of the foregoing, the Company will, and the
Sellers will cause the Company to, timely perform all obligations required of
the Company or the Sellers under the Contracts and Permits.
SECTION 4.07 Termination of Employees and Company Plans.
(a) The treatment of the employees of the Company as of the Closing
shall be as described in the Transition Services Agreement.
(b) As of the Closing Date, NEC America and the Company shall take
such action as is necessary such that the Company shall cease being
"participating employers" and shall cease any co-sponsorship and participation
in any employee benefit plan that is jointly adopted, sponsored or maintained by
NEC America and its affiliates and the Company and in which any current,
terminated or retired employee of the Company participates (each such plan being
a "Seller Plan"). The Company shall have no further liability and NEC America
shall retain all liabilities for claims under any Seller Plans, whether such
claims are made prior to, on or after the Closing Date. For this purpose claims
under any medical, dental, vision, or prescription drug plan generally will be
deemed to be incurred on the date that the service giving rise to such claim is
performed (and while the participant is still covered under such plan) and not
when such claim is made. NEC America shall provide under the Seller Plans any
continuation coverage required under Section 4980B of the Code, Part 6 of Title
I of ERISA or applicable state law ("COBRA") to each "qualified beneficiary" as
that term is defined in COBRA whose first "qualifying event" (as defined in
COBRA) occurs on or prior to the Closing Date. Notwithstanding the foregoing,
NEC America shall spin-off and transfer all of the obligations and liabilities
of any Seller Plan that is a Section 125 flexible spending plan attributable to
employees of the Company and their dependents and beneficiaries to a Section 125
flexible spending plan maintained by Buyer.
(c) The parties hereto acknowledge and agree that all provisions
contained in this Section 4.07 with respect to employees are included for the
sole benefit of the respective parties hereto and shall not create any right in
any other person, including, without limitation, any employees, former
employees, any participant in any Seller Plan or any beneficiary thereof.
SECTION 4.08 Litigation. NEC USA will promptly notify the Buyer of any
lawsuits, claims, proceedings or investigations which are threatened or
commenced against or by the Company or its affiliates, or against any employee,
consultant or director of the Company.
SECTION 4.09 Obligations of Affiliates. Except as contemplated in this
Agreement, on or before the Closing Date, the Sellers shall terminate any
ongoing agreements between any of them or their affiliates, on the one hand, and
the Company, on the other hand, all without any expense to the Company (or any
reduction in the gross assets reflected on the Company Balance Sheet) so that
following the Closing Date the Company shall have no obligations of any kind or
nature to the Sellers or their affiliates except for those specified in this
Agreement, and all debts and other obligations owed or required to be performed
by the Sellers or their affiliates to the Company shall be paid or discharged in
full; provided, however, that nothing contained in this Section 4.09 shall be
deemed to release the Company's officers and directors, or NEC Japan, NEC USA,
NEC America and their respective officers and directors, from any claims that
any
24
Non-NEC Seller may have against any of them. Without limiting the foregoing,
effective as of the Closing the Sellers and the Company hereby terminate the
Investors Rights Agreement dated October 10, 2001 by and among certain of the
Sellers and the Company, the Stockholders Agreement dated October 10, 2001 by
and among certain of the Sellers and the Company, and the Stockholder Agreement
dated November 27, 2001 by and between NEC Japan and the Company.
SECTION 4.10 Seller Release. Effective as of the Closing, NEC USA, NEC
America and NEC Japan hereby release and forever discharge the Company and its
parents, subsidiaries, affiliates, stockholders (but expressly excluding the
other Sellers and their respective affiliates, officers and directors),
successors and assigns, and each of the other Sellers hereby releases and
forever discharges solely the Company (but expressly excluding its officers and
directors), from any and all rights, claims, demands, judgments, obligations,
liabilities and damages, whether accrued or unaccrued, asserted or unasserted,
fixed or contingent, and whether known or unknown relating to the Company, which
ever existed or now exists, by any reason whatsoever, relating to any fact,
situation, circumstance, status, event, act, failure to act, or transaction
occurring on or prior to the Closing Date (each, a "Pre-Closing Matter");
provided that, nothing contained in this Section 4.10 shall be deemed to release
the Company or Buyer or any of its affiliates from any of their respective
obligations under this Agreement or in connection with the transactions
contemplated hereby; provided further, that that nothing contained in this
Section 4.10 shall be deemed to release the Company's officers and directors, or
NEC Japan, NEC USA, NEC America and their respective officers and directors,
from any claims that any Non-NEC Seller may have against any of them.
SECTION 4.11 Non-Competition. At the Closing NEC USA will enter into a
Noncompetition Agreement in substantially the form of Exhibit 4.11 (the
"Noncompetition Agreement").
SECTION 4.12 Liabilities. Except as contemplated in the Asset Purchase
Agreement, prior to the Closing, the Company shall (and NEC USA shall cause the
Company to) pay all of its liabilities and obligations, howsoever arising, as
and when due and payable in the ordinary course of business, including Taxes,
Tax Claims, assessments and governmental charges of any kind, except such as may
be contested in good faith or as to which a bona fide dispute may exist.
SECTION 4.13 Notices and Consents. Prior to the Closing, at the Buyer's
reasonable request, the Company shall (and NEC USA shall cause the Company to)
give any notices to, make any filings with, and use its reasonable best efforts
to obtain any authorizations, consents and approvals of governmental authorities
or third parties required in connection with the consummation of the
transactions contemplated by this Agreement.
SECTION 4.14 Covenant Not To Xxx. NEC Japan agrees that neither it nor
any of its affiliates shall institute a patent infringement suit against the
Buyer or any of its affiliates, or any customers of the Buyer or any of its
affiliates, regarding products manufactured by, made for, used by, imported by,
offered for sale by, leased and/or otherwise disposed by the Buyer or any of its
affiliates which may be covered by any patent that is owned by NEC Japan or any
of its affiliates, but only to the extent that such infringement relates to
products currently offered for sale by the Company as of the Closing Date or any
products that are modifications or
25
enhancements of the such products. The foregoing covenant shall terminate upon a
liquidation, dissolution or winding up of the Buyer (including any deemed
liquidation, dissolution or winding up) as contemplated in Article IV, Section
2(b)(1) of the Zhone Certificate of Incorporation. NEC Japan shall, and shall
cause its affiliates to, require subsequent owners or transferees of any such
patent referred to above to be bound by the foregoing covenant.
SECTION 4.15 U.S. Patent No. 4,835,763. NEC USA shall be responsible
for discharging, and shall indemnify the Buyer and its affiliates and hold each
of them harmless from and against, any Damages arising out of or relating to any
alleged infringement of U.S. Patent No. 4,835,763, which is attributable to any
product sold by the Company on or prior to the Closing Date and for the same
products if they are sold by the Buyer after the Closing Date; provided,
however, that nothing contained in this Section 4.15 shall pertain to any such
alleged infringement which is attributable to any product that was sold after
the Closing Date and was modified, improved or changed if such alleged
infringement is a result of such modification, improvement or change. The
foregoing covenant shall terminate upon a liquidation, dissolution or winding up
of the Buyer (including any deemed liquidation, dissolution or winding up) as
contemplated in Article IV, Section 2(b)(1) of the Zhone Certificate of
Incorporation.
SECTION 4.16 Option and Warrant Exercises. NEC USA represents to the
Buyer that all outstanding options to purchase Company capital stock are subject
to the Company's repurchase right contained in the Stock Option Exercise
Agreement between the Company and each option holder, a correct and complete
form of which was previously provided to counsel for the Buyer. Prior to the
Closing, the Company shall not take any action to waive, assign or otherwise
compromise in any respect its ability to exercise such repurchase right. In the
event that any option, warrant or other convertible security, including without
limitation those certain Warrants dated October 10, 2001 and February 1, 2002
issued by the Company to Mercator Capital L.L.C., to purchase capital stock of
the Company is exercised prior to the Closing, the Company shall promptly notify
Buyer of the exercise and the details thereof, and shall retain all funds
received by the Company in payment of the exercise price, so that Buyer shall
have access to such funds following the Closing.
ARTICLE V
COVENANTS OF THE BUYER
SECTION 5.01 Cooperation. The Buyer shall use its reasonable best
efforts to perform and fulfill all conditions and obligations to be fulfilled or
performed by it hereunder to the end that the transactions contemplated hereby
will be fully and timely consummated.
SECTION 5.02 Amendment of Rights Agreement. The Buyer shall use its
reasonable best efforts to effect an amendment of that certain Rights Agreement
dated as of July 1, 2002, by and among the Buyer and certain of its stockholders
(the "Rights Agreement") to enable each Seller to become a party thereto with
all the rights attendant thereto as a "Series B Stockholder" as defined therein.
In addition, Buyer agrees to enter into a side letter agreement providing NEC
USA with a Board observer seat.
26
SECTION 5.03 Amendment of Zhone Certificate of Incorporation. The Buyer
shall use its reasonable best efforts to effect an amendment of the Zhone
Certificate of Incorporation to allow the transactions contemplated by this
Agreement.
SECTION 5.04 NEC Name.
(a) Promptly (but no later than five (5) business days) following the
Closing, the Buyer shall cause the Company to change its corporate name to the
extent necessary to discontinue the inclusion of "NEC" therein.
(b) Except with respect to existing inventory, from and after the
Closing, neither the Company, the Buyer nor any of their respective affiliates
shall have the right to use any names, marks, trade names, trademarks or service
marks incorporating "NEC" by itself or in combination with any other name,
including without limitation, any corporate design logos associated with "NEC",
and none of the rights thereto or goodwill represented thereby or pertaining
thereto are being transferred hereby or in connection herewith; provided,
however, that nothing herein shall be construed to limit the parties' right to
use the "NEC" name in connection with any public disclosure relating to this
Agreement issued in accordance with Section 11.13; and provided further,
however, that the Company may continue to utilize the existing design and
manufacturing processes for current or manufacturer discontinued Company
products if those create an impression of the NEC logo on any internal component
or part that is incorporated into the products of the Company if Buyer cannot,
due to the absence of documentation or in Buyer's good faith opinion without
incurring unreasonable cost, alter such process. In that event, Buyer will have
a royalty free, non-exclusive license to continue to imprint and to display the
NEC xxxx through the continued practice of such processes.
SECTION 5.05 Covenant not to Xxx. Without limiting the provisions of
the Noncompetition Agreement, the Buyer hereby agrees that neither it nor any of
its affiliates shall institute a patent infringement suit against NEC Japan or
any of its affiliates, or any customers of NEC Japan or any of its affiliates,
regarding products manufactured by, made for, used by, imported by, offered for
sale by, leased and/or otherwise disposed by NEC Japan or any of its affiliates
which may be covered by the Company Intellectual Property. The Buyer shall, and
shall cause its affiliates to, require subsequent owners or transferees of any
patent or patent application listed on Schedule 2.24(a) to be bound by the
foregoing covenant.
ARTICLE VI
POST-CLOSING COVENANTS
SECTION 6.01 Post-Closing Covenants. Each of the Sellers (but for
purposes of subsections (c) and (d) below NEC USA only) and the Buyer agree as
follows with respect to the period following the Closing.
(a) Further Assurances. In case at any time after the Closing any
further action is necessary or desirable to carry out the purposes of this
Agreement, each of the parties shall take such further action (including the
execution and delivery of such further instruments and documents) as any other
party reasonably may request, all at the sole cost and expense of the
27
requesting party (unless the requesting party is entitled to indemnification
therefor under Article IX below). The Sellers acknowledge and agree that from
and after the Closing the Buyer will be entitled to possession of all of the
Company's books and records (including Tax records).
(b) Litigation Support. In the event and for so long as any party
actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim or demand in connection with
(i) any transaction contemplated by this Agreement or (ii) any fact, situation,
circumstance, status, event, action, failure to act, or transaction on or prior
to the Closing Date involving the Company, each of the other parties shall
reasonably cooperate with such party and its counsel in the contest or defense,
and, subject to reasonable availability and during normal business hours make
available their personnel and provide such testimony and access to their books
and records as shall be reasonably necessary in connection with the contest or
defense, all at the sole cost and expense of the contesting or defending party
(unless the contesting or defending party is entitled to indemnification
therefor under Article IX below).
(c) Preparation and Filing of Tax Returns and Payment of Taxes.
(i) Tax Returns Filed Prior to Closing. NEC USA shall prepare
and timely file or shall cause to be prepared and timely file all Tax
Returns with respect to the Company or in respect of its businesses, assets
or operations that are required to be filed (taking into account
extensions) prior to the Closing Date, and shall pay any Taxes with respect
thereto (whether or not shown on such Tax Returns). To the extent permitted
by applicable law, such Tax Returns shall be prepared on a basis reasonably
consistent with the past custom and practice of the Company. The income of
the Company will be apportioned to the period up to and including the
Closing Date and the period after the Closing Date by closing the books of
the Company as of the end of the Closing Date. With respect to the Tax
Returns described in this Section 6.01(c)(i), NEC USA shall allow the Buyer
an opportunity to review and comment upon such Tax Returns to the extent
that they relate to the Company and shall make such revisions to such Tax
Returns as are reasonably requested by the Buyer.
(ii) Tax Returns Filed After Closing - Tax Periods Ending on or
Before the Closing Date. The Buyer shall prepare or cause to be prepared
and file or cause to be filed all Tax Returns for the Company for all
periods ending on or prior to the Closing Date which are filed after the
Closing Date (other than Tax Returns described in Section 6.01(c)(i)
above). The Buyer shall permit NEC USA to review and comment on each such
Tax Return described in the preceding sentence prior to filing and shall
make such revisions to such Tax Returns as are reasonably requested by NEC
USA. To the extent permitted by applicable law, such Tax Returns shall be
prepared on a basis reasonably consistent with the past custom and practice
of the Company. Not later than five business days prior to the due date for
the payment of such Taxes, NEC USA shall pay the Buyer for Taxes of the
Company with respect to such periods, except to the extent that such Taxes
are reflected in the reserve for Tax liability (rather than any reserve for
deferred Taxes established to reflect timing differences between book and
Tax income) shown on the face of the Final Closing Date Balance Sheet.
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(iii) Tax Returns Filed After Closing - Tax Periods Beginning
Before and Ending After the Closing Date. The Buyer shall prepare or cause
to be prepared and file or cause to be filed any Tax Returns of the Company
for Tax periods which begin before the Closing Date and end after the
Closing Date. To the extent permitted by applicable law, such Tax Returns
shall be prepared on a basis reasonably consistent with the past custom and
practice of the Company. The Buyer shall give NEC USA a reasonable
opportunity to review such Tax Returns prior to filing and the Buyer shall
make such revisions to the returns as may be reasonably requested by NEC
USA to the extent such revisions relate to Taxes attributable to the
portion of the period that ends on the Closing Date. Not later than five
business days prior to the due date for the payment of such Taxes, NEC USA
shall pay the Buyer with respect to such periods an amount equal to the
portion of such Taxes which relates to the portion of such Taxable period
ending on the Closing Date, except to the extent that such Taxes are
reflected in the reserve for Tax liability (rather than any reserve for
deferred Taxes established to reflect timing differences between book and
Tax income) shown on the face of the Final Closing Date Balance Sheet. For
purposes of this section, in the case of any Taxes that are imposed on a
periodic basis and are payable for a Tax period that includes (but does not
end on) the Closing Date, the portion of such Tax that relates to the
portion of such Tax period ending on the Closing Date shall (A) in the case
of any Taxes other than Taxes based upon or related to income or receipts,
be deemed to be the amount of such Tax for the entire Tax period multiplied
by a fraction the numerator of which is the number of days in the Tax
period ending on the Closing Date and the denominator of which is the
number of days in the entire Tax period, and (B) in the case of any Tax
based upon or related to income or receipts, be deemed equal to the amount
which would by payable if the relevant Tax period ended on the Closing Date
provided that any Taxes attributable to transactions not in the ordinary
course of business that occur on the Closing Date but after the Closing
shall be considered to have occurred on the day following the Closing Date.
(iv) Special Rule for Transfer Taxes. The burden of sales, use,
transfer and like Taxes resulting from the purchase and sale of the Shares
hereunder shall be shared equally between Buyer and NEC USA. The preceding
sentence does not apply to sales, use, transfer and like Taxes resulting
from the transactions described in the Asset Purchase Agreement, the burden
of which shall be upon NEC USA in the manner described in this Agreement
and in the Asset Purchase Agreement.
(d) Cooperation on Tax Matters; Tax Audits.
(i) NEC USA and the Buyer and their respective affiliates shall
cooperate in both (A) the preparation of all Tax Returns for any Tax
periods for which one party could reasonably require the assistance of the
other party in obtaining any necessary information and (B) any subsequent
audits, claims, contests, litigation or other proceedings with respect to
Taxes of the Company (collectively, "Tax Proceedings"). Such cooperation
shall include, but not be limited to, furnishing prior years' Tax Returns
or return preparation packages to the extent related to the Company
illustrating previous reporting practices or containing historical
information relevant to the preparation of such Tax Returns, and furnishing
such other information within such party's possession
29
requested by the party filing such Tax Returns or participating in Tax
Proceedings, as is relevant to the preparation of such Tax Returns or the
conduct of such Tax Proceedings, respectively. Such cooperation and
information also shall include, without limitation, provision of powers of
attorney for the purpose of signing Tax Returns and defending audits and
promptly forwarding copies of appropriate notices and forms or other
communications received from or sent to any applicable governmental
authority responsible for the imposition of Taxes (the "Taxing Authority")
which relate to the Company, and providing copies of all relevant Tax
Returns to the extent related to the Company, together with accompanying
schedules and related workpapers, documents relating to rulings or other
determinations by any Taxing Authority and records concerning the ownership
and tax basis of property, which the requested party may possess. The
parties and their respective Affiliates shall make their respective
employees and facilities available on a mutually convenient basis to
explain any documents or information provided hereunder.
(ii) NEC USA shall have the right, at its own expense, to control
any audit or examination by any Taxing Authority ("Tax Audit") and to
contest, resolve and defend any assessment, notice of deficiency, or other
adjustment or proposed adjustment relating to Taxes for any taxable period
ending on or before the Closing Date with respect to the Company and for
which NEC USA is responsible for paying under the terms of this Agreement.
The Buyer shall have the right, at its own expense, to control any other
Tax Audit and to contest, resolve and defend against any other assessment,
notice of deficiency, or other adjustment or proposed adjustment relating
to Taxes with respect to the Company; provided that the Buyer shall consult
with NEC USA with respect to the resolution of any issue with respect to
Taxes due for a taxable period that begins prior to the Closing Date and
that are the responsibility of NEC USA pursuant to this Agreement, and
shall not settle any such issue, or file any amended Tax Return for such
taxable period, without the consent of NEC USA. Where consent to a
settlement is withheld by NEC USA pursuant to this Section, NEC USA may
continue or initiate any further proceedings at their own expense, provided
that any liability of the Buyer, after giving effect to this Agreement,
shall not exceed the liability that would have resulted had NEC USA not
withheld its consent.
ARTICLE VII
CONDITIONS TO THE BUYER'S OBLIGATIONS
The obligation of the Buyer to pay the Purchase Price on the Closing Date
and to consummate the other transactions contemplated hereby is subject to the
satisfaction, on or before the Closing Date, of the following conditions each of
which may be waived by the Buyer in its sole discretion:
SECTION 7.01 Consents. All approvals and consents (or waivers) of third
parties required by any governmental authorities in connection with the
consummation of the transactions contemplated by this Agreement shall have been
obtained.
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SECTION 7.02 Representations and Warranties True. All of the
representations and warranties of the Sellers and the Company contained in
Article II of this Agreement shall be true, correct and complete in all material
respects on and as of the date hereof and on and as of the Closing Date, as if
made on and as of the Closing Date.
SECTION 7.03 Performance. The Sellers and the Company shall have
performed and complied with all covenants and agreements contained herein
required to be performed or complied with by them prior to or at the Closing
Date.
SECTION 7.04 No Adverse Change. No change shall have occurred or be
threatened in the condition (financial or other) of the Company, the results of
its operations, properties, assets, liabilities or businesses which has been or
is or is reasonably likely to be materially adverse to its operations,
properties, prospects, assets or condition (financial or other).
SECTION 7.05 Obligations of the Sellers. Except as contemplated by this
Agreement, all debts and other obligations owed or required to be performed by
the Sellers or their affiliates (or any business entity owned or controlled by
the Sellers or their affiliates) to the Company shall have been paid or
discharged in full on or before the Closing Date, and all agreements between the
Company and the Sellers and their affiliates shall have terminated on or before
the Closing Date at no cost to the Company; provided, however, that nothing
contained in this Section 7.05 shall be deemed to release the Company's officers
and directors, or NEC Japan, NEC USA, NEC America and their respective officers
and directors, from any claims that any Non-NEC Seller may have against any of
them.
SECTION 7.06 Resignations. The Company shall have received the written
resignations from (or shall have taken the necessary corporate action to effect
the removal of) each of the Directors and Officers of the Company.
SECTION 7.07 No Actions, Suits or Proceedings. As of the Closing Date,
no action, suit, investigation or proceeding brought by any person, corporation,
governmental agency or other entity shall be pending or, to the knowledge of the
parties to this Agreement, threatened, before any court or governmental body (i)
to restrain, prohibit, restrict or delay, or to obtain damages or a discovery
order in respect of this Agreement or the consummation of the transactions
contemplated hereby, or (ii) which has had or may have a materially adverse
effect on the condition, financial or otherwise, or prospects of the Buyer or
the Company. No order, decree or judgment of any court or governmental body
shall have been issued restraining, prohibiting, restricting or delaying, the
consummation of the transactions contemplated by this Agreement. No insolvency
proceeding of any character including without limitation, bankruptcy,
receivership, reorganization, dissolution or arrangement with creditors,
voluntary or involuntary, affecting the Company or any Seller shall be pending,
and neither the Company nor any Seller shall have taken any action in
contemplation of, or which would constitute the basis for, the institution of
any such proceedings.
SECTION 7.08 Closing Documents. The Sellers shall have delivered the
Certificates representing the Shares, duly endorsed to the Buyer, and all of the
resolutions, certificates, documents and instruments required by this Agreement.
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SECTION 7.09 Escrow Agreement. The Sellers shall have executed and
delivered the Escrow Agreement.
SECTION 7.10 Patent Assignments. NEC America and NEC Japan shall each
have executed as of Closing a Patent Assignment in substantially the form of
Exhibit 7.10 attached hereto (the "Patent Assignments"), transferring to the
Company all of the patents and patent applications listed on Schedule 2.24(a).
SECTION 7.11 Transition Services Agreement. The Buyer and NEC USA shall
have executed and delivered a Transition Services Agreement in substantially the
form of Exhibit 7.11 (the "Transition Services Agreement").
ARTICLE VIII
CONDITIONS TO THE SELLERS' OBLIGATIONS
The obligation of the Sellers to sell the Shares to Buyer and to consummate
the other transactions contemplated hereby is subject to the satisfaction, on or
before the Closing Date, of the following conditions, each of which may be
waived by the Sellers in their sole discretion:
SECTION 8.01 Representations and Warranties True. All of the
representations and warranties of the Buyer contained in Article III of this
Agreement shall be true, correct and complete in all material respects on and as
of the date hereof and on and as of the Closing Date, as if made on and as of
the Closing Date.
SECTION 8.02 Performance. The Buyer shall have performed and complied
with all covenants and agreements contained herein required to be performed or
complied with by it prior to or at the Closing Date.
SECTION 8.03 No Adverse Change. No change shall have occurred or be
threatened in the condition (financial or other) of Buyer, the results of its
operations, properties, assets, liabilities or businesses which has been or is
or is reasonably likely to be materially adverse to its operations, properties,
prospects, assets or condition (financial or other).
SECTION 8.04 No Actions, Suits or Proceedings. As of the Closing Date,
no action, suit, investigation or proceeding brought by any person, corporation,
governmental agency or other entity shall be pending or, to the knowledge of the
parties to this Agreement, threatened, before any court or governmental body to
restrain, prohibit, restrict or delay, or to obtain damages or a discovery order
in respect of this Agreement or the consummation of the transactions
contemplated hereby. No order, decree or judgment of any court or governmental
body shall have been issued restraining, prohibiting, restricting or delaying,
the consummation of the transactions contemplated by this Agreement. No
insolvency proceeding of any character including without limitation, bankruptcy,
receivership, reorganization, dissolution or arrangement with creditors,
voluntary or involuntary, affecting the Buyer shall be pending, and the Buyer
shall not have taken any action in contemplation of, or which would constitute
the basis for, the institution of any such proceedings.
32
SECTION 8.05 Closing Documents. The Buyer shall have delivered to each
of the Sellers and the Escrow Agent certificates in respect of the Zhone
Preferred Stock, in accordance with Schedule A and Article I hereof, and all of
the resolutions, certificates, documents and other instruments required by this
Agreement.
SECTION 8.06 Rights Agreement. The Buyer shall have amended the Rights
Agreement to enable each Seller to become a party thereto with all the rights
attendant thereto as a "Series B Stockholder" as defined therein. In addition,
the Buyer shall have provided NEC USA with a side letter providing it with a
board observer seat, which letter shall include the right by NEC USA to share
information it receives as a board observer with the other Sellers (subject to
the obligation of each Seller to maintain the confidentiality of such
information in accordance with Section 2.4 of the Rights Agreement). The
foregoing letter shall specifically provide for the continuation of NEC USA's
right to appoint a board observer, as well as the continuation of the
information and inspection rights of the Sellers generally under Sections 2.1
and 2.2 of the Rights Agreement, until a Qualified IPO (as defined in the Rights
Agreement) or when shares of the Buyer's Common Stock are listed for trading on
the New York Stock Exchange, Nasdaq National Market, Nasdaq SmallCap Market or
any other national stock exchange.
SECTION 8.07 Escrow Agreement. The Buyer shall have executed and
delivered the Escrow Agreement.
SECTION 8.08 Financing. Buyer shall have closed its $25 million bridge
loan financing from certain of its existing stockholders on terms that are
substantially comparable to those previously provided to the Sellers.
SECTION 8.09 Zhone Certificate of Incorporation. Buyer shall have
amended the Zhone Certificate of Incorporation solely to increase its authorized
capitalization to allow it to enter into the transactions contemplated by this
Agreement and the financing arrangements described in Section 8.08, but in all
other respects the Zhone Certificate of Incorporation shall remain in effect in
accordance with the terms contained in Exhibit 1.02B.
SECTION 8.10 Transition Services Agreement. The Buyer and NEC USA shall
have executed and delivered the Transition Services Agreement.
ARTICLE IX
INDEMNIFICATION
SECTION 9.01 Survival of Representations, Warranties, Covenants and
Agreements. The representations and warranties of Sellers and Buyer contained in
this Agreement will survive through and until February 14, 2004, except that (a)
the organizational representations and warranties relating to the Sellers and
the Company set forth in Sections 2.01 through 2.04, 2.07(a) and 2.09 (the
"Seller Organizational Representations") will survive indefinitely, (b) the
organizational representations and warranties relating to the Buyer set forth in
Sections 3.01 and 3.02 (the "Buyer Organizational Representations") will survive
indefinitely, (c) the tax representations and warranties set forth in Section
2.14 (the "Seller Tax Representations"), solely to the extent related to matters
described in Section 9.02(a)(ii), will survive until the expiration
33
of all applicable statutes of limitation, and (d) the intellectual property
representations and warranties set forth in Section 2.24(g) (the "Seller IP
Non-Infringement Representations" and, together with all other representations
and warranties set forth in Section 2.24, the "Seller IP Representations") will
survive through and until February 14, 2005 (in each case, the "Indemnity
Period"), and the covenants and agreements of Sellers and Buyer contained in
this Agreement will, except as otherwise expressly provided herein, survive
indefinitely. The representations and warranties of Sellers contained in this
Agreement, other than the Seller Organizational Representations, the Seller Tax
Representations described in subsection (c) above, and the Seller IP
Representations, shall hereinafter be referred to as the "Seller General
Representations." The representations and warranties of Buyer contained in this
Agreement, other than the Buyer Organizational Representations, shall
hereinafter be referred to as the "Buyer General Representations."
SECTION 9.02 Indemnification.
(a) NEC USA shall, and with respect to the representations and
warranties of the Sellers contained in Sections 2.01 through 2.05 and the
covenants contained in Sections 4.09, 4.10, 6.01(a) and 6.01(b) only, each
Seller shall severally, indemnify the Buyer Indemnified Parties (as defined
below) in respect of, and hold each of them harmless from and against, any
claim, liability, obligation, loss, damage, assessment, judgment, cost and
expense (including, without limitation, reasonable attorneys' and accountants'
fees and costs and expenses reasonably incurred in defending against or
prosecuting any litigation or claim, action, suit, proceeding or demand) of any
kind or character (the "Damages"), incurred or sustained by any of them or to
which any of them becomes subject, resulting from, arising out of or relating to
(i) any misrepresentation or breach of warranty with respect to the Seller
Organizational Representations, (ii) any misrepresentation or breach of warranty
with respect to the Seller Tax Representations to the extent Damages are
allocable to the Excluded Assets or Excluded Liabilities, (iii) any
misrepresentation or breach of warranty with respect to the Seller IP
Representations, (iv) any misrepresentation or breach of warranty with respect
to the Seller General Representations, or non-fulfillment of or failure to
perform any covenant or agreement on the part of Sellers contained in this
Agreement (other than any covenant or agreement specifically referenced in
another clause of this Section 9.02(a), which shall be governed by such other
clause), (v) the Excluded Liabilities, (vi) a breach by any of the Sellers of
Section 4.07, 4.09, 4.10, 4.14, 4.15 or 4.16, (vii) any claim or other assertion
of liability made by any of the Sellers based upon, arising out of or relating
to any Pre-Closing Matter (other than matters with respect to which the Buyer is
expressly required to indemnify the Sellers pursuant to this Agreement), (viii)
the Company's ownership interest in, or business arrangements with, Open
Networks Engineering, Inc., including without limitation as set forth on
Schedule 2.08, or (ix) the contractual claim related to Telcordia Technologies
described on Schedule 2.15. A "Buyer Indemnified Party" shall mean the Buyer and
its officers, directors, employees, agents, stockholders and affiliates.
(b) In the case of any Damages suffered, incurred or sustained by any
Buyer Indemnified Party ("Buyer Damages") that arise out of clause (iv) of
Section 9.02(a) above, subject to the limitations set forth herein, the Buyer
Indemnified Party's sole recourse for satisfying such Buyer Damages shall be
limited to the Escrowed Securities in accordance with the terms of the Escrow
Agreement. For purposes of this Section 9.02, the value of each share of
34
Zhone Preferred Stock shall be deemed to be $2.0238. Claims for indemnification
that arise out of any other clause of Section 9.02(a) above (other than clause
(iv)), or out of fraud, intentional misrepresentation or willful breach of any
representation, warranty, covenant or agreement, shall not be subject to the
limitations set forth in this Section 9.02(b).
(c) Notwithstanding any provision to the contrary in this Agreement,
the rights of any Buyer Indemnified Party to indemnification for Buyer Damages
shall be subject to the following additional limitations:
(i) The Sellers shall be obligated to indemnify the Buyer
Indemnified Parties only for those claims relating to
or giving rise to Buyer Damages with respect to which a
claim for indemnification is asserted by a Buyer
Indemnified Party during the applicable Indemnity
Period; and
(ii) No indemnification shall be made by the Sellers unless
the aggregate amount of Buyer Damages exceeds $175,000
and, in such event, indemnification shall be made for
all Buyer Damages, it being understood that in such
event the initial $175,000 of Buyer Damages shall be
recouped by the Buyer;
provided that claims for indemnification that arise out of clause (i),
(ii), (v), (vi), (vii), (viii) or (ix) of Section 9.02(a) above, or
out of fraud, intentional misrepresentation or willful breach of any
representation, warranty, covenant or agreement, shall not be subject
to any of the limitations set forth in this Section 9.02(c).
(d) Buyer shall indemnify the Seller Indemnified Parties (as defined
below) in respect of, and hold each of them harmless from and against, any and
all Damages suffered, incurred or sustained by any of them (the "Seller
Damages") or to which any of them becomes subject, resulting from, arising out
of or relating to (i) any misrepresentation or breach of warranty with respect
to the Buyer Organizational Representations, (ii) any misrepresentation or
breach of warranty with respect to the Buyer General Representations, or
non-fulfillment of or failure to perform any covenant or agreement on the part
of Buyer contained in this Agreement (other than any covenant or agreement
specifically referenced in another clause of this Section 9.02(d), which shall
be governed by such other clause), (iii) the conduct of the business or
operations of the Company following the Closing (other than matters with respect
to which the Sellers are expressly required to indemnify the Buyer pursuant to
this Agreement), or (iv) a breach by the Buyer of Section 5.02, 5.04 or 5.05. A
"Seller Indemnified Party" means each Seller and its officers, directors,
employees, agents and affiliates.
(e) Notwithstanding any provision to the contrary in this Agreement,
the rights of any Seller Indemnified Party to indemnification for Seller Damages
shall be subject to the following additional limitations:
(i) The Buyer shall be obligated to indemnify the Seller
Indemnified Parties only for those claims relating to
or giving rise to Seller
35
Damages with respect to which a claim for
indemnification is asserted by a Seller Indemnified
Party during the applicable Indemnity Period; and
(ii) No indemnification shall be made by the Buyer unless
the aggregate amount of Seller Damages exceeds $175,000
and, in such event, indemnification shall be made for
all Seller Damages, it being understood that in such
event the initial $175,000 of Seller Damages shall be
recouped by the Sellers;
provided that claims for indemnification that arise out of clause (i),
(iii) or (iv) of Section 9.02(d) above, or out of fraud, intentional
misrepresentation or willful breach of any representation, warranty,
covenant or agreement, shall not be subject to any of the limitations
set forth in this Section 9.02(e).
(f) Tax Treatment of Indemnity Payments. Any payment made by any
party pursuant to this Section 9.02 shall be treated as an adjustment to the
Purchase Price for Federal and state income tax purposes.
SECTION 9.03 General Procedures; Third Party Claims.
(a) The obligations of any indemnifying party to indemnify any
indemnified party under this Article IX with respect to Buyer Damages or Seller
Damages, as the case may be, resulting from the assertion of liability by third
parties (a "Third Party Claim"), will be subject to the terms and conditions set
forth in this Section 9.03. The party against whom any Third Party Claim is
asserted is referred to herein as the "Indemnified Party" and the party required
to provide indemnity hereunder is referred to herein as the "Indemnifying
Party."
(b) In the event that any Third Party Claim is asserted against or
sought to be collected from any Indemnified Party by a third party, such
Indemnified Party shall as promptly as practicable notify the Indemnifying Party
and, if applicable, the Escrow Agent, in writing of such Third Party Claim and
the amount or the estimated amount thereof to the extent then feasible (which
estimate shall not be conclusive of the final amount of such Third Party Claim)
(the "Claim Notice"); provided that so long as the Claim Notice is delivered
within the applicable Indemnity Period no delay on the part of any Indemnified
Party in notifying the Indemnifying Party shall relieve the Indemnifying Party
from any obligation hereunder unless (and then solely to the extent) the
Indemnifying Party is materially prejudiced thereby. The Indemnifying Party
shall have twenty days from the personal delivery or mailing of the Claim Notice
(the "Notice Period") to notify the Indemnifying Party (i) whether or not the
Indemnifying Party disputes the liability of the Indemnifying Party to the
Indemnified Party hereunder with respect to such Third Party Claim and (ii)
whether or not it will undertake, conduct and control, through counsel of its
own choosing (which shall be reasonably satisfactory to the Indemnified Party)
and at its own expense, the settlement or defense thereof, and if it so decides,
the Indemnified Party shall cooperate with the Indemnifying Party in connection
therewith. Except as hereinafter provided, in the event that the Indemnifying
Party notifies the Indemnified Party in writing within the Notice Period that it
acknowledges its indemnification obligation and desires to defend the
Indemnified Party against such Third Party Claim, the
36
Indemnifying Party shall, at its sole cost and expense, have the right to defend
the Indemnified Party by appropriate proceedings and shall have the sole power
to direct and control such defense; provided, that the Indemnifying Party shall
not consent to the entry of any judgment or enter into any settlement with
respect to such Third Party Claim without the prior written consent of the
Indemnified Party (which consent shall not be unreasonably withheld). If the
Indemnified Party desires to participate in any such defense it may do so at its
sole cost and expense unless, in the reasonable judgment of the Indemnified
Party, it is advisable to be represented by separate counsel because a conflict
or potential conflict exists between the Indemnifying Party and the Indemnified
Party which makes representation of both parties inappropriate, in which case
the reasonable fees and expenses of counsel for the Indemnified Party shall be
paid by the Indemnifying Party. The Indemnified Party shall not settle or
compromise a Third Party Claim for which it is indemnified by the Indemnifying
Party without the written consent of the Indemnifying Party (which consent shall
not be unreasonably withheld) unless the Indemnifying Party elects not to defend
the Indemnified Party against such Third Party Claim. Notwithstanding the
foregoing, the Indemnified Party shall have the sole right to defend, settle, or
compromise any Third Party Claim with respect to which it has agreed in writing
to waive its right to indemnification pursuant to this Agreement.
Notwithstanding the foregoing, the Indemnified Party, during the period the
Indemnifying Party is determining whether to elect to assume the defense of a
matter covered by this Section 9.03, may take such reasonable actions as it
deems necessary to preserve any and all rights with respect to the matter,
without such actions being construed as a waiver of the Indemnified Party's
rights to defense and indemnification pursuant to this Agreement. If the
Indemnifying Party elects not to defend the Indemnified Party against such Third
Party Claim, then the amount of any such Third Party Claim, or, if the same be
contested by the Indemnified Party, then that portion thereof as to which such
defense is unsuccessful (and the reasonable fees and expenses pertaining to such
defense) shall be the liability of the Indemnifying Party hereunder. The
Indemnifying Party or Indemnified Party, as the case may be, shall use its
reasonable efforts in the defense of all such Third Party Claims. The parties
hereto shall each render to each other such assistance as may reasonably be
requested in order to ensure the proper and adequate defense of any such Third
Party Claim.
(c) The extent to which any Indemnified Party shall be entitled to
indemnification hereunder shall be reduced by (i) any net Tax benefit actually
realized by such Indemnified Party, and (ii) any insurance proceeds actually
received by the Indemnified Party on account of the claim that the Indemnified
Party is seeking to be indemnified for, irrespective of the identity of the
party that paid for such insurance. If NEC USA breaches the Seller Tax
Representation set forth in Section 2.14(c), then the indemnity payment from NEC
USA to Buyer pursuant to Section 9.02 shall include not only the Taxes the
Company must pay as a result of said breach, but shall also include such
additional amount as may be required to put the Buyer in the same after-Tax
position it would have been in had such breach not occurred.
ARTICLE X
TERMINATION
SECTION 10.01 Termination. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned at any time prior to the
Closing:
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A. By mutual written consents duly authorized by the Buyer and the
Sellers;
B. By the Buyer giving written notice to the Sellers in the event
the Sellers have breached any material representation, warranty, covenant
or agreement contained in this Agreement in any material respect, the Buyer
has notified the Sellers of the breach, and the breach has continued
without cure for a period of twenty days after the notice of breach;
C. By the Sellers giving written notice to the Buyer in the event
the Buyer has breached any material representation, warranty, covenant or
agreement contained in this Agreement in any material respect, the Sellers
have notified the Buyer of the breach, and the breach has continued without
cure for a period of twenty days after the notice of breach; or
D. By the Buyer or the Sellers if:
(i) any court of competent jurisdiction or other
governmental body shall have issued an order, decree or
ruling, or taken any other action restraining,
enjoining or otherwise prohibiting the transactions
contemplated hereby; or
(ii) the Closing has not occurred on or prior to February
14, 2003 for any reason other than the breach of any
provision of this Agreement by the party terminating
this Agreement.
Upon the occurrence of any of the events specified in Section 10.01(D), written
notice of such event shall forthwith be given to the other parties to this
Agreement, whereupon this Agreement shall terminate.
SECTION 10.02 Effect of Termination. In the event of the termination and
abandonment of this Agreement pursuant to Section 10.01, this Agreement, except
for the provisions of Articles IX, X and XI shall forthwith become void and be
of no effect, without any liability on the part of any party or its directors,
officers or shareholders. Nothing in this Section 10.02 shall relieve any party
to this Agreement of liability for breach of this Agreement.
ARTICLE XI
MISCELLANEOUS
SECTION 11.01 Notices. All notices, requests, consents and other
communications hereunder shall be in writing, shall be addressed to the
receiving party's address set forth on the signature pages hereto or to such
other address as a party may designate by notice hereunder, and shall be either
(i) delivered by hand, (ii) made by telex, telecopy or facsimile transmission,
(iii) sent by recognized overnight courier, or (iv) sent by registered or
certified mail, return receipt requested, postage prepaid. A copy of any notices
delivered to any party shall also be sent to the following:
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If to any of the Sellers, to the Sellers' Representative:
Xxxxxxx Xxxxxxx, Esq.
NEC USA, Inc.
Senior Vice President and General Counsel
NEC USA, Inc.
Legal Department
0 Xxxxxxxxx Xxxxxx Xxxxx
Xxxxxxxx, Xxx Xxxx 00000
Facsimile: (000) 000-0000
If to the Buyer, to:
Zhone Technologies, Inc.
0000 Xxxxxxx Xxxxxx
Xxxxxxx, Xxxxxxxxxx 00000
Attn: Chief Executive Officer
Facsimile: (000) 000-0000
with a copy to:
Xxxxxx & Xxxxxxx
00000 Xxxx Xxxxx Xxxxx
Xxxxx 000
Xxx Xxxxx, Xxxxxxxxxx 00000
Attn: Xxxxx X. Xxxxxx, Esq.
Facsimile: (000) 000-0000
All notices, requests, consents and other communications hereunder shall be
deemed to have been duly given (i) if by hand, at the time of the delivery
thereof to the receiving party at the address of such party set forth above,
(ii) if made by telex, telecopy or facsimile transmission, at the time that
receipt thereof has been acknowledged by electronic confirmation or otherwise,
(iii) if sent by overnight courier, on the next business day (or the second
succeeding business day in the case of international delivery) following the day
such notice is delivered to the courier service, or (iv) if sent by registered
or certified mail, on the fifth business day following the day such mailing is
made.
SECTION 11.02 Entire Agreement. This Agreement together with the
Exhibits and Schedules hereto and the other documents executed in connection
herewith embodies the entire agreement and understanding between the parties
hereto with respect to the subject matter hereof and supersedes all prior oral
or written agreements and understandings relating to the subject matter hereof
including, without limitation, that certain letter of intent between the Buyer
and the Company dated December 12, 2002. No statement, representation, warranty,
covenant or agreement of any kind not expressly set forth in this Agreement or
the Exhibits or Schedules hereto or the other documents executed in connection
herewith shall affect, or be used to interpret, change or restrict, the express
terms and provisions of this Agreement.
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SECTION 11.03 Modifications and Amendments. The terms and provisions of
this Agreement may be modified or amended only by written agreement executed by
all parties hereto.
SECTION 11.04 Waivers and Consents. No failure or delay by a party
hereto in exercising any right, power or remedy under this Agreement, and no
course of dealing between the parties hereto, shall operate as a waiver of any
such right, power or remedy of the party. No single or partial exercise of any
right, power or remedy under this Agreement by a party hereto, nor any
abandonment or discontinuance of steps to enforce any such right, power or
remedy, shall preclude such party from any other or further exercise thereof or
the exercise of any other right, power or remedy hereunder. The election of any
remedy by a party hereto shall not constitute a waiver of the right of such
party to pursue other available remedies. No notice to or demand on a party not
expressly required under this Agreement shall entitle the party receiving such
notice or demand to any other or further notice or demand in similar or other
circumstances or constitute a waiver of the rights of the party giving such
notice or demand to any other or further action in any circumstances without
such notice or demand. The terms and provisions of this Agreement may be waived,
or consent for the departure therefrom granted, only by written document
executed by the party entitled to the benefits of such terms or provisions. No
such waiver or consent shall be deemed to be or shall constitute a waiver or
consent with respect to any other terms or provisions of this Agreement, whether
or not similar. Each such waiver or consent shall be effective only in the
specific instance and for the purpose for which it was given, and shall not
constitute a continuing waiver or consent.
SECTION 11.05 Assignment. Neither this Agreement, nor any right
hereunder, may be assigned by any of the parties hereto without the prior
written consent of the other parties, except that the Buyer may assign all or
part of its rights and obligations under this Agreement to one or more direct or
indirect subsidiaries or affiliates, provided that no such assignment shall
relieve Buyer of any of its obligations to the Sellers hereunder.
SECTION 11.06 Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto and their successors and
permitted assigns, and nothing in this Agreement, express or implied, is
intended to confer upon any other person any rights or remedies of any nature
whatsoever under or by reason of this Agreement. Nothing in this Agreement shall
be construed to create any rights or obligations except among the parties
hereto, and no person or entity shall be regarded as a third-party beneficiary
of this Agreement, provided, however, that the provisions Article IX and Section
11.15 are intended for the benefit of the entities and individuals specified
therein.
SECTION 11.07 Governing Law. This Agreement and the rights and
obligations of the parties hereunder shall be construed in accordance with and
governed by the internal laws of the State of Delaware, without giving effect to
the conflict of law principles thereof.
SECTION 11.08 Severability. In the event that any court of competent
jurisdiction shall finally determine that any provision, or any portion thereof,
contained in this Agreement shall be void or unenforceable in any respect, then
such provision shall be deemed limited to the extent that such court determines
it enforceable, and as so limited shall remain in full force and effect. In the
event that such court shall determine any such provision, or portion thereof,
wholly
40
unenforceable, the remaining provisions of this Agreement shall nevertheless
remain in full force and effect.
SECTION 11.09 Interpretation. The parties hereto acknowledge and agree
that: (i) each party and its counsel reviewed and negotiated the terms and
provisions of this Agreement and have contributed to its revision; (ii) the rule
of construction to the effect that any ambiguities are resolved against the
drafting party shall not be employed in the interpretation of this Agreement;
and (iii) the terms and provisions of this Agreement shall be construed fairly
as to all parties hereto and not in favor of or against any party, regardless of
which party was generally responsible for the preparation of this Agreement.
SECTION 11.10 Headings and Captions. The headings and captions of the
various subdivisions of this Agreement are for convenience of reference only and
shall in no way modify, or affect, or be considered in construing or
interpreting the meaning or construction of any of the terms or provisions
hereof.
SECTION 11.11 Expenses. Each of the parties hereto shall pay its own
fees and expenses (including the fees of any attorneys, accountants, appraisers
or others engaged by such party) in connection with this Agreement and the
transactions contemplated hereby whether or not the transactions contemplated
hereby are consummated; provided, however, that all expenses billed to or
incurred by the Company in connection with this Agreement and the transactions
contemplated hereby shall be paid by the Company as of the Closing, and neither
Buyer nor the Company shall have any liability or obligation therefor following
the Closing.
SECTION 11.12 Confidentiality. Each party acknowledges and agrees that
any information or data it has acquired from the other party was received in
confidence. Each party hereto agrees not to divulge, communicate or disclose,
except as may be required by law or for the performance of this Agreement
(including obtaining financing and conducting due diligence), or use to the
detriment of the disclosing party or for the benefit of any other person or
persons, or misuse in any way, any confidential information of the disclosing
party concerning the subject matter hereof, including any trade or business
secrets of the disclosing party and any technical or business materials that are
treated by the disclosing party as confidential or proprietary, including
without limitation information (whether in written, oral or machine-readable
form) concerning: general business operations; methods of doing business,
servicing clients, client relations, and of pricing and making charge for
services and products; financial information, including costs, profits and
sales; marketing strategies; business forms developed by or for the disclosing
party; names of suppliers, personnel, customers, clients and potential clients;
negotiations or other business contacts with suppliers, personnel, customers,
clients and potential clients; form and content of bids, proposals and
contracts; the disclosing party's internal reporting methods; technical and
business data, documentation and drawings; software programs, however embodied;
manufacturing processes; inventions; diagnostic techniques; and information
obtained by or given to the disclosing party about or belonging to third
parties. In the event the transactions contemplated hereby are not consummated,
upon the request of the other party, each party hereto will, and will cause its
respective representatives to, promptly (and in no event later than five (5)
business days after such request) redeliver or cause to be redelivered all
copies of confidential documents and information furnished by the other party in
connection with this Agreement or the transactions contemplated hereby and
destroy or cause to be destroyed all
41
notes, memoranda, summaries, analyses, compilations and other writings related
thereto or based thereon prepared by the party furnished such documents and
information or its representatives. In the event the transactions contemplated
hereby are consummated, this Section 11.12 shall no longer apply with respect to
confidential information of the Company obtained by the Buyer. Notwithstanding
the foregoing, the limitations contained herein shall not apply to any
information that: (a) was publicly known at the time of disclosure to the
recipient, or becomes publicly known through no act of the recipient; (b) was
rightfully received from a third party without a duty of confidentiality; or (c)
was developed by the recipient independently.
SECTION 11.13 Public Disclosure. No party to this Agreement shall issue
(and each party shall cause its affiliates not to issue) any press release or
public disclosure relating to the subject matter of this Agreement without the
prior written approval of all the parties hereto, which consent shall not be
unreasonably withheld, provided, that any party may make any public disclosure
that it believes in good faith is required by applicable law.
SECTION 11.14 Counterparts. This Agreement may be executed in one or
more counterparts, and by different parties hereto on separate counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
SECTION 11.15 Appointment of Representative. In order to efficiently
administer the transactions contemplated hereby, including the defense and/or
settlement of any claims for which the Sellers may be required to indemnify the
Buyer Indemnified Parties pursuant to this Agreement, the Sellers hereby agree
to the appointment of Xxxxxxx X. Xxxxxxx, Esq., NEC USA's Senior Vice President
& General Counsel, as the Sellers' Representative (the "Sellers'
Representative"). The Sellers' Representative is hereby authorized to take any
and all action as is contemplated to be taken by the Sellers by the terms of
this Agreement, provided that, the Sellers' Representative shall not consent to
the entry of any judgment or enter into any settlement which affects or binds
any of the Sellers without the prior written consent of such Seller (which
consent shall not be unreasonably withheld). All decisions and actions by the
Sellers' Representative shall be binding upon all of the Sellers and no Seller
shall have the right to object, dissent, protest or otherwise contest the same.
By their execution of this Agreement, the Sellers agree that:
(a) the Buyer shall be able to rely exclusively on the instructions
and decisions of the Sellers' Representative as to the settlement of claims for
indemnification by the Buyer pursuant to this Agreement, or any other actions
taken by the Sellers' Representative hereunder, and no party hereunder shall
have any cause of action against the Buyer in reliance upon the instructions or
decisions of the Sellers' Representative;
(b) all actions, decisions and instructions of the Sellers'
Representative shall be final, conclusive and binding upon the Sellers;
(c) the provisions of this Section 11.15 are irrevocable and coupled
with an interest, and shall be enforceable notwithstanding any rights or
remedies that any Seller may have in connection with the transactions
contemplated by this Agreement;
42
(d) the provisions of this Section 11.15 shall be binding upon the
executors, heirs, legal representatives, successors and assigns of each Seller,
and any references in this Agreement to a Seller shall mean and include the
successors to the Sellers' rights hereunder, whether pursuant to testamentary
disposition, the laws of descent and distribution or otherwise; and
(e) in case of the resignation or the death or inability to act of
Xxxxxxx X. Xxxxxxx, a successor shall be named by NEC USA. The term "Sellers'
Representative" as used herein shall be deemed to include a successor
representative.
(f) The Sellers' Representative shall not be liable to the Sellers
for any act done or omitted to be done hereunder while acting in good faith and
in the exercise of reasonable judgment. Each Seller agrees to jointly and
severally indemnify and hold harmless the Sellers' Representative from and
against any Damages incurred without gross negligence or willful misconduct on
the part of the Sellers' Representative and arising out of or in connection with
the acceptance or administration of the Sellers' Representative's duties
hereunder.
SECTION 11.16 Representation. Each party to this Agreement acknowledges
that Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. ("Mintz Xxxxx") has
served as special counsel to the Company and has negotiated the terms of this
Agreement and the Exhibits thereto solely on behalf of the Company. Each of the
Sellers hereby acknowledges that (a) it has had an opportunity to obtain
independent legal counsel, and (b) with respect to this Agreement and the
Exhibits thereto, Xxxxx Xxxxx has represented solely the Company, and not any of
the Sellers.
SECTION 11.17 Specific Performance. Each party to this Agreement
acknowledges and agrees that the other parties would be damaged irreparably in
the event any of the provisions of this Agreement are not performed in
accordance with their specific terms or otherwise are breached. Accordingly,
each of the parties agrees that the other parties shall be entitled to seek an
injunction or injunctions to prevent breaches of the provisions of this
Agreement and to enforce specifically this Agreement and the terms and
provisions hereof, in addition to any other remedy to which they may be
entitled, at law or in equity.
SECTION 11.18 Consent to Jurisdiction; Waiver of Jury Trial. Each party
to this Agreement irrevocably and unconditionally (a) agrees that any suit,
action or other legal proceeding arising out of this Agreement shall be brought
in the United States District Court for the Northern District of California (or,
if such court does not have jurisdiction or does not accept jurisdiction, in any
state court of general jurisdiction located in Alameda County, California); (b)
consents to the jurisdiction of any such court in any such suit, action or
proceeding; and (c) waives any objection that such party may have to the laying
of venue of any such suit, action or proceeding in any such court. EACH PARTY
HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO
A TRIAL BY JURY IN RESPECT OF ANY LITIGATION (WHETHER AS CLAIM, COUNTER-CLAIM,
AFFIRMATIVE DEFENSE OR OTHERWISE) IN CONNECTION WITH OR IN ANY WAY RELATED TO
THIS AGREEMENT OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER
VERBAL OR WRITTEN), ACTIONS OR INACTIONS OF ANY PARTY.
43
SECTION 11.19 Attorneys' Fees. If any party to this Agreement brings an
action to enforce its rights under this Agreement, the prevailing party shall be
entitled to recover its costs and expenses, including, without limitation
reasonable attorneys' fees and expenses, incurred by such party in connection
with such action, including any appeal of such action.
[SIGNATURE PAGES FOLLOW]
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IN WITNESS WHEREOF, the Buyer, the Company and the Sellers have executed
this Agreement as of the day and year first above written.
ZHONE TECHNOLOGIES, INC.
By: _________________________________
Name:
Title:
Address:
NEC ELUMINANT TECHNOLOGIES, INC.
By: _________________________________
Name:
Title:
Address:
[Signature Page to NEC eLuminant Stock Purchase and Sale Agreement]
45
NEC USA, INC.
By: _________________________________
Name:
Title:
Address:
NEC CORPORATION
By: _________________________________
Name:
Title:
Address:
NEC AMERICA (with respect to Sections
1.06, 4.07, 4.10 and 7.10 hereof only)
By: _________________________________
Name:
Title:
Address:
[Signature Page to NEC eLuminant Stock Purchase and Sale Agreement]
46
ITOCHU CORPORATION
By: _________________________________
Name:
Title:
Address:
TECHNOLOGY VENTURES I VENTURE CAPITAL
INVESTMENT LIMITED PARTNERSHIP
By: _________________________________
Name:
Title:
Address:
ITV SIDE FUND, L.L.C.
By: _________________________________
Name:
Title:
Address:
[Signature Page to NEC eLuminant Stock Purchase and Sale Agreement]
47
THE YASUDA ENTERPRISE DEVELOPMENT I,
LIMITED PARTNERSHIP
By: _________________________________
Name:
Title:
Address:
THE INVESTMENT ENTERPRISE PARTNERSHIP
YNED, A JAPANESE LIMITED PARTNERSHIP
By: _________________________________
Name:
Title:
Address:
[Signature Page to NEC eLuminant Stock Purchase and Sale Agreement]
48
