EXHIBIT 2.2
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AGREEMENT AND PLAN OF REORGANIZATION
among
ZHONE TECHNOLOGIES, INC.,
a Delaware corporation,
CAG ACQUISITION CORPORATION,
a Delaware corporation and
wholly-owned subsidiary of Zhone,
CAG TECHNOLOGIES, INC.,
a California corporation
and
Xxxx Xxxxxxxx, Principal Shareholder of
CAG TECHNOLOGIES, INC.
Dated November 15, 1999
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TABLE OF CONTENTS
Page
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1. Definitions............................................................ 1
2. Plan of Reorganization................................................. 6
2.1 Merger; Effective Time of the Merger.............................. 6
2.2 Closing........................................................... 6
2.3 Effects of the Merger............................................. 6
2.4 Accounting Treatment.............................................. 6
2.5 Effect on Capital Stock and CAG Options........................... 7
2.6 Contingent Payments............................................... 7
2.7 Appraisal Rights.................................................. 8
2.8 Exchange Procedures............................................... 8
3. Representations and Warranties of CAG.................................. 9
3.1 Organization..................................................... 9
3.2 Capitalization................................................... 10
3.3 Power, Authorization and Validity................................ 10
3.4 No Violation of Existing Agreements.............................. 11
3.5 Subsidiaries..................................................... 11
3.6 Financial Statements............................................. 11
3.7 Tax Matters...................................................... 12
3.8 Absence of Certain Changes or Events............................. 13
3.9 Title and Related Matters; Inventory............................. 14
3.10 Intellectual Property............................................ 14
3.11 Employee Benefit Plans........................................... 16
3.13 Contracts........................................................ 18
3.14 Compliance with Law.............................................. 19
3.15 Labor Difficulties............................................... 19
3.17 Certain Transactions............................................. 19
3.18 Employees and Consultants........................................ 20
3.19 Insurance........................................................ 20
3.20 Litigation....................................................... 20
3.21 Corporate Minutes, Etc........................................... 21
3.22 Compliance with Environmental Requirements....................... 21
3.23 No Brokers....................................................... 21
3.24 CAG Options...................................................... 21
3.25 Government Contracts............................................. 21
3.26 Restrictions on Business Activities.............................. 21
3.27 Disclosure....................................................... 22
3.28 No Material Adverse Effect....................................... 22
3.29 No Misrepresentation............................................. 22
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TABLE OF CONTENTS
(continued)
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4. Representations and Warranties of the Principal Shareholder............ 22
4.1 Power, Authorization and Validity................................. 22
4.2 Title to Securities............................................... 23
4.3 Absence of Violations or Conflicts................................ 23
4.4 Absence of Claims Against the Company............................. 23
4.5 Litigation........................................................ 23
4.6 No Brokers........................................................ 24
5. Representations and Warranties of Zhone and Sub........................ 24
5.1 Organization and Good Standing.................................... 24
5.2 Power, Authorization and Validity................................. 24
5.3 Capitalization.................................................... 24
5.4 No Violation of Existing Agreements............................... 25
5.5 No Brokers........................................................ 26
5.6 Litigation........................................................ 26
6. Covenants of CAG....................................................... 26
6.1 Conduct of Business; Interim Operations........................... 26
6.2 Access to Information............................................. 28
6.3 Shareholder Consent............................................... 28
6.4 Regulatory Approvals.............................................. 29
6.5 Satisfaction of Conditions Precedent.............................. 29
6.6 Other Negotiations................................................ 29
7. Covenants of the Principal Shareholder................................. 29
7.1 Advice of Changes................................................. 29
7.2 Regulatory Approvals.............................................. 29
7.3 Satisfaction of Conditions Precedent.............................. 29
7.4 Shareholder Approval.............................................. 30
7.5 Disposition of Securities; Solicitation; Voting; Etc.............. 30
8. Covenants of Zhone and Sub............................................. 30
8.1 Advice of Changes................................................. 30
8.2 Regulatory Approvals.............................................. 30
8.3 Satisfaction of Conditions Precedent.............................. 31
8.4 Issuance of Options............................................... 31
8.5 Sale of Assets.................................................... 31
9. Additional Covenants of the Parties.................................... 31
9.1 Confidentiality................................................... 31
9.2 Publicity......................................................... 31
9.3 Employment Matters................................................ 31
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TABLE OF CONTENTS
(continued)
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9.4 Continuing Cooperation............................................ 32
9.5 Indemnification of CAG's Officers and Directors................... 32
10. The Closing............................................................ 33
10.1 Delivery of Documents............................................ 33
10.2 Delivery of Cash Payment......................................... 33
11. Conditions to the Closing.............................................. 33
11.1 Conditions to Each Party's Obligations........................... 33
11.2 Conditions to Obligations of CAG and the Principal Shareholder... 34
11.3 Conditions to Obligations of Zhone and Sub....................... 34
12. Termination of Agreement............................................... 35
12.1 Termination by Zhone............................................. 35
12.2 Termination by CAG............................................... 35
12.3 Mutual Consent................................................... 36
12.4 Effect of Termination............................................ 36
13. Survival of Representations and Warranties; Indemnification............ 36
13.1 Survival of Representations and Warranties....................... 36
13.2 Indemnification.................................................. 36
13.3 Procedures for Indemnification................................... 38
13.4 Defense of Third Party Claims.................................... 39
13.5 Settlement of Third Party Claims................................. 39
14. Tax Matters............................................................ 40
14.1 Indemnification by the Principal Shareholder..................... 40
14.2 Transfer Taxes................................................... 40
14.3 Filing Responsibility............................................ 40
14.4 Contests......................................................... 41
15. Miscellaneous.......................................................... 41
15.1 Governing Law.................................................... 41
15.2 Dispute Resolution............................................... 42
15.3 Assignment; Binding upon Successors and Assigns.................. 42
15.4 Severability..................................................... 42
15.5 Entire Agreement................................................. 42
15.6 Counterparts..................................................... 42
15.7 Expenses......................................................... 42
15.8 Other Remedies................................................... 43
15.9 Amendment and Waivers............................................ 43
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15.10 Waiver........................................................... 43
15.11 Notices.......................................................... 43
15.12 Construction and Interpretation of Agreement..................... 44
15.13 No Joint Venture................................................. 45
15.14 Further Assurances............................................... 45
15.15 Absence of Third Party Beneficiary Rights........................ 45
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AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION is entered into on November 15,
1999, by and among ZHONE TECHNOLOGIES, INC., a Delaware corporation ("Zhone"),
CAG ACQUISITION CORPORATION, a Delaware corporation and wholly-owned subsidiary
of Zhone ("Sub"), CAG TECHNOLOGIES, INC., a California corporation ("CAG"), and
Xxxx Xxxxxxxx (the "Principal Shareholder").
Recitals
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A. The parties intend that, pursuant to the terms and subject to the
conditions set forth below, Sub shall be merged with and into CAG, with CAG the
surviving corporation (the "Merger") pursuant to an Agreement of Merger
substantially in the form attached hereto as Exhibit A (the "Agreement of
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Merger") and the applicable provisions of the laws of the State of California;
and
B. The parties desire to set forth certain representations, warranties
and covenants made by each to the other as an inducement to the consummation of
the Merger.
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
covenants and agreements set forth herein, the parties agree as follows:
1. Definitions. The following terms when used herein have the meanings
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set forth below:
1.1 "Ackourey Confidentiality Agreement" means the Confidentiality
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Agreement between Zhone and Xxxx Xxxxxxxx in the form of Exhibit K hereto.
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1.2 "Acquisition Proposal" has the meaning set forth in Section 6.6.
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1.3 "Affiliate" has the meaning set forth in the rules and
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regulations promulgated by the Securities and Exchange Commission under the
Securities Act of 1933, as amended.
1.4 "Agreement of Merger" has the meaning set forth in Recital A.
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1.5 "CAG Audited 1999 Financials" means CAG's balance sheet as of May
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31, 1999 and its statements of operations, statement of shareholders' equity and
statement of cash flows for the fiscal year then ended, audited and reported
upon by Ernst & Young LLP, independent certified public accountants.
1.6 [Intentionally Left Blank]
1.7 "CAG Common Stock" means the Common Stock of CAG.
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1.8 "CAG Components" has the meaning set forth in Section 3.10(d).
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1.9 "CAG Disclosure Schedule" means Exhibit B hereto.
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1.10 "CAG Employee Plan(s)" has the meaning set forth in Section
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3.11(a).
1.11 "CAG Expense Schedule" has the meaning set forth in Section 15.7.
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1.12 "CAG Financial Statements" means the CAG Audited 1999 Financials
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and the CAG 1999 Unaudited Financials.
1.13 "CAG Full Dilution Amount" means the sum of (a) the total number
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of shares of CAG Common Stock issued and outstanding immediately prior to the
Effective Time of the Merger, including any such shares for which the holders
have exercised rights of appraisal and (b) the total number of shares of CAG
Common Stock issuable on exercise of all CAG Options outstanding which are
vested immediately prior to the Effective Time of the Merger.
1.14 "CAG Indemnitors" has the meaning set forth in Section 13.2(a).
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1.15 "CAG Intellectual Property Rights" has the meaning set forth in
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Section 3.10(a).
1.16 "CAG Net Assets Amount" means the amount calculated as of the
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Closing Date of the sum of all CAG cash plus accounts receivable less all CAG
debt.
1.17 "CAG Option Agreements" means the agreements between CAG and each
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holder of CAG options representing such holder's CAG Options which have been
issued under the CAG Option Plan.
1.18 "CAG Option Plan" means the CAG Technologies, Inc. 1997 Stock
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Option Plan.
1.19 "CAG Options" means options to acquire CAG Common Stock issued
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and outstanding under the CAG Option Plan.
1.20 "CAG Products" means all products and services of CAG that have
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been and are currently being distributed or provided by CAG and all products
currently under development by CAG.
1.21 "CAG Registered Intellectual Property" has the meaning set forth
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in Section 3.10(g).
1.22 "CAG Security Holders" means the holders of CAG Common Stock and
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CAG Options vested immediately prior to the Effective Time of the Merger.
1.23 "CAG Shareholders" means the holders of CAG Common Stock
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immediately prior to the Effective Time of the Merger.
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1.24 "CAG Unaudited 1999 Financials" means CAG's unaudited balance
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sheet as of August 31, 1999, and its unaudited statements of operations and cash
flows for the period then ended.
1.25 "CAG's Knowledge" has the meaning set forth in Section 15.12(c).
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1.26 "COBRA" has the meaning set forth in Section 3.11(c).
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1.27 "California Law" means the California General Corporation Law.
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1.28 "Cap" has the meaning set forth in Section 13.2(b).
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1.29 "Cash Payment" has the meaning set forth in Section 2.6.
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1.30 "Certificate of Merger" means the certificate to be filed with
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the Secretary of State of the State of Delaware pertaining to the Merger.
1.31 "Certificates" has the meaning set forth in Section 2.8(b).
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1.32 "Closing" and "Closing Date" have the respective meanings set
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forth in Section 2.2.
1.33 "Code" means the Internal Revenue Code of 1986, as amended.
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1.34 "Common Stock" has the meaning set forth in Section 5.3.
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1.35 "Common Stock Per Share Amount" means the amount calculated by
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dividing the sum of the (x) Total Merger Consideration plus (y) the aggregate
exercise price of all CAG Options outstanding immediately prior to the Effective
Time which are vested and "in the money" by the CAG Full Dilution Amount.
1.36 "Confidentiality Agreement" means the confidentiality agreement
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dated August 24, 1999 between Zhone and CAG.
1.37 "Confirmation Date" has the meaning set forth in Section 2.1.
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1.38 "Constituent Corporations" has the meaning set forth in Section
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2.3.
1.39 "Contingent Payment" has the meaning set forth in Section 2.6.
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1.40 "DOL" has the meaning set forth in Section 3.11(b).
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1.41 "D&O Claim" and "D&O Claims" have the respective meanings set
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forth in Section 9.5(a).
1.42 "Delaware Law" means the Delaware General Corporation Law.
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1.43 "Dissenting Shareholder" has the meaning set forth in Section
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2.7.
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1.44 "Dissenting Shares" has the meaning set forth in Section 2.7.
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1.45 "ERISA" means the Employee Retirement Income Security Act of
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1974, as amended.
1.46 "ERISA Affiliate" has the meaning set forth in Section 3.11(a).
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1.47 "Effective Time of the Merger" has the meaning set forth in
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Section 2.1.
1.48 "Employee Innovations Agreement" means the Employee Innovations
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and Proprietary Rights Assignment Agreement between Zhone and Xxxx Xxxxxxxx in
the form of Exhibit L hereto.
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1.49 "Employment Agreement" mean the Employment Agreement between
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Zhone and Xxxx Xxxxxxxx in the form of Exhibit C hereto.
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1.50 "Encumbrances" means, with respect to an item, claims,
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liabilities, liens, pledges, mortgages, restrictions, options, charges and
encumbrances of any kind, whether accrued, absolute, contingent or otherwise,
affecting that item.
1.51 "Exchange Agent" has the meaning set forth in Section 2.8(a).
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1.52 "Floor" has the meaning set forth in Section 13.2(b).
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1.53 "GAAP" means generally accepted accounting principles,
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consistently applied.
1.54 "Government Contract Party" means any independent or executive
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agency, division, subdivision, audit group, or procuring office of the federal
government, including any prime contractor of the federal government and any
higher level subcontractor of a prime contractor of the federal government, and
including any employees or agents thereof, in each case acting in such capacity.
1.55 "Governmental Entity" means any court, administrative agency or
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commission or other governmental authority or agency, domestic or foreign.
1.56 "IRS" has the meaning set forth in Section 3.11(b).
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1.57 "Indemnification Claim" has the meaning set forth in Section
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13.3(b).
1.58 "Indemnified Party" and "Indemnified Parties" have the respective
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meanings set forth in Section 9.5(a).
1.59 "Indemnitee" and "Indemnitor" have the respective meanings set
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forth in Section 13.3(a).
1.60 "Information Technology" has the meaning set forth in Section
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3.10(i).
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1.61 "Letter of Transmittal" has the meaning set forth in Section
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2.8(b).
1.62 "License Agreement" means the QDMP License Agreement between
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Zhone and Xxxx Xxxxxxxx in the form of Exhibit D hereto.
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1.63 "Licensed Intellectual Property" has the meaning set forth in
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Section 3.10(a).
1.64 "Material Adverse Effect" with respect to an entity means a
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material adverse effect on the business, assets (including intangible assets),
financial condition, or results of operations of such entity and its
Subsidiaries, taken as a whole.
1.65 "Merger" has the meaning set forth in Recital A.
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1.66 "Optionees" means the holders of CAG Options outstanding
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immediately prior to the Effective Time of the Merger.
1.67 "Preferred Stock" has the meaning set forth in Section 5.3.
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1.68 "Principal Shareholder Disclosure Schedule" means Exhibit E
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hereto.
1.69 "Shareholder Losses" has the meaning set forth in Section
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13.2(a).
1.70 "Subsidiary" means, with respect to any parent corporation or
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other entity, a corporation or other entity in which a percentage of its voting
securities sufficient to elect at least a majority of the Board of Directors or
other managers is owned or otherwise controlled, directly or indirectly, by such
parent corporation or other entity.
1.71 "Surviving Corporation" has the meaning set forth in Section 2.3.
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1.72 "Tax" means all federal, state, local and foreign income,
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property, employment, sales, use, license, payroll, occupation, franchise,
occupation, recording, value added, transfer, excise and other taxes, fees,
levies or assessments of any nature whatsoever (whether payable directly or by
withholding) and, with respect to such tax, any estimated tax, interest,
penalties and additions and related charges of Governmental Entities.
1.73 "Tax Audit" has the meaning set forth in Section 14.4(a).
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1.74 "Third Party Claim" has the meaning set forth in Section 13.4.
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1.75 "Total Merger Consideration" means $6,250,000, less (i) the
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aggregate amount of all legal and accounting fees and other expenses paid or
incurred by CAG incident to the negotiation and carrying out of the transactions
contemplated by this Agreement in excess of $100,000 and (ii) all amounts
payable by CAG to officers or employees of CAG as a consequence of the
consummation of the transactions contemplated by this Agreement, except for any
amounts payable under the Severance Plan of CAG attached hereto as Exhibit I and
any amounts paid in respect of CAG Common Stock or CAG Options.
5
1.76 "Transaction Documents" means this Agreement, the Agreement of
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Merger, the Employment Agreement, the License Agreement and the option
agreements described on Exhibit J-1.
1.77 "Year 2000 Compliant" has the meaning set forth in Section
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3.10(i).
1.78 "Zhone Group" and "Zhone Losses" have the respective meanings
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set forth in Section 13.2(a).
2. Plan of Reorganization.
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2.1 Merger; Effective Time of the Merger. Subject to the terms and
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conditions of this Agreement, the Agreement of Merger and the Certificate of
Merger, Sub will be merged into CAG in accordance with California Law and
Delaware Law. The Agreement of Merger will be executed by Sub and CAG prior to
or on the Closing Date. Subject to the provisions of this Agreement and the
Agreement of Merger, on the Closing Date the Agreement of Merger, together with
required officers' certificates, shall be duly executed and filed in accordance
with the California Law and the Certificate of Merger shall be filed in
accordance with Delaware Law. The Merger shall become effective upon the filing
of the Agreement of Merger with the California Secretary of State, subject,
however, to the issuance of a certified copy of the Agreement of Merger with
respect to the Merger by the California Secretary of State (the effective time
of such filing being hereinafter referred to as the "Effective Time of the
Merger" and the date the certified copy of the Agreement of Merger is issued
being hereinafter referred to as the "Confirmation Date").
2.2 Closing. The closing of the Merger (the "Closing") will take
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place at 10:00 a.m. California time on the second business day after the
satisfaction or waiver of the conditions set forth in Section 11 (the "Closing
Date") at the offices of Xxxx Xxxx Xxxx & Freidenrich LLP, 000 Xxxxxxxx Xxxxxx,
Xxxx Xxxx, Xxxxxxxxxx 00000-0000, unless another date or place is agreed to in
writing by Zhone and CAG.
2.3 Effects of the Merger. At the Effective Time of the Merger, (i)
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the separate existence of Sub shall cease and Sub shall be merged with and into
CAG (Sub and CAG are sometimes referred to herein as the "Constituent
Corporations" and CAG, after the Merger, is sometimes referred to herein as the
"Surviving Corporation"); (ii) the Articles of Incorporation of the Surviving
Corporation shall be amended to provide that the authorized capital stock of the
Surviving Corporation shall be 1,000 shares of Common Stock; (iii) the form of
By-Laws of the Surviving Corporation shall be amended to be substantially the
same as the form of By-Laws of Sub, with all references to Sub replaced by
references to the Surviving Corporation; (iv) the directors of Sub shall be the
directors of the Surviving Corporation; (v) the officers of Sub shall be the
officers of the Surviving Corporation; and (vi) the Merger shall, from and after
the Effective Time of the Merger, have all the effects provided by applicable
law.
2.4 Accounting Treatment. The Merger is intended to be treated as a
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purchase for accounting purposes.
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2.5 Effect on Capital Stock and CAG Options. As of the Effective
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Time of the Merger, by virtue of the Merger and without any action on the part
of any of the parties hereto and subject to Section 2.7 hereof:
(a) The outstanding shares of capital stock of Sub shall be
converted into a total of 1,000 shares of common stock of the Surviving
Corporation. From and after the Effective Time of the Merger, each stock
certificate of Sub evidencing ownership of any shares of capital stock of Sub
shall evidence ownership of the shares of capital stock of the Surviving
Corporation into which the shares of capital stock of Sub are converted in the
Merger.
(b) All shares of CAG Common Stock that are owned directly or
indirectly by CAG or by any Subsidiary of CAG shall be canceled and no stock of
Zhone or other consideration shall be delivered in exchange therefor.
(c) Each share of CAG Common Stock outstanding immediately prior
to the Effective Time of the Merger that is not a Dissenting Share (other than
shares to be canceled pursuant to Section 2.5(b)) shall be converted into the
right to receive (i) a cash payment equal to the Common Stock Per Share Amount
plus (ii) Contingent Payments determined pursuant to Section 2.6.
(d) As of the Effective Time of the Merger, by virtue of the
Merger and without any action on the part of the Optionees or any of the parties
hereto each outstanding vested CAG Option shall be converted into the right to
receive (i) a cash payment equal to the Common Stock Per Share Amount for each
share of CAG Common Stock subject to the vested portion of such CAG Option less
the exercise price and any applicable withholding taxes for such CAG Option plus
(ii) Contingent Payments determined pursuant to Section 2.6. Zhone will not
assume any CAG Options and any unvested CAG Options will terminate in accordance
with their terms.
2.6 Contingent Payments. In addition to the cash amounts payable to
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pursuant to Section 2.5(c)(i) and Section 2.5(d)(i) (the "Cash Payment"), the
CAG Security Holders shall be entitled to receive additional aggregate cash
payments (the "Contingent Payments") equal to fifty percent (50%) of the after
tax consideration received on any sale of any of the CAG Products described on
the schedule attached as Exhibit F hereto during the two (2) year period
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following the Effective Time of the Merger. Contingent Payments shall be
payable to the CAG Security Holders within seven days after receipt of monies
from the sale and shall be accompanied by a statement summarizing the taxes
deducted from the consideration, provided, however, that subject to Section
13.2(f), while a claim for indemnification against the Principal Shareholder
remains unresolved such amounts as are in dispute, up to, but not exceeding, the
Principal Shareholder's interest in such Contingent Payments, shall be retained
by Zhone until such claims are resolved, but may bear interest as provided in
Section 13.2(f). Any Contingent Payment payable with respect to any sale shall
be paid to the holders of CAG Common Stock and CAG Options pro rata, based upon
their ownership percentage of the CAG Full Dilution Amount immediately prior to
the Effective Time of the Merger.
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2.7 Appraisal Rights. If any holders of CAG Common Stock exercise
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appraisal rights in connection with the Merger under California Law, any shares
of CAG Common Stock with respect to which such rights have been duly demanded
and perfected ("Dissenting Shares") shall not be converted into the right to
receive the consideration described in Sections 2.5 and 2.6 but shall be
converted into the right to receive such consideration as may be determined to
be due with respect to such Dissenting Shares pursuant to the California Law.
CAG shall give Zhone prompt notice of any demand received by CAG for appraisal
of or payment for CAG Common Stock, and Zhone shall have the right to
participate in all negotiations and proceedings with respect to such demand.
CAG agrees that, except with the prior written consent of Zhone, or as required
under the California Law, it will not voluntarily make any payment with respect
to, or settle or offer to settle, any such demand for appraisal or payment.
Each holder of Dissenting Shares (a "Dissenting Shareholder") who, pursuant to
the provisions of the California Law, becomes entitled to payment of the fair
value of any shares of CAG Common Stock shall receive payment therefor (but only
after the fair value therefor shall have been agreed upon or finally determined
pursuant to such provisions). In the event that any holder of any shares of CAG
Common Stock fails to make an effective demand for payment or otherwise loses
his status as a Dissenting Shareholder, Zhone shall, as of the later of the
Effective Time of the Merger or the occurrence of such event, issue and deliver,
upon surrender by such Dissenting Shareholder of his certificate or certificates
representing shares of CAG Common Stock, the consideration to which such
Dissenting Shareholder would have been entitled to under Sections 2.5 and 2.6 of
this Agreement and the Agreement of Merger.
2.8 Exchange Procedures.
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(a) Prior to the Effective Time of the Merger, Zhone shall
designate an agent to act as exchange agent for the Merger (in such capacity,
the "Exchange Agent"), and Zhone shall take all steps necessary to provide, or
to cause the Surviving Corporation to provide, the Exchange Agent with
sufficient funds to make the Cash Payment on a timely basis to the CAG Security
Holders. At Zhone's election, the Surviving Corporation may act as the Exchange
Agent.
(b) On the Confirmation Date, the Surviving Corporation shall
cause the Exchange Agent to deliver to each record holder of a certificate or
certificates which immediately prior to the Effective Time of the Merger
represented outstanding shares of CAG Common Stock (the "Certificates") and to
each holder of a CAG Option, a form of letter of transmittal (the "Letter of
Transmittal"), together with instructions for its use in effecting the surrender
of the Certificates or applicable CAG Option Agreements for payment. Upon each
such holder's proper completion, due execution and delivery of the Letter of
Transmittal to the Exchange Agent, together with such holder's Certificates or
Option agreement and any other required documentation, such holder shall be
entitled to receive the Cash Payment with respect to the number of shares
represented by such Certificate or Option agreement, and such Certificate or
Option agreement shall be forthwith canceled; provided, however, that the Cash
Payment with respect to shares of CAG Common Stock owned and shares of CAG
Common Stock subject to CAG Options held by Xxxx Xxxxxxxx shall be paid in
accordance with the schedule attached hereto as Exhibit G. If not paid on the
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date indicated on Exhibit G, amounts which are then due but unpaid shall accrue
interest at the rate of 15% per annum until paid.
8
Amounts that are withheld pursuant to the indemnification rights of Zhone as
provided in, and in accordance with, the terms of Section 13 shall not be deemed
due until such related claims are resolved, but may bear interest in accordance
with Section 13.2(f).
(c) At the Effective Time of the Merger, the stock transfer
books of CAG shall be closed and no transfer of any CAG Common Stock shall
thereafter be made. Until delivered as contemplated by this Section, each
Certificate or Option Agreement which immediately prior to the Effective Time of
the Merger represented any CAG Common Stock or right to receive any CAG Common
Stock (other than Certificates representing Dissenting Shares) shall be deemed
at and after the Effective Time of the Merger to represent for all purposes only
the right to receive the Cash Payment and Contingent Payments deliverable in
exchange for the shares evidenced by such Certificate or CAG Option Agreement,
without interest thereon, or, in the case of Dissenting Shares, the
consideration provided under the California Law.
(d) If payment of the Cash Payment is to be made to a person
other than the person in whose name the surrendered Certificate or CAG Option
Agreement is registered, it shall be a condition to such payment that (i) the
Exchange Agent shall first have received, along with the Letter of Transmittal,
a duly executed and acknowledged written instrument of assignment or transfer of
such shares, signed exactly as the name or names of the registered holder or
holders appeared on the books of CAG immediately prior to the Merger (or by the
legal representative(s) of such holder or holders), along with satisfactory
evidence that such assignment or transfer was in compliance with all relevant
provisions of applicable laws, and (ii) all applicable transfer or other taxes,
if any, required by reason of the payment of the Cash Payment to any person
other than to such registered holder or holders, shall first have been paid, and
satisfactory evidence of such payment (or that such taxes are not payable) shall
have been furnished to the Exchange Agent.
(e) The instructions for effecting the surrender of the
Certificates for payment shall set forth procedures that must be taken by the
holder of any Certificate representing shares of CAG Common Stock that has been
lost, destroyed or stolen. It shall be a condition to the payment of the Cash
Payment to any such holder that the Exchange Agent shall have received, along
with the Letter of Transmittal, a duly executed lost Certificate affidavit,
including an agreement to indemnify the Surviving Corporation, signed exactly as
the name or names of the registered holder or holders of the lost Certificate
appeared on the books of CAG immediately prior to the Merger (or by the legal
representative(s) of such holder or holders), together with such other documents
as the Surviving Corporation or the Exchange Agent may reasonably require in
connection therewith.
3. Representations and Warranties of CAG. Except as set forth in the CAG
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Disclosure Schedule which refers to the Section reference of such
representations and warranties as are thereby qualified, CAG represents and
warrants to Zhone and Sub as set forth below.
3.1 Organization. CAG is a corporation duly organized, validly
------------
existing and in good standing under the laws of the State of California and has
all requisite corporate power and authority to own, operate and lease its
properties and to carry on its business as it is now
9
being conducted. CAG is duly qualified or licensed to do business and in good
standing in each jurisdiction in which the nature of its business or properties
makes such qualification or licensing necessary except where the lack of such
qualification or licensing (individually or in the aggregate) would not have a
Material Adverse Effect on CAG or the Surviving Corporation. True, correct and
complete copies of CAG's Articles of Incorporation and By-Laws, as in effect on
the date hereof and as will be in effect immediately prior to the Closing, have
been delivered to counsel for Zhone and are attached to the CAG Disclosure
Schedule.
3.2 Capitalization. The issued and outstanding capital stock of CAG
--------------
consists of, and immediately prior to the Closing will consist of, 8,250,000
shares of CAG Common Stock. All such issued and outstanding shares have been
duly authorized, are validly issued, fully paid and nonassessable and were
issued and sold in compliance with all applicable securities laws. As of the
date of this Agreement there are outstanding options to purchase 1,311,500
shares of CAG Common Stock. Except for the foregoing, there are no outstanding
rights, options, warrants, conversion rights or other agreements for the
purchase or acquisition from CAG of any shares of its capital stock or
securities convertible into or exchangeable for any shares of such capital
stock. Under the terms of this Agreement and the documents governing the CAG
Options, all CAG Options which are not vested at the Effective Time shall
terminate and be of no further force or effect at the Effective Time. There are
no preemptive rights to purchase or otherwise acquire any securities of CAG
pursuant to any provision of law or the Articles of Incorporation or By-Laws of
CAG, any agreement to which CAG is a party or otherwise. There is no voting or
stock restriction agreement, proxy or similar agreement to which CAG is a party.
There are no outstanding contractual obligations, commitments, understandings or
arrangements of CAG to repurchase, redeem or otherwise acquire or make any
payment in respect of any shares of capital stock of CAG and, except as
contemplated by this Agreement, there are no irrevocable proxies with respect to
shares of capital stock of CAG. The Company has no rights plan or similar
preferred stock purchase plan or arrangement.
3.3 Power, Authorization and Validity.
---------------------------------
(a) CAG has the corporate right, power, legal capacity and
authority to execute and deliver, and to consummate the transactions
contemplated by, the Transaction Documents to which CAG is or will be a party
and, subject to such approval of the same by the CAG Security Holders as may be
required by law, to perform its obligations under each of them. The execution
and delivery of, and the consummation of the transactions contemplated by, each
of the Transaction Documents to which CAG is or will be a party has been duly
and validly approved and authorized by the Board of Directors of CAG and all
other necessary corporate action on the part of CAG, except for approval by the
CAG Shareholders.
(b) No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity, is required
by or with respect to CAG in connection with the execution and delivery of, and
the consummation by CAG of the transactions contemplated by, any of the
Transaction Documents to which CAG is or will be a party, except for the filing
of the Agreement of Merger and officers' certificates with the office of the
Secretary of State of the State of California and the filing of appropriate
documents with the relevant authorities of other states in which CAG is
qualified to do business.
10
(c) Each of the Transaction Documents to which CAG is or will be
a party has been, or upon its execution and delivery by CAG will have been, duly
executed and delivered by CAG and, subject to any required CAG Shareholder
approval of that Transaction Document, constitutes or will constitute upon its
execution and delivery, a valid and binding obligation of CAG, enforceable
against CAG in accordance with its terms.
3.4 No Violation of Existing Agreements. The execution and delivery
-----------------------------------
of this Agreement and each of the other Transaction Documents do not, and the
consummation of the transactions contemplated hereby and thereby and compliance
with the provisions hereof and thereof will not, conflict with, or result in any
violation of or default under, or give rise to a right of termination,
cancellation or acceleration of any obligation or to the loss of a benefit
under, (i) any provision of the Articles of Incorporation or By-Laws of CAG,
(ii) any loan or credit agreement, note, bond, mortgage, indenture, lease or
other agreement, instrument, permit, concession, franchise or license to which
CAG is a party or by which CAG or any of its properties or assets is bound or
affected, or (iii) any judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to CAG or its properties or assets. The consummation of
the Merger and the transfer to the Surviving Corporation of all rights,
licenses, franchises, leases and agreements of CAG will not require the consent
of any third party or have a material adverse effect upon any such right,
license, franchise, lease or agreement.
3.5 Subsidiaries. CAG (i) has no Subsidiaries, (ii) does not own or
------------
control (directly or indirectly) any capital stock, bonds or other securities
of, and does not have any proprietary interest in, any other corporation,
general or limited partnership, firm, association or business organization,
entity or enterprise, and (iii) does not control (directly or indirectly) the
management or policies of any other corporation, partnership, firm, association
or business organization, entity or enterprise.
3.6 Financial Statements.
--------------------
(a) CAG has delivered to Zhone the CAG Financial Statements.
Except as expressly set forth in the notes, exhibits or schedules thereto, the
CAG Financial Statements have been prepared in accordance with GAAP and present
fairly the financial position of CAG as of their respective dates and the
results of operations, equity transactions and cash flow of CAG for the periods
indicated, except that (i) the CAG Unaudited 1999 Financials are subject to
normal year-end adjustments, which will not individually or in the aggregate be
material, and (ii) the CAG 1999 Unaudited Financials do not contain all
footnotes required under GAAP.
(b) CAG has no debt, liability, or obligation of any nature,
whether accrued, absolute, contingent, or otherwise, and whether due or to
become due, that is not reflected or reserved against on the CAG balance sheet
as of August 31, 1999 included in the CAG 1999 Unaudited Financials, except for
those (i) that have been incurred after August 31, 1999, or (ii) that are not
required by GAAP to be included in a balance sheet or the notes thereto. The
reserves, if any, reflected on the balance sheet included in the CAG 1999
Unaudited Financials are adequate in light of the contingencies with respect to
which they are made. Each debt, liability, and obligation of any nature of CAG
incurred after August 31, 1999, has been
11
incurred in the ordinary course of CAG's business, or in connection with the
transactions contemplated by this Agreement.
3.7 Tax Matters.
-----------
(a) CAG has duly filed all tax returns, reports and estimates
required to be filed by it, for all years and periods (and portions thereof) for
which any such returns, reports or estimates were due on or prior to the Closing
Date. All such returns, reports and estimates, as filed, were complete, correct
and accurate in all material respects. All taxes due from CAG, have been paid
with respect to years and periods ending on or prior to the Closing Date. CAG
has received no notice of any pending assessments, asserted deficiencies or
claims for additional taxes that are payable and have not been paid, except to
the extent that they are subject to a bona fide dispute with the relevant taxing
authority. The reserves for taxes, if any, reflected on the balance sheets
included in the CAG Audited 1999 Financials are adequate and there are no tax
liens on any property or asset of CAG other than liens for taxes not yet due.
There have been no examinations of any of CAG's tax returns or reports by any
Governmental Entity. There are no outstanding agreements or waivers extending
the statutory period of limitation applicable to any tax return or report for
any period and no request for such an agreement or waiver is pending.
(b) All taxes that CAG has been required to collect or withhold
have been duly collected or withheld and, to the extent required, have been paid
to the proper taxing authority.
(c) CAG is not a party to any tax-sharing agreement or similar
arrangement with any other party.
(d) At no time has CAG been included in the federal consolidated
income tax return of any affiliated group of corporations.
(e) CAG is not obligated to make any "parachute payment", as
defined in Section 280G of the Code.
(f) CAG will not be required to include any material adjustment
in taxable income for any tax period (or portion thereof) ending after the
Closing Date pursuant to Section 481(c) of the Code or any provision of the tax
laws of any jurisdiction requiring tax adjustments as a result of a change in
method of accounting implemented by CAG prior to the Closing Date for any tax
period (or portion thereof) ending on or before the Closing Date or pursuant to
the provisions of any agreement entered into by CAG prior to the Closing Date
with any taxing authority with regard to the tax liability of CAG for any tax
period (or portion thereof) ending on or before the Closing Date.
(g) CAG is not under any contractual obligation to pay any tax
obligations of any other person, or any tax obligation with respect to any
transaction of any other person or to indemnify any other person with respect to
any tax.
12
(h) CAG has not at any time filed a consent to the application of
Section 341(f)(2) of the Code to any property or assets held, acquired or to be
acquired by it, and will not file any such consent before the Closing Date.
3.8 Absence of Certain Changes or Events. Since May 31, 1999, CAG
------------------------------------
has conducted its business in the ordinary and usual course and, without
limiting the generality of the foregoing, has not:
(a) suffered any event or occurrence that has had a Material
Adverse Effect on CAG;
(b) suffered any damage, destruction or loss, whether or not
covered by insurance, that had a Material Adverse Effect on CAG;
(c) granted any increase in the compensation payable or to become
payable by CAG to its officers or employees, except those occurring in the
ordinary course of business;
(d) declared, set aside or paid any dividend or made any other
distribution on or in respect of the shares of its capital stock or declared any
direct or indirect redemption, retirement, purchase or other acquisition of such
shares;
(e) made any change in the accounting methods or practices it
follows, whether for general financial or tax purposes, or any change in
depreciation or amortization policies or rates except as may be required by any
modification or change in GAAP;
(f) sold, assigned, transferred, or otherwise disposed of any
patent, trademark, tradename, brand name, copyright (or pending application for
any patent, trademark or copyright), invention, process, know-how, formula or
trade secret or interest therein or other intangible asset or licensed any of
the foregoing, except under licenses referenced in the CAG Disclosure Schedule;
(g) suffered any labor dispute;
(h) entered into any material commitment or obligation, except to
Zhone or in the ordinary course of business and under licenses referenced in the
CAG Disclosure Schedule;
(i) incurred any material liability (including, without
limitation, any contingent liability with respect to the obligation of others),
except in the ordinary course of its business or in connection with the
transactions contemplated by this Agreement;
(j) permitted or allowed any of its property or assets to be
subjected to any Encumbrance, except in the ordinary course of its business and
except for liens of current taxes not yet due;
13
(k) made any capital expenditure or commitment for additions to
property, plant or equipment in excess of $50,000 in the aggregate;
(l) paid, loaned or advanced any amount to, or sold, transferred
or leased any properties or assets to, or entered into any agreement or
arrangement with, any of its Affiliates, officers, directors or shareholders or
any Affiliate of any of the foregoing, other than salary or benefits to CAG
employees in the ordinary course of business; or
(m) agreed to take any action described in this Section 3.8 or
outside of the ordinary course of its business or that would constitute a breach
of any of the representations or warranties of CAG contained in the Transaction
Documents.
3.9 Title and Related Matters; Inventory.
------------------------------------
(a) CAG has good and marketable title to all the properties and
assets, real and personal, reflected on the balance sheet as of August 31, 1999
included in the CAG 1999 Unaudited Financials or acquired after the date of such
balance sheet (except properties and assets sold or otherwise disposed of since
the date of such balance sheet in the ordinary course of business or property
which is leased), free and clear of all Encumbrances, except for purchase money
security interests and the lien of current taxes not yet due and payable and
Encumbrances which are immaterial in the aggregate.
(b) All real and personal property leases to which CAG is a party
are valid, binding, enforceable and effective in accordance with their
respective terms. There is not any existing default by CAG under any of such
leases or any event of default or event that, with notice or lapse of time or
both, would constitute an event of default by CAG or, to CAG's Knowledge, by any
other party to any of such leases which could be expected to have a Material
Adverse Effect on CAG. True, correct and complete copies of each CAG lease
described in this Section 3.9(b) have been provided to counsel for Zhone.
3.10 Intellectual Property.
---------------------
(a) CAG owns, or is licensed (including pursuant to licenses,
sublicenses or other agreements, collectively referred to herein as "Licensed
Intellectual Property") or otherwise possesses a legal right to use, all (i)
issued patents, (ii) all registered trademarks, trade names, service marks,
(iii) copyrights and mask works, and (iv) other processes, formulae, methods,
schematics, technology, know-how, computer software programs or applications and
tangible or intangible proprietary information or materials which are maintained
as trade secrets of CAG; to the extent any of such rights that are material to
the conduct of the business of CAG as currently conducted (all of which are
referred to as the "CAG Intellectual Property Rights"). To CAG's knowledge, CAG
owns, or is licensed, or otherwise possesses a legal right to use all (i)
inventions, whether or not patentable, or applications for patents; (ii)
registrations for trademarks, trade names and services marks; and (iii) common
law trademarks, service marks, trade names and logos that have been used by CAG.
(b) CAG is not, nor will it be as a result of the execution and
delivery of this Agreement or the performance of its obligations under this
Agreement, in breach of any
14
license, sublicense or other agreement relating to the CAG Intellectual Property
rights or Licensed Intellectual Property.
(c) CAG: (i) has not received notice that is has been sued in any
suit, action or proceedings which involves a claim of infringement or
misappropriation of any patent, trademark, service xxxx, copyright, trade secret
or other proprietary right of any third party; (ii) has not received any
communications alleging that CAG has violated, or by conducting its business as
proposed, would violate any patent, trademark, service xxxx, copyright, trade
secret or other proprietary right of any third party; (iii) has no reason to
believe that the manufacturing, marketing, licensing or sale of any CAG Product
or the provision of services in the course of CAG's business infringes or
misappropriates any patent, trademark, service xxxx, copyright, trade secret or
other proprietary right of any third party; and (iv) has no knowledge of any
claim challenging or questioning the validity or effectiveness of any license or
agreement relating to any CAG Intellectual Property Rights or Licensed
Intellectual Property.
(d) All designs, drawings, specifications, source code, object
code, documentation, flow charts and diagrams incorporating, embodying or
reflecting any of the CAG Products at any stage of their development (the "CAG
Components") were written, developed and created solely and exclusively by
employees of CAG without the assistance of any third party or were created by
third parties who assigned ownership of their rights to CAG pursuant to valid
and enforceable agreements.
(e) To CAG's Knowledge, neither the execution and delivery of any
such agreement, nor the carrying on of CAG's business as currently conducted and
as currently proposed to be conducted by any such person as an employee,
consultant or independent contractor, as the case may be, has conflicted or will
conflict with or result in a breach of the terms, conditions or provisions of,
or constitute a default under, any contract, covenant or instrument under which
any of such persons is obligated.
(f) To the knowledge of CAG, no person is infringing or
misappropriating any CAG Intellectual Property Rights.
(g) To CAG's Knowledge, each (i) patent, (ii) trademark, (iii)
copyright, (iv) service xxxx or (v) other CAG Intellectual Property Right that
has been registered, filed certified or otherwise perfected by recordation with
any Governmental Entity ("CAG Registered Intellectual Property") is valid and
subsisting, and all necessary registration, maintenance and renewal fees in
connection with such CAG Registered Intellectual Property which are due before
the Closing have been or will be paid prior to closing and all necessary
documents and certificates in connection with such CAG Registered Intellectual
Property which are due before the Closing have been or will be filed prior to
closing with the relevant patent, copyright, trademark or other authorities in
the United States or foreign jurisdictions, as the case may be, for the purposes
of maintaining such Registered Intellectual Property. For each product,
technology or service of CAG that constitutes or includes a copyrightable work,
CAG has registered the copyright in the latest version of such work with the
United States Copyright Office. In each case in which CAG has acquired any CAG
Intellectual Property rights from any person, CAG has obtained a valid
assignment sufficient to irrevocably transfer all rights in such
15
CAG Intellectual Property Rights (including the right to seek past and future
damages with respect thereto) to CAG and, to the maximum extent provided for by,
and in accordance with, applicable laws and regulations, CAG has recorded each
such assignment with the relevant governmental authorities, including the PTO,
the U.S. Copyright Office, or their respective equivalents in any relevant
foreign jurisdiction, as the case may be.
(h) There are no contracts, licenses or agreements between CAG
and any other person with respect to CAG Intellectual Property Rights under
which there is any dispute known to CAG regarding the scope of such agreement,
or performance under such agreement including with respect to any payments to be
made or received by CAG.
(i) All of CAG's current products (i) will record, store,
process, calculate and present calendar dates falling on and after (and if
applicable, spans of time including) January 1, 2000, and will calculate any
information dependent on or relating to such dates with the same functionality,
data integrity and performance, as the products record, store, process,
calculate and present calendar dates on or before December 31, 1999, or
calculate any information dependent on or relating to such dates (collectively,
"Year 2000 Compliant"), and (ii) will lose no functionality with respect to the
introduction of records containing dates falling on or after January 1, 2000.
With respect to products currently in development by CAG, CAG represents and
warrants that all such products have been designed to be Year 2000 compliant
within the foregoing definition. To CAG's Knowledge, all versions of Information
Technology (as defined below) is Year 2000 Compliant, and will not cause a
material interruption in the ongoing operations of CAG's business on or after
January 1, 2000. For purposes of the foregoing, the term "Information
Technology" shall mean and include all versions of software, hardware, firmware,
telecommunications systems, network systems, embedded systems and other systems,
components and/or services (other than general utility services including gas,
electric, telephone and postal) that are currently owned or used by CAG in the
conduct of its business, or purchased by CAG from third party suppliers.
3.11 Employee Benefit Plans.
----------------------
(a) Section 3.11 of the Disclosure Schedule lists, with respect
-------------------
to CAG and any trade or business (whether or not incorporated) which is treated
as a single employer with CAG (an "ERISA Affiliate") within the meaning of
Section 414(b), (c), (m) or (o) of the Code, each material plan, program,
policy, practice, contract, agreement or other arrangement providing for
employment, compensation, severance, relocation, termination pay, deferred
compensation, sabbatical, performance awards, bonus, stock or stock-related
awards, fringe benefit, cafeteria benefit, dependent care, including, without
limitation, each "employee benefit plan" as defined in Section 3(3) of ERISA
which is maintained, contributed to, or required to be contributed to by CAG or
any ERISA Affiliate or with respect to which CAG or any ERISA Affiliate has or
may have any liability (collectively, the "CAG Employee Plan(s)"). None of the
CAG Employee Plans promise or provide retiree medical or other retiree welfare
benefits to any person. CAG does not have any plan or commitment to establish
any new CAG Employee Plans or amend any CAG Employee Plan which would materially
increase the expense of maintaining such Plan above the level of expense
incurred with respect to that Plan for the most recent fiscal
16
year included in CAG's financial statements, except for such amendments as may
be required by law.
(b) Documents. Except for such items the nondisclosure of which
---------
would not have a material adverse effect, CAG has furnished to Zhone true and
complete copies of the current documents relating to each of the CAG Employee
Plans, including (without limitation) plan documents, trust documents, the most
recent determination or opinion letter issued by the Internal Revenue Service
("IRS"), group annuity contracts, plan amendments that have not yet been
incorporated into the current version of a restated plan document, insurance
policies or contracts, employee booklets, administrative service agreements,
summary plan descriptions, Form 5500 reports filed for the last three plan
years, standard COBRA forms and notices, all registration statements and
prospectuses, any correspondence or inquiry by the IRS (other than that relating
to any determination letter application) or Department of Labor ("DOL"), and any
material employee communications relating to any CAG Employee Plan that is
materially inconsistent with the terms of any CAG Employee Plan.
(c) Compliance. Each CAG Employee Plan has been administered in
----------
accordance with its terms and is in material compliance with the requirements
prescribed by any and all statutes, rules and regulations (including ERISA and
the Code) in all material respects, and CAG and each ERISA Affiliate have
performed all material obligations required to be performed by them under, are
not in material default under or violation of and have no knowledge of any
material default or violation by any other party to, any of the CAG Employee
Plans. Any CAG Employee Plan intended to be qualified under Section 401(a) of
the Code has obtained from the Internal Revenue Service a favorable
determination letter or opinion letter as to its qualified status under the Code
and nothing has occurred since the issuance of each such letter which could
reasonably be expected to cause the loss of the tax-qualified status of any CAG
Employee Plan subject to Code Section 401(a). There are no suits,
administrative proceedings, including any audit or inquiry by the IRS or DOL,
actions or other litigation pending, or to the knowledge of CAG are threatened
against or with respect to any CAG Employee Plan, other than routine claims for
benefits and those relating to Qualified Domestic Relations Orders. CAG and
each of its United States subsidiaries have complied in all material respects
with the health care continuation and notice provisions of the Consolidated
Omnibus Budget Reconciliation Act of 1985 ("COBRA"), or any applicable state
continuation coverage requirements, the Family and Medical Leave Act of 1993,
the Health Insurance Portability and Accountability Act and the Cancer Rights
Act of 1998.
(d) No Title IV or Multiemployer Plan. CAG does not now, nor has
---------------------------------
it ever, maintained, established, sponsored, participated in, or contributed to,
any pension plan which is subject to Title IV of ERISA or Section 412 of the
Code. Neither CAG nor any ERISA Affiliate is a party to, has made or is required
to make any contribution to, or otherwise incurred any obligation or liability
under any "multiemployer plan" as defined in Section 3(37) of ERISA. Neither CAG
nor any ERISA Affiliate has any actual or potential withdrawal liability for any
complete or partial withdrawal from any multiemployer plan.
(e) Effect of Transaction. The consummation of the transactions
---------------------
contemplated by this Agreement will not (i) entitle any current or former
employee or other
17
service provider of CAG to severance benefits or any other payment (including,
without limitation, unemployment compensation, golden parachute or bonus),
except as expressly provided in Exhibit I to this Agreement, or (ii) accelerate
the time of payment or vesting of any such benefits, or increase the amount of
compensation due any such employee or service provider. No benefit payable or
which may become payable by CAG pursuant to any CAG Employee Plan or as a result
of or arising under this Agreement shall constitute an "excess parachute
payment" (as defined in Section 280G(b)(1) of the Code) which is subject to the
imposition of an excise tax under Section 4999 of the Code or the deduction for
which would be disallowed by reason of Section 280G of the Code.
3.12 [Intentionally Left Blank]
3.13 Contracts.
---------
(a) Except as set forth in the CAG Disclosure Schedule, CAG is
not a party or subject to any agreement, obligation or commitment, written or
oral:
(i) that calls for any fixed or contingent payment or
expenditure or any related series of fixed and/or contingent payments or
expenditures by or to CAG totaling more than $50,000 in any year;
(ii) with agents, advisors, salesmen, sales
representatives, independent contractors or consultants that are not cancelable
by it on no more than thirty (30) days' notice and without liability, penalty or
premium;
(iii) to provide funds to or to make any investment in any
other person or entity (in the form of a loan, capital contribution or
otherwise);
(iv) with respect to obligations as guarantor, surety, co-
signer, endorser, co-maker, indemnitor or otherwise in respect of the obligation
of any other person or entity;
(v) for any line of credit, standby financing, revolving
credit or other similar financing arrangement;
(vi) for the sale or lease of any real property involving
more than $10,000 per annum; or
(vii) with any distributor, original equipment manufacturer,
value added remarketer or other person for the distribution of any of the CAG
Products involving more than $50,000 in the aggregate.
(b) To CAG's Knowledge, no party to any such contract, agreement
or instrument intends to cancel, withdraw, modify or amend such contract,
agreement or instrument.
(c) The CAG Disclosure Schedule lists each vendor that (i)
manufactures for or supplies to CAG any material product or component of any CAG
Product
18
and to which CAG paid more than $50,000 in any calendar year or more than
$25,000 during the six months ended June 30, 1999, or (ii) is the sole source
for any product or component of any CAG Product.
(d) CAG is not in default under or in breach or violation of,
nor, to CAG's knowledge, is there any valid basis for any claim of default by
CAG under, or breach or violation by CAG of, any contract, commitment or
restriction to which CAG is a party or by which it or any of its properties or
assets is bound or affected, where such defaults, breaches, or violations would,
in the aggregate, have a Material Adverse Effect on CAG. To CAG's Knowledge, no
other party is in default under or in breach or violation of, nor, to CAG's
Knowledge, is there any valid basis for any claim of default by any other party
under, or any breach or violation by any other party of, any contract,
commitment, or restriction to which CAG is a party or by which any of its
properties or assets is bound or affected, where such defaults, breaches, or
violations would, individually or in the aggregate, have a Material Adverse
Effect on CAG.
3.14 Compliance with Law. CAG possesses all regulatory consents,
-------------------
authorizations, approvals, licenses and permits required by any Governmental
Entity in connection with the conduct of all aspects of its business as
presently conducted. CAG has complied with all such consents, authorizations,
approvals, licenses and permits and with all applicable laws, regulations and
other requirements of each Governmental Entity having jurisdiction over CAG.
CAG has not received any (i) notification of any asserted present or past
failure by CAG to comply with such laws, rules or regulations, or (ii) written
complaint, inquiry or request for information from any Governmental Entity
relating thereto.
3.15 Labor Difficulties. To CAG's Knowledge, CAG is not engaged in
------------------
any unfair labor practice and is not in violation of any applicable laws
respecting employment and employment practices, terms and conditions of
employment, and wages and hours. There are no proceedings, pendings or, to
CAG's knowledge, reasonably expected or threatened, between CAG and any of its
current or former employees. There are no claims pending or, to CAG's
knowledge, reasonably expected or threatened, against CAG under any workers'
compensation or disability plan or policy. CAG has provided all employees with
all wages, benefits and compensation earned up through the date of this
Agreement. There is no unfair labor practice complaint against CAG pending, or,
to CAG's Knowledge, threatened, nor are there any grievances which could form
the basis for such a complaint before the National Labor Relations Board. To
CAG's Knowledge, (i) the consummation of the transactions contemplated by the
Transaction Documents will not have a material adverse effect on its relations
with CAG employees, and (ii) none of the CAG employees intends to leave its
employment, whether as a result of the transactions contemplated by the
Transaction Documents or otherwise.
3.16 [Intentionally Left Blank]
3.17 Certain Transactions.
--------------------
(a) No Affiliate of CAG has any interest in (i) any material
equipment or other property or asset, real or personal, tangible or intangible,
including, without limitation,
19
any of the Intellectual Property Rights, used in connection with or pertaining
to the business of CAG, (ii) any creditor, supplier, customer, manufacturer,
agent, representative, or distributor of any of the CAG Products, (iii) any
entity that competes with CAG, or with which CAG is affiliated or has a business
relationship, or (iv) any agreement, obligation or commitment, written or oral,
to which CAG is a party; provided, however, that no Affiliate of CAG or other
-------- -------
person shall be deemed to have such an interest solely by virtue of the
ownership of less than 5% of the outstanding stock or debt securities of any
publicly held company, the stock or debt securities of which are traded on a
recognized stock exchange or quoted on Nasdaq.
(b) Except as contemplated by the Transaction Documents, CAG is
not a party to any (i) agreement with any officer or other employee of CAG (x)
the benefits of which are contingent, or the terms of which are materially
altered, upon the occurrence of a transaction involving CAG in the nature of any
of the transactions contemplated by the Transaction Documents, (y) providing any
term of employment or compensation guaranty, or (z) except as set forth in
Exhibit I, providing severance benefits or other benefits after the termination
of employment of such officer or other employee regardless of the reason for
such termination of employment, or (ii) agreement or plan, including, without
limitation, any stock option plan, stock appreciation right plan or stock
purchase plan (other than such plans with respect to the CAG Options), any of
the benefits of which will be increased, or the vesting of benefits of which
will be accelerated, by the occurrence of any of the transactions contemplated
by the Transaction Documents or the value of any of the benefits of which will
be calculated on the basis of any of the transactions contemplated by the
Transaction Documents.
3.18 Employees and Consultants. True, correct and complete copies of
-------------------------
all written agreements and descriptions of all oral agreements with individual
employees and consultants to which CAG is a party have been delivered to Zhone.
The CAG Disclosure Schedule lists the names of all CAG employees, their salaries
or wages, other compensation and dates of employment and positions.
3.19 Insurance. To CAG's knowledge, CAG has not done anything, either
---------
by way of action or inaction, that would invalidate any insurance policies and
other forms of insurance held by CAG in whole or in part.
3.20 Litigation. There is no action, proceeding, claim or
----------
investigation pending against CAG or affecting any of its properties, assets or
operations before any court or administrative agency, and, to CAG's Knowledge,
no such action, proceeding, claim or investigation has been threatened, nor is
there any reasonable basis therefor. Without limiting the generality of the
preceding sentence, there is no basis for any shareholder or former shareholder
of CAG, or any other person, firm, corporation or entity, to assert a claim
against CAG, Zhone or Sub based upon (i) issuance or rights to issuance by CAG
of any shares of CAG Common Stock, (ii) any rights as a CAG Shareholder,
including any option or preemptive rights or rights to notice or to vote, or
(iii) any rights under any agreement between CAG and any of its shareholders or
former shareholders, or option holders or former option holders in their
capacity as such, except in each case as set forth in Section 3.24. There is no
judgment, decree, injunction, rule or order of any Governmental Entity
outstanding against CAG or, to CAG's Knowledge, affecting any of its properties,
assets or operations. No product liability or warranty
20
claim has been asserted or threatened against CAG nor, to CAG's Knowledge, is
there any specific situation, set of facts or occurrence that provides a basis
for any such claim.
3.21 Corporate Minutes, Etc. CAG has made available to counsel for
-----------------------
Zhone true, correct and complete copies of (i) its minute book containing
complete records of all proceedings, consents, actions, and meetings of its
shareholders, Board of Directors and any committees thereof, (ii) all material
permits, orders, and consents issued by any Governmental Entity with respect to
CAG, or any securities of CAG, and all applications for such permits, orders,
and consents, and (iii) the stock certificate and transfer books and the stock
register of CAG setting forth all issuances and transfers of any capital stock
of CAG. The corporate minute books, stock certificate books, stock registers
and other corporate records of CAG and the copies thereof provided to counsel
for Zhone are complete and accurate in all material respects, and the signatures
appearing on all documents contained therein are the true signatures of the
persons purporting to have signed the same.
3.22 Compliance with Environmental Requirements. CAG has complied
------------------------------------------
with and not violated any laws, regulations or requirements of any Governmental
Entity related to pollution or protection of the environment, including those
relating to emissions, discharges, releases or threatened releases of
pollutants, contaminants, or hazardous or toxic materials, substances, or wastes
into air, surface water, groundwater, or land, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants or hazardous or toxic
materials, substances, or wastes. To CAG's Knowledge, there are no conditions,
circumstances, activities, practices, incidents, or actions which are likely to
form the basis of any claim, action, suit, proceeding, hearing or investigation
against CAG based on or related to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport, or handling, or the emission,
discharge, release or threatened release into the environment, of any pollutant,
contaminant, or hazardous or toxic materials, substances or wastes.
3.23 No Brokers. CAG is not obligated for the payment of fees or
----------
expenses of any broker, finder or other person in connection with the
origination, negotiation or execution of any of the Transaction Documents or in
connection with any transaction contemplated thereby.
3.24 CAG Options. The CAG Disclosure Schedule contains a list of all
-----------
Optionees and the CAG Options held by each Optionee. All CAG Options that will
be outstanding immediately prior to the Effective Time of the Merger have been
issued in accordance with the terms of the CAG Option Plan and pursuant to the
standard form of option agreement previously provided to counsel for Zhone.
3.25 Government Contracts. CAG has never sold or licensed any of its
--------------------
products to, or performed services for, any Government Contract Party and has
never been a party to any contract, written or oral with any Government Contract
Party. All of CAG's technical data and computer software was developed
exclusively at private expense.
3.26 Restrictions on Business Activities. Except for Agreements with
-----------------------------------
Zhone, there is no agreement (non-compete or otherwise), commitment, judgment,
injunction, order or
21
decree to which CAG is a party or otherwise binding upon CAG which has or may
reasonably be expected to have the effect of prohibiting or impairing any
business practice of CAG, any acquisition of property (tangible or intangible)
by CAG, the conduct of business by CAG or otherwise limiting the freedom of CAG
to engage in any line of business or to compete with any person. Without
limiting the generality of the foregoing, CAG has not entered into any agreement
under which CAG is restricted from selling, licensing or otherwise distributing
any of its technology or products to or providing services to, customers or
potential customers or any class of customers, in any geographic area, during
any period of time or in any segment of the market.
3.27 Disclosure. CAG has delivered to counsel for Zhone a true,
----------
complete and correct copy of each document referred to in the CAG Disclosure
Schedule or otherwise required by this Section 3 to be delivered.
3.28 No Material Adverse Effect. Except as required by Zhone in
--------------------------
connection with CAG's entry into the transactions contemplated by the
Transaction Documents, there has been no Material Adverse Effect on CAG since
May 31, 1999 and to CAG's Knowledge there has not occurred any event which could
reasonably be expected to have a Material Adverse Effect on CAG.
3.29 No Misrepresentation. No representation or warranty by CAG in
--------------------
this Agreement, or any statement, certificate or schedule furnished or to be
furnished by CAG pursuant to this Agreement, when taken together, contains or
shall contain any untrue statement of a material fact or omits or shall omit to
state a material fact required to be stated therein or necessary in order to
make such statements, in light of the circumstances under which they were made,
not misleading.
4. Representations and Warranties of the Principal Shareholder. Except
-----------------------------------------------------------
as set forth in the Principal Shareholder Disclosure Schedule, the Principal
Shareholder, represents and warrants to Zhone and Sub that:
4.1 Power, Authorization and Validity.
---------------------------------
(a) The Principal Shareholder has the full right, power, legal
capacity and authority to enter into and perform the Principal Shareholder's
obligations under each of the Transaction Documents to which the Principal
Shareholder is or will be a party.
(b) No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity or any other
consent, approval or authorization from any other third party, on the part of
the Principal Shareholder is required in connection with the Principal
Shareholder's execution or delivery of the Transaction Documents to which the
Principal Shareholder is or will be a party or the consummation by the Principal
Shareholder of the transactions contemplated by, other compliance with, or
performance under, such Transaction Documents.
(c) Each of the Transaction Documents to which the Principal
Shareholder is or will be a party constitutes, or will constitute upon its
execution and delivery by
22
the Principal Shareholder, a valid and binding obligation of the Principal
Shareholder enforceable in accordance with its terms.
4.2 Title to Securities. The Principal Shareholder owns of record
-------------------
and beneficially, and immediately prior to the Effective Time of the Merger will
own of record and beneficially, the number of shares of CAG Common Stock set
forth opposite the Principal Shareholder's name on the Principal Shareholder
Disclosure Schedule. The Principal Shareholder owns, and will own immediately
prior to the Effective Time of the Merger, all right, title and interest in and
to the shares held of record by him, free and clear of all Encumbrances,
proxies, rights of refusal and similar rights and other transfer restrictions of
any nature whatsoever (including any arising from any existing or threatened
litigation) other than restrictions on transfer arising out of federal and state
securities laws.
4.3 Absence of Violations or Conflicts. The execution and delivery
----------------------------------
by the Principal Shareholder of the Transaction Documents to which the
Principal Shareholder is or will be a party and the consummation by the
Principal Shareholder of the transactions contemplated by, or other compliance
with or performance under, them do not and will not with the passing of time or
giving of notice or both: (i) constitute a violation of, be in conflict with,
constitute a default or require any payment under, permit a termination of, or
result in the creation or imposition of any lien upon any properties or assets
of CAG, under (x) any contract, agreement, commitment, undertaking or
understanding (including rights of refusal or similar rights or other transfer
restrictions) to which the Principal Shareholder is a party or to which the
Principal Shareholder or the Principal Shareholder's properties or assets are
subject, bound or affected, (y) any judgment, decree or order of any
Governmental Entity to or by which such Principal Shareholder or the Principal
Shareholder's properties or assets are subject, bound or affected, or (z) any
applicable law; or (ii) create, or cause the acceleration of the maturity of,
any debt, obligation or liability of the Principal Shareholder that would result
in any lien or other claim upon the properties or assets of CAG.
4.4 Absence of Claims Against the Company. The Principal Shareholder
-------------------------------------
Disclosure Schedule contains a description of all claims of the Principal
Shareholder against CAG, including a description of any amounts payable to the
Principal Shareholder as a consequence of the consummation of the transactions
contemplated by this Agreement. Except as disclosed in the Principal
Shareholder Schedule, the Principal Shareholder has no claim against CAG, except
for accrued compensation and benefits and the reimbursement of expenses incurred
in the ordinary course of business. The Principal Shareholder has no right,
claim or interest in or to any stock or equity ownership interest in CAG other
than those referred to in Section 4.2, and the Principal Shareholder has no
right, claim or interest in or to any of the CAG Intellectual Property Rights.
4.5 Litigation. There is no action, proceeding, claim or
----------
investigation pending or, to the Principal Shareholder's knowledge, threatened
against the Principal Shareholder relating to the Principal Shareholder's
ownership of CAG Common Stock before any Governmental Entity.
23
4.6 No Brokers. The Principal Shareholder is not obligated for the
----------
payment of fees or expenses of any broker or finder in connection with the
origination, negotiation or execution of any of the Transaction Documents or in
connection with any transaction contemplated thereby.
5. Representations and Warranties of Zhone and Sub. Zhone and Sub
-----------------------------------------------
jointly and severally represent and warrant to CAG that:
5.1 Organization and Good Standing. Zhone and Sub are corporations
------------------------------
duly organized, validly existing and in good standing under the laws of the
jurisdiction of their incorporation, and have all requisite corporate power and
authority to carry on their respective businesses as it is now being conducted.
Zhone and Sub are duly qualified or licensed to do business and in good standing
in each jurisdiction in which the nature of its business or properties makes
such qualification or licensing necessary, except where the lack of such
qualification or licensing (individually or in the aggregate) would not have a
Material Adverse Effect on Zhone or Sub.
5.2 Power, Authorization and Validity.
---------------------------------
(a) Zhone and Sub each has the corporate right, power, legal
capacity and authority to execute and deliver, and to consummate the
transactions contemplated by, the Transaction Documents to which it is or will
be a party and to perform its obligations under each of them. The execution and
delivery of, and the consummation of the transactions contemplated by, each of
the Transaction Documents to which Zhone or Sub is or will be a party, the Zhone
1999 Stock Option Plan, and each Zhone Stock Option Agreement has been duly and
validly approved and authorized by all necessary corporate action.
(b) No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity, is required
by or with respect to Zhone or Sub in connection with the execution and delivery
of, and the consummation by them of the transactions contemplated by, any of the
Transaction Documents to which either of them is or will be a party, or the
Zhone 1999 Stock Option Plan or any Zhone Stock Option Agreement, except for the
filing of the Agreement of Merger and officers' certificates with the office of
the Secretary of State of the State of California, the filing of appropriate
documents with the relevant authorities of other states in which CAG is
qualified to do business, and such filings under federal and state securities
laws as have already been completed or which are not yet due.
(c) Each of the Transaction Documents to which Zhone or Sub is or
will be a party, the Zhone 1999 Stock Option Plan, and each Zhone Stock Option
Agreement has been, or upon its execution and delivery by Zhone or Sub will have
been, duly executed and delivered by it and constitutes or will constitute upon
its execution and delivery, a valid and binding obligation of Zhone or Sub,
enforceable in accordance with its terms.
5.3 Capitalization. The authorized capital stock of Zhone consists
--------------
of 300,000,000 shares Common Stock, $0.001 par value per share ("Common Stock"),
of which 75,000,000 shares are issued and outstanding, and 125,000,000 shares of
Preferred Stock, $0.001
24
par value per share ("Preferred Stock"), 38,750,000 of which shares have been
designated as Series A-1 Preferred, 37,500,000 of which shares have been
designated as Series A-2 Preferred Stock, 13,750,000 of which shares have been
designated as Series A-3 Preferred Stock, 12,500,000 of which shares have been
designated as Series A-4 Preferred Stock, 6,250,000 of which shares have been
designated as Series A-5 Preferred Stock, 7,868,750 of which shares have been
designated as Series A-6 Preferred Stock. 2,500,000 of which shares have been
designated as Series A-7 Preferred Stock, 1,075,000 of which shares have been
designated as Series A-8 Preferred Stock, 1,750,000 of which shares have been
designated as Series A-9 Preferred Stock, 1,056,250 of which shares have been
designated as Series A-10 Preferred Stock, 1,000,000 of which shares have been
designated as Series A-11 Preferred Stock and 1,000,000 of which shares have
been designated as Series A-12 Preferred Stock. As of the date of this Agreement
all 125,000,000 shares of such Preferred Stock are issued and outstanding. All
of the issued and outstanding shares of Common Stock and Preferred Stock have
been duly authorized and validly issued and are fully paid and nonassessable.
There is (i) no subscription, warrant, option, convertible security or other
right (contingent or otherwise) to purchase or acquire any shares of capital
stock of the Company authorized or outstanding, (ii) no obligation (contingent
or otherwise) to issue any subscription, warrant, option, convertible security
or other such right or to issue or distribute to holders of any shares of its
capital stock any evidences of indebtedness or assets of the Company, and (iii)
no obligation (contingent or otherwise) to purchase, redeem or otherwise acquire
any shares of the Company's capital stock or any interest therein or to pay any
dividend or make any other distribution in respect thereof except that (A)
38,750,000 shares of Common Stock have been reserved for issuance upon
conversion of the Series A-1 Preferred Stock, (B) 37,500,000 shares of Common
Stock have been reserved for issuance upon conversion of the Series A-2
Preferred Stock, (C) 13,750,000 shares have been reserved for issuance upon
conversion of the Series A-3 Preferred Stock, (D) 12,500,000 shares of Common
Stock have been reserved for issuance upon conversion of the Series A-4
Preferred Stock, (E) 6,250,000 shares of Common Stock have been reserved for
issuance upon conversion of the Series A-5 Preferred Stock, (F) 7,868,750 shares
of Common Stock have been reserved for issuance upon conversion of the Series A-
6 Preferred Stock, (G) 2,500,000 shares of Common Stock have been reserved for
issuance upon conversion of the Series A-7 Preferred Stock, (H) 1,075,000 shares
of Common Stock have been reserved for issuance upon conversion of the Series A-
8 Preferred Stock, (I) 1,750,000 shares of Common Stock have been reserved for
issuance upon conversion of the Series A-9 Preferred Stock, (J) 1,056,250 shares
of Common Stock have been reserved for issuance upon conversion of the Series X-
00 Preferred Stock, (K) 1,000,000 shares of Common Stock have been reserved for
issuance upon conversion of the Series A-11 Preferred Stock, (L) 1,000,000
shares of Common Stock have been reserved for issuance upon conversion of the
Series A-12 Preferred Stock. Zhone has reserved 50,000,000 shares of Common
Stock for issuance under the Zhone 1999 Stock Option Plan.
5.4 No Violation of Existing Agreements. The execution and delivery
-----------------------------------
of this Agreement and each of the other Transaction Documents do not, and the
consummation of the transactions contemplated hereby and thereby and compliance
with the provisions hereof and thereof will not, conflict with, or result in any
violation of or default under, or give rise to a right of termination,
cancellation or acceleration of any obligation or to the loss of a benefit
under, (i) any provision of the Certificate of Incorporation or By-Laws of
Zhone, or the Certificate of Incorporation or By-Laws of Sub, as currently in
effect, (ii) any loan or credit agreement, note,
00
xxxx, xxxxxxxx, xxxxxxxxx, lease or other agreement, instrument, permit,
concession, franchise or license to which Zhone or Sub is a party or by which
Zhone or Sub or any of its properties or assets is bound or affected, or (iii)
any judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Zhone, Sub or their properties or assets.
5.5 No Brokers. Neither Zhone nor Sub is obligated for the payment
----------
of fees or expenses of any broker or finder in connection with the origination,
negotiation or execution of this Agreement or the Agreement of Merger or in
connection with any transaction contemplated hereby or thereby.
5.6 Litigation. There is no litigation pending, or to the knowledge
----------
of Zhone or Sub threatened, against Zhone, Sub or any of their officers and
directors which, if determined adversely, would result in an injunction against
the Merger or have an adverse effect on Zhone's ability to deliver the Merger
Consideration or any Stock Option Agreement.
6. Covenants of CAG. CAG covenants to and agrees with each of Zhone and
----------------
Sub as follows:
6.1 Conduct of Business; Interim Operations. During the period from
---------------------------------------
the date of this Agreement and continuing until the earlier of the termination
of this Agreement or the Effective Time of the Merger, CAG agrees, subject to
the limitations described in Section 6.1(r) below, to carry on its business in
the usual, regular and ordinary course in substantially the same manner as
previously conducted, to pay its debts and taxes when due, subject to good faith
disputes over such debts or taxes, to pay or perform its other obligations when
due, and, to the extent consistent with such business, to use all commercially
reasonable efforts consistent with past practices and policies to (i) preserve
intact its present business organization, (ii) keep available the services of
its present officers and key employees, and (iii) preserve its relationships
with customers, suppliers, distributors, licensors, licensees and others having
business dealings with it. CAG shall promptly notify Zhone of any event or
occurrence where such event or occurrence would result in a breach of any
covenant of CAG set forth in this Agreement or cause any representation or
warranty of CAG set forth in this Agreement to be untrue as of the date of, or
giving effect to, such event or occurrence. Except as expressly contemplated by
this Agreement, CAG shall not, without the prior written consent of Zhone:
(a) transfer or license to any person or entity or otherwise
extend, amend or modify any rights to the CAG Intellectual Property Rights;
(b) declare or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any of its
capital stock, or split, combine or reclassify any of its capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of its capital stock, or purchase or otherwise
acquire, directly or indirectly, any shares of its capital stock except from
former employees, directors and consultants in accordance with agreements
providing for the repurchase of shares in connection with any termination of
service by such party;
26
(c) issue, deliver or sell or authorize or propose the issuance,
delivery or sale of, any shares of its capital stock or securities convertible
into shares of its capital stock, or subscriptions, rights, warrants or options
to acquire, or other agreements or commitments of any character obligating it to
issue any such shares or other convertible securities (except upon the exercise
or conversion of securities outstanding on the date of this Agreement);
(d) acquire or agree to acquire by merging or consolidating with,
or by purchasing a substantial equity interest in or substantial portion of the
assets of, or by any other manner, any business or any corporation, partnership
or other business organization or division;
(e) sell, lease, license or otherwise dispose of any of its
properties or assets except for transactions entered into in the ordinary course
of business consistent with past practice;
(f) take any action to: (i) increase or agree to increase the
compensation payable or to become payable to its officers or employees, (ii)
grant any severance or termination pay to, or enter into any employment or
severance agreements with, any officer or employee, (iii) enter into any
collective bargaining agreement, or (iv) establish, adopt, enter into or amend
in any material respect any bonus, profit sharing, thrift, compensation, stock
option, restricted stock, pension, retirement, deferred compensation,
employment, termination, severance or other plan, trust, fund, policy or
arrangement for the benefit of any directors, officers or employees;
(g) revalue any of its assets, including writing down the value
of inventory or writing off notes or accounts receivable other than in the
ordinary course of business or as required by GAAP;
(h) incur any indebtedness for borrowed money or guarantee any
such indebtedness or issue or sell any debt securities or warrants or rights to
acquire any debt securities or guarantee any debt securities of others, other
than indebtedness incurred under outstanding lines of credit in the ordinary
course of business consistent with past practice;
(i) amend or propose to amend its Articles of Incorporation or
Bylaws;
(j) incur or commit to incur any individual capital expenditure
in excess of $5,000 or aggregate capital expenditures in excess of $10,000;
(k) amend or terminate any material contract, agreement or
license to which it is a party except in the ordinary course of business;
(l) waive or release any material right or claim, except in the
ordinary course of business;
(m) initiate any litigation or arbitration proceeding;
27
(n) accelerate, amend or change the period of exercisability of
any options or restricted stock granted to employees of CAG or authorize cash
payments in exchange for any options granted under any of such plans;
(o) compromise or otherwise settle or adjust any assertion or
claim of a deficiency in taxes (or interest thereon or penalties in connection
therewith), extend the statute of limitations with any tax authority or file any
pleading in court in any tax litigation or any appeal from an asserted
deficiency;
(p) change any of CAG's accounting policies or practices except
as may be required by any modification or change in GAAP;
(q) change any of CAG's personnel policies in any material
respect (except for changes contemplated by the Severance Plan);
(r) accept orders from the customers listed on the schedule
attached hereto as Exhibit H;
---------
(s) grant any person a power of attorney or similar authority; or
(t) agree in writing or otherwise to take, any of the actions
described in subsections (a) through (s) above, or any action which is
reasonably likely to make any of its representations or warranties contained in
this Agreement untrue or incorrect in any material respect on the date made (to
the extent so limited) or as of the Closing Date.
6.2 Access to Information. Until the Closing, CAG will allow Zhone
---------------------
and its agents free access upon reasonable notice and during normal working
hours to its files, books, records, and offices, including, without limitation,
any and all information relating to taxes, commitments, contracts, leases,
licenses, CAG Intellectual Property Rights, personal property and financial
condition. Until the Closing, CAG shall cause its accountants to cooperate with
Zhone and its agents in making available all financial information reasonably
requested, including, without limitation, the right to examine all working
papers pertaining to CAG in the possession, custody or control of such
accountants, subject to the execution by Zhone of a customary agreement with
such accountants with respect to the use of such working papers.
6.3 Shareholder Consent. CAG shall promptly after the date hereof
-------------------
take all action necessary in accordance with the California Law and its Articles
of Incorporation and By-Laws to solicit and obtain shareholder consent and
approval to consummate the transactions contemplated by this Agreement and the
Merger Agreement. CAG shall use commercially reasonable efforts to solicit such
consent and approval from the shareholders of CAG at the earliest practicable
date and not later than November 15, 1999. The Board of Directors of CAG will
recommend to the CAG Shareholders that the Merger and the other transactions
contemplated by this Agreement be approved and will use commercially reasonable
efforts to solicit the approval of such matters by the CAG Shareholders. CAG
will provide to Zhone copies of all documents and other information furnished to
the shareholders of CAG, if applicable, in connection with such solicitation.
28
6.4 Regulatory Approvals. Prior to the Closing, CAG will execute and
--------------------
file, or join in the execution and filing of, any application or other document
that may be necessary in order to obtain the authorization, approval or consent
of any Governmental Entity that may be reasonably required in connection with
the consummation of the transactions contemplated by the Transaction Documents.
CAG will use commercially reasonable efforts to obtain or, as applicable, to
assist Zhone in obtaining all such authorizations, approvals and consents.
6.5 Satisfaction of Conditions Precedent. CAG will use commercially
------------------------------------
reasonable efforts to satisfy or cause to be satisfied all the conditions
precedent that are set forth in Sections 11.1 and 11.3 and to cause the
transactions contemplated by the Transaction Documents to be consummated, and,
without limiting the generality of the foregoing, to obtain all consents and
authorizations of third parties and to make all filings with, and give all
notices to, third parties which may be necessary or reasonably required on its
part in order to effect the transactions contemplated hereby.
6.6 Other Negotiations. Between the date hereof and the Closing Date
------------------
(or the earlier termination of this Agreement pursuant to Section 12), CAG will
not, directly or indirectly, through any officer, director, employee, agent or
otherwise, take any action to solicit, initiate, seek, encourage or support any
inquiry, proposal or offer from, furnish any information to, or participate in
any negotiations with, any person, corporation, partnership, or other entity or
group (other than Zhone) regarding any acquisition of CAG, any merger or
consolidation with or involving CAG, or any acquisition of any material portion
of the assets of CAG (any such transaction being referred to herein as an
"Acquisition Proposal").
7. Covenants of the Principal Shareholder. The Principal Shareholder
--------------------------------------
covenants and agrees with each of Zhone and Sub as follows:
7.1 Advice of Changes. The Principal Shareholder shall promptly
-----------------
notify Zhone in writing of any event occurring subsequent to the date of this
Agreement that would render any representation or warranty of the Principal
Shareholder contained in any of the Transaction Documents, if made on or as of
the date of that event or the Closing Date, untrue or inaccurate in any material
respect. The Principal Shareholders shall further notify Zhone of any event or
circumstance which has had, or could reasonably be expected to have, a Material
Adverse Effect on CAG; provided, however, that any such notice shall not
constitute an admission that a Material Adverse Effect on CAG has occurred.
7.2 Regulatory Approvals. Prior to the Closing, the Principal
--------------------
Shareholder will execute and file, or join in the execution and filing of, any
application or other document that may be necessary in order to obtain the
authorization, approval or consent of any Governmental Entity that may be
reasonably required in connection with the consummation of the transactions
contemplated by the Transaction Documents. The Principal Shareholder will use
commercially reasonable efforts to assist CAG and Zhone in obtaining all such
authorizations, approvals and consents.
7.3 Satisfaction of Conditions Precedent. The Principal Shareholder
------------------------------------
will use commercially reasonable efforts to assist CAG in satisfying the
conditions precedent that are set
29
forth in Section 11.1 and 11.3 and, subject to the provisions of Section 6.4, to
cause the transactions contemplated by the Transaction Documents to be
consummated.
7.4 Shareholder Approval. The Principal Shareholder shall vote the
--------------------
Principal Shareholder's shares of CAG Common Stock in favor of and otherwise
consent to the approval of the Merger, the Transaction Documents and the
transactions contemplated thereby.
7.5 Disposition of Securities; Solicitation; Voting; Etc. From and
-----------------------------------------------------
after the date hereof, and unless this Agreement is terminated in accordance
with Section 12, the Principal Shareholder shall:
(a) not transfer, sell or assign to any person or entity, or
agree in any manner to transfer, sell or assign to any person or entity, or
pledge, encumber, deposit in a voting trust or grant a proxy with respect to any
shares of CAG Common Stock currently or hereafter owned or controlled by the
Principal Shareholder without the prior written consent of Zhone;
(b) not solicit or enter into any agreement or arrangement with
any person or entity with respect to any transfer, sale or assignment of any CAG
Common Stock, except transfers, sales or assignments specifically contemplated
by this Agreement; and
(c) vote the shares of CAG Common Stock currently or hereafter
owned or controlled by the Principal Shareholder against any merger other than
the Merger, or any consolidation, sale of assets, reorganization,
recapitalization, liquidation or winding up of the Company in any case, at every
meeting of shareholders of CAG called therefor and at every adjournment or
postponement thereof (or in connection with any written consent in lieu of a
meeting relating to any such transaction).
8. Covenants of Zhone and Sub. Zhone and Sub hereby covenant and agree
--------------------------
with CAG and the Principal Shareholders as follows:
8.1 Advice of Changes. Zhone will promptly notify CAG in writing of
-----------------
any event occurring subsequent to the date of this Agreement that would render
any representation or warranty of Zhone or Sub contained in any of the
Transaction Documents, if made on or as of the date of that event or the Closing
Date, untrue or inaccurate in any material respect. Zhone shall further notify
CAG of any event or circumstance which has had, or could reasonably be expected
to have, a Material Adverse Effect on Zhone; provided, however, that any such
notice shall not constitute an admission that a Material Adverse Effect on Zhone
has occurred.
8.2 Regulatory Approvals. Prior to the Closing, Zhone and Sub will
--------------------
execute and file, or join in the execution and filing of, any application or
other document that may be necessary in order to obtain the authorization,
approval or consent of any Governmental Entity that may be reasonably required
in connection with the consummation of the transactions contemplated by the
Transaction Documents. Zhone and Sub will use commercially reasonable efforts
to obtain, or, as applicable, to assist CAG in obtaining all such
authorizations, approvals and consents.
30
8.3 Satisfaction of Conditions Precedent. Zhone will use
------------------------------------
commercially reasonable efforts to satisfy or cause to be satisfied all the
conditions precedent that are set forth in Sections 11.1 and 11.2 and to cause
the transactions contemplated by the Transaction Documents to be consummated,
and, without limiting the generality of the foregoing, to assist CAG in
obtaining all consents and authorizations of third parties and to make all
filings with, and give all notices to, third parties which may be necessary or
reasonably required on its part in order to effect the transactions contemplated
hereby.
8.4 Issuance of Options.
-------------------
(a) At the Closing, Zhone will issue options to purchase an
aggregate 1,500,000 shares of Zhone Common Stock in the amounts, under the
terms, and to the employees set forth in the schedule attached hereto as Exhibit
-------
J-1.
---
(b) At the Closing, Zhone will issue options to purchase up to an
aggregate of 700,000 shares of Zhone Common Stock to CAG employees who become
employees of Zhone under the terms set forth on the schedule attached hereto as
Exhibit J-2.
-----------
8.5 Sale of Assets. Zhone shall permit the Principal Shareholder to
--------------
contact and negotiate sales with possible buyers of the CAG Products, shall
provide reasonable assistance to the Principal Shareholder upon request
(including access rights and execution of standard form confidentiality
agreements) in completing such sales, and shall use reasonable commercial
efforts to effect the sale of the CAG Products at such price and terms as are
reasonably acceptable to Zhone.
9. Additional Covenants of the Parties. In addition to the foregoing,
-----------------------------------
the parties covenant and agree as follows:
9.1 Confidentiality. The parties acknowledge that the
---------------
Confidentiality Agreement is binding upon the parties hereto and is in full
force and effect. The terms of the Confidentiality Agreement are incorporated
in this Agreement by this reference.
9.2 Publicity. Neither CAG or the Principal Shareholder, on the one
---------
hand, nor Zhone or Sub, on the other, shall issue any press release or other
public announcement or communication regarding the transactions contemplated by
this Agreement without the prior written approval of the other as to the content
thereof, which approval shall not be unreasonably withheld; provided, however,
-----------------
that the foregoing shall not be deemed to prohibit any disclosure which is
required by any applicable law or by any Governmental Entity.
9.3 Employment Matters.
------------------
(a) Zhone shall offer employment at the Closing to employees of
CAG mutually agreed upon by Xxxx Xxxxxxxx and Zhone.
(b) At Zhone's request, CAG will use commercially reasonable
efforts to encourage any CAG employees designated by Zhone to continue in the
employment of the Surviving Corporation.
31
(c) The severance benefit policy adopted by CAG as described on
Exhibit I shall be assumed by Zhone and shall not be modified for a period of at
least 180 days after the Closing.
(d) For a period of one year after the Closing, Zhone shall
maintain for the CAG employees continuing in employment with Zhone or the
Surviving Corporation substantially equivalent employment benefits as are
currently provided at CAG, and shall use reasonable commercial efforts to
provide the same health insurance plan; provided, however, that if the
employment benefits and health insurance plan provided to current Zhone
employees are reasonably deemed superior by Zhone, Zhone shall provide the same
to CAG employees continuing in employment with Zhone. For all purposes of
determining eligibility and any and all entitlements under any employment
benefit plan provided by Zhone or the Surviving Corporation in the future,
service performed by employees of CAG prior to the Closing Date shall be
credited; provided, however, that such credit shall not apply to any vesting of
any Zhone options.
9.4 Continuing Cooperation. In case at any time after the Effective
----------------------
Time of the Merger any further action is reasonably necessary or desirable to
carry out the purposes of this Agreement or to vest the Surviving Corporation
with full title to all properties, assets, rights, approvals, immunities and
franchises of either of the Constituent Corporations, the proper officers and
directors of each corporation which is a party to this Agreement and the
Principal Shareholder shall take all such necessary action.
9.5 Indemnification of CAG's Officers and Directors.
-----------------------------------------------
(a) From and after the Effective Time of the Merger, the
Surviving Corporation shall indemnify, defend and hold harmless to the fullest
extent permitted by California law and as provided under CAG's Articles of
Incorporation and By-Laws as of the date of this Agreement, each person who is
now, or has been at any time prior to the date hereof, an officer or director of
CAG (individually, an "Indemnified Party" and collectively, the "Indemnified
Parties"), against all losses, claims, damages, liabilities, costs or expenses
(including attorneys' fees), judgments, fines and penalties arising out of or
pertaining to acts or omissions, or alleged acts or omissions, by them in their
capacities as such occurring at or prior to the Effective Time of the Merger
(including, without limitation, the transactions contemplated by this Agreement
(collectively referred to as "D&O Claims" and individually as a "D&O Claim") and
amounts paid in settlement of or otherwise in connection with any D&O Claim.
(b) Zhone shall cause the Surviving Corporation to keep in effect
provisions in its articles of incorporation or other governing instruments with
respect to, or Zhone otherwise hereby expressly assumes responsibility for,
indemnification identical to such provisions contained in CAG's Articles of
Incorporation and By-Laws as of the date of this Agreement, which provisions or
express assumption shall not be amended, repealed or otherwise modified for a
period of six years from the Effective Time of the Merger in any manner that
would adversely affect the rights thereunder of individuals who at any time
prior to the Effective Time of the Merger were directors or officers of CAG in
respect of acts or omissions, or alleged acts or omissions, at or prior to the
Effective Time of the Merger (including, without limitation,
32
the transactions contemplated by this Agreement or any other Transaction
Document), except as required by applicable law or except to make changes
permitted by law that would not materially diminish the Indemnified Parties'
right of indemnification hereunder.
(c) This Section 9.6 shall survive the Closing, is intended to
benefit the officers and directors of CAG at the Effective Time of the Merger
and each of the Indemnified Parties and their respective heirs and personal
representatives (each of whom shall be entitled to enforce this Section 9.6
against Zhone or the Surviving Corporation, as the case may be, as a third-party
beneficiary of this Agreement), and shall be binding on all successors and
assigns of Zhone and the Surviving Corporation.
(d) To the extent that any D&O Claims would otherwise constitute
or be attributable to a breach of any representation, warranty, covenant or
agreement in this Agreement of CAG or in any other Transaction Document, such
amounts as are paid by Zhone shall constitute "Zhone Losses" as such term is
defined in Section 13.2.
10. The Closing.
-----------
10.1 Delivery of Documents. At the Closing, each party shall deliver
---------------------
to the others all documents, certificates, schedules, agreements and instruments
required by this Agreement to be delivered at such time, such delivery to be
deemed effective at the Effective Time of the Merger.
10.2 Delivery of Cash Payment. Not later than two (2) business days
------------------------
after the Confirmation Date, Zhone and the Surviving Corporation shall cause the
Exchange Agent to effect the exchange of Certificates representing the CAG
Common Stock and Option agreements representing options to purchase CAG Common
Stock for the Cash Payment in accordance with the procedures specified in
Section 2.8 and the Agreement of Merger.
11. Conditions to the Closing.
-------------------------
11.1 Conditions to Each Party's Obligations. The respective
--------------------------------------
obligations of each party to effect the transactions to be performed by such
party at the Closing are, at the option of such party, subject to the
satisfaction at or prior to the Closing of the following conditions (unless
waived in writing if permitted by applicable law):
(a) This Agreement, the Merger and the other transactions
contemplated hereby shall have been duly approved by the shareholders of CAG in
the manner required under the California Law.
(b) No order shall have been entered, and not vacated, by a court
or administrative agency of competent jurisdiction, in any action or proceeding
which enjoins, restrains or prohibits the consummation of the Merger.
(c) There shall be no litigation pending or threatened by any
regulatory body or private party in which (i) an injunction is or may be sought
against the transactions contemplated by the Transaction Documents, or (ii)
relief is or may be sought
33
against any party hereto as a result of this Agreement and in which, in the good
faith judgment of the Board of Directors of either CAG or Zhone (relying on the
advice of their respective legal counsel), such regulatory body or private party
has a reasonable likelihood of prevailing.
(d) All authorizations, consents, permits and approvals of all
federal, state and local governmental agencies and authorities required to be
obtained in order to permit consummation of the transactions contemplated by
this Agreement shall have been obtained.
11.2 Conditions to Obligations of CAG and the Principal Shareholder.
--------------------------------------------------------------
The obligations of CAG and the Principal Shareholder to effect the transactions
to be performed by them at the Closing are, at the option of CAG, subject to the
satisfaction at or prior to the Closing of the following additional conditions:
(a) All of the representations and warranties of Zhone and Sub
set forth in Section 5 hereof shall be true in all material respects on and as
of the Closing Date, except for representations and warranties which are as of a
certain date which shall be true in all material respects as of such date, with
the same force and effect as if they had been made at the Closing, except for
changes contemplated by this Agreement, and Zhone and Sub shall have delivered
to CAG certificates to such effect dated the Closing Date and signed by
authorized representatives of Zhone and Sub, respectively.
(b) All of the terms, covenants and conditions of this Agreement
to be complied with and performed by Zhone and Sub at or prior to the Closing
shall have been duly complied with and performed in all material respects
(except for Section 8.4, which shall be performed in all respects), and Zhone
and Sub shall have delivered to CAG certificates to such effect dated the
Closing Date and signed by authorized representatives of Zhone and Sub,
respectively.
(c) Zhone shall have executed and delivered the Employment
Agreement.
(d) Zhone shall have executed and delivered the License
Agreement.
(e) There shall not have occurred a Material Adverse Effect on
Zhone.
11.3 Conditions to Obligations of Zhone and Sub. The obligations of
------------------------------------------
Zhone and Sub to effect the transactions to be performed by them at the Closing
are, at the option of Zhone, subject to the satisfaction at or prior to the
Closing of the following additional conditions:
(a) All the representations and warranties of CAG and the
Principal Shareholder set forth in Sections 3 and 4 shall be true in all
material respects on and as of the Closing Date, except for representations and
warranties which are as of a certain date which shall be true in all material
respects as of such date, with the same force and effect as if they had been
made at the Closing, except for changes contemplated by this Agreement, and CAG
and the Principal Shareholder shall have delivered to Zhone certificates to such
effect dated the Closing Date and signed by the President and Chief Financial
Officer of CAG and the Principal Shareholder respectively.
34
(b) All of the terms, covenants and conditions of this Agreement
to be complied with and performed by CAG and the Principal Shareholder at or
prior to the Closing Date shall have been duly complied with and performed in
all material respects, and CAG and the Principal Shareholder shall have
delivered to Zhone certificates to such effect dated the Closing Date and signed
by the President and Chief Financial Officer of CAG and the Principal
Shareholder, respectively.
(c) There shall have been no material adverse change in the
financial condition, results of operations, business or properties of CAG from
the date hereof, through the Closing Date, other than changes disclosed in the
CAG Disclosure Schedule.
(d) Xxxx Xxxxxxxx shall have executed and delivered the
Employment Agreement, the Ackourey Confidentiality Agreement and the Employee
Innovations Agreement.
(e) Xxxx Xxxxxxxx shall have executed and delivered the License
Agreement.
(f) All persons serving as directors or officers of CAG shall
have resigned all such positions effective as of the Closing.
(g) This Agreement, the Merger and the other transactions
contemplated by this Agreement shall have been duly approved by the CAG
Shareholders holding that number of shares as may be required to approve the
Merger under applicable law.
(h) Any and all consents from third parties to CAG's material
contracts, including but not limited to unvested CAG Options, and other
instruments required to allow the consummation of the Merger and the other
transactions contemplated by the Transaction Documents shall have been obtained.
12. Termination of Agreement.
------------------------
12.1 Termination by Zhone. This Agreement may be terminated, and the
--------------------
Merger abandoned, at any time before the Closing by Zhone upon written notice to
CAG, specifying the basis for such termination, if (a) (i) CAG or the Principal
Shareholder shall have breached in any material respect any of their respective
covenants or agreements contained in this Agreement or (ii) an event has
occurred which would cause a failure of any of the conditions in Section
11.3(a), or and such breach or failure of condition (x) cannot be cured or (y)
shall not have been cured within fifteen (15) days after notice thereof to the
breaching party from Zhone, (b) any representation or warranty of CAG or
Principal Shareholder contained in this Agreement shall have been materially
inaccurate when made, or (c) through no breach of this Agreement by Zhone, the
Closing shall not have occurred on or before November 30, 1999.
12.2 Termination by CAG. This Agreement may be terminated, and the
------------------
Merger abandoned, at any time before the Closing by action of the Board of
Directors of CAG upon written notice to Zhone, specifying the basis for such
termination, if (i) Zhone or Sub shall have breached in any material respect any
of their respective covenants or agreements contained in this Agreement and
shall not have cured such breach within fifteen (15) days after notice
35
thereof to the breaching party from CAG, (ii) any representation or warranty of
Zhone or Sub contained in this Agreement shall have been materially inaccurate
when made, or (iii) through no breach of this Agreement by CAG or the Principal
Shareholder, the Closing shall not have occurred on or before November 30, 1999.
12.3 Mutual Consent. This Agreement may be terminated, and the Merger
--------------
abandoned, at any time before the Closing, by the mutual written consent of
Zhone and CAG.
12.4 Effect of Termination. Upon any termination of this Agreement
---------------------
pursuant to the provisions of this Section 12, all parties hereto shall be
relieved of all further obligations under this Agreement, except for the
provisions of this paragraph and Section 15.7 regarding the payment of expenses
and the continuing obligations of the parties under the Confidentiality
Agreement. If such termination shall result from the failure of a party to
carry out its obligations under this Agreement, such party shall be liable for
losses incurred by the other parties; provided, however, that if the Agreement
is terminated by CAG pursuant to Section 12.2(i), Zhone shall pay to CAG a
termination fee of one million dollars ($1,000,000) in cash in immediately
available funds, which shall be deemed to cover all losses incurred by CAG. In
no event shall Zhone be required to pay such termination fee if, immediately
prior to the termination of this Agreement, CAG was in material breach of any of
its material obligations under this Agreement. The provisions of this Section
12.4 shall survive any such termination.
13. Survival of Representations and Warranties; Indemnification.
-----------------------------------------------------------
13.1 Survival of Representations and Warranties. If the Merger occurs
------------------------------------------
the representations and warranties of CAG and the Principal Shareholder
contained in this Agreement or in any certificate or other writing delivered
pursuant hereto or in connection herewith shall survive the Closing Date for a
period of three months; provided however; that the representations and
warranties contained in Sections 3.7, 3.20 and 3.23 shall survive for one year
and. provided further that, with respect to claims for indemnification for
"Zhone Losses" (as such term is defined in Section 13.2(a)) arising out of
"Third Party Claims" (as such term is defined in Section 13.4(a)) all
representations and warranties shall be deemed to survive the Closing Date for a
period of one year. The representations and warranties of Zhone contained in
this Agreement or in any other document or instrument delivered pursuant hereto
shall survive the Closing for one year. Notwithstanding the preceding sentence,
any claim for indemnity for breach of a representation or warranty in respect of
which indemnity may be sought under this Agreement shall survive the time at
which such representation or warranty otherwise would terminate pursuant to the
preceding sentence, if notice of the inaccuracy or breach thereof giving rise to
such right of indemnity shall have been given to the party against whom such
indemnity may be sought prior to such time.
13.2 Indemnification.
---------------
(a) (i) Subject to the terms, conditions and limitations
contained herein, the Principal Shareholder (the "CAG Indemnitor") shall defend
and hold harmless Zhone, its shareholders, officers, directors, employees and
attorneys, all Subsidiaries, including the Surviving Corporation, and affiliates
of Zhone, and the respective officers, directors, employees
36
and attorneys of such entities (all such persons and entities being collectively
referred to as the "Zhone Group") from, against, for and in respect of any and
all losses, damages, costs and expenses (including reasonable legal fees and
expenses) net of any directly related insurance payments or recoveries
previously received from third party insurers by members of the Zhone Group
prior to final resolution of, and relating to, such claim, losses, damages,
costs and expenses (collectively, the "Zhone Losses") which any member of the
Zhone Group may sustain or incur and which are caused by or arise out of any
inaccuracy in or breach of any of the representations, warranties or covenants
made by CAG in this Agreement, including the CAG Disclosure Schedule, except
those contained in Section 4 which are addressed in Section 13.2(e).
(ii) Subject to the terms, conditions and limitations contained
herein, Zhone shall indemnify, defend and hold harmless the CAG Shareholders
from, against, for and in respect of any and all losses, damages, costs and
expenses (including reasonable legal fees and expenses) (collectively, the
"Shareholder Losses") which any CAG Shareholder may sustain or incur and which
are caused by or arise out of any inaccuracy in or breach of any of the
representations, warranties or covenants made by Zhone in this Agreement.
(b) (i) The Principal Shareholder shall not be required to
indemnify any member of the Zhone Group for any Zhone Losses until the aggregate
amount of all Zhone Losses under all claims shall exceed $200,000 (the "Floor")
or for any claims in excess of $6,000,000 (the "Cap"); provided, however, that
if the aggregate amount of Zhone Losses in respect of such claims exceed the
Floor, the Principal Shareholder shall indemnify such member or members of the
Zhone Group for all Zhone Losses (including the initial $200,000) in respect of
such claims, subject to the further limitations set forth herein, and any claims
for breach of the representations set forth in Sections 3.1, 3.3 and 3.4(i)
shall not be subject to the floor.
(ii) Zhone shall not be required to indemnify any CAG
shareholder for any Shareholder Losses until the aggregate amount of all
Shareholder Losses under all claims shall exceed the Floor or for any claims in
excess of the Cap: provided, however, that if the aggregate amount of
Shareholder Losses in respect of such claims exceed the Floor, Zhone shall
indemnify such CAG Shareholders for all Shareholder Losses (including the
initial $200,000) in respect of such claims, subject to the further limitations
set forth herein. Claims for failure to pay any of the Total Merger
Consideration under this Agreement, to the extent not subject to Zhone's rights
to withhold such payment or offset Zhone Losses against such payment and claims
for breaches of the representations set forth in Section 5.1, 5.2 and 5.4(i)
shall not be subject to the Floor.
(c) Zhone shall also be entitled to claim as Zhone Losses all amounts
(i) for which Zhone is entitled to indemnification pursuant to Section 14, (ii)
breaches of the representations and warranties contained in Section 3.7
("Taxes"), and (iii) which would be required to be included on the CAG Expense
Schedule described in Section 15.7 which are in excess of the amounts actually
included on such Schedule. Recovery of any Zhone Losses described in this
Section 13.2(c) shall not be subject to the Floor.
(d) The obligation of the Principal Shareholder to indemnify members
of the Zhone Group for a Zhone Loss is subject to the condition that the
Principal Shareholder
37
shall have received a claim for such Zhone Loss on or before the applicable
survival period set forth in Section 13.1 hereof.
(e) The Principal Shareholder hereby indemnifies any Zhone Group
member against and agrees to hold each of them harmless from any and all Zhone
Losses incurred or suffered by such Zhone Group member arising out of any
misrepresentation or breach of warranty under Section 4, or covenant or
agreement made or to be performed by the Principal Shareholder pursuant to this
Agreement. Recovery of any Zhone losses pursuant to this Section 13.2(e) shall
not be subject to the Floor.
(f) In enforcing its rights to indemnity under this Section 13 Zhone
shall first seek payment by offsetting against any amounts payable to the
Principal Shareholder by virtue of the payments due to the Principal Shareholder
described on Exhibit G, an amount equal to the Zhone Losses, it being understood
that such losses shall first be offset against the last payment due to the
Principal Shareholder described on Exhibit G, and any remaining amount of the
Zhone Losses shall then be offset against any other payment due to the Principal
Shareholder described on Exhibit G, in reverse chronological order, until such
time as the Zhone Losses shall have been offset in full, it being further
understood that if at any time the Zhone Losses cannot be satisfied in full by
such offset, then any remaining amounts shall be offset against the Contingent
Payments which have accrued or which accrue prior to the time of final
resolution of such claim, in which event, pending resolution of such claims
Zhone may withhold from such Contingent Payments the amount of such claims up
to, but not exceeding, the Principal Shareholder's interest in such Contingent
Payments. If the foregoing sources of recovery for Zhone Losses shall be
insufficient, the Principal Shareholder shall pay such excess amounts in cash
within 15 business days after the date of final resolution of the claim for such
Zhone Losses. In no event shall Zhone offset or withhold amounts in excess of
any amount claimed under Section 13.3(b) or Section 14 in respect of Zhone
Losses, and notwithstanding anything to the contrary in Section 2.8(b), any
amounts withheld but not applied to satisfy Zhone's indemnification claim shall
bear interest from the original due date of payment at a rate of 8.5% per annum.
(g) Each of the parties hereto acknowledges and agrees that from and
after the Effective Time, its sole and exclusive monetary remedy, with respect
to any and all claims relating to this Agreement shall be pursuant to the offset
and/or indemnification provisions set forth in this Section 13 and that Zhone
shall have no recourse to any of the CAG Security Holders other than the
Principal Shareholder; except that nothing in this Agreement shall be deemed to
constitute a waiver of any injunctive or other equitable remedies or any tort
claims of, or causes of action arising from, fraud or intentional
misrepresentation, or for any claim arising out of a breach of the Employment
Agreement or the License Agreement.
13.3 Procedures for Indemnification.
------------------------------
(a) As used in this Section 13, the term "Indemnitor" means the party
or parties against whom indemnification hereunder is sought, and the term
"Indemnitee" means the party or parties seeking indemnification hereunder.
38
(b) A claim for indemnification hereunder (an "Indemnification
Claim") shall be made by Indemnitee by delivery of a written notice to the
Indemnitor requesting indemnification and specifying the basis on which
indemnification is sought in reasonable detail (and shall include relevant
documentation related to the Indemnification Claim), the amount of the asserted
Zhone Losses or Shareholder Losses, as the case may be, and, in the case of a
Third Party Claim (as defined in Section 13.4), containing (by attachment or
otherwise) such other information as Indemnitee shall have concerning such Third
Party Claim.
(c) If the Indemnification Claim involves a Third Party Claim, the
procedures set forth in Section 13.4 hereof shall be observed by Indemnitee and
Indemnitor.
13.4 Defense of Third Party Claims. Should any claim be made, or suit or
-----------------------------
proceeding be instituted against an Indemnitee which, if prosecuted
successfully, would be a matter for which such Indemnitee is entitled to
indemnification under this Agreement (a "Third Party Claim"), the obligations
and liabilities of the parties hereunder with respect to such Third Party Claim
shall be subject to the following terms and conditions:
(a) Indemnitee shall give the Indemnitor written notice of any such
claim promptly after receipt by Indemnitee of notice thereof, and the Indemnitor
will undertake control of the defense thereof by counsel of its own choosing
reasonably acceptable to Indemnitee. Indemnitee may participate in the defense
through its own counsel at its own expense. The assumption of the defense of
any Third Party Claim by the Indemnitor shall be an acknowledgment by the CAG
Representative that such Third Party Claim is subject to indemnification under
the provisions of this Section 13. If, however, the Indemnitor fails or refuses
to undertake the defense of such Third Party Claim within fifteen (15) days
after written notice of such claim has been delivered to the Indemnitor by
Indemnitee, Indemnitee shall have the right to undertake the defense, compromise
and, subject to Section 13.5, settlement of such Third Party Claim with counsel
of its own choosing. In the circumstances described in the preceding sentence,
Indemnitee shall, promptly upon its assumption of the defense of such Third
Party Claim, make an Indemnification Claim as specified in Section 13.3(b) which
shall be deemed an Indemnification Claim that is not a Third Party Claim for the
purposes of the procedures set forth herein. Failure of Indemnitee to furnish
written notice to the Indemnitor of a Third Party Claim shall not release the
Indemnitor from its obligations hereunder, except to the extent they are
actually prejudiced by such failure.
(b) Indemnitee and the Indemnitor shall cooperate with each other in
all reasonable respects in connection with the defense of any Third Party Claim,
including making available records relating to such claim and furnishing
employees of Indemnitee as may be reasonably necessary for the preparation of
the defense of any such Third Party Claim or for testimony as witness in any
proceeding relating to such claim.
13.5 Settlement of Third Party Claims. Unless the Indemnitor has
--------------------------------
failed to fulfill its obligations under this Section 13, no settlement by
Indemnitee of a Third Party Claim shall be made without the prior written
consent by or on behalf of the Indemnitor, which consent shall not be
unreasonably withheld or delayed. If the Indemnitor has assumed the defense of
a Third Party Claim as contemplated by Section 13.4(a), no settlement of such
Third Party Claim
39
may be made by the Indemnitor without the prior written consent by or on behalf
of Indemnitee, unless such settlement includes a complete release of all claims
against Indemnitee.
14. Tax Matters.
-----------
14.1 Indemnification by the Principal Shareholder. The Principal
--------------------------------------------
Shareholder shall be responsible for and shall indemnify the Zhone Group for (a)
all unpaid CAG Taxes incurred in or attributed to all periods (or portions of
periods) up to and including the Closing Date to the extent such Taxes are in
excess of (i) the amount of Taxes that are reflected in the reserve for tax
liability as shown on the balance sheet included in the CAG Audited 1999
Financials and (ii) the amount of Taxes, if any, that are subject to indemnity
by the Principal Shareholder under Sections 14.3(a) and 14.3(b) and (b) any and
all unpaid taxes imposed on or with respect to CAG as a result of any breach or
inaccuracy of any representation or warranty contained in Section 3.7. For
purposes of this Section 14, unpaid Taxes or taxes shall take into account any
estimated Tax or tax payment actually made.
14.2 Transfer Taxes. Notwithstanding any provision of this Agreement
--------------
to the contrary, all excise, sale, use, transfer (including real property
transfer), stamp, documentary, filing, recordation and other similar taxes
together with any interest, additions or penalties with respect thereto and any
interest in respect of such additions or penalties resulting or arising from or
in connection with this transaction shall be the liability of and paid by the
CAG Shareholders.
14.3 Filing Responsibility.
---------------------
(a) Except as provided in Section 3.7(a) and Section 14.2, Zhone
shall prepare and file, when due, all Tax Returns for any taxable period, or
portion thereof beginning before and ending on or before the Closing Date which
are required to be filed after the Closing Date. The Principal Shareholder shall
indemnify Zhone for unpaid Taxes of CAG with respect to such periods after
payment by CAG of such Taxes to the extent such Taxes are not reflected in the
reserve for tax liability as shown on the balance sheet included in the CAG
Financial Statements and to the extent the aggregate amount of such Taxes as are
not so reflected in such reserve for tax liability exceeds the CAG Net Assets
Amount.
(b) Zhone shall prepare and file, when due, all Tax Returns of
CAG for tax periods beginning before the Closing Date and ending after the
Closing Date. The Principal Shareholder shall indemnify Zhone after payment by
CAG of unpaid Taxes for such periods an amount equal to the portion of such
unpaid Taxes which are attributable to the portion of such periods ending on the
Closing Date to the extent that such unpaid Taxes are not reflected in the
reserve for tax liability as shown on the balance sheet included in the CAG
Financial Statements and to the extent the aggregate amount of such unpaid Taxes
as are not so reflected in such reserve for tax liability exceeds the CAG Net
Assets Amount. In the case of Taxes other than Taxes based upon or related to
income or receipts the portion of such Taxes attributable to the period ending
on the Closing Date shall be determined on a pro rata daily basis, and in the
case of Taxes based upon or related to income or receipts, the portion of such
unpaid Taxes attributable to the period ending on the Closing Date shall be
equal to the amount of Taxes that
40
would be due and payable had such tax liability been computed as if the relevant
taxable period ended on the Closing Date.
(c) If requested in a timely manner, Zhone shall permit the
Principal Shareholder to review and comment prior to filing any Tax Returns
described in Sections 14.3(a) and 14.3(b) for which the Principal Shareholder
would have liability pursuant to this Section. Zhone shall reflect the Principal
Shareholder's tax position on such Tax Returns for which the Principal
Shareholder is liable unless Zhone determines that such tax position is in
contravention of applicable law.
14.4 Contests.
--------
(a) Zhone and CAG, on the one hand, and Principal Shareholder on
the other hand, shall give notice to the other party of any pending or
threatened audits, adjustments or assessments ("Tax Audit") which may affect the
liability for Taxes of such other party.
(b) (i) If such Tax Audit relates to any taxable period ending
on or before the Closing Date or to or to any Taxes for which the Principal
Shareholder is liable in full hereunder, the Principal Shareholder shall at its
expense control the defense and settlement of such Tax Audit. If such Tax Audit
relates to any taxable period beginning after the Closing Date or to any Taxes
for which Zhone is liable in full hereunder, Zhone shall at its expense control
the defense and settlement of such Tax Audit. If such Tax Audit relates to
Taxes for which both the Principal Shareholder and Zhone are liable hereunder,
to the extent possible such Taxes will be distinguished and each party will
control the defense and settlement of those Taxes for which it is so liable.
(ii) If such Tax Audit relates to a taxable period, or
portion thereof beginning before and ending after the Closing Date and any tax
item cannot be identified as being a liability of only one party or cannot be
separated from a tax item for which the other party is liable, the party which
has the greater potential liability for those tax items that cannot be so
attributed or separated (or both) shall control the defense and settlement of
the Tax Audit, provided that such party defends the items as reported on the Tax
Return. Any party whose liability for Taxes may be directly affected by a Tax
Audit shall be entitled to participate at its expense in such defense and to
employ counsel of its choice at its expense and shall have the right to approve
any settlement or compromise of such liability, which approval shall not be
unreasonably withheld.
15. Miscellaneous.
-------------
15.1 Governing Law. It is the intention of the parties hereto that
-------------
the internal laws of the State of California (irrespective of its choice of law
principles) shall govern the validity of this Agreement, the construction of its
terms, and the interpretation and enforcement of the rights and duties of the
parties hereto.
41
15.2 Dispute Resolution.
------------------
(a) In the event of any controversy or claim arising out of or
relating to this Agreement, including without limitation, controversies or
claims arising out of the provisions of Section 13 hereof, any party may send
another party written notice identifying the matter in dispute. Within fifteen
(15) days after such written notice is given, one or more principals of each
party involved in the dispute shall meet at a mutually agreeable location for
the purpose of determining whether they can resolve the dispute themselves and,
if not, whether they can agree upon an impartial third-party arbitrator to whom
to submit the matter in dispute for final and binding arbitration.
(b) If such parties fail to resolve the dispute by written
agreement or to agree upon the selection of an arbitrator within said fifteen
(15) day period, any such party may thereafter commence appropriate legal action
with respect to such dispute.
(c) The prevailing party in any such dispute shall be entitled to
recovery of the reasonable fees and expenses of one (1) counsel for such party
in such dispute.
15.3 Assignment; Binding upon Successors and Assigns. None of the
-----------------------------------------------
parties hereto may assign any of its rights or obligations hereunder without the
prior written consent of the other parties. This Agreement will be binding upon
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns.
15.4 Severability. If any provision of this Agreement, or the
------------
application thereof, shall for any reason and to any extent be held to be
invalid or unenforceable, the remainder of this Agreement and the application of
such provision to other persons or circumstances shall be interpreted so as best
to reasonably effect the intent of the parties hereto. The parties further agree
to replace such invalid or unenforceable provision of this Agreement with a
valid and enforceable provision which will achieve, to the extent possible, the
economic, business and other purposes of the invalid or unenforceable provision.
15.5 Entire Agreement. This Agreement, the exhibits hereto, the
----------------
documents referenced herein, and the exhibits thereto, constitute the entire
understanding and agreement of the parties hereto with respect to the subject
matter hereof and thereof and supersede all prior and contemporaneous agreements
or understandings, inducements or conditions, express or implied, written or
oral, between the parties with respect hereto and thereto. The express terms
hereof control and supersede any course of performance or usage of the trade
inconsistent with any of the terms hereof. The letter of intent dated October
13, 1999 between Zhone and CAG is hereby terminated.
15.6 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall constitute an original and all of which
together shall constitute one and the same instrument.
15.7 Expenses. The parties shall each pay their own legal, accounting
--------
and financial advisory fees and other out-of-pocket expenses incurred incident
to the negotiation, preparation and carrying out of this Agreement and the
transactions herein contemplated. In the
42
event that the Merger is consummated, all legal, accounting and financial
advisory fees and expenses and other out-of-pocket expenses incurred by CAG
incident to the negotiation, preparation and carrying out of this Agreement and
the transactions herein contemplated shall be borne by the Surviving
Corporation; provided, however, that a schedule of all such fees and expenses to
be incurred through the Closing (the "CAG Expense Schedule") shall be submitted
to Zhone not later than two (2) business days prior to the Closing for purposes
of calculating the amount of the Total Merger Consideration.
15.8 Other Remedies. Except as otherwise provided herein, any and all
--------------
remedies herein expressly conferred upon a party shall be deemed cumulative with
and not exclusive of any other remedy conferred hereby or by law on such party,
and the exercise of any one remedy shall not preclude the exercise of any other.
15.9 Amendment and Waivers. Any term or provision of this Agreement
---------------------
may be amended, and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively) only by a writing signed by the party to be bound thereby. The
waiver by a party of any breach hereof for default in payment of any amount due
hereunder or default in the performance hereof shall not be deemed to constitute
a waiver of any other default or any succeeding breach or default.
15.10 Waiver. Any party hereto may, by written notice to the others:
------
(i) waive any of the conditions to its obligations hereunder or extend the time
for the performance of any of the obligations or actions of the others; (ii)
waive any inaccuracies in the representations of the others contained in this
Agreement or in any documents delivered pursuant to this Agreement; (iii) waive
compliance with any of the covenants of the others contained in this Agreement;
or (iv) waive or modify performance of any of the obligations of the others. No
action taken pursuant to this Agreement, including without limitation any
investigation by or on behalf of any party, shall be deemed to constitute a
waiver by the party taking such action of compliance with any representation,
warranty, condition or agreement contained herein. Waiver of the breach of any
one or more provisions of this Agreement shall not be deemed or construed to be
a waiver of other breaches or subsequent breaches of the same provisions.
15.11 Notices. All notices and other communications hereunder will
-------
be in writing and will be deemed given (i) upon receipt if delivered personally
(or if mailed by registered or certified mail), (ii) the day after dispatch if
sent by overnight courier, or (iii) upon dispatch if transmitted by facsimile
(and confirmed by a copy delivered in accordance with clause (i) or (ii)),
addressed to the parties at the following addresses:
CAG: CAG Technologies, Inc.
0000 Xxxx Xxxxxxx Xxxxx, Xxxxx 000
Xxxxxxxx Xxxxxxx, Xxxxxxxxxx 00000
Facsimile: (000) 000-0000
Attention: Xx. Xxxx Xxxxxxxx
43
with a copy to: Xxxxxxx & XxXxxxxx
(which shall not California Plaza, 29th Floor
constitute notice) 000 Xxxxx Xxxxx Xxxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Facsimile: (000) 000-0000
Attention: Xxxxxx X. Xxxxxxx, Esq.
The Principal
Shareholder: To the address set forth under his signature
Zhone or Sub: Zhone Technologies, Inc.
0000 Xxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxxxxx 00000
Facsimile: (000) 000-0000
Attention: Xx. Xxxxxxxx Xxxxxx
with a copy to: Xxxx Xxxx Xxxx & Freidenrich LLP
(which shall not 000 Xxxxxxxx Xxxxxx
constitute notice) Xxxx Xxxx, Xxxxxxxxxx 00000
Facsimile: (000) 000-0000
Attention: Xxx X. Xxxxx, Esq.
Any party may change its address for such communications by giving notice
thereof to the other parties in conformity with this Section 15.11.
15.12 Construction and Interpretation of Agreement.
--------------------------------------------
(a) This Agreement has been negotiated by the respective
parties hereto and their attorneys and the language hereof shall not be
construed for or against any party. The titles and headings herein are for
reference purposes only and shall not in any manner limit the construction of
this Agreement, which shall be considered as a whole.
(b) As used in this Agreement, any reference to any state of
facts, event, change or effect being "material" with respect to any entity means
a state of facts, event, change or effect, as the case may be, that is material
to the current or expected condition (financial or otherwise), properties,
assets, liabilities, business, operations or prospects of such entity.
(c) As used in this Agreement, the term "CAG's Knowledge" means
the actual knowledge of any of the executive officers of CAG or the Principal
Shareholder, in each case after due inquiry of those CAG employees who could
reasonably be expected to have information relating to the subject matter of the
particular representation.
(d) Whenever the term "enforceable in accordance with its
terms" or like expression is used, it is understood that excepted therefrom are
any limitations on
44
enforceability under applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting the enforcement of
creditor's rights.
15.13 No Joint Venture. Nothing contained in this Agreement shall be
----------------
deemed or construed as creating a joint venture or partnership between any of
the parties hereto. Except as specifically provided herein (i) no party is by
virtue of this Agreement authorized as an agent, employee or legal
representative of any other party, (ii) no party shall have the power to control
the activities and operations of any other and their status is, and at all
times, will continue to be, that of independent contractors with respect to each
other and (iii) no party shall have any power or authority to bind or commit any
other. No party shall hold itself out as having any authority or relationship
in contravention of this Section 15.13.
15.14 Further Assurances. Each party agrees to cooperate fully with
------------------
the other parties and to execute such further instruments, documents and
agreements and to give such further written assurances, as may be reasonably
requested by any other party to better evidence and reflect the transactions
described herein and contemplated hereby and to carry into effect the intents
and purposes of this Agreement.
15.15 Absence of Third Party Beneficiary Rights. Except as provided
-----------------------------------------
in Section 9.5, no provisions of this Agreement are intended, nor shall be
interpreted, to provide or create any third party beneficiary rights or any
other rights of any kind in any client, customer, affiliate, shareholder,
partner of any party hereto or any other person or entity unless specifically
provided otherwise herein, and, except as so provided, all provisions hereof
shall be solely between the parties to this Agreement.
45
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first set forth above.
ZHONE TECHNOLOGIES, INC.
By:/s/ Xxxxxxxx Xxxxxx
--------------------------------
Xxxxxxxx Xxxxxx
Chief Technology Officer
CAG ACQUISITION CORPORATION
By: /s/ Xxxxxxxx Xxxxxx
---------------------------------
Xxxxxxxx Xxxxxx
President
CAG TECHNOLOGIES, INC.
By:/s/ Xxxxxxxx Xxxxxxxx
--------------------------------
Xxxx Xxxxxxxx
President
PRINCIPAL SHAREHOLDER:
/s/ Xxxxxxxx Xxxxxxxx
-----------------------------------
Xxxx Xxxxxxxx
Address:___________________________
___________________________
___________________________________
EXHIBITS
--------
Exhibit Description
------- -----------
A Form of Agreement of Merger
B CAG Disclosure Schedule
C Form of Employment Agreement - Xxxx Xxxxxxxx
D Form of QDMP License Agreement
E Principal Shareholders Disclosure Schedule
F Schedule of Contingent Payment Products
G Schedule of Ackourey Cash Payments
H Schedule of Zhone Competitors
I Severance Benefit to CAG Employees
J-1 Options to be Granted to Purchase 1,500,000 Shares of Zhone Common Stock
J-2 Options to be Granted to Purchase 615,000 Shares of Zhone Common Stock
K Form of Confidentiality Agreement - Xxxx Xxxxxxxx
L Form of Employee Innovations and Proprietary Rights Assignment Agreement
Exhibit A
Form of Agreement of Merger
Exhibit B
CAG Disclosure Schedule
Exhibit C
Form of Employment Agreement - Xxxx Xxxxxxxx
Exhibit D
Form of QDMP License Agreement
Exhibit E
Principal Shareholders Disclosure Schedule
Exhibit F
Contingent Payment Products
1. "Xena" Card Design: Network protocol accelerator and router on a board. The
system uses an Intel IXP 1200 network processor and Hifn Ipsec encryption,
compression and public key processors to hardware accelerate processes
formerly performed in software, with the advantage of the subsystem being
that it allows the customer to perform highly-integrated processes at wire
speed. The system is designed to be modified to meet exactly what each
customer's existing system requires to reach increased performance and
interoperability, as well as reducing space, cost and power requirements.
2. "Gabby" Card Design: An IPsec hardware accelerator used by customers to
quickly move into the VPN market and offer IETF standard encryption,
compression and public key processing at wire speeds.
3. POTS Splitter: Passive filter that separate voice and data in ADSL circuits.
The system is housed in a 1U box and can accommodate up to 48 ports in one
chassis.
Exhibit G
Ackourey Cash Payments
--------------------------------------------------------------------------------
Date Paid % of the Cash Payment due to Ackourey
========= =====================================
--------------------------------------------------------------------------------
At Closing 33 1/3
--------------------------------------------------------------------------------
12/31/99 25
--------------------------------------------------------------------------------
03/31/00 20 5/6
--------------------------------------------------------------------------------
06/30/00 12 1/2
--------------------------------------------------------------------------------
09/29/00 4 1/6
--------------------------------------------------------------------------------
12/29/00 4 1/6
--------------------------------------------------------------------------------
Exhibit H
Zhone Competitors
Nortel Networks
Cisco Systems
Copper Mountain Networks
NextLevel
Exhibit I
Severance Benefit to CAG Employees
1. Participants. Full-time employees of CAG as of the Closing Date.
------------
2. Eligibility. Any employee terminated by Zhone or CAG post-Closing
-----------
will receive severance, unless terminated for cause as determined in good faith
by Zhone management. Additionally, if an employee resigns after a material
demotion from what was his or her position prior to the Closing or due to
relocation outside of the 50 mile radius of CAG's office or due to a material
reduction in salary, the employee may obtain a severance benefit. Receipt of a
benefit shall be conditioned on the employee's execution of a general release in
favor of Zhone and CAG.
3. Amount of Severance. The amount of the severance payment shall be two
-------------------
(2) weeks' salary for each year of employment at CAG, with the benefits prorated
for partial years of employment. However, the maximum benefit shall be thirteen
(13) weeks salary. Xx Xxxxxxx shall be entitled to the full 13 weeks' benefit
given his CFO position with CAG. Zhone may elect to pay severance in a lump sum
or on a regular payroll schedule, provided that no payment shall be made until
all rights to revoke the general release have expired.
4. Term of this Exhibit. Severance shall be available for employees
--------------------
terminated within 180 days of Closing, after which time Zhone's standard
employee benefit package shall govern severance (if any) available to former CAG
employees.
Exhibit J-1
Options to be Granted to Purchase 1,500,000 Shares of Zhone Common Stock
--------------------------------------------------------------------------------
Name Amount
==== ======
--------------------------------------------------------------------------------
Xxxx Xxxxxxxx 1,385,670
--------------------------------------------------------------------------------
Xxxxxx X. Xxxxxxx 43,305
--------------------------------------------------------------------------------
Xxxxxxx Xxxxxx 18,885
--------------------------------------------------------------------------------
Xxxxx Xxxxxx 5,190
--------------------------------------------------------------------------------
Xxxxxxxx Xxxxxxxxx 14,550
--------------------------------------------------------------------------------
Xxxx Xxxx 6,495
--------------------------------------------------------------------------------
Xxxxx Xxxxx 330
--------------------------------------------------------------------------------
Xxxxxx Xxxxxx 435
--------------------------------------------------------------------------------
Xxxxx Xxxxxxx 2,595
--------------------------------------------------------------------------------
Xxxxxxx Xxxxxxxx 14,550
--------------------------------------------------------------------------------
Xxxxxxxx Xxxxxxx 1,725
--------------------------------------------------------------------------------
Xxxx Xxxxxxx 1,080
--------------------------------------------------------------------------------
Xxxx Xi-Xxxx Xx 645
--------------------------------------------------------------------------------
Xxxxxxxx Xxxxxxxx 1,950
--------------------------------------------------------------------------------
Xxx Xxxxx 2,595
--------------------------------------------------------------------------------
TOTAL 1,500,000
--------------------------------------------------------------------------------
Zhone will issue options to purchase 1,500,000 shares of Zhone Common Stock to
the Stockholders/Employees of CAG. The options shall with certain exceptions be
subject to continued employment by Zhone, vest over a four-year period, with 25%
vesting on the first anniversary of the closing of the transaction and 1/36th of
the balance at the end of each one-month period following thereafter. Such
options shall provide for immediate vesting upon termination where the
termination was by Zhone without cause within one year of the date of grant, or
for such other events as are contained in agreements between Zhone and the
Optionee. Options issued to any affiliates of Xxxx Xxxxxxxx shall vest based
upon the continued employment of Xxxx Xxxxxxxx. Such options shall be
immediately exercisable with the shares of Zhone Common Stock issuable on such
exercise subject to repurchase by Zhone at the original purchase price and such
repurchase rights shall lapse in accordance with the option vesting schedule.
Exhibit J-2
Options to be Granted to Purchase 615,000 Shares of Zhone Common Stock
--------------------------------------------------------------------------------
Name Amount
==== ======
--------------------------------------------------------------------------------
Xxxxxxx Xxxxxx 75,000
--------------------------------------------------------------------------------
Xxxxx Xxxxxx 40,000
--------------------------------------------------------------------------------
Xxx Xxxxx 30,000
--------------------------------------------------------------------------------
Xxxx Xxxxxxxx 120,000
--------------------------------------------------------------------------------
Xxxxxxxx Xxxxxxxxx 45,000
--------------------------------------------------------------------------------
Xxxx Xxxx 40,000
--------------------------------------------------------------------------------
Xxxxx Xxxxx 12,000
--------------------------------------------------------------------------------
Xxxxxx Xxxxxx 12,000
--------------------------------------------------------------------------------
Xxxxx Xxxxxxx 12,000
--------------------------------------------------------------------------------
Xxxxxxx Xxxxxxxx 50,000
--------------------------------------------------------------------------------
Xxxxxxxx Xxxxxxx 20,000
--------------------------------------------------------------------------------
Xxxx Xxxxxxx 12,000
--------------------------------------------------------------------------------
Xxxx Xi-Xxxx Xx 15,000
--------------------------------------------------------------------------------
Xxxxxxxx Xxxxxxxx 12,000
--------------------------------------------------------------------------------
Horvin Xxxxxxxxx 15,000
--------------------------------------------------------------------------------
Xxxxx Xxxxx 25,000
--------------------------------------------------------------------------------
Xxx Xxxxxxxxxx 75,000
--------------------------------------------------------------------------------
Soco Xxxxxx 5,000
--------------------------------------------------------------------------------
TOTAL 615,000
--------------------------------------------------------------------------------
At the Closing, Zhone will issue options to purchase 615,000 shares of Zhone
Common Stock to CAG employees who have become employees of Zhone. These options
will be subject to 4 year vesting and shall be subject to such other terms as
are provided under Zhone's stock option plan, including immediate exercisability
with a lapsing repurchase right.
Exhibit K
Form of Confidentiality Agreement - Xxxx Xxxxxxxx
Exhibit L
Form of Employee Innovations and Proprietary Rights Assignment Agreement
