EXHIBIT 10.14
ZHONE TECHNOLOGIES, INC.
EXCHANGE AGREEMENT
This Exchange Agreement (this "Agreement") dated as of July 1, 2002 is
entered into by and among Zhone Technologies, Inc., a Delaware corporation (the
"Company"), and the parties identified in Exhibit A hereto (the "Purchasers").
RECITALS:
A. The Company entered into a series of Stock Purchase Agreements
dated October 28, 1999 (the "Purchase Agreements") with the purchasers of the
Company's Series A-1 through A-12 Preferred Stock (collectively, the "LLC
Purchasers").
B. The LLC Purchasers are a series of limited liability companies,
each of which issued Series A Preferred Units (the "Series A Preferred Units")
to their Class A Members (the "Class A Members") and Series B Common Units (the
"Series B Common Units") to their Class B Members (the "Class B Members"). The
Purchasers constitute all of the Class A Members and Class B Members.
C. In connection with a restructuring of the Company, including a
10 for 1 reverse split (the "Reverse Split") of the Company's Common Stock (such
restructuring, including the Reverse Split and the other transactions
contemplated by this Agreement, the "Restructuring"), the parties have agreed
that the Class A Members and Class B Members shall exchange their interests in
the LLC Purchasers for shares of a newly authorized class of Series AA Preferred
Stock and Common Stock, respectively, of the Company
D. The parties intend, by executing this Agreement, that the
transfer of Series A Preferred Units and Series B Common Units by the Class A
Members and Class B Members in exchange for Company capital stock pursuant to
this Agreement qualifies for treatment as a non-taxable transaction under
Section 351 of the Internal Revenue Code of 1986, as amended (the "Code").
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises and covenants contained herein, the parties agree as follows:
1. Authorization and Sale of Shares.
1.1 Authorization. The Company has, or before the Closing
(as defined in Section 2) will have, duly authorized the issuance, pursuant to
the terms of this Agreement, of up to 62,500,000 shares of Series AA Preferred
Stock (the "Preferred Shares") having the rights, restrictions, privileges and
preferences set forth in the form of Second Amended and Restated
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Certificate of Incorporation attached hereto as Exhibit B (the "Second Amended
Certificate of Incorporation") and 7,500,000 shares of Common Stock (the "Common
Shares"; collectively with the Preferred Shares, the "Shares"). The Company has,
or before the Closing will have, duly approved the Reverse Split and duly
adopted and filed the Second Amended Certificate of Incorporation with the
Secretary of State of the State of Delaware. Within one business day after the
Closing, the Company shall have duly adopted and filed with the Secretary of
State of the State of Delaware the Third Amended and Restated Certificate of
Incorporation, a copy of which is attached hereto as Exhibit C (the "Third
Amended and Restated Certificate of Incorporation") and, together with the
Second Amended and Restated Certificate of Incorporation, whichever is in effect
at the applicable time, the "Certificate of Incorporation").
1.2 Exchange. Subject to the terms and conditions of this
Agreement, at the Closing, the Company will issue the Preferred Shares to the
Class A Members in exchange for the Series A Preferred Units and the Common
Shares to the Class B Members in exchange for the Series B Common Units. The
Series A Preferred Units and Series B Common Units held by each Purchaser and
the number of Preferred Shares and Common Shares issuable to each Purchaser are
set forth opposite each Purchaser's name on Exhibit A. The Common Shares to be
issued in exchange for the Series B Common Units will be subject to the vesting
schedule applicable to the Series B Common Units being exchanged pursuant to
this Agreement, as more specifically described in Schedule I attached to this
Agreement.
2. Closing.
2.1 Closing Date. The issuance of the Shares hereunder shall
take place at one (1) closing (referred to in this Agreement as the "Closing").
Subject to the terms and conditions of this Agreement, the Closing shall take
place on or about July 1, 2002 (the date of the Closing is referred to in this
Agreement as the "Closing Date"). The issuance shall be made on the terms and
conditions set forth in this Agreement. The Closing shall be held at the offices
of Xxxx Xxxx Xxxx & Freidenrich LLP, 000 Xxxxxxxx Xxxxxx, Xxxx Xxxx, Xxxxxxxxxx,
at 10:00 a.m. local time, on the Closing Date, or at such other time and place
upon which the Company and the Purchasers shall agree. At the Closing, the
Company shall deliver to each Purchaser a certificate for the number of Shares
being issued to such Purchaser at the Closing, registered in the name of the
Purchaser, against delivery of an assignment in the form attached as Exhibit D.
2.2 Consents to Transfer. For the purposes of the respective
Operating Agreements for each of the LLC Purchasers, each of the Purchasers, by
their execution hereof, consent to the transfer of the Series A Preferred Units
and Series B Common Units as contemplated herein.
3. Representations of the Company. The Company hereby represents
and warrants to each Purchaser, that:
3.1 Organization and Standing. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has full corporate power and authority to conduct its
business as presently conducted and as presently proposed to be conducted by it,
and to enter into and perform this Agreement and the Rights Agreement in the
form attached as Exhibit E (the "Rights Agreement") and to carry out
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the transactions contemplated by this Agreement and the Rights Agreement. The
Company has furnished or made available to the Purchaser or its special counsel
true and complete copies of its Certificate of Incorporation and Bylaws, each as
amended to date and presently in effect.
3.2 Capitalization. The authorized capital stock of the
Company immediately after the filing of the Second Amended Certificate of
Incorporation and immediately prior to the Closing shall consist of 397,000,000
shares of Common Stock, $0.001 par value per share ("Common Stock"), of which
approximately 96,753,027 shares are issued and outstanding, and 204,500,000
shares of Preferred Stock, $0.001 par value per share ("Preferred Stock"),
125,000,000 of which shares have been designated as Series A-1 through A-12
Preferred (collectively, the "Series A Preferred"), 62,500,000 of which shares
have been designated as Series AA Preferred Stock (the "Series AA Preferred")
and 17,000,000 of which shares have been designated as Series B Preferred Stock
(the Series B Preferred). Immediately prior to the Closing, there will be
125,000,000 shares of Series A Preferred issued and outstanding no issued and
outstanding shares of Series AA Preferred and no issued and outstanding shares
of Series B Preferred. 62,500,000 shares of Series AA Preferred and 7,500,000
shares of Common Stock shall be issued pursuant to this Agreement. All of the
issued and outstanding shares of Preferred Stock and Common Stock have been duly
authorized and validly issued and are fully paid and nonassessable. Except as
set forth in Exhibit F, 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, and except that (after giving effect to the Reverse Split) (A)
17,000,000 shares of Series B Preferred Stock have been reserved for issuance in
connection with the Agreement of Merger dated June 18, 2002 by and among the
Company, Vpacket Communications, Inc. and the Shareholders' Representative, and
a subsequent rights offering of Series B Preferred Stock, (B) 125,000,000 shares
of Common Stock have been reserved for issuance upon conversion of the Series A
Preferred pursuant to the Second Amended and Restated Certificate of
Incorporation, (C) 62,500,000 shares of Common Stock have been reserved for
issuance upon conversion of the Series AA Preferred, (D) 17,000,000 shares of
Common Stock have been reserved for issuance upon conversion of the Series B
Preferred, and (E) 7,612,430 shares of Common Stock have been reserved for
issuance to employees, consultants, directors and officers of the Company
pursuant to stock grant, stock purchase and/or option plans or any other stock
incentive program, arrangement or agreement approved by the Board of Directors,
including 5,220,151 shares of Common Stock pursuant to options available for
future grant to employees. All of the issued and outstanding shares of capital
stock of the Company have been offered, issued and sold by the Company in
compliance with applicable federal and state securities laws.
3.3 Subsidiaries. Each of the Company's subsidiaries is duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization, except where the failure to be in good standing
would not reasonably be expected to have a material adverse effect on the
Company. None of the Company's subsidiaries engages in any activity in any
jurisdiction that might require its qualification to do business as a foreign
corporation and in
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which the failure to so qualify would have a material adverse effect on the
business of the Company's and its subsidiaries.
3.4 Issuance of Shares. The issuance and delivery of the
Shares in accordance with this Agreement, and the issuance and delivery of the
shares of Common Stock issuable upon conversion of the Preferred Shares, have
been duly authorized by all necessary corporate action on the part of the
Company, and all such shares have been duly reserved for issuance. The Shares
when so issued and delivered in accordance with the provisions of this
Agreement, and the shares of Common Stock issuable upon conversion of the
Preferred Shares as provided in the Certificate of Incorporation, when issued
upon such conversion, will be duly authorized and validly issued, fully paid and
non-assessable and free of restrictions on transfer other than restrictions on
transfer under applicable state and federal securities laws and the Rights
Agreement.
3.5 Authority for Agreement. The execution, delivery and
performance by the Company of this Agreement, the Rights Agreement, the
Assignment Agreement in the form attached hereto as Exhibit G (the "Assignment
Agreement") and the Termination Agreement in the form attached hereto as Exhibit
H (the "Termination Agreement" and, together with this Agreement, the Rights
Agreement and the Assignment Agreement, the "Transaction Agreements") and the
consummation by the Company of the transactions contemplated hereby and thereby,
have been duly approved by all necessary corporate and stockholder action of the
Company. At the Closing, the Transaction Agreements will have been duly executed
and delivered by the Company and will constitute valid and binding obligations
of the Company enforceable against the Company in accordance with their
respective terms, except as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to or
affecting enforcement of creditors' rights and rules or laws concerning
equitable remedies. The execution and delivery of, and performance of the
transactions contemplated by the Transaction Agreements and compliance with
their respective provisions by the Company and the issuance of the Shares and
the Common Stock issuable upon conversion of the Preferred Shares will not
violate any provision of law and will not conflict with or result in any breach
of any of the terms, conditions or provisions of, or constitute a default under,
or require a consent or waiver under, the Certificate of Incorporation or Bylaws
(each as amended to date) or any indenture, lease, agreement or other instrument
to which the Company is a party or by which it or any of its properties is
bound, or any decree, judgment, order, statute, rule or regulation applicable to
the Company.
3.6 Fairness Opinion. The Board of Directors of the Company
has received the opinion of Xxxxx Fargo Securities LLC to the effect that the
Restructuring is fair to the holders of Common Stock of the Company from a
financial point of view.
3.7 Governmental Consents. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any governmental authority is required on the part of the Company
in connection with (i) the execution and delivery of the Transaction Agreements
and consummation of the transactions contemplated thereby, (ii) the offer,
issuance and delivery of the Preferred Shares or the Common Stock issuable upon
conversion of the Preferred Shares or (iii) the other transactions to be
consummated at the Closing as contemplated by this Agreement, except for (A) the
filings pursuant to
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Section 25102(f) of the California Corporation Securities Law of 1986, as
amended, and the rules thereunder, and other filings required under Regulation D
of the Securities Act of 1933, which filings will be effected within fifteen
(15) days of the sale of the Shares hereunder and (B) the filing of the
Certificate of Incorporation with the Delaware Secretary of State.
3.8 Insurance. The Company has made available to the
Purchasers a complete and accurate copy of its directors and officers liability
policy. All premiums due and payable under such policy have been paid and the
Company is otherwise in compliance in all material respects with the terms of
such policy.
3.9 Offering Valid. Assuming the accuracy of the
representations and warranties of each of the Purchasers contained in Section 4
hereof, the offer and issuance of the Shares, and the shares of Common Stock
issuable upon conversion of the Preferred Shares, are and will be exempt from
the registration requirements of the Securities Act and are exempt from
registration and qualification under the registration, permit or qualification
requirements of all applicable state securities laws. Neither the Company nor
any agent on its behalf has solicited nor will solicit any offers to sell nor
has offered to sell or will offer to sell all or any part of the Shares to any
person or persons so as to bring the sale of the Shares by the Company within
the registration provisions of the Securities Act or any state securities law.
4. Representations of the Purchasers. Each of the Purchasers
severally and not jointly represents and warrants to the Company as follows:
4.1 The Shares to be acquired by such Purchaser pursuant to
this Agreement, and the shares of Common Stock into which the Preferred Shares
may be converted (collectively, the "Securities"), are being acquired for the
Purchaser's own account, for investment and not with a view to, or for resale in
connection with, any distribution or public offering thereof within the meaning
of the Securities Act or California law in contravention of applicable law.
4.2 The Purchaser understands that the Securities have not
been registered under the Securities Act by reason of their issuance in a
transaction exempt from the registration and prospectus delivery requirements of
the Securities Act pursuant to Section 4(2) thereof, that, except as set forth
in the Rights Agreement, the Company has no present intention of registering the
Securities, that the Securities must be held by the Purchaser indefinitely,
unless a subsequent disposition thereof is registered under the Securities Act
or is exempt from registration. The Purchaser further understands that the
Securities have not been qualified under California law by reason of their
issuance in a transaction exempt from the qualification requirements of
California law, which exemption depends upon, among other things, the bona fide
nature of the Purchaser's investment intent expressed above.
4.3 During the negotiation of the transactions contemplated
herein, the Purchaser and its respective representatives and legal counsel have
been granted the opportunity to review and inspect the Company's corporate
books, financial statements, records, contracts, documents, offices and
facilities, have been afforded an opportunity to ask such questions of the
Company's officers, employees, agents, accountants and representatives
concerning the Company's business, operations, financial condition, assets,
liabilities and other relevant matters as they have deemed necessary or
desirable, and have been given all such information as has
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been requested, in order to evaluate the merits and risks of the prospective
investments contemplated herein. The foregoing, however, does not limit or
modify the representations and warranties of the Company in Section 3 of this
Agreement or the right of the Purchaser to rely thereon.
4.4 The Purchaser and its respective representatives have
been solely responsible for its own "due diligence" investigation of the Company
and its management and business, for its own analysis of the merits and risks of
this investment and for its own analysis of the fairness and desirability of the
terms of the investment. In taking any action or performing any role relative to
the arranging of the proposed investment, the Purchaser has acted solely in its
own interest, and neither the Purchaser nor any of its respective agents or
employees has acted as an agent of the Company. The Purchaser has such knowledge
and experience in financial and business matters that the Purchaser is capable
of evaluating the merits and risks of the acquisition of the Securities pursuant
to the terms of this Agreement and of protecting its respective interest in
connection therewith.
4.5 The Purchaser is an "Accredited Investor" as that term
is defined in Rule 501 of Regulation D promulgated under the Securities Act. The
Purchaser is able to bear the economic risk of the purchase of the Securities
pursuant to the terms of this Agreement, including a complete loss of its
investment in the Securities.
4.6 The Purchaser has the full right, power and authority to
enter into and perform the Purchaser's obligations under this Agreement, and
this Agreement constitutes the valid and binding obligation of the Purchaser
enforceable in accordance with its terms, except as limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application relating to or affecting enforcement of creditors' rights and rules
or laws concerning equitable remedies.
4.7 No consent, approval or authorization of, or
designation, declaration or filing with, any governmental authority on the part
of the Purchaser is required in connection with the valid execution, delivery
and performance by the Purchaser of this Agreement.
4.8 The Purchaser understands that no public market now
exists for any of the securities issued by the Company and that the Company has
made no assurances that a public market will ever exist for the Company's
securities.
4.9 The Purchaser has not relied on any statements or
representations of the Company or any of its agents (other than the
representations and warranties set forth herein) with respect to the federal,
state, local and foreign tax consequences of this investment and the federal,
state, local and foreign tax consequences of transactions contemplated by the
Agreements. With respect to such matters, the Purchaser understands that it (and
not the Company) shall be responsible for its own tax liability that may arise
as a result of this investment or the transactions contemplated by this
Agreement.
4.10 The Purchaser acknowledges that it is not relying upon
any person or entity (including, without limitation, any other Purchaser) other
than the Purchaser's business
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advisors, the Company and its officers and directors in making its investment or
decision to invest in the Company.
5. Conditions to the Obligations of the Purchaser to Purchase
Shares at the Closing. The obligation of each of the Purchasers to acquire
Shares at the Closing is subject to the fulfillment, or the written waiver by
each Purchaser, of each of the following conditions on or before the Closing:
5.1 Accuracy of Representations and Warranties. Each
representation and warranty contained in Section 3 shall be true on and as of
the Closing Date with the same effect as though such representation and warranty
had been made on and as of that date.
5.2 Performance. The Company and each other Purchaser shall
have performed and complied with all covenants, agreements and conditions
contained in this Agreement and required to be performed or complied with by the
Company or such other Purchaser, as the case may be, prior to or at the Closing.
5.3 Certificates and Documents. The Company shall have
delivered or made available to the Purchasers or their counsel:
(a) The Second Amended and Restated Certificate of
Incorporation of the Company, as in effect as of the Closing Date, certified by
the Secretary of State of the State of Delaware;
(b) A certificate, as of the most recent practicable
date, as to the corporate good standing of the Company issued by the Secretary
of State of the State of Delaware;
(c) Bylaws of the Company, as in effect as of the
Closing Date, certified by the Secretary or Assistant Secretary of the Company
as of the Closing Date;
(d) Resolutions of the Board of Directors of the
Company, authorizing and approving all matters in connection with the
Transaction Agreements and the transactions contemplated thereby, in each case
certified by the Secretary or Assistant Secretary of the Company as of the
Closing Date; and
(e) Written consent(s) of the holders of a majority
in interest of the Common Stock and of the Series A Preferred approving the
Reverse Split, the Second Amended and Restated Certificate of Incorporation and
the Third Amended and Restated Certificate of Incorporation, certified by the
Secretary or Assistant Secretary of the Company as of the Closing Date.
5.4 Compliance Certificate. The Company shall have delivered
to the Purchasers a certificate, executed by the President of the Company, dated
the Closing Date, certifying to the fulfillment of the conditions specified in
Sections 5.1 and 5.2 of this Agreement.
5.5 Blue Sky. The Company shall have obtained all necessary
blue sky law permits and qualifications, or have the availability of exemptions
therefrom, required by any
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state for the offer and sale of the Shares and the Common Stock issuable upon
conversion of the Preferred Shares.
5.6 Legal Opinion. The Purchasers shall have received from
Xxxx Xxxx Xxxx & Freidenrich LLP, counsel to the Company, an opinion, dated as
of the Closing Date, in form and content reasonably acceptable to the
Purchasers.
5.7 Fairness Opinion. The Board of Directors of the Company
shall have received the opinion of Xxxxx Fargo Securities LLC to the effect that
the Restructuring is fair to the holders of Common Stock of the Company from a
financial point of view.
5.8 Rights Agreement. The Company and the other parties
thereto shall have executed and delivered the Rights Agreement.
5.9 Termination Agreement. The Company and the other parties
thereto shall have executed and delivered the Termination Agreement.
5.10 Assignment Agreement. The Company, each LLC Purchaser
and the limited liability company of which such Purchaser is a Class A Member
shall have executed a delivered the Assignment Agreement.
5.11 LLC Purchasers. All requisite action to dissolve the LLC
Purchasers and retire the Series A Preferred shall have been taken, subject only
to the filing of the Third Amended and Restated Certificate of Incorporation
with the Secretary of State of the State of Delaware.
5.12 Restricted Stock Purchase Agreements. The Company and
Xxxx Xxxxxx shall have executed and delivered a Restricted Stock Purchase
Agreement relating to the purchase of 3,500,000 shares of Common Stock, and
Xxxxxxxx Xxxxxx shall have executed and delivered a Restricted Stock Purchase
Agreement relating to the purchase of 2,000,000 shares of Common Stock, which
agreements shall be in the form attached hereto as Exhibit I.
5.13 Management Rights Letter. A Management Rights Letter
shall have been executed by the Company and delivered to each Purchaser who is a
party to a Management Rights Letter with the Company as of the date of this
Agreement, if requested by any such Purchaser, on substantially the same terms
and conditions as such Purchaser's existing Management Rights Letter.
6. Conditions to the Obligations of the Company. The obligations of
the Company under Section 1.2 of this Agreement are subject to fulfillment, or
the waiver, of the following conditions on or before the Closing:
6.1 Accuracy of Representations and Warranties. Each
representation and warranty of the Purchasers contained in Section 4 hereof
shall be true on and as of the Closing Date with the same effect as though such
representation and warranty had been made on and as of that date.
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6.2 Performance. All covenants, agreements and conditions
contained in this Agreement and required to be performed by the Purchasers on or
prior to the Closing Date shall have been performed or complied within all
material respects.
6.3 Rights Agreement. The Purchasers shall have executed and
delivered the Rights Agreement.
7. Covenants and Agreements.
7.1 LLC Purchasers; Third Amended and Restated Certificate
of Incorporation. Within one (1) business day following the Closing, the Company
shall dissolve the LLC Purchasers and cause to be duly filed with the Secretary
of State of the State of Delaware the Third Amended and Restated Certificate of
Incorporation.
7.2 Merger of Zhone Investors FF, L.L.C. Immediately
following the Closing, the Company, as the owner of a majority of the Series A
Preferred Units and 100% of the Series B Common Units of Zhone Investors FF, LLC
("Zhone FF LLC"), shall cause Zhone FF, LLC to merge with and into the Company
(the "Zhone FF Merger"), pursuant to which any outstanding Series A Preferred
Units of Zhone FF, LLC outstanding as of the date of the FF Merger (not held by
the Company) shall be exchanged for the same number of shares of Series AA
Preferred Stock of the Company as if the exchange was made pursuant to this
Agreement. The Company shall also cause to be filed a certificate of merger with
the Secretary of State of Delaware, which certificate shall serve as a
certificate of cancellation of Zhone FF LLC.
7.3 Tax Matters. Each of the parties covenants and agrees
(a) to report the transfer of Series A Preferred Units and Series B Common
Units, as applicable, by the Class A Members and Class B Members in exchange for
Company capital stock pursuant to this Agreement (the "Transfers") as a
non-taxable transaction under Section 351 of the Code, unless otherwise required
pursuant to a "determination" within the meaning of Section 1313(a) of the Code,
and (b) to use its best efforts to cause the Transfer to qualify, and not to
take any actions which to its knowledge could reasonably be expected to prevent
the Transfers from qualifying, as a non-taxable transaction under Section 351 of
the Code.
7.4 Further Assurances. Each party hereto covenants and
agrees to execute and deliver such other documents and take such other action,
without undue delay, as the other party or parties hereto shall reasonably
request to carry out the intent of this Agreement.
8. Indemnification.
8.1 Right to Indemnification. To the fullest extent
permitted by applicable law, the Company will indemnify and hold harmless each
director and officer of the Company and each Purchaser and each of such
Purchasers' respective current and former officers, directors, employees,
partners and affiliates (as defined in Rule 405 promulgated under the Securities
Act of 1933, as amended) (collectively, the "Indemnified Parties") from and
against any and all losses, claims, damages, obligations, assessments,
penalties, judgments, awards or liabilities (or any action in respect thereof),
joint or several, (collectively "Damages") insofar as such as Damages arise out
of or in connection with the transactions contemplated by the Transaction
Agreements or the Restructuring (other than any Damages arising from or in
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connection with a breach of the representations of the Purchaser related to such
Indemnified Party as set forth in Section 4 of this Agreement), and the Company
shall promptly reimburse the Indemnified Parties for any legal and other
expenses reasonably incurred by them or any of them, as such expenses are
incurred, in connection with investigating or defending any such Damage or
actions or claims whether or not resulting in any Damage. These indemnification
provisions shall be in addition to any liability which the Company may otherwise
have to an Indemnified Party. The Company shall not be liable for any settlement
of any claim or action against an Indemnified Party which is made without the
Company's written consent, which consent shall not be unreasonably withheld. The
Company shall not, without the prior written consent of an Indemnified Party,
which consent shall not be unreasonably withheld, settle or compromise any claim
or action in respect of which indemnification may be sought hereunder.
8.2 Contribution. If the indemnification of an Indemnified
Party provided for in Section 8.1 is for any reason held unenforceable, the
Company agrees to contribute to the Damages for which such indemnification is
held unenforceable (i) in such proportion as is appropriate to reflect the
relative benefits to the Company, on the one hand, and the Indemnified Party, on
the other hand of the transactions contemplated by the Exchange Agreement or the
other Transaction Agreements, or the Reverse Split or the Restructuring or (ii)
if, but only if, the allocation provided for in clause (i) above is for any
reason held unenforceable, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above, but also the
relative fault of the Company, on the one hand, and the Indemnified Party, on
the other hand, as well as any other relevant equitable considerations.
9. Miscellaneous.
9.1 Successors and Assigns. This Agreement, and the rights
and obligations of each of the Purchasers hereunder (except for the right to
purchase Shares initially), may be assigned by the Purchaser to any person or
entity to which Shares are transferred by the Purchaser, and such transferee
shall be deemed a "Purchaser" for purposes of this Agreement; provided, that the
transferee provides written notice of such assignment to the Company.
9.2 Survival of Representations and Warranties. All
agreements, representations and warranties contained herein shall survive the
execution and delivery of this Agreement and the closing of the transactions
contemplated hereby.
9.3 Notices. All notices, requests, consents, and other
communications under this Agreement shall be in writing and shall be delivered
by hand or fax or sent by a nationally recognized courier service with written
verification of receipt:
If to the Company:
Zhone Technologies, Inc.
0000 Xxxxxxx Xxxxxx
Xxxxxxx, XX 00000
Attention: President
(fax no. 000-000-0000)
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or at such other address or addresses as may have been furnished in writing by
the Company to the Purchasers,
with a copy to:
Xxxx Xxxx Xxxx & Freidenrich LLP
000 Xxxxxxxx Xxxxxx
Xxxx Xxxx, Xxxxxxxxxx 00000-0000
Attention: Xxxxx X. Xxxxx, Esq.
(fax no. 000-000-0000), and
If to the Purchaser, at its address set forth on Exhibit ___, or at such other
address or addresses as may have been furnished to the Company in writing by
such Purchaser.
Notices provided in accordance with this Section shall be deemed delivered upon
actual receipt.
9.4 Interpretation. The headings herein are for convenience
of reference only, do not constitute part of this Agreement and shall not be
deemed to limit or otherwise affect any of the provisions hereof. When a
reference in this Agreement is made to a Section or Exhibit, such reference
shall be to a Section of or Exhibit to this Agreement unless otherwise
indicated. Whenever the words "include," "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation." The definitions contained herein are applicable to the singular as
well as the plural forms of such terms.
9.5 Brokers. The Company and each Purchaser (severally and
not jointly) (i) represent and warrant to each other that, it has retained no
finder or broker in connection with the transactions contemplated by this
Agreement and (ii) each will indemnify and save the other party harmless from
and against any and all claims, liabilities or obligations with respect to
brokerage or finders' fees or commissions, or consulting fees in connection with
the transactions contemplated by this Agreement asserted by any person on the
basis of any statement or representation alleged to have been made by such
indemnifying party.
9.6 Expenses. The Company and each Purchaser each shall bear
its own expenses incurred with respect to this Agreement and the transactions
contemplated hereby.
9.7 Entire Agreement. This Agreement and the other documents
delivered pursuant to the Agreement at the Closing embody the entire agreement
and understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior agreements and understandings relating to such
subject matter.
9.8 Amendments and Waivers. Upon approval by two-thirds
(2/3) of the members of the Company's Board of Directors, any term 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 with the written consent of the Company and the holders of a
majority of the Shares, on an as-converted basis together with all shares of
Common Stock issued upon conversion of the Shares. Any amendment or waiver
effected in accordance with this Section shall be binding upon each holder of
any Shares (including shares of Common Stock into which such Shares have been
converted) and each future holder of all such securities and the Company. No
waivers of or exceptions to any term,
-11-
condition or provision of this Agreement, in any one or more instances, shall be
deemed to be, or construed as, a further or continuing waiver of any such term,
condition or provision. The Tax Indemnity Agreement by and among Xxxx Xxxxxx,
Xxxxxxxx Xxxxxx and the Company executed and delivered in connection with this
Agreement shall not be amended or waived without the written consent of the
parties thereto and the holders of a majority of the Shares, on an as converted
basis.
9.9 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original, but all of
which shall be one and the same document.
9.10 Section Headings. The section headings are for the
convenience of the parties and in no way alter, modify, amend, limit, or
restrict the contractual obligations of the parties.
9.11 Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
9.12 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware (without regard
to its conflict of laws principles) as applied to agreements among Delaware
residents, made and to be performed entirely within the State of Delaware.
9.13 Attorney's Fees. In the event that any dispute among the
Company and the Purchaser should result in arbitration, the arbitrator may award
to one or more of the Prevailing Persons such reasonable attorney fees, costs
and expenses, as determined by the arbitrator. Any judgment or order enforcing
such arbitration may, in the discretion of the court entering such judgment or
order, contain a specific provision providing for the recovery of attorney fees
and costs incurred in enforcing such judgment or order and an award of
prejudgment interest from the date of the breach at the maximum rate of interest
allowed by law. For the purposes of this Section , "attorney fees" shall
include, without limitation, attorney fees incurred in arbitration,
post-arbitration order or judgment motions, contempt proceedings, garnishment,
levy, and debtor and third party examinations, discovery and bankruptcy
litigation. For purposes of this Section , "Prevailing Person" shall mean any
person who is determined by the arbitrator in the proceeding to have prevailed
or who prevails by dismissal, default or otherwise.
9.14 Binding Arbitration. The Company and the Purchasers
agree that any controversy or claim arising out of or relating to this
Agreement, or the breach thereof, shall be settled by binding arbitration, and
judgment upon the final award may be entered in any court having jurisdiction.
The arbitration shall be in Palo Alto, California and in accordance with the
Comprehensive Arbitration Rules and Procedures ("Rules") of the Judicial
Arbitration and Mediation Services/Endispute in San Francisco, California.
Except as otherwise provided in Section 9.13 of this Agreement, all fees and
expenses of the arbitration shall be borne by the parties equally.
-12-
A single arbitrator shall be selected according to the Rules within
thirty (30) days of submission of the dispute to the arbitrator. The arbitrator
shall conduct the arbitration in accordance with the California Evidence Code.
The parties shall allow and participate in discovery in accordance with the
California Rules of Civil Procedure for a period of sixty days after the filing
of an answer or other responsive pleading. All issues regarding compliance with
discovery requests shall be decided by the arbitrator. Any party may seek the
arbitrator's permission to take any additional deposition which is necessary to
preserve the testimony of a witness who either is, or may become, outside the
subpoena power of the arbitrator or otherwise unavailable to testify in the
arbitration.
The arbitrator shall have the power to enter any award that could be
entered by a Judge of the Superior Court of the State of California sitting
without a jury, and only such power, except that the arbitrator shall not have
the power to award punitive damages, treble damages or any other damages that do
not represent actual damages, even if permitted under the laws of the State of
California or any other applicable law.
The parties hereby agree to the Optional Appeal Procedure provided for
in the Rules. The final arbitration award may be enforced in any court having
jurisdiction over the parties and the subject matter of the arbitration.
Notwithstanding the foregoing, the Company and the Purchasers irrevocably submit
to the non-exclusive jurisdiction of the Superior Court of the State of
California, Santa Xxxxx County, and the United States District Court for the
Northern District of California, Branch nearest to Palo Alto, California, in any
action to enforce an arbitration award.
The Company and the Purchasers further agree that personal jurisdiction
over it may be effected by service of process by registered or certified mail
addressed as provided in Section 9.3 of this Agreement, and that when so made
shall be as if served upon it personally within the State of California.
[Signatures to Follow]
-13-
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COMPANY:
ZHONE TECHNOLOGIES, INC.
By:
------------------------------------------
Xxxx Xxxxxx, Chief Executive Officer
CLASS A MEMBERS:
---------------------------------------------
Name of Class A Member
By:
------------------------------------------
Name:
Title
CLASS B MEMBERS:
The Xxxxxxx Xxxxxx Trust Under Declaration of
Trust dated May 18, 1998
By:
------------------------------------------
Trustee
The Xxxxxx Living Trust Dated March 15, 1995
By:
------------------------------------------
Trustee
The Xxxx Family Trust Dated October 1, 1989
By:
------------------------------------------
Trustee
-14-
SCHEDULES AND EXHIBITS
SCHEDULE I Vesting Schedule
EXHIBIT A Series A Preferred Units and Series B Common Units
EXHIBIT B Second Amended and Restated Certificate of Incorporation
EXHIBIT C Third Amended and Restated Certificate of Incorporation
EXHIBIT D Form of Transfer
EXHIBIT E Form of Rights Agreement
EXHIBIT F Exceptions to Section 3.2
EXHIBIT G Form of Assignment Agreement
EXHIBIT H Form of Termination Agreement
EXHIBIT I Form of Restricted Stock Purchase Agreement
-15-
SCHEDULE I
Vesting Schedule
1. Restrictions on Alienation. Executive agrees not to sell,
assign, transfer, hypothecate or otherwise alienate the Common Shares received
pursuant to this Agreement, with or without consideration, unless and until, and
only to the extent that such Common Shares are no longer subject to the
Company's Repurchase Option, as set forth in this Schedule I.
2. Grant of Repurchase Option. In the event of the termination of
the Executive's Service with Zhone due to death, Disability (as defined in the
Employment Agreement) or Voluntary Termination, the Company shall repurchase
from Executive any or all of the Executive's Unvested Interest subject to the
terms and conditions set forth in this Schedule I (the "Repurchase Option").
3. Exercise of the Repurchase Option. The Company shall exercise
any or all of the Repurchase Option by written notice to the Executive, the
Executive's legal representative, or other holder of the Common Shares, as the
case may be, during the Repurchase Period. The "Repurchase Period" shall be the
period commencing as of the date of the date of the Executive's termination of
Service and ending on the date forty-five (45) days after the Executive's
termination of Service. If the Company fails to give notice during the
Repurchase Period, the Repurchase Option shall terminate (unless the Zhone Board
and the Executive or the Executive's heirs, administrators, successors or
assigns, as applicable, have agreed to extend the time for the exercise of the
Repurchase Option).
4. Price and Payment for Repurchased Interest. The repurchase price
for the Unvested Interest being repurchased by the Company pursuant to the
Repurchase Option shall be a dollar amount equal to: (i) the difference between
one-hundred percent (100%) and the Vested Percent, multiplied by (ii) the
Aggregate Purchase Price. Payment of the repurchase price by the Company to the
Executive shall be made in cash on or before the expiration of thirty (30) days
from the last day of the Repurchase Period. For purposes of the foregoing,
cancellation of any indebtedness of the Executive to the Company shall be
treated as payment to the Executive in cash to the extent of the unpaid
principal and any accrued interest canceled.
For purposes of this Agreement, the following terms shall have their
respective meanings set forth below:
"Aggregate Purchase Price" means an amount equal to $40,000.00 in the
case of Mory Ejebat, or $32,500.00 in the case of Xxxxxxxx Xxxxxx, whichever is
applicable.
"Change in Control Date" means the date on which any of the following
transactions occur, provided that the "beneficial owners" (as such term is
defined by the Securities Exchange Act of 1934, as amended) of the stock of
Zhone immediately prior thereto shall immediately thereafter own less than 50%
of the voting power of the surviving Person or an entity that holds 80% or more
of the beneficial equity interest in such surviving Person: (i) the merger or
consolidation of Zhone into or with another Person, (ii) the issuance by Zhone
of voting
-16-
securities to another Person, (iii) the sale, transfer or other disposition (but
not including a transfer or disposition by pledge or mortgage to a bona fide
lender) of all or substantially all of the assets of Zhone or (iv) other
transaction.
"Employment Agreement" means the Employment Agreement dated as of
October 20, 1999 between Mory Ejebat and the Company or the Employment Agreement
dated as of October 20, 1999 between Xxxxxxxx Xxxxxx and the Company, whichever
is applicable.
"Executive" means Xxxx Xxxxxx or Xxxxxxxx Xxxxxx, whichever is
applicable.
"Involuntary Termination" means (i) termination of Executive's Service
with Zhone other than for Cause (as defined in the Employment Agreement), death
or Disability or (ii) Executive's resignation from Service with Zhone for Good
Reason (as defined in the Employment Agreement).
"Person" means a natural person, partnership (whether limited or
general), limited liability company, trust, estate, association, corporation,
custodian, nominee or any other individual or entity in its own or any
representative capacity.
"Service" means the Executive's performance of services for Zhone in
accordance with the Employment Agreement.
"Unvested Interest" means, on any relevant date, the difference between
100% of the Common Shares and the Vested Interest.
"Vested Interest" means, on any relevant date, the Vested Percent of the
Common Shares.
"Vested Percent" means, except as provided in the next sentence, on any
relevant date, the percentage determined by multiplying 2.083333% by each full
month of Executive's continuous Service with Zhone from and after July 1, 1999
through such date until the Vested Percent equals 100%. In the event of
Executive's Involuntary Termination or the occurrence of a Change in Control
Date while Executive is in Service to Zhone, the Vested Percent shall as of the
date of any such event or occurrence become 100%. In the event of Executive's
death or Disability, 50% of the Common Share Interest that would otherwise be an
Unvested Interest as of the date of such death or Disability pursuant to the
operation of the first sentence of this definition, shall instead be added to
and included in the Vested Percent as of such date.
"Voluntary Termination" means a termination of Service with Zhone that
is not an Involuntary Termination.
-17-
EXHIBIT A
Purchaser Series A Units Series B Units Series AA Shares Common Shares
--------- -------------- -------------- ---------------- -------------
TPG Zhone LLC 38,125,000 19,062,500
KKR-ZT LLC 38,125,000 19,062,500
New Enterprise Associates VII, Limited 13,750,000 6,875,000
Partnership
California Public Employees' Retirement 12,500,000 6,250,000
system
Madison Dearborn Capital Partners III 6,250,000 3,125,000
Xxxx Xxxxxx, as Trustee of the Xxxxxxx 2,500,000 40,000,000 1,250,000 4,000,125
Ejabat Trust Under Declaration of Trust
Dated may 18, 1998
Xxxxxxxx Xxxxxx, as Trustee of the Xxxxxx 2,500,000 32,500,000 1,250,000 3,250,125
Living Trust dated March 15, 1995
Xxxxxx Xxxx, as Trustee of the Xxxx 237,500 2,500,000 118,750 249,750
Family Trust Dated October 1, 1989, as
amended
U.S. Venture Partners VI, L.P. 2,500,000 1,250,000
The Pacific Corporate Group Private 1,075,000 537,500
Equity Fund
Nexus Capital Partners II, L.P. 1,750,000 875,000
BancBoston Investments Inc. 1,056,250 528,125
Credit Suisse First Boston Venture Fund 1,000,000 500,000
I, X.X.
Xxxx Ventures LLC 1,000,000 500,000
Xxxxxx Family, LLC 125,000 62,500
Xxxxxxx Xxxxxxxxx 250,000 125,000
MLS-1, LP 250,000 125,000
Xxxx Xxxxx 250,000 125,000
Xxxx Xxxxx 125,000 62,500
Bo Price 250,000 125,000
Xxx Xxxxxx 12,500 6,250
Xxxxx Xxxxx 375,000 187,500
Xxxxx Xxxxxxxx 4,200 2,100
Xxxx Xxxxxxx 100,000 50,000
Xxxxx Xxxxxxxx 25,000 12,500
Art Xxxxxxx 25,000 12,500
-18-
Purchaser Series A Units Series B Units Series AA Shares Common Shares
--------- -------------- -------------- ---------------- -------------
Xxxx Xxxxx 68,750 34,375
Xxxxx Xxxxxxx 75,000 37,500
Xxxx Jewels 6,250 3,125
Xxxxxx Xxx 50,000 25,000
Xxxxx Xxxxxxx 12,500 6,250
Xxx Xxxx 25,000 12,500
Xxxx Xxxxx 12,500 6,250
Xxxx Xxxxxxx 4,200 2,100
Xxx Xxxx 125,000 62,500
Xxxx Xxxxxxx 125,000 62,500
XX Xxxxxxx-Nik 25,000 12,500
Xxxx Xxxxxxxx 25,000 12,500
Xxx Xxxxxxxxx 50,000 25,000
Xxxxxx Xxxxxxxxx 12,500 6,250
Xxx Xxxxxxx 12,500 6,250
Xxxx Xxxxxx 4,100 2,050
Xxxx Xxxxx 6,250 3,125
Xxx Xxxxxxx 125,000 62,500
Xxxx Xxxx Xxxx & Freidenrich LLP 50,000 25,000
Log Cabin LLC (Xxxxxxx Xxxxxxxx) 25,000 12,500
-19-
EXHIBIT B
SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
-20-
EXHIBIT C
THIRD AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
-21-
EXHIBIT D
FORM OF TRANSFER
-22-
EXHIBIT E
FORM OF RIGHTS AGREEMENT
-23-
EXHIBIT F
EXCEPTIONS TO SECTION 3.2
Warrants
The Company has issued warrants to purchase, in the aggregate, up to 275,000
shares of its Common Stock as follows:
1. Warrant to purchase up to 100,000 shares of Common Stock issued to the City
of Oakland, dated as of January 2000 at an exercise price of $4.00 per share.
2. Warrant to purchase up to 30,000 shares of Common Stock issued to Broadband
Infrastructure Group Corporation, dated as of September 2000 at an exercise
price of $9.50 per share.
3. Warrant to purchase up to 15, 000 shares of Common Stock issued to Solectron
Corporation, dated as of March 13, 2000 at an exercise price of $0.40 per
share.
4. Warrant to purchase up to 125,000 shares of Common Stock issued to CIT
Venture Leasing Fund dated as of December 2000 at an exercise price of $9.50
per share.
5. Warrant to purchase up to 5,000 shares of Common Stock issued to
Xxxxxxxx-Xxxxxx & Co. dated as of April 2001 at an exercise price of $10.00
per share.
-24-
EXHIBIT G
FORM OF ASSIGNMENT AGREEMENT
-25-
EXHIBIT H
FORM OF TERMINATION AGREEMENT
-26-
EXHIBIT I
FORM OF RESTRICTED STOCK PURCHASE AGREEMENT
-27-
