EXHIBIT 10.10
AMENDED AND RESTATED
OPERATING AGREEMENT
OF,
ZHONE INVESTORS, L.L.C.
THE LIMITED LIABILITY COMPANY INTERESTS REFERRED TO HEREIN ("INTERESTS")
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933
ACT"). SUCH INTERESTS ARE BEING OFFERED AND SOLD UNDER THE EXEMPTION PROVIDED BY
SECTION 4(2) OF THE 1933 ACT AND RULE 506 THEREUNDER.
A PURCHASER OF ANY INTEREST MUST BE PREPARED TO BEAR THE ECONOMIC RISK OF
THE INVESTMENT FOR AN INDEFINITE PERIOD OF TIME BECAUSE THE INTERESTS HAVE NOT
BEEN REGISTERED UNDER THE 1933 ACT AND, THEREFORE, CANNOT BE SOLD UNLESS THEY
ARE SUBSEQUENTLY REGISTERED FOR AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
THERE IS NO OBLIGATION OF THE ISSUER TO REGISTER THE INTERESTS UNDER THE 1933
ACT.
SECTION VI OF THIS AGREEMENT PROVIDES FOR FURTHER RESTRICTIONS ON TRANSFER
OF THE INTERESTS.
TABLE OF CONTENTS
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SECTION I DEFINITIONS ........................................................... 1
Section 1.1 "Act".......................................................... 1
Section 1.2 "Additional Contributions"..................................... 1
Section 1.3 "Adjusted Percentage Interest"................................. 1
Section 1.4 "Adjusted Post Cover Date Shortfall"........................... 2
Section 1.5 "Adjusted Unreturned Class A Member's Capital Contribution".... 2
Section 1.6 "Affiliate".................................................... 3
Section 1.7 "Affiliated Class A Majority".................................. 3
Section 1.8 "Affiliated Class A Member".................................... 3
Section 1.9 "Affiliated Class A Members Notice"............................ 3
Section 1.10 "Affiliated LLC"............................................... 3
Section 1.11 "Assignee"..................................................... 3
Section 1.12 "Basic Threshold Return"....................................... 3
Section 1.13 "Capital Contribution"......................................... 3
Section 1.14 "Capital Contribution Commitment".............................. 3
Section 1.15 "Class A Member"............................................... 3
Section 1.16 "Class A Member's Capital Contribution"........................ 4
Section 1.17 "Class B Majority"............................................. 4
Section 1.18 "Class B Member"............................................... 4
Section 1.19 "Class B Members' Capital Contribution"........................ 4
Section 1.20 "Class B Members' Tax Deficit"................................. 4
Section 1.21 "Code"......................................................... 4
Section 1.22 "Common Stock"................................................. 4
Section 1.23 "Contribution Value"........................................... 4
Section 1.24 "Cover Date"................................................... 4
Section 1.25 "CYA Option"................................................... 4
Section 1.26 "CYA Person"................................................... 4
Section 1.27 "CYA Share".................................................... 4
Section 1.28 "Delinquency Date"............................................. 4
Section 1.29 "Delinquent"................................................... 4
Section 1.30 "Delinquent Payment"........................................... 4
Section 1.31 "Delinquent Percent"........................................... 5
Section 1.32 "Delinquent's Interest"........................................ 5
Section 1.33 "Distribution Hierarchies"..................................... 5
Section 1.34 "Distributable Cash"........................................... 5
Section 1.35 "Exit Price"................................................... 5
Section 1.36 "Founder"...................................................... 5
Section 1.37 "Income" or "Losses"........................................... 5
Section 1.38 "Majority Interest"............................................ 6
Section 1.39 "Manager"...................................................... 6
Section 1.40 "Member"....................................................... 6
Section 1.41 "Membership Interest".......................................... 6
Section 1.42 "Percentage Interests"......................................... 6
Section 1.43 "Person"....................................................... 6
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Section 1.44 "Post Cover Date Basic Threshold Shortfall".................... 6
Section 1.45 "Post Cover Date Capital Return Shortfall"..................... 6
Section 1.46 "Post Cover Date Shortfall".................................... 6
Section 1.47 "Preferred Stock".............................................. 6
Section 1.48 "Prevailing Person"............................................ 7
Section 1.49 "Regulations".................................................. 7
Section 1.50 "Repurchase Option"............................................ 7
Section 1.51 "Rights Agreement"............................................. 7
Section 1.52 "Security"..................................................... 7
Section 1.53 "Series A Preferred Unit"...................................... 7
Section 1.54 "Series B Common Unit"......................................... 7
Section 1.55 "Special Delinquent Percent"................................... 7
Section 1.56 "Stock Purchase Agreement"..................................... 7
Section 1.57 "Stock Purchase Agreement Capital Call"........................ 7
Section 1.58 "Tax Matters Partner".......................................... 7
Section 1.59 "Unit"......................................................... 7
Section 1.60 "Zhone"........................................................ 7
Section 1.61 "Zhone Board".................................................. 7
Section 1.62 "Zhone Board Super Majority"................................... 7
Section 1.63 "Zhone Liquidation"............................................ 7
Section 1.64 "Zhone Class B Member Purchase Agreement....................... 8
SECTION II ORGANIZATIONAL MATTERS............................................... 8
Section 2.1 Formation...................................................... 8
Section 2.2 Name and Purpose............................................... 8
Section 2.3 Office and Agent............................................... 8
Section 2.4 Names and Addresses of the Members............................. 9
Section 2.5 Name and Address of Manager.................................... 9
SECTION III MEMBERS; CAPITAL; CAPITAL ACCOUNTS................................... 9
Section 3.1 Capitalization................................................. 9
Section 3.2 Issuance of Additional Units; Admission of New Members......... 10
Section 3.3 Delinquency.................................................... 10
Section 3.4 Appropriateness of Remedies.................................... 14
Section 3.5 No Interest; Return of Contributions........................... 14
Section 3.6 Capital Account................................................ 14
Section 3.7 Loans.......................................................... 14
SECTION IV MANAGEMENT AND CONTROL OF THE COMPANY................................ 15
Section 4.1 Election of the Manager........................................ 15
Section 4.2 Management of the Company by the Manager....................... 15
Section 4.3 Performance of Duties; Liability of Manager.................... 16
Section 4.4 Devotion of Time............................................... 16
Section 4.5 Competing Activities........................................... 17
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Section 4.6 Transactions between the Company and the Manager............... 17
Section 4.7 Salaries and Reimbursement..................................... 17
Section 4.8 Officers....................................................... 17
Section 4.9 Members' Meetings; Voting; Liability........................... 17
Section 4.10 Representations, Warranties and Covenants of the Company....... 18
SECTION V ALLOCATIONS OF INCOME AND LOSSES AND DISTRIBUTIONS................... 19
Section 5.1 Allocations of Income and Losses............................... 19
Section 5.2 Distributions by the Company................................... 22
Section 5.3 Form of Distribution........................................... 26
Section 5.4 Restriction on Distributions................................... 26
Section 5.5 Distributions in Kind.......................................... 26
SECTION VI TRANSFER AND ASSIGNMENT OF INTERESTS................................. 26
Section 6.1 Restrictions on Transfer of Interests.......................... 26
Section 6.2 Effective Date of Permitted Transfers.......................... 28
Section 6.3 Substitution of Members........................................ 28
Section 6.4 Rights of Legal Representatives................................ 29
Section 6.5 No Effect to Transfers in Violation of Agreement............... 29
SECTION VII ACCOUNTING, RECORDS, REPORTING BY MEMBERS............................ 29
Section 7.1 Books and Records; Fiscal Year................................. 29
Section 7.2 Access to Accounting and Other Records......................... 29
Section 7.3 Financial Statements........................................... 30
Section 7.4 Bank Accounts.................................................. 30
Section 7.5 Tax Matters for the Company Handled by the Tax Matters Partner. 30
SECTION VIII DISSOLUTION AND WINDING UP........................................... 30
Section 8.1 Dissolution.................................................... 30
Section 8.2 Winding Up..................................................... 31
Section 8.3 Order of Payment Upon Dissolution.............................. 32
Section 8.4 Limitations on Payments Made in Dissolution.................... 32
Section 8.5 Certificate of Cancellation.................................... 32
SECTION IX INDEMNIFICATION AND INSURANCE........................................ 32
Section 9.1 Indemnification by Company..................................... 32
Section 9.2 Indemnification by Members..................................... 33
Section 9.3 Insurance...................................................... 33
SECTION X MISCELLANEOUS........................................................ 33
Section 10.1 Complete Agreement............................................. 33
Section 10.2 Binding Effect................................................. 33
Section 10.3 Parties in Interest............................................ 33
Section 10.4 Interpretation................................................. 34
Section 10.5 Governing Law.................................................. 34
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Section 10.6 Severability................................................... 34
Section 10.7 Additional Documents and Acts.................................. 34
Section 10.8 Notices........................................................ 34
Section 10.9 Amendments..................................................... 35
Section 10.10 Reliance on Authority of Person Signing Agreement.............. 35
Section 10.11 No Interest in Company Property; Waiver of Action for Partition 35
Section 10.12 Multiple Counterparts.......................................... 35
Section 10.13 Binding Arbitration............................................ 35
Section 10.14 Attorney Fees.................................................. 36
Section 10.15 Time is of the Essence......................................... 36
Section 10.16 Remedies Cumulative............................................ 36
Section 10.17 Publicity...................................................... 37
Section 10.18 MFN Clause..................................................... 37
EXHIBITS
Exhibit A Class A Member
Exhibit B Class B Members
Exhibit C Form of Stock Purchase Agreement
Exhibit D Form of Agreement for Repurchase Option
Exhibit E Rights Agreement
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AMENDED AND RESTATED
LIMITED LIABILITY COMPANY OPERATING AGREEMENT
OF
ZHONE INVESTORS ___, L.L.C.
This Amended and Restated Limited Liability Company Operating Agreement
(the "Agreement") of Zhone Investors ___, L.L.C., a Delaware limited liability
company (the "Company") is entered into effective as of October 28, 1999 (the
"Effective Date") by and among the Members (as defined below).
SECTION I
DEFINITIONS
When used in this Agreement, the following terms shall have the meanings
set forth below. All terms used in this Agreement that are not defined in this
Article I shall have the meanings set forth elsewhere in this Agreement.
Section 1.1 "Act" means the Delaware Limited Liability Company Act, 6 Del.
Code (S)(S)18-101 et seq., as amended from time to time.
Section 1.2 "Additional Contributions" has the meaning set forth in Section
3.2.
Section 1.3 "Adjusted Percentage Interest" of the Class A Member as a group
or of the Class B Members as a group, as applicable, as of any date shall be
determined as follows:
(a) Prior to the first Preferred Stock Disposition, the Adjusted
Percentage Interest of the Class A Member shall be the same as the Percentage
Interest of the Class A Member and the Adjusted Percentage Interest of the Class
B Members as a group shall be the same as the Percentage Interest of that group.
(b) As of the date of the first Preferred Stock Disposition and
thereafter as of the date of each Preferred Stock Disposition and the date of
each disposition of Common Stock, the Percentage Interest of the Class A Member
and of the Class B Members as a group, shall be adjusted such that, immediately
after the relevant disposition, the Adjusted Percentage Interest of the Class A
Member is equal to the percentage of C divided by G and the Adjusted Percentage
Interest of the Class B Members as a group is equal to the percentage of F
divided by G. For purposes of that calculation as of any date:
A= the aggregate of the Class A Member's Capital Contributions
(determined on a FIFO basis) that are attributable to Preferred Stock that as of
that date has not yet been disposed of in a Preferred Stock Disposition, such
attributable aggregate to be determined on a pro rata basis assuming that each
share of Preferred Stock has a equal portion of such Capital Contributions (such
portion is hereinafter referred to as ("Cost"). If in any Preferred Stock
Disposition occurring after the Cover Date, the Cost of such Stock, as
determined pursuant to the immediately preceding sentence, is not recovered in
the Disposition, such unrecovered Cost shall
continue to be treated as attributable to Preferred Stock that has not yet been
disposed of until such time as such cost is recovered under one or more of the
Distribution Hierarchies;
B= the aggregate amount of the Class A Member's Capital
Contributions as of that date.
C= A/B x the Adjusted Percentage Interest of the Class A Member
expressed as a whole number (for example, 62.5 instead of 62.5%) as of the date
immediately prior to the date of the Preferred Stock Disposition or the
disposition of Common Stock causing the adjustment;
D= the aggregate Contribution Value of the Common Stock
contributed by the Class B Members as a group which as of that date has not yet
been disposed of by the Company. For this purpose, to the extent that Common
Stock is distributed pursuant to Section 5.2(d)(iii)(C), that Common Stock shall
be treated as disposed of by the Company;
E= the aggregate Contribution Value of the Common Stock
contributed by the Class B Members as a group as of that date;
F= D/E x the Adjusted Percentage Interest of the Class B Members
as a group expressed as a whole number (for example, 37.5 instead of 37.5%) as
of the date immediately prior to the date of the Preferred Stock Disposition or
the disposition of Common Stock causing the adjustment; and
G= the sum of C and F.
The Adjusted Percentage Interest of the Class B Members as a group
as of a date shall be allocated among them based on their respective Series B
Common Units as of the date.
Section 1.4 "Adjusted Post Cover Date Shortfall" means as of any date the
excess of:
(a) the sum of the aggregate Post Cover Date Shortfalls as of such
date and the Basic Threshold Return accruing on those Shortfalls under Section
1.12(b); over
(b) (i) the sum of all amounts distributed to the Class A Member
after the Cover Date under Section 5.2(b)(iii), Section 5.2(d)(iii)(A) and
Section 5.2(d)(iii)(C);
(i) plus if the amount of a Post Cover Date Shortfall arises from a
Basic Threshold Return amount determined under Section 1.12(b), a 30% annual
cumulative return on the amount of each distribution described in Section
1.4(b)(i) computed from the date of the distribution of such amount to the date
of determination under Section 5.2(a)(ii).
Section 1.5 "Adjusted Unreturned Class A Member's Capital Contribution"
means as of any date, the aggregate amount of the Class A Member's Capital
Contributions as of that date as reduced by the sum of:
(a) the aggregate amount of the Class A Member's Capital
Contributions (determined on a FIFO basis) attributable to any shares of
Preferred Stock (as determined under Section 1.3(b)A) disposed prior to the
Cover Date, whether or not those Capital Contributions were recovered from such
disposition; and
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(b) the aggregate amounts distributed to the Class A Member after
the Cover Date and through such date under any or all of Section 5.2(a)(i)
whether directly or by application of Section 5.2(c), Section 5.2(b)(ii) or
Section 5.2(d) (but only to the extent of distributions in payment of a Post
Cover Date Capital Return Shortfall in the case of Section 5.2(d)).
Section 1.6 "Affiliate" of a Member or Manager means any Person, directly
or indirectly, through one or more intermediaries, controlling, controlled by,
or under common control with a Member or Manager, as applicable. The term
"control," as used in the immediately preceding sentence, shall mean with
respect to a corporation or limited liability company the right to exercise,
directly or indirectly, more than fifty percent (50%) of the voting rights
attributable to the controlled corporation or limited liability company, and,
with respect to any Person which is an individual, partnership, trust, other
entity or association, the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of the controlled
Person.
Section 1.7 "Affiliated Class A Majority" has the meaning set forth in
Section 3.3(b)
Section 1.8 "Affiliated Class A Member" means as of any date each Person
who as of that date has committed to contribute in excess of $25,000,000 to an
Affiliated LLC and is not delinquent in its capital contribution obligations to
that Affiliated LLC.
Section 1.9 "Affiliated Class A Members Notice" has the meaning set forth
in Section 3.3(b).
Section 1.10 "Affiliated LLC" means a limited liability company, other
than the Company or Zhone Investors FF, L.L.C., a Delaware limited liability
company, which on or prior to the Effective Date enters or has entered into a
stock purchase agreement with Zhone substantially in the same form as Exhibit B.
Section 1.11 "Assignee" means the owner of a Membership Interest who has
not been admitted as a substitute Member in accordance with Article VI.
Section 1.12 "Basic Threshold Return" shall mean with respect to the Class
A Member as of any date, for each capital contribution of the Class A Member
included the Class A Member's Capital Contribution, the greater of (a) an amount
equal to 100% of such capital contribution, or (b) a 30% cumulative annual
return on such capital contribution through such date, compounded annually.
Section 1.13 "Capital Contribution" means the total amount of cash and
fair market value of property contributed to the Company by a Member.
Section 1.14 "Capital Contribution Commitment" has the meaning set forth
in Section 3.1(c).
Section 1.15 "Class A Member" means the Person identified as a Class A
Member on Exhibit A, as amended from time to time.
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Section 1.16 "Class A Member's Capital Contribution" means the Capital
Contributions of the Class A Member as a group made pursuant to Section 3.1(c)
and the Stock Purchase Agreement and paid to Zhone as consideration for
Preferred Stock, including amounts contributed to Zhone by the Class A Member
pursuant to a Stock Purchase Agreement Capital Call.
Section 1.17 "Class B Majority" means Class B Members holding a majority
of the Series B Common Units.
Section 1.18 "Class B Member" means each Person identified as a Class B
Member on Exhibit B, as amended from time to time. References to the Class B
Members as a group are to all Class B Members. All allocations or distributions
to the Class B Members as a group shall be shared among them based on their
respective Series B Common Units.
Section 1.19 "Class B Members' Capital Contribution" means the Capital
Contributions by the Class B Members of Common Stock in Zhone pursuant to
Section 3.1(d).
Section 1.20 "Class B Members' Tax Deficit" has the meaning set forth in
Section 5.2(e).
Section 1.21 "Code" means the Internal Revenue Code of 1986, as amended
from time to time, the provisions of succeeding law, and to the extent
applicable, the Regulations.
Section 1.22 "Common Stock" means the common stock of Zhone contributed by
the Class B Members as a group pursuant to Section 3.1(d) and any Securities
acquired with respect to that common stock of Zhone but determined without
regard to any common stock of Zhone acquired by the Company as a result of
either or both of the ownership of the Preferred Stock or any conversion of such
Preferred Stock.
Section 1.23 "Contribution Value" means with respect to the Common Stock
contributed by the Class B Members as a group, $.001 per contributed share of
Common Stock.
Section 1.24 "Cover Date" means the date which is the fifth (5th)
anniversary of the initial funding of the one-fifth (1/5th) of the Capital
Contribution Commitment from the Class A Member by payment to Zhone pursuant to
Section 3.1(c) and the Stock Purchase Agreement.
Section 1.25 "CYA Option" has the meaning set forth in Section 3.3(b)(ii).
Section 1.26 "CYA Person" has the meaning set forth in Section
3.3(b)(iii).
Section 1.27 "CYA Share" has the meaning set forth in Section 3.3(b)(v).
Section 1.28 "Delinquency Date" has the meaning set forth in Section
3.3(a).
Section 1.29 "Delinquent" has the meaning set forth in Section 3.3(a).
Section 1.30 "Delinquent Payment" has the meaning set forth in Section
3.3(a).
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Section 1.31 "Delinquent Percent" means as of any date as to a Delinquent
Class A Member the difference between 100% percent and the percent determined by
dividing 50% of the Class A Member's Capital Contributions as of that date by
the Capital Contribution Commitment of such Class A Member as of that date.
Section 1.32 "Delinquent's Interest" has the meaning set forth in Section
3.3(b)(ii).
Section 1.33 "Distribution Hierarchies" has the meaning set forth in
Section 5.2.
Section 1.34 "Distributable Cash" shall mean the amount of cash that a
Majority Interest deems available in good faith for distribution to the Members,
taking into account all debts, liabilities, and obligations of the Company then
due, and other amounts that a Majority Interest reasonably deems necessary to
carry out the purpose of the Company or to place into reserves for customary and
usual claims with respect to such purpose.
Section 1.35 "Exit Price" has the meaning set forth in Section 8.1(e)(ii).
Section 1.36 "Founder" means any of The ▇▇▇▇ Family Trust Dated October 1,
1989, as amended; The ▇▇▇▇▇▇ ▇▇▇▇▇▇ Trust Under Declaration of Trust Dated May
18, 1998; or The ▇▇▇▇▇▇ Living Trust Dated March 16, 1995.
Section 1.37 "Income" or "Losses" shall mean the income or losses, as
applicable, of the Company as determined as of December 31 or any other year end
of each year of the Company, and shall be deemed to mean the net income or net
loss of the Company for Federal income tax purposes as determined by a Majority
Interest on the advice of the certified public accountant who prepares the
Company's Federal income tax returns with the following modifications:
(a) In calculating such net income or loss:
(i) Income exempt from Federal income taxation shall be
included as income;
(ii) Expenditures described in section 705(a)(2)(B) of the
Code or treated as such under Regulations section 1.704-1(b) shall be treated as
current expenses.
(b) In the event the book value of any property is adjusted
pursuant to Regulations section 1.704-1(b)(2)(iv)(f), the amount of such
adjustment shall be taken into account as gain or loss (as the case may be) from
the disposition of such property for purposes of computing such net income or
net loss;
(c) To the extent (and only to the extent) that an adjustment made
to the adjusted tax basis of any Company asset pursuant to section 732 or
section 743 of the Code is required to be taken into account in determining
Capital Accounts pursuant to Regulations section 1.704-1(b)(2)(iv)(m), the
amount of such adjustment shall be treated as an item of gain or loss (as the
case may be) for purposes of computing such net income or net loss; and
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(d) In the event that any property of the Company is distributed
in kind, the unrealized income, gain, loss and deduction inherent in such
property on the date of distribution (and not previously reflected in the
Capital Accounts of the Members) shall be taken into account as gain or loss (as
the case may be) from the disposition of such property for purposes of computing
such net income or net loss, in accordance with Regulations section 1.704-
1(b)(2)(iv)(e).
Section 1.38 "Majority Interest" means except as provided in the next
sentence, the combination of the Class A Member and a Class B Majority. If the
Class A Member is Delinquent and Section 3.3(c) applies, "Majority Interest"
means a Class B Majority.
Section 1.39 "Manager" means TPG Zhone L.L.C., and any other Person that
becomes a Manager pursuant to this Agreement.
Section 1.40 "Member" means each Person who (a) is an initial signatory to
this Agreement, has been admitted to the Company as a Member in accordance with
this Agreement or is an Assignee who has become a Member in accordance with
Article VI, and (b) has not ceased to be a Member in accordance with this
Agreement.
Section 1.41 "Membership Interest" means a Member's entire interest in the
Company including, but not limited to the right to receive distributions of the
Company's assets, allocations of Income, Loss, deductions, credit and similar
items from the Company, the right, if any, to vote on or participate in the
management of the Company, and the right to receive information concerning the
business and affairs, of the Company.
Section 1.42 "Percentage Interests" The Percentage Interest of the Class
A Member as a group shall be 62.5% and the Percentage Interest of the Class B
Members as a group shall be 37.5%. The Percentage Interests of the Class B
Members as a group shall be allocated among them based on their respective
Series B Common Units.
Section 1.43 "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.
Section 1.44 "Post Cover Date Basic Threshold Shortfall" has the meaning
set forth in Section 5.2(d)(i).
Section 1.45 "Post Cover Date Capital Return Shortfall" has the meaning
set forth in Section 5.2(d)(i).
Section 1.46 "Post Cover Date Shortfall" means as of any date the sum of
the aggregate Post Cover Date Basic Threshold Shortfalls and Post Cover Date
Capital Return Shortfalls as of such date.
Section 1.47 "Preferred Stock" shall mean Series ___ Convertible Preferred
Stock; $_____ par value per share of Zhone acquired pursuant to the Stock
Purchase Agreement and includes any common stock of Zhone into which that Series
____ Convertible Preferred Stock is converted and any other Security acquired
with respect to that Preferred Stock or common stock.
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Section 1.48 "Prevailing Person" has the meaning set forth in Section
10.14(b).
Section 1.49 "Regulations" shall, unless the context clearly indicates
otherwise, mean the regulations in force as final or temporary that have been
issued by the U.S. Department of Treasury pursuant to its authority under the
Code, and any successor regulations.
Section 1.50 "Repurchase Option" has the meaning set forth in Section
3.1(b).
Section 1.51 "Rights Agreement" has the meaning set forth in Section
4.2(c).
Section 1.52 "Security" means and includes common and preferred stock
(including warrants, rights, put and call options and other options relating
thereto or any combination thereof), notes, bonds, debentures, trusts receipts
and other obligations, instruments or evidences of indebtedness, and other
property or interests commonly regarded as securities (including cash and bank
deposits).
Section 1.53 "Series A Preferred Unit" means a Unit issued to a Class A
Member. The Series A Preferred Units of the initial Class A Member are as set
forth on Exhibit A.
Section 1.54 "Series B Common Unit" means a Unit issued to a Class B
Member. The Series B Common Units of each initial Class B Member are as set
forth on Exhibit B.
Section 1.55 "Special Delinquent Percent" shall mean as of any date the
difference between 100% percent and the percent determined by dividing 25% of
the Class A Member's Capital Contributions as of that date by the Capital
Contribution Commitment of such Class A Member as of that date.
Section 1.56 "Stock Purchase Agreement" has the meaning set forth in
Section 2.2(a).
Section 1.57 "Stock Purchase Agreement Capital Call" means a Capital Call
as defined in the Stock Purchase Agreement.
Section 1.58 "Tax Matters Partner" has the meaning set forth in Section
7.5.
Section 1.59 "Unit" means a Series A Preferred Unit or Series B Common
Unit issued pursuant to Section 3.1.
Section 1.60 "Zhone" means Zhone Technologies, Inc., a Delaware
corporation.
Section 1.61 "Zhone Board" means a majority of the members of Board of
Directors of Zhone.
Section 1.62 "Zhone Board Super Majority" means two thirds of the members
of the Board of Directors of Zhone.
Section 1.63 "Zhone Liquidation" Each of the following transactions will
be deemed a Zhone Liquidation, 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
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shall immediately thereafter own less than fifty percent (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 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. Any of the foregoing events deemed to constitute a Zhone
Liquidation shall be deemed to so constitute such an event whether accomplished
in or through a single transaction or a series of related transactions.
Section 1.64 "Zhone Class B Member Purchase Agreement" has the meaning set
forth in Section 3.1(b).
SECTION II
ORGANIZATIONAL MATTERS
Section 2.1 Formation. The Members have formed the Company as a Delaware
limited liability company under the laws of the State of Delaware by filing a
certificate of formation with the Delaware Secretary of State. The rights,
duties and liabilities of the Manager and Members shall be determined pursuant
to the Act and this Agreement. To the extent that the terms and conditions
contained in this Agreement are inconsistent with any non-mandatory provisions
of the Act, the terms and conditions in this Agreement shall govern.
Section 2.2 Name and Purpose. The name of the Company shall be "Zhone
Investors, L.L.C." The Company's business may be conducted under that name or,
upon compliance with applicable laws, any other name that the Manager deems
appropriate or advisable. The purpose of the Company will be to:
(a) use the Capital Contribution of the Class A Member pursuant to
Section 3.1(c) to meet the Company's obligations to Zhone under the form of
Series ____ Stock Purchase Agreement (the "Stock Purchase Agreement") attached
as Exhibit C, acquire Common Stock from the Class B Members as described on
Exhibit B via a capital contribution of that Common Stock pursuant to Section
3.1(d) and hold such Preferred Stock and Common Stock for investment and the
production of income pursuant to the terms and conditions of this Agreement; and
(b) engage in any and all activities determined by a Majority
Interest as approved by the Zhone Board.
Section 2.3 Office and Agent. The initial registered office of the
Company in Dover, Delaware shall be at ▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇ ▇▇▇▇▇, and the Company's initial registered agent in Delaware shall be
Incorporating Services, Ltd. The registered agent in Delaware may be changed by
a Majority Interest from time to time pursuant to the Act. The Company shall
apply for authority to transact business in such other jurisdictions as may be
necessary or desirable in connection with its formation, existence and
operation.
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Section 2.4 Names and Addresses of the Members. The names and address of
the initial Class A Member are set forth on Exhibit A. The respective names and
addresses of the initial Class B Members are set forth on Exhibit B.
A Member may change the Member's address upon notice thereof to the
Manager, the other Members and Zhone.
Section 2.5 Name and Address of Manager. The name and address of the
Manager is as follows:
TPG Zhone,L.L.C.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇ ▇'▇▇▇▇▇
The Manager may change the Manager's address upon notice to the Members.
SECTION III
MEMBERS; CAPITAL; CAPITAL ACCOUNTS
Section 3.1 Capitalization.
(a) Classes; Authorized Units: Voting Rights.
(i) The Company is authorized to issue two classes of
Membership Interests, the Series A Preferred Units and Series B Common Units.
(ii) The total number of Units authorized for issuance by
the Company is __________ of which ___________ shall be designated Series A
Preferred Units and _____________ shall be designated Series B Common Units.
(iii) Each Member shall have one (1) vote per Unit. Unless a
separate class vote is otherwise required by this Agreement or by law, each
Member shall be entitled to vote on all matters in which a vote of Members is
required.
(b) Series B Common Units. Series B Common Units will be issued
solely to those Persons identified as Class B Members on Exhibit B. The Company
shall enter into an agreement (the "Zhone Class B Member Purchase Agreement") in
the form of Exhibit D, with each of the Class B Members, providing the Company
with the option exercisable by the Class A Member (the "Repurchase Option") to
repurchase all or a portion of the Class B Member's "Unvested Interest" as
defined in that agreement and on the terms set forth in that agreement. The
Class A Member may direct the Manager to exercise the Company's rights pursuant
to the Class B Member Purchase Agreement. Unless reissued by the Zhone Board
Super Majority and Class B Majority pursuant to Section 3.2(b), the portion of
the Adjusted Percentage Interest and Series B Common Units of such Class B
Member attributable to such Unvested Interest immediately prior to the exercise
of the Repurchase Option shall:
9
(i) if such Class B Member is not a Founder or an Affiliate
of a Founder, be allocated to the remaining Class B Members who are Founders,
pro rata based on their respective Adjusted Percentage Interests at such time;
or
(ii) if such Class B Member is a Founder or an Affiliate of
a Founder, be allocated to the Class A Member and the remaining Class B Members
who are Founders, pro rata based on their respective Adjusted Percentage
Interests at such time.
(c) Series A Preferred Units. Series A Preferred Units shall be
issued to the Class A Member as provided on Exhibit A. One fifth (1/5th) of the
Class A Member's commitment to make Capital Contributions (the "Capital
Contribution Commitment") as set forth on Exhibit A shall be paid to Zhone on
behalf of the Company in accordance with Section 2.1 of the Stock Purchase
Agreement. The balance of the Class A Member's Capital Contribution Commitment
shall be paid by the Class A Member to Zhone in one or more installments on
behalf of the Company within twelve (12) business days of a Stock Purchase
Agreement Capital Call given by the Zhone Board to the Company and the Class A
Member in accordance with the procedure set forth in Section 2.2(a) of the Stock
Purchase Agreement, provided that such Stock Purchase Agreement Capital Call is
permitted by Section 2.2(e) of the Stock Purchase Agreement. Any amounts paid by
the Class A Member to Zhone pursuant to a Stock Purchase Agreement Capital Call
shall for all purposes of this Agreement be treated as a Capital Contribution
made by the Class A Member to the Company. The Series A Preferred Units shall
not be redeemable and shall not be convertible into any other Class.
(d) Series B Common Units. Series B Common Units shall initially
be issued to Class B Members at $_____ per Series B Common Unit. The purchase
price for the Series B Common Units shall be paid by contributions to the
Company by the initial Class B Members of Common Stock as set forth in Exhibit
B.
Section 3.2 Issuance of Additional Units; Admission of New Members. No
Class B Member shall be required to make any additional Capital Contributions.
Notwithstanding Section 3.1(c) above, the Class A Member shall make such
additional Capital Contributions (the "Additional Contributions") as determined
by a Majority Interest to be necessary for the Company to meet its ordinary and
necessary administrative and accounting expenses. No Person may be admitted to
the Company as a Member if such Person constitutes a Prohibited Member as
defined in Section 11.5 of the Zhone Class B Member Purchase Agreement. Except
as prohibited by the previous sentence, the Company may at any time:
(a) admit new Members as determined by a Majority Interest, and
(b) reissue Series B Common Units reacquired pursuant to the
exercise of a Repurchase Option, on such terms and conditions as may be approved
by the Zhone Board Super Majority and a Class B Majority.
Section 3.3 Delinquency.
(a) If the Class A Member fails to make a payment to Zhone under
Section 3.1(c) by the "Delinquency Date" (which date shall be twelve (12)
business days after notice of the Stock Purchase
10
Agreement Capital Call is given under the Stock Purchase Agreement), such
payment shall thereafter be a "Delinquent Payment" and the Class A Member shall
thereafter be "Delinquent."
(b) If the Class A Member is Delinquent:
(i) The Zhone Board shall give all Affiliated Class A
Members notice (the "Affiliated Class A Members Notice") of that fact within
five (5) days of the Delinquency Date;
(ii) The Class A Member grants each Affiliated Class A
Member the option (the "CYA Option") to acquire the same percentage (the "CYA
Percentage") of the Delinquent Percent as of the Delinquency Date of the
Delinquent Class A Member's Adjusted Percentage Interest, Series A Preferred
Units, Adjusted Unreturned Class A Member's Capital Contribution and Basic
Threshold Return (collectively the "Delinquent's Interest") as the amount of
such Affiliated Class A Member's capital contribution commitment to an
Affiliated LLC bears to the aggregate capital contribution commitments of all
Affiliated Class A Members to all Affiliated LLCs;
(iii) Within three (3) business days of the Affiliated Class
A Members Notice, each Affiliated Class A Member shall notify the remaining
Affiliated Class A Members and the Zhone Board whether the Affiliated Class A
Member will or will not exercise its CYA Option. Failure by an Affiliated Class
A Member to give that notification within such three (3) business day period
will be deemed a notice of non-exercise of the Affiliated Class A Member's CYA
Option. Each Affiliated Class A Member giving notice pursuant to this Section
3.3(b)(iii) that it will exercise its CYA Option is referred to as a "CYA
Person";
(iv) If an Affiliated Class A Member does not exercise its
CYA Option, the CYA Persons shall have the right within fifteen (15) business
days after the Affiliated Class A Member Notice to exercise the CYA Option of
such Affiliated Class A Member pro rata based on their respective capital
contribution commitments to an Affiliated LLC or as they may otherwise agree;
(v) Exercise of the CYA Option of a CYA Person shall be by
tender of the CYA Person within the fifteen (15) business day period described
in Section 3.3(b)(iv) of the CYA Person's percentage, as determined pursuant to
Sections 3.3(b)(ii) and/or (iv), (the "CYA Share") of the Delinquent Payment to
Zhone, together with an agreement, in a form reasonably acceptable to the Zhone
Board and a Class B Majority, to assume such CYA Person's CYA Share of the
entire unpaid Capital Contribution Commitment of the Delinquent Class A Member
(net of the Delinquent Payment);
(vi) If the aggregate of the tenders described in Section
3.3(b)(v) equals the Delinquent Payment and the aggregate of the assumptions
described in Section 3.3(b)(v) equals the entire unpaid Capital Contribution
Commitment of the Delinquent Class A Member (net of the Delinquent Payment),
then:
(A) Each CYA Person exercising its CYA Option shall
be admitted to the Company as a Class A Member in place of the Delinquent Class
A Member with respect to the product of:
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(I) the percentage of which such CYA Person's
CYA Share is of all CYA Person's Shares, and
(II) the Delinquent's Interest;
(B) the Capital Contribution Commitment of each CYA
Person shall be the aggregate amount of its tender, assumption and CYA Share of
the Delinquent Percent of the Delinquent Class A Member's Adjusted Unreturned
Class A Member's Capital Contribution as of the Delinquency Date; and
(C) the Delinquent Class A Member's share of the
Delinquent's Interest shall be reduced to reflect the share of that Interest
transferred to all CYA Persons under Section 3.3(b)(vi)(A);
(D) At the direction of one or more of such CYA
Persons, the Manager shall cause the Company to commence action against the
Delinquent Class A Member pursuant to Section 10.13 to collect the entire unpaid
Capital Contribution Commitment of the Delinquent Class A Member as of the
Delinquency Date plus interest at the rate charged from time to time by the Bank
of America for prime corporate borrowers plus two percent (but not in excess of
the maximum rate allowed by applicable law), plus the expenses of collection,
including attorney's fees; and
(E) All of the decision, direction and approval
rights which the Delinquent Class A Member was entitled to exercise under this
Agreement immediately before the Delinquency Date shall be exercised by CYA
Persons acquiring a majority of the Series A Units transferred to the CYA
Persons from the Delinquent Class A Member pursuant to Section 3.3(b)(vi)(A);
(vii) Not withstanding the prior provisions of this Section
3.3(b), unless the aggregate of the tenders described in Section 3.3(b)(v)
equals the Delinquent Payment and the aggregate of the assumptions described in
Section 3.3(b)(v) equals the entire unpaid Capital Contribution Commitment of
the Delinquent Class A Member (net of the Delinquent Payment), Section 3.3(c)
shall apply and the prior provisions of this Section 3.3(b) shall not apply.
(c) If pursuant to Section 3.3(b)(vii), this Section 3.3(c)
applies then a Class B Majority may in its sole discretion, elect any of the
following alternatives by notice to the Delinquent Class A Member and to Zhone
within 120 days after the Delinquency Date:
(i) To, notwithstanding any other provision of this
Agreement, including Sections 5.2 and 8.1, direct the Manager to cause the
Company to distribute all of the Common Stock to the Class B Members (based on
their Series B Common Units) in complete liquidation of the interests of the
Class B Members in the Company; provided, however, that as to 50% of the Common
Stock distributed to each Class B Member, the Member may not dispose of a
greater percentage of such Stock as of any date (on a cumulative basis from the
date of this Agreement) than the percentage of Zhone Preferred Stock as of such
date on a cumulative basis from the date of this Agreement which has been
disposed of by all Affiliated LLCs. For purposes of the preceding sentence, a
distribution by an Affiliated LLC of Zhone Preferred Stock to any beneficial
owner of that Affiliated LLC shall be treated as a disposition by that LLC.
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Solely for purposes of this Section 3.3(c)(i), Zhone Investors FF LLC shall be
treated as an Affiliated LLC and its Class A Members under its operating
agreement shall be treated as Affiliated Class A Members. In the event a Class B
Majority elects the alternative in this Section 3.3(c)(i), the Delinquent Class
A Member shall indemnify and hold the Class B Members harmless from any
liability under the Stock Purchase Agreement;
(ii) To direct the Manager to cause the Company to commence
an action against the Delinquent Class A Member pursuant to Section 10.13 to
collect the entire unpaid Capital Contribution Commitment of the Delinquent
Class A Member as of the Delinquency Date plus interest at the rate charged from
time to time by the Bank of America for prime corporate borrowers plus two
percent (but not in excess of the maximum rate allowed by applicable law), plus
the expenses of collection, including attorneys' fees; or
(iii) To cause one or more designees of a Class B Majority to
assume the entire unpaid balance of the Capital Contribution Commitment of the
Delinquent Class A Member (in which event the Delinquent Class A Member shall
not be permitted to make any further Capital Contributions to the Company) on
such terms and conditions, as determined by a Class B Majority and the Zhone
Board, including but limited to, amending this Agreement to admit such designee
as a Special Class A Member and in any such amendment diluting and subordinating
the priorities of the interest of the Delinquent Class A Member in Company
Income and distributions (as reduced pursuant to Section 3.3(b)) to the
interests of any or all of such designee and the Class B Members.
(d) The alternatives in Sections 3.3(a), (b) and (c) are in
addition to and not in limitation of any other right or remedy of Zhone, the
Company, the Affiliated Class A Members and the Class B Members. Furthermore, if
the Class A Member is Delinquent, thereafter notwithstanding any other provision
of this Agreement, as to such Delinquent Class A Member:
(i) "Adjusted Post Cover Date Shortfall" shall for all
purposes of this Agreement be zero,
(ii) "Basic Threshold Return" shall for all purposes of this
Agreement be zero
(iii) "Post Cover Date Basic Threshold Shortfall" shall for
all purposes of this Agreement be zero,
(iv) "Post Cover Date Capital Return Shortfall" shall for
all purposes of this Agreement be zero, and
(v) If Section 3.3(c) applies:
(A) For all purposes of calculating the Adjusted
Percentage Interest of the Members:
(I) the Capital Contributions of the
Delinquent Class A Member shall be deemed to be 25% of the amount of the actual
Capital Contributions of the Class A Member as of the Delinquency Date, and
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(II) the Company shall transfer to Zhone the
Special Delinquent Percent of the Preferred Stock for $100.
(B) All of the rights otherwise exercisable by the
Delinquent Class A Member under Section 4.2 shall be exercised by a Class B
Majority, and
(C) Section 5.2(c) shall not apply.
Section 3.4 Appropriateness of Remedies. To the extent any of the
remedies available against a Delinquent Class A Member under Section 3.3 results
or is deemed to result in the recovery of damages by the Company and/or the
Class B Members, the Delinquent Class A Member agrees that the damage recovery
is an appropriate amount of liquidated damages for the delinquency. The Members
acknowledge that determining the actual damages now or at the time the Class A
Member becomes Delinquent would be impossible, and the remedies in this Section
represent a reasonable liquidated damage allowance for the failure by the
Delinquent Class A Member to make a Capital Contribution when required.
Section 3.5 No Interest; Return of Contributions. No Member shall be
entitled to receive any interest on the Member's Capital Contributions. Except
as otherwise provided in this Agreement, no Member shall have the right to
receive the return of any Capital Contribution or withdraw from the Company,
except upon the dissolution of the Company.
Section 3.6 Capital Account.
(a) The Company shall establish and maintain a separate account
(the "Capital Account") for each Member. The initial balance of the Capital
Account for each Member shall be such Member's initial Capital Contribution to
the Company. The Capital Account of each Member shall be increased by (i) the
dollar amount of any additional cash contributions made by such Member, (ii) the
fair market value of any property (other than cash) contributed to the Company
by such Member (net of liabilities to which such property is subject), and (iii)
allocations to such Member of its share of Income. The Capital Account of each
Member shall be decreased by (i) the dollar amount of any cash distributions
made to such Member, (ii) the fair market value of any property distributed to
such Member (net any liabilities to which such property is subject), and (iii)
allocations to such Member of its share of Losses.
(b) Notwithstanding any other provision of this Agreement to the
contrary, the foregoing provisions of paragraph (a) regarding the maintenance of
Capital Accounts shall be construed so as to comply with the provisions of the
Treasury Regulations promulgated pursuant to section 704 of the Code. The
Manager is hereby authorized with the approval of a Majority Interest to modify
the foregoing provisions to the minimum extent necessary to comply with such
Treasury Regulations.
Section 3.7 Loans. Subject to the limitations set forth in Section 4.6
and with the prior approval of a Majority Interest, a Member may lend money to
and transact other business with the Company; provided that the terms of such
loan are no less favorable to the Company than those that could reasonably be
obtained by the Company in an arms-length transaction negotiated with an
unrelated third party. Any permitted loan to the Company made by a Member shall
not entitle the lending
14
Member to any greater share of Company distributions or subject the lending
Member to any greater proportionate allocation of Company Income or Losses. The
amount of any such loan or advance shall be a debt owed by the Company to the
lending Member on the terms agreed to by the Managers. Subject to other
applicable law, such Member has the same rights and obligations with respect
thereto as a Person who is not a Member.
SECTION IV
MANAGEMENT AND CONTROL OF THE COMPANY
Section 4.1 Election of the Manager. The Company shall have one (1)
Manager who shall be the Person identified in Section 1.39. Unless the Manager
resigns or is removed, the Manager shall hold office until a successor is
elected and qualified as provided in Section 4.1(c).
(a) The Manager may resign at any time by giving written notice to
the Members, without prejudice to the rights, if any, of the Company under any
contract to which the Manager is a party. The resignation of the Manager shall
take effect upon receipt of that notice or at such later time as shall be
specified in the notice. Unless otherwise specified in the notice, the
acceptance of the resignation shall not be necessary to make it effective. The
resignation of a Manager who is also a Member shall not affect the Manager's
rights as a Member and shall not constitute a withdrawal of a Member.
(b) The Manager may be removed:
(i) at any time, with or without cause, by notice from the
Class A Member;
(ii) by notice from a Class B Majority for failure of the
Manager to take any action which a Class B Majority alone is entitled to direct
the Manager to take under this Agreement, within two (2) days of such direction.
In the event of any such failure, a Class B Majority shall, whether or not it
gives such notice, have the authority to cause the Company to take the directed
action.
(c) Any vacancy occurring for any reason in the position of
Manager shall be filled by the selection of a new Manager by the Class A Member
provided that the Class A Member is not then Delinquent, in which case the new
Manager shall be selected by a Class B Majority.
Section 4.2 Management of the Company by the Manager.
(a) Subject to Sections 3.3, 4.1, 4.2(b) and (c), the business and
affairs of the Company shall be managed exclusively by the Manager, as directed
by a Majority Interest, and the Manager shall have the power pursuant to such
direction to do any and all acts necessary or convenient to or for the
furtherance of the purposes of the Company described herein.
(b) (i) All decisions/voting/control rights which by the terms
of the Preferred Stock, the provisions of any organizational document of Zhone,
any agreement to which Zhone is a party or any applicable law, may be exercised
by the holder of the Preferred Stock, including decisions as to conversion and
all determinations as to the disposition of the
15
Preferred Stock, will (other than on the occurrence of an event described in
Section 8.1(e)) be exercised on behalf of the Company by the Class A Member
directly or at the Class A Member's direction, by the Manager. All
decisions/voting/control rights which by the terms of the Common Stock, the
provisions of any organizational document of Zhone, any agreement to which Zhone
is a party or any applicable law, may be exercised by the holder of the Common
Stock and all determinations as to the disposition of the Common Stock (other
than on the occurrence of an event described in Section 8.1(e)) will be
exercised on behalf of the Company by a Class B Majority directly, or at the
direction of a Class B Majority, by the Manager. Such Class B Majority may not,
however, without the consent of the Class A Member cause the Company to dispose
of a greater percentage of Common Stock as of any date (on a cumulative basis
from the date of this Agreement) than the percentage of the Preferred Stock as
of such date on a cumulative basis from the date of this Agreement which has
been disposed of by the Company as of such date. In no event, however, may such
percentage of Common Stock exceed the percentage which the aggregate number of
Series B Common Units which have then vested under one or more of the Zhone
Class B Member Purchase Agreements between the Company and the Class B Members
is of all Series B Common Units issued pursuant to all such Agreements.
(ii) The Manager shall exercise the voting rights of the
Securities held by the Company in accordance with the directions of the Class A
Member or a Class B Majority, pursuant to Section 4.2(b)(i) or Section
4.2(b)(ii) as applicable.
(c) The Class A Member shall have the sole right to determine
whether the Company shall exercise any of the registration rights to which the
Company is entitled to exercise with respect to the Preferred Stock under the
"Rights Agreement" in the form of Exhibit E and to make all decisions on behalf
of the Company relating to registration rights, including, but not limited to
the amount of Preferred Stock to be included in any registration pursuant to the
Rights Agreement. The Class A Member may act directly on behalf of the Company
with respect to such exercise or direct the Manager with respect to such
exercise.
Section 4.3 Performance of Duties; Liability of Manager. The Manager
shall not be liable to the Company or to any Member for any loss or damage
sustained by the Company or any Member and attributable to any act or failure to
act by the Manager, unless the Manager has failed to comply with the good faith
standard of this Section 4.3 or the loss or damage shall have been the result of
fraud, deceit, reckless or intentional misconduct, or a knowing violation of law
by the Manager. The Manager shall perform the Manager's managerial duties in
good faith, in a manner the Manager reasonably believes to be in the best
interests of the Company, and with such care, including reasonable inquiry, as
an ordinarily prudent person in a like position would use under similar
circumstances. A Manager who so performs the duties of Manager shall not have
any liability by reason of being or having been a Manager of the Company.
Section 4.4 Devotion of Time. The Manager, in the capacity as Manager,
shall devote whatever time, and effort as the Class A Member reasonably deems
appropriate for the operation of the Company.
16
Section 4.5 Competing Activities.
(a) In General. During the term of the Company and following the
dissolution of the Company, the Members, the Manager and any Affiliates of the
Members or the Manager may engage or invest, independently or with others, in
any business activity of any type or description, which is the same as or
similar to the Company's business or that is in direct or indirect competition
with the Company's business, including by way of example but not by way of
limitation, investing in any Securities.
(b) Business Opportunities. The Members, the Manager and any
Affiliates of the Members or the Manager shall not be obligated to present any
investment opportunity or prospective advantage to the Company even if such
opportunity or advantage is of a character that relates to the Company's
business and, if presented to the Company, could be taken by the Company.
Section 4.6 Transactions between the Company and the Manager. The Manager
may not, and may not cause the Manager's Affiliates to, and shall cause such
Affiliate to not engage in any transaction (including, without limitation, the
purchase, sale, lease, or exchange of any property; the rendering of any
service; the borrowing or lending of money; or the establishment of any salary,
other compensation, or other terms of employment) with the Company or Zhone
unless (i) such transaction is not expressly prohibited by this Agreement, and
(ii) the terms and conditions of such transaction, on an overall basis, are at
least as favorable to the Company or Zhone, as applicable, as those that are
generally available from unrelated Persons capable of similarly performing them
and in similar transactions between similarly situated unrelated parties
negotiated at arm's length.
Section 4.7 Salaries and Reimbursement. Unless otherwise determined by
Majority Interest, the Manager, in the Manager's capacity as Manager, shall not
be entitled to a salary and remuneration for services rendered to the Company.
Any salary of any Manager who is also a Member shall be treated as a guaranteed
payment within the meaning of Section 707(c) of the Code. The Company shall
reimburse the Manager and the Manager's Affiliates for the actual cost of
materials and third party services used for or by the Company. The Company shall
also pay or reimburse the Manager or the Manager's Affiliates for organizational
expenses (including, without limitation, legal and accounting fees and costs)
incurred to form the Company and prepare and file the certificate of formation
and this Agreement.
Section 4.8 Officers. The Manager may, with the approval of a Majority
Interest, appoint officers at any time. The officers shall serve at the pleasure
of a Majority Interest, subject to all rights, if any, of an officer under any
contract of employment. The officers shall exercise such powers and perform such
duties as shall be determined from time to time by a Majority Interest. The
salaries of all officers of the Company shall be fixed by a Majority Interest.
Section 4.9 Members' Meetings; Voting; Liability.
17
(a) Unless otherwise required by law, annual meetings of the
Members shall not be required. In all matters in which a vote, approval or
consent of the Members is required, approval of a Majority Interest shall be
required to authorize or approve any matter.
(b) Meetings of the Members, may be called by or at the request of
the Class A Member, unless Delinquent and Section 3.3(c)(i) applies, or by the
Class B Majority.
(i) Notice of any such meeting shall be given no fewer than
five (5) days prior to the date of the meeting. Attendance of a Member at such a
meeting, as applicable, shall constitute a waiver of notice of such meeting
except where such Member attends such meeting for the express purpose of
objecting to the transaction of business because the meeting is not properly
called or convened. Neither the business to be transacted nor the purpose of the
meeting need be specified in the notice of such meeting.
(ii) A Majority Interest shall constitute a quorum for
transaction of business at such meeting; provided, however, that if less than a
Majority Interest is present at such meeting, a majority of the Persons present
may adjourn the meeting at any time without further notice.
(iii) The act of a Majority Interest shall be the act of such
meeting.
(iv) Any action required to be taken at a meeting of the
Members may be taken without a meeting if a consent in writing, setting forth
the action so taken, is signed by a Majority Interest. Any such consent signed
by a Majority Interest shall have the same effect as a vote at a meeting of a
Majority Interest and may be stated as such in any document filed with the
Delaware Secretary of State or elsewhere.
(v) The Members may participate in any meeting through the
use of telephone conference or other communications equipment by means of which
all persons participating in the meeting can hear each other. Participation in
such meeting shall constitute attendance and presence in person at the meeting
of the Person or Persons so participating.
(c) The Members shall not have any liability for the obligations
or liabilities of the Company except to the extent provided in the Act.
Section 4.10 Representations, Warranties and Covenants of the Company.
(a) The Company has not conducted any business operations,
including the receipt of fees for any services rendered, either directly or
through any partnership, trust or other non-corporate entity; it does not
currently conduct any such business operations; and its activities since its
formation have been limited to holding the stock of Zhone.
(b) The Company has not incurred or guaranteed any indebtedness to
any lender or seller, and it is not obligated on any indebtedness to any person.
(c) For so long as the Class A Member has a Membership Interest in
the Company, the Company will not carry on any business activities, including
the receipt of fees for services rendered, either directly or through any
partnership, trust or other non-corporate entity,
18
and its activities will be limited to holding the equity interests or their
equivalent of one or more Persons.
(d) For so long as the Class A Member has a Membership Interest in
the Company, the Company will not directly incur or guarantee any indebtedness;
provided that, this covenant shall not preclude Zhone or any other corporate
subsidiary of the Company from incurring any indebtedness.
SECTION V
ALLOCATIONS OF INCOME AND LOSSES
AND DISTRIBUTIONS
Section 5.1 Allocations of Income and Losses.
(a) Income for each fiscal year or part thereof of the Company
shall be allocated to the Members as follows:
(i) If there is a disposition described in Section 5.2(a)
whether directly or by application of Section 5.2(c) during such fiscal year or
part thereof, Income from such disposition shall be allocated as follows:
(A) First to the Class A Member to the extent the
amount of the Adjusted Unreturned Class A Member's Capital Contribution
distributed to the Class A Member under Section 5.2(a)(i) for such year from
such disposition would otherwise exceed the positive Capital Account balance of
the Class A Member (after taking into account the distribution);
(B) Next to the Class A Member to the extent that
the amount distributed to the Class A Member under Section 5.2(a)(ii) for such
year from such disposition would otherwise exceed the positive Capital Account
balance of the Class A Member (after taking into account the distribution),
taking into account the allocation provided for in Section 5.1(a)(i)(A);
(C) Next 55% to the Class B Member and 45% to the
Class A Members as a group until the Class B Members have been allocated Income
under this Section 5.1(a)(i)(C) equal to the aggregate amounts distributed to
the Class B Members under Sections 5.2(a)(iii) (whether directly or by
application of Section 5.2(c)); and
(D) The balance to the Class A Member and the Class
B Members as a group in proportion to their respective Adjusted Percentage
Interests of the Class A Member and the Class B Members as a group as of the
date of the disposition.
(ii) If there is a disposition described in Section 5.2(b)
during such fiscal year or part thereof, Income from such disposition shall be
allocated as follows:
(A) First to the Class A Member to the extent the
amount distributed to the Class A Member under Section 5.2(b)(i) for such year
from all such
19
dispositions would otherwise exceed the positive Capital Account balance of the
Class A Member;
(B) Next to the Class A Member to the extent that
the amount distributed to the Class A Member under Section 5.2(b)(ii) for such
year from all such dispositions would otherwise exceed the positive Capital
Account balance of the Class A Member, taking into account the allocation
provided for in Section 5.1(a)(ii)(A);
(C) The balance to the Class A Member.
Notwithstanding the foregoing provisions (A), (B) and (C) of this Section
5.1(a)(ii), if any distribution from such disposition is made to the Class B
Members as a group under Section 5.2(b)(iii), an amount of such Income equal to
such distribution shall first be allocated to the Class B Members as a group
prior to any allocation of Income to the Class A Member under this Section
5.1(a)(ii).
(iii) If there is a disposition described in Section 5.2(c)
during such fiscal year or part thereof, Income from such disposition shall be
allocated to the Class B Members as a group. Notwithstanding the foregoing, if
the proceeds of such disposition are governed by the proviso of Section 5.2(c),
such Income shall instead be allocated in accordance with Section 5.1(a)(i).
(iv) If there is a disposition described in Section 5.2(d)
during such fiscal year or part thereof, Income from such disposition shall be
allocated to the Class B Members as a group. Notwithstanding the foregoing, to
the extent the proceeds of such disposition are distributed to the Class A
Member, the Income from the disposition that generated such proceeds shall, to
such extent, first instead be allocated to the Class A Member.
(b) Losses for each fiscal year or part thereof of the Company
shall be allocated among the Members as follows:
(i) Losses attributable to costs or expenses of the Company
paid with Additional Contributions made pursuant to Section 3.2 shall be
allocated to the Class A Member to the extent of its Additional Contributions.
(ii) Losses from a disposition of Preferred Stock described
in Section 5.2(b) shall be allocated to the Class A Member;
(iii) Losses from a disposition of Common Stock described in
either Section 5.2(c) or Section 5.2(d) shall be allocated to the Class B
Members in proportion to their respective Series B Common Units;
(iv) Losses other than as provided in Sections 5.1(b)(i),
(ii) and (iii) shall be allocated as follows:
(A) first to the Members in proportion to and to the
extent of their respective shares of Company Income allocated to them under
Section 5.1(a)(i)(D) and not previously taken into account under this Section
5.1(b)(iv)(A);
20
(B) Next to the Members in proportion to and to the
extent of their respective positive Capital Account balances remaining after any
allocations under Section 5.1(b)(iv)(A); and
(C) The balance to the Class A Member and the Class
B Members as a group based on the respective Adjusted Percentage Interests of
the Class A Member and the Class B Member as a group.
(c) Allocations With Respect to Contributed Property. Allocation
of book and tax items with respect to property contributed by any Member shall
be made solely for Federal income tax purposes as required by section 704(c) of
the Code using the traditional method. Following any revaluation of the
Company's assets and the adjustment of any Member's Capital Account pursuant to
Regulations section 1.704-1(b)(2)(iv)(f) to reflect such revaluation, the
Members' Capital Accounts shall be adjusted for various items as computed for
book purposes with respect to such revalued assets as required by Regulations
section 1.704-1(b) and the Members' shares of such items as computed for tax
purposes with respect to such items shall be determined as required by
Regulations section 1.704-1(b). Income or Losses upon the disposition of any
property contributed to the Company shall be determined with respect to the book
basis of such property instead of its income tax basis.
(d) Qualified Income Offset.
(i) If any Member unexpectedly receives any adjustment,
allocation or distribution described in Regulations section 1.704-
1(b)(2)(ii)(d)(4), (5) or (6), items of Income shall be specially allocated to
such Member in an amount and manner sufficient to eliminate any deficit in its
Capital Account created by such adjustment, allocation or distribution as soon
as practicable. This Section 5.1(d)(i) is intended to constitute a "qualified
income offset" within the meaning of Regulations section 1.704-
1(b)(2)(ii)(d)(3).
(ii) Any allocations of items of Income pursuant to Section
5.1(d)(i) shall be taken into account in computing subsequent allocations of
Income or Losses pursuant to this Article V so that the net amounts of the
allocations under this Article V shall, to the maximum extent possible, be equal
to the net amounts that would have been allocated pursuant to this Article V if
there had been no allocations pursuant to Section 5.1(d)(i).
(e) Allocation of Income and Losses and Distributions in Respect
of a Transferred Interest. If any Membership Interest is transferred, or is
increased or decreased by reason of the admission of a new Member or otherwise,
during any fiscal year, Income or Losses for such fiscal year shall be allocated
among the Members by the Tax Matters Partner (as directed by a Majority
Interest) using any method permitted under the Code.
(f) Adjustment of Allocations. In the event the allocations set
forth above are disallowed by the Internal Revenue Service, such allocations
shall be deemed to be amended to the minimum extent necessary to conform with
section 704 of the Code, while preserving the intent of the foregoing
allocations to the maximum possible extent and by making such adjustments to the
allocations as are necessary to allow distributions to be made in accordance
with Section 5.2.
21
(g) Additional Allocations. Notwithstanding the foregoing, if,
upon the final dissolution and termination of the Company and after taking into
account all allocations of Income and Losses (and other tax items) under this
Section 5.1, the distributions to be made in accordance with the positive
Capital Account balances would result in a distribution that would be different
from the Distribution Hierarchy provided for under Section 5.2(a) below, then
gross items of Income (and other tax items) for the taxable year of the final
dissolution and termination (and, to the extent permitted under section 761(c)
of the Code, gross items of Income (and other tax items) for the immediately
preceding taxable year) shall be allocated to the Members to increase or
decrease Capital Account balances, as the case may be, so that the final
distribution will occur in under the Distribution Hierarchy provided for under
Section 5.2(a) below.
(h) Special Rule. Notwithstanding any other provision in Section
5.1, if Income or Loss arises in a taxable year different from the taxable year
in which the associated cash arising from that sale is distributed under Section
5.2, the allocations of such Income and Loss under Section 5.1 shall, to the
maximum extent possible, be made as if the associated distribution had occurred
in the year the taxable Income or Loss arose, using the principles of Section
5.2 to determine the allocation of such hypothetical distribution.
Section 5.2 Distributions by the Company. Subject to applicable law and
any limitations contained elsewhere in this Agreement, all available proceeds
from the disposition of the Securities (including dividends, interest and sales
proceeds) less reasonable reserves and reasonable costs of the disposition, all
as determined by a Majority Interest, shall be distributed to the Members under
one of the Distribution Hierarchies (the "Distribution Hierarchies") as follows:
(a) Disposition of All Remaining Securities. If the disposition
is of all of the Securities remaining in the Company, is pursuant to an event
described in Section 8.1(e), or is not otherwise governed by any of Sections
5.2(b), (c) or (d), the proceeds shall be distributed in accordance with the
following Distribution Hierarchy and priority:
(i) First, to the Class A Member to the extent of the
Adjusted Unreturned Class A Member's Capital Contribution,
(ii) Second, to the Class A Member to the extent of the sum
of:
(A) The Basic Threshold Return attributable to the
portion of the Class A Member's Capital Contribution (determined on a FIFO
basis) attributable to all of the Preferred Stock (such portion to be determined
consistently with Section 1.3(b)A) disposed of in such disposition; and
(B) Any Adjusted Post Cover Date Shortfall as of the
date of such disposition (first in payment of any Post Cover Date Basic
Threshold Return included therein and then in payment of any Post Cover Date
Capital Return Shortfall included therein),
(iii) Third, 55% to the Class B Members as a group and 45% to
the Class A Member until the Class B Members as a group have received total
distributions pursuant to this Section 5.2(a)(iii) equal to the Adjusted
Percentage Interest of the Class B Members as a
22
group of all distributions to the Class A Member and the Class B Members as a
group pursuant to Sections 5.2(a)(i) and (ii) and this Section 5.2(a)(iii), and
(iv) The balance to the Class A Member and the Class B
Members as a group based on the respective Adjusted Percentage Interests of the
Class A Member and the Class B Members as a group.
(b) Disposition of Preferred Stock Not Governed by Section 5.2(a).
If the disposition is of any or all of the Preferred Stock (a "Preferred Stock
Disposition" or "Disposition"), and the Disposition is not otherwise governed by
Section 5.2(a), the proceeds of the disposition shall be distributed in
accordance with the following Distribution Hierarchy and priority:
(i) First, to the Class A Member to the extent of the Basic
Threshold Return remaining unpaid as of the date of the Preferred Stock
Disposition,
(ii) Second, to the Class A Member to the extent of any of
the Class A Member's Capital Contribution remaining unreturned as of the date of
the Preferred Stock Disposition, and
(iii) The balance to the Class A Member, except if any
distributions have been made to the Class A Member under Section 5.2(d), such
balance shall first be distributed to the Class B Members as a group until that
group has received an aggregate amount under this Section 5.2(b)(iii) equal to
the aggregate amount of such distributions to the Class A Member under Section
5.2(d).
(c) Disposition of Common Stock Prior to the Cover Date and Not
Governed by Section 5.2(a). If the disposition is of Common Stock prior to the
Cover Date and is not otherwise governed by Section 5.2(a), then the proceeds of
such disposition shall be distributed to the Class B Members as a group;
provided, however, that if such disposition of Common Stock occurs within 90
days of the date of a Preferred Stock Disposition and the Class A Member is not
Delinquent, the proceeds of such disposition of Common Stock shall first be
distributed to the Class A Member to the extent that any Basic Threshold Return
and any of the Class A Member's Capital Contributions as of the date of the
Preferred Stock Disposition remains unpaid and unreturned, as the case may be,
after the proceeds of the Preferred Stock Disposition have been distributed in
accordance with Sections 5.2(b)(i) and (ii). The distribution of proceeds to the
Class A Member hereunder shall be made in accordance with the Distribution
Hierarchy set forth in Section 5.2(b).
(d) Disposition of Common Stock After the Cover Date and Not
Governed by Section 5.2(a).
(i) If as a result of a Preferred Stock Disposition
governed by Section 5.2(b) and occurring after the Cover Date, the Basic
Threshold Return attributable to the portion of the Class A Member's Capital
Contribution (determined on a FIFO basis) attributable to the Preferred Stock
disposed of in such Disposition exceeds the amount distributed to the Class A
Member from such Disposition under Section 5.2(b)(i), there shall be a "Post
Cover Date Basic Threshold Shortfall." If the Class A Member's Capital
Contributions (determined on
23
a FIFO basis) attributable to the Preferred Stock disposed of in such
Disposition exceed the amount distributed to Class A Member from such
Disposition under Section 5.2(b)(ii) there shall be a "Post Cover Date Capital
Return Shortfall."
(ii) In the event there is neither a Post Cover Date Capital
Return Shortfall nor a Post Cover Date Basic Threshold Shortfall at the time of
a disposition of Common Stock after the Cover Date and such disposition is not
otherwise governed by Section 5.2(a), all proceeds of such disposition shall be
distributed to the Class B Members as a group.
(iii) In the event that there is either, or both, of a Post
Cover Date Basic Threshold Shortfall or a Post Cover Date Capital Return
Shortfall, the Class B Members as group shall have one year from the date of the
Disposition creating any such Shortfall to as, chosen by a Class B Majority,
either:
(A) Cause the Company to dispose of sufficient
Common Stock to be able to and to distribute to the Class A Member the sum of
(I) the amount of any Post Cover Date Basic Threshold Shortfall arising from the
Disposition (and a Basic Threshold Return shall continue to accrue on the amount
of such Shortfall remaining unpaid as though it were a Capital Contribution from
the Class A Member until that Shortfall is paid under this Section 5.2(d)) and
(II) the amount of any Post Cover Date Capital Return Shortfall arising from the
Disposition. Such distribution shall be treated as made first under (I) of this
Subsection and then under (II) of this Subsection.
(B) Notwithstanding Section 5.2(d)(iii)(A), if the
Class B Members as a group would not receive from such Common Stock disposition
and from all prior dispositions of any assets by the Company an aggregate amount
equal to 10% of the cumulative amount of Income of the Company through the date
of the disposition of the Common Stock, then the Class B Members as a group
shall first receive from the proceeds of the Common Stock disposition otherwise
distributable to the Class A Member under Section 5.2(d)(iii)(A) the amount
necessary for the Class B Members as a group to have received that 10% amount.
The balance of the proceeds from the disposition shall be distributed to the
Class A Member first to pay the Post Cover Date Basic Threshold Shortfall and
any balance remaining to cover the Post Cover Date Capital Return Shortfall; or
(C) Cause the Company to distribute to the Class A
Member Common Stock of sufficient value (using for the value of that Common
Stock the average closing price for such stock during the 30 trading days prior
to the date of the distribution) to pay the Class A Member (I) the amount of any
Post Cover Date Basic Threshold Shortfall arising from the Disposition (and a
Basic Threshold Return shall continue to accrue on the amount of such Shortfall
remaining unpaid as though it were a Capital Contribution from the Class A
Member until that Shortfall is paid under this Section 5.2(d)) and (II) any Post
Cover Date Capital Return Shortfall arising from the Disposition. Such
distribution shall be treated as made first under (I) of this Subsection and
then under (II) of this Subsection.
(D) Notwithstanding Section 5.2(d)(iii)(C), if the
Class B Members as a group would not receive from a disposition of such Common
Stock if it were
24
disposed of at the value determined under Section 5.2(d)(iii)(C) and from all
prior dispositions of any assets by the Company an amount equal to 10% of the
cumulative amount of Income through the date of the distribution of the Common
Stock, then the Class B Members as a group shall first receive as a distribution
from the Common Stock otherwise distributable to the Class A Member under
Section 5.2(d)(iii)(C) (valued using the average price value set forth in
Section 5.2(d)(iii)(C)) such amount of Common Stock as necessary for the Class B
Members as a group to have received that 10% amount. The balance of that Common
Stock otherwise distributable under Section 5.2(d)(iii)(C) shall be distributed
to the Class A Member first to pay the Post Cover Date Basic Threshold Shortfall
and any balance remaining to cover the Post Cover Date Capital Return Shortfall.
(e) Notwithstanding Sections 5.2(a)-(d), in the event:
(i) the net amount of U.S. federal income tax and state
income tax required to be paid by a Class B Member, on the Income allocated
to the Member (net of all Losses allocated to the Member hereunder and not
previously offset by an allocation of Income hereunder), for any fiscal
year of the Company, assuming the Class B Member were subject to the
maximum individual U.S. federal and state income tax rates, using an
assumed 10% state income tax rate on such Income and taking into account
any deduction of state income taxes for regular U.S. federal income tax
purposes, exceeds
(ii) the cash distributed to the Class B Member pursuant to
one or more of Sections 5.2(a)-(d) for such fiscal year or within 90 days
following the close of such fiscal year, provided that to the extent that
including cash distributed within such 90 day period prevents there from
being an excess, such cash shall not again count for the fiscal year of
distribution for purposes of determining whether there is an excess under
this Section 5.2(e), (such excess being referred to as the "Class B
Member's Tax Deficit"),
then the Class B Member shall receive from Distributable Cash for such fiscal
year or such later fiscal year when Distributable Cash becomes available, an
amount equal to the Class B Member's Tax Deficit. Such distribution shall be
made whether or not the Member is an individual and whether or not such income
is subject to a different tax rate. Such distribution shall be taken into
account in computing subsequent distributions to the Members under Sections
5.2(a)-(d). Accordingly, distributions to a Class B Member pursuant to this
Section 5.2(e) shall be offset to the maximum extent possible each time out of
the first subsequent distributions to which the Class B Member is otherwise
entitled to under this Agreement until the amounts previously distributed to the
Class Member under this Section 5.2(e) have been offset; provided that in the
case of subsequent distributions not pursuant to Section 5.2(a), the Class B
Member must retain sufficient cash from distributions under Section 5.2(b)(iii)
and 5.2(d) to pay the Federal and state taxes attributable to the allocations
related to such distributions, computed consistently with Section 5.2(e)(i). In
the event that more than one Class B Member has a Tax Deficit and there is
insufficient Distributable Cash for the relevant fiscal year to cover all Class
B Members' Tax Deficits, distributions under this Section 5.2(e) shall be made
among the Class B Members with Tax Deficits in proportion to their respective
Tax Deficits.
25
(f) All distributions under this Section 5.2 shall be made only to
the Persons who, according to the Company's books and records, are the holders
of record of the Membership Interests in respect of which such distributions are
made on the actual date of distribution. If a distribution to any Member is
subject to withholding pursuant to the Code, or any other provision of federal,
state or local law, the Company shall withhold all amounts otherwise
distributable to such Member as are required by law and any amounts so withheld
shall be deemed to have been distributed to such Member under this Agreement.
Subject to Section 5.4, neither the Company nor the Manager shall incur any
liability for making distributions in accordance with this Section 5.2.
Section 5.3 Form of Distribution. Except as otherwise provided in this
Agreement, a Member, regardless of the nature of the Member's Capital
Contribution, has no right to demand and receive any distribution from the
Company other than pursuant to this Agreement.
Section 5.4 Restriction on Distributions.
(a) No distribution shall be made if, after giving effect to the
distribution, all liabilities of the Company, other than liabilities of the
Company to Members on account of their Membership Interests and liabilities for
which the recourse of creditors is limited to specific property of the Company,
exceed the fair market value of the assets of the Company, except that the fair
market value of the property that is subject to a liability for which the
recourse of creditors is limited shall be included in the assets of the Company
only to the extent that the fair market value of that property exceeds that
liability.
(b) A Majority Interest may base a determination that a
distribution is not prohibited on any of the following bases: (i) financial
statements prepared on the basis of accounting practices and principles that are
reasonable in the circumstances; (ii) a fair valuation; or (iii) any other
method that is reasonable in the circumstances.
(c) Any Member or Assignee who receives a distribution in
violation of Section 5.4(a) who knew at the time of the distribution that the
distribution violated Section 5.4(a) shall be liable to the Company for the
amount of the distribution.
Section 5.5 Distributions in Kind. Any property distributed in kind by
the Company shall, subject to Section 8.1(e), be valued at fair market value in
good faith by a Majority Interest and treated as though the property were
disposed of for such value for all purposes of this Agreement. The difference
between such value of the property distributed in kind and its book basis shall
be treated as Income or Loss on the sale of the property and shall be credited
or charged to the Members in proportion to their respective shares of Income and
Losses pursuant to Section 5.1 as though actually recognized by the Company for
U.S. federal income tax purposes.
SECTION VI
TRANSFER AND ASSIGNMENT OF INTERESTS
Section 6.1 Restrictions on Transfer of Interests. In addition to other
restrictions found in this Agreement, without the consent of a Majority Interest
or as provided in
26
Section 3.3(c), no Member shall transfer, assign, convey, sell, encumber or in
any way alienate all or any part of the Member's Membership Interest, except:
(a) if the Member is an individual or is treated as an individual
for federal income tax purposes as of the date of this Agreement (and for this
purpose a husband and wife shall be treated as one individual), to such Member's
immediate family or any custodian or trustee for the benefit of any or all of
such Member and the Member's immediate family or upon such Member's death by
testamentary disposition or intestacy, or
(b) if the Member is not described in Section 6.1(a), to an
Affiliate, provided that in the case of an Affiliate, the Member remains jointly
and severally liable with such Affiliate for the performance of all of the
transferring Member's obligations under this Agreement.
Notwithstanding the foregoing, (i) a Class B Member shall not be permitted
to transfer its Membership Interest to a Prohibited Member as described in
Section 11.5 of the Zhone Class B Member Purchase Agreement, and (ii) if a Class
A Member is required by any law, regulation or policy enacted or adopted or
court decision rendered following the date of this Agreement to divest itself of
all or any part of its Membership Interest and delivers to the Company an
opinion of legal counsel (which may be such Member's internal counsel) to that
effect, then such Class A Member may assign all or that part of its Membership
Interest to a third party.
(c) In the event a Majority Interest consents to a Class A
Member's sale of all or part of its Membership Interest in a transaction not
described in Section 6.1(a) or 6.1(b), such Membership Interest (the "Offered
Interest") shall first be offered by the Class A Member to all Class A Members
(who are not currently Delinquent) of any Affiliated LLC.
(i) The Class A Member intending to sell all or part of its
Membership Interest (the "Preferred Selling Party") shall first deliver a
written notice ("Notice") to the other non-Delinquent Class A Members of all
Affiliated LLCs (the "Offerees") stating (i) the Preferred Selling Party desires
to sell or transfer all or part of such Membership Interest (the "Offered
Interest") and (ii) the price and other terms of the proposed sale or transfer.
(ii) Within ten (10) days after receipt of the Notice, each
Offeree may elect to purchase its pro rata share or any part thereof of the
Offered Interest, on the same terms and conditions specified in the Notice, by
delivering to the Preferred Selling Party written notice of such election. Each
Offeree's pro rata share of the Offered Interest shall be the same percentage of
the Offered Interest as such Offeree's Capital Contribution Commitment to their
respective Affiliated LLC bears to the Capital Contribution Commitments of all
Offerees to the Affiliated LLCs as of that date.
(iii) If, within ten (10) days after receipt of the Notice,
an Offeree does not notify the Preferred Selling Party that it desires to
purchase its pro-rata share (or any part thereof) of the Offered Interest, those
Offerees who have elected to purchase a part of the Offered Interest during the
ten (10) day period (the "Over-allotment Purchasers") may elect to purchase the
Offered Interest not so purchased. The Preferred Selling Party shall provide
written notice to the Over-allotment Purchasers not later than thirty (30) days
after receipt of the Notice
27
of the portion of the Offered Interest of the Preferred Selling Party available
for purchase pursuant to this over-allotment right. Each of these Over-allotment
Purchasers shall have until forty (40) days after receipt of the Notice to
notify the Preferred Selling Party in writing that it elects to purchase at
least its pro rata share or any part thereof of the remaining Offered Interest.
Each Over-allotment Purchaser's pro rata share of the Offered Interest shall be
the same percentage of the Offered Interest as such Over-allotment Purchaser's
Capital Contribution Commitment to their respective Affiliated LLC bears to the
Capital Contribution Commitments of all Over-allotment Purchasers to the
Affiliated LLCs held by all Over-allotment Purchasers as of the date of the
Notice.
(iv) In the event the Offerees elect to acquire any of the
Offered Interest, the Offerees and the Preferred Selling Party shall complete
the sale and purchase within sixty (60) days after the Preferred Selling Party
provides the Notice. The Offeree shall thereafter be treated as having made all
prior Capital Contributions, allocated all items of Income and Loss and received
all distributions attributable to the Offered Interest purchased by such
Offeree.
(v) If all of the Offered Interest is not elected to be
purchased by the Offerees, the Preferred Selling Party may sell such Offered
Interest not to be so purchased at the price and on the terms specified in the
Notice, provided that (i) such sale or transfer is consummated within one
hundred fifty (150) days of the date of the Notice, and (ii) that prior to the
transfer, the transferee of the Offered Interest agrees in writing (in a form
satisfactory to the Majority Interest) that such transferee shall receive and
hold the Offered Interest in accordance with the provisions of this Agreement.
(vi) The rights and obligations of the Offerees under this
Section 6.1(c) shall terminate (and shall not apply to the transfer of any
Membership Interest) upon the closing of the Company's initial public offering
pursuant to an effective registration statement on Form S-1 (or a successor
form) under the Securities Act covering the offer and sale of Common Stock for
the account of the Company to the public (the "IPO").
(vii) The right of first refusal granted hereunder to the
Offerees may be assigned to a transferee or assignee reasonably acceptable to
the Company.
Section 6.2 Effective Date of Permitted Transfers. Any permitted transfer
of all or any portion of a Membership Interest shall be effective as of the date
following the date upon which the applicable requirements of Section 6.1 have
been met. The Manager shall provide the Members with written notice of such
transfer as promptly as possible after the requirements of Section 6.1 have been
met. Any transferee of a Membership Interest shall take subject to the
restrictions on transfer and all other provisions imposed by this Agreement.
Section 6.3 Substitution of Members. An Assignee of a Membership Interest
shall have the right to become a substitute Member only if (i) the requirements
of Section 6.1 are met, (ii) the Assignee executes an instrument reasonably
satisfactory to a Majority Interest accepting and adopting the terms and
provisions of this Agreement, and (iii) the Assignee pays any reasonable
expenses in connection with the Assignee's admission as a new Member. The
admission of an Assignee as a substitute Member shall not result in the release
of the Member
28
who assigned the Membership Interest from any liability that such Member may
have to the Company.
Section 6.4 Rights of Legal Representatives. If a Member who is an
individual dies or is adjudged by a court of competent jurisdiction to be
incompetent to manage the Member's person or property, the Member's executor,
administrator, guardian, conservator, or other legal representative may exercise
all of the Member's rights for the purpose of settling the Member's estate or
administering the Member's property, including any power the Member has under
this Agreement to give an Assignee the right to become a Member.
Section 6.5 No Effect to Transfers in Violation of Agreement. Upon any
transfer of a Membership Interest in violation of this Article VI, the
transferee shall have no right to vote or participate in the management of the
Company's business, property and affairs or to exercise any rights of a Member.
Such transferee shall only be entitled to become an Assignee and thereafter
shall only receive the share of one or more of the Company's Income, Losses and
distributions of the Company's assets to which the transferor of such Membership
Interest would otherwise be entitled. Notwithstanding the immediately preceding
sentences, if, in the determination of the Tax Matters Partner, a transfer in
violation of this Article VI would cause the tax termination of the Company
under Code Section 708(b)(1)(B), the transfer shall be null and void and the
purported transferee shall not become either a Member or an Assignee.
SECTION VII
ACCOUNTING, RECORDS, REPORTING BY MEMBERS
Section 7.1 Books and Records; Fiscal Year. The Company's books and
records shall be kept, and the financial position and the results of its
operations recorded, in accordance with the method of accounting followed by the
Company for federal tax purposes. The annual accounting period of the Company
shall be its fiscal and taxable year, which shall be the calendar year unless
otherwise determined by a Majority Interest. The Company's books and records
shall reflect all the Company transactions and shall be appropriate and adequate
for the Company's business.
Section 7.2 Access to Accounting and Other Records.
(a) Each of the Class A Member, a Class B Majority and any
Assignee has the right, upon reasonable request for purposes reasonably related
to the interest of such Member or Assignee, to:
(i) inspect and copy during normal business hours any of
the Company's books and records;
(ii) obtain from the Manager, promptly after their becoming
available, a copy of the Company's federal, state, and local income tax or
information returns for each fiscal year; and
29
(iii) discuss with the Company's management and its agents,
the affairs of the Company, subject to such reasonable confidentiality
restrictions as may be imposed by the Manager.
Section 7.3 Financial Statements. The Manager shall procure the
preparation of the following Company financial statements and information which
shall be prepared and delivered to the Members and any Assignee at the Company's
expense and at the following times:
(i) unaudited annual financial statements, within one
hundred twenty (120) days following the Company's fiscal year end;
(ii) such information as is necessary for the preparation of
the Federal and state income tax returns of the Members and any Assignee, at
least one hundred twenty (120) days after the end of each taxable year; and
(iii) such other financial information regarding the Company
and Zhone as and when directed by a Majority Interest.
Section 7.4 Bank Accounts. The Manager initially shall maintain the
Company's funds in one bank account in the Company's name as directed by a
Majority Interest, and shall not permit the Company's funds to be commingled in
any fashion with the funds of any other Person.
Section 7.5 Tax Matters for the Company Handled by the Tax Matters
Partner. The Class A Member shall make an election to have the Company treated
as a partnership for federal income tax purposes. The Class A Member shall from
time to time cause the Company to make such other tax elections as the Class A
Member reasonably deems appropriate; provided, however, that no such election
may adversely affect any Class B Member without the consent of a Class B
Majority, which consent shall not be unreasonably withheld. The Class A Member
shall be the "Tax Matters Partner" (as defined in Code Section 6231) but shall
take no action in that capacity adverse to any Class B Member without the
consent of a Class B Majority, which consent shall not be unreasonably withheld.
The Tax Matters Partner shall represent the Company (at the Company's expense)
in connection with all examinations of the Company's affairs by tax authorities,
including resulting judicial and administrative proceedings, and shall expend
the Company funds for professional services and costs associated therewith. The
Tax Matters Partner shall oversee the Company tax affairs as directed by a
Majority Interest and shall not have the right to agree to extend any statute of
limitations without the approval of a Majority Interest. If for any reason the
Tax Matters Partner can no longer serve in that capacity, ceases to be a Member
or is Delinquent, a Class B Majority may designate another Member to be Tax
Matters Partner.
SECTION VIII
DISSOLUTION AND WINDING UP
Section 8.1 Dissolution. The Company shall be dissolved, its assets shall
be disposed of, and its affairs wound up on the first to occur of the following:
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(a) The entry of a decree of judicial dissolution pursuant to Act
Section 18-803;
(b) The vote of a Majority Interest with the consent of the Zhone
Board;
(c) The sale of all or, substantially all of the assets of
Company;
(d) At the election of the Class A Member (with the consent of the
Zhone Board) at any time after all of the obligations of the Company and the
Class A Member under the Stock Purchase Agreement have been met; or
(e) In the event of:
(i) a Zhone Liquidation, or
(ii) at such time that the closing price (the "Exit Price")
of Zhone's publicly traded shares, adjusted for stock splits, stock dividends,
combinations and other similar transactions affecting such shares if any for any
60 calendar days during any 90 calendar day period occurring in whole after the
expiration of any lock-up agreements entered into by the Company in connection
with a Qualified Public Offering (as defined in the Stock Purchase Agreement)
equals or exceeds the greater of:
(A) the sum of the Capital Contributions of the
Class A Members plus the Basic Threshold Return thereon, (expressed on a per
share common-equivalent basis), or
(B) 400% of the aggregate Capital Contributions of
the Class A Members (expressed on a per share common equivalent basis), or
(iii) on the 12th anniversary of the Effective Date. For
purposes of the distributions to be made in any such dissolution occurring due
to Section 8.1(e), the value of the shares or assets to be distributed will
notwithstanding Section 5.5, be determined on the basis of the Exit Price, in
the case of a distribution arising from an event described under Section
8.1(e)(ii) above or the proceeds received by the Company in the case of a Zhone
Liquidation.
In the case of a dissolution occurring other than under Section 8(e)(i),
any Securities of Zhone distributed to a Class B Member in the dissolution shall
remain subject to vesting under the Zhone Class B Member's Purchase Agreement
with the Company in the same manner as if such Securities were the Class B
Member Interest described in that Agreement and Zhone shall succeed to all
rights of the Company under such Agreement, including but not limited to the
Company's right to exercise a Repurchase Option under each such Agreement. with
respect to such Securities as though they were a "Class B Member Interest" as
defined in such Agreement.
Section 8.2 Winding Up. Upon the occurrence of any event specified in
Section 8.1, the Company shall continue solely for the purpose of winding up its
affairs in an orderly manner, liquidating its assets, and satisfying the claims
of its creditors. The Manager as directed by a
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Majority Interest or if there is no Manager, a Majority Interest shall be
responsible for overseeing the winding up and liquidation of Company, shall take
full account of the liabilities of Company and assets, shall either cause the
Company's assets to be sold or distributed, and if sold as promptly as is
consistent with obtaining the fair market value thereof, shall cause the
proceeds therefrom, to the extent sufficient therefor, to be applied and
distributed as provided in Section 8.3. The Person or Persons winding up the
Company's affairs shall give written notice of the commencement of winding up by
mail to all known creditors and claimants whose addresses appear on the
Company's records. The Person winding up the Company's affairs shall be entitled
to reimbursement of all costs incurred in such winding up.
Section 8.3 Order of Payment Upon Dissolution.
(a) After determining that all known debts and liabilities of the
Company, including, without limitation, debts and liabilities to Members who are
creditors of the Company, have been paid or adequately provided for, the
remaining assets shall be distributed to the Members as provided in Section
5.2(a) but not to any member in excess of the positive balance in the Member's
Capital Account after taking into account all allocations and distributions for
the Company's fiscal year during which such liquidation occurs through the date
of such liquidation (other than adjustments due to distributions pursuant to
this Section 8.3(a)).
(b) Such liquidating distributions shall be made by the end of the
Company's taxable year in which the Company is liquidated, or, if later, within
ninety (90) days after the date of such liquidation.
Section 8.4 Limitations on Payments Made in Dissolution. Except as
otherwise specifically provided in this Agreement, each Member shall only be
entitled to look solely at the Company's assets for the return of the Member's
positive Capital Account balance and shall have no recourse for the Member's
Capital Contribution and/or share of Income (upon dissolution or otherwise)
against the Manager or any other Member.
Section 8.5 Certificate of Cancellation. Upon dissolution of the Company
and the completion of the winding up of its business, a certificate of
cancellation shall be filed with the Delaware Secretary of State, pursuant to
the Act. At such time, the Company shall also file an application for withdrawal
of the Company's certificate of authority in any jurisdiction where it is then
qualified to do business.
SECTION IX
INDEMNIFICATION AND INSURANCE
Section 9.1 Indemnification by Company.
(a) The Company shall indemnify, hold harmless and defend the
Manager, each Member (other than a Delinquent Class A Member), and all their
respective agents and employees from and against any loss, expense, damage or
injury suffered or sustained by them by reason of any acts or omissions arising
out of their activities on behalf of the Company or in furtherance of the
interests of the Company, including but not limited to any judgment, award,
settlement, reasonable attorneys' fees and other costs or expenses incurred in
connection with the
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defense of any actual or threatened action, proceeding or claim, if the acts or
omissions were not performed or omitted fraudulently or as a result of gross
negligence or willful misconduct by the indemnified party. Reasonable expenses
incurred by the indemnified party, in connection with any such proceeding
relating to the foregoing matters, may be paid or reimbursed by the Company in
advance of the final disposition of such proceeding upon receipt by the Company
of (i) written affirmation by the persons requesting indemnification of its good
faith belief that it has met the standard of conduct necessary for
indemnification by the Company, and (ii) a written undertaking by or on behalf
of such indemnified party to repay such amount if it shall ultimately be
determined by a court of competent jurisdiction that such indemnified party has
not met such standard of conduct, which undertaking shall be an unlimited
general obligation of the indemnified party but need not be secured.
Section 9.2 Indemnification by Members. Each Member shall indemnify,
defend and hold harmless the Company and the other Members from all losses,
costs, expenses, damages, claims and liabilities (including reasonable
attorneys' fees) to which the Company or the other Members shall be subject, or
for which they shall be liable, arising from any fraud, gross negligence,
willful or wanton misconduct, the breach or material inaccuracy of any
representation and warranty of such Member specified in this Agreement, the
breach of any obligations under this Agreement or breach of any fiduciary duties
it may have to the Company or to the other Members.
Section 9.3 Insurance. The Company shall have the power to purchase and
maintain insurance on behalf of any Person who is or was an agent of the Company
against any liability asserted against such Person and incurred by such Person
in any such capacity, or arising out of such Person's status as an agent,
whether or not the Company would have the power to indemnify such Person against
such liability under the provisions of Section 9.1 or under applicable law.
SECTION X
MISCELLANEOUS
Section 10.1 Complete Agreement. This Agreement, the Rights Agreement,
the Stock Purchase Agreement, the Zhone Class B Member Purchase Agreement and
the Employment Agreements (as defined in the Stock Purchase Agreements)
constitute the complete and exclusive statement of agreement among the Members
with respect to the subject matter herein and therein and replaces and
supersedes all prior written and oral agreements or statements by and between
the Members, their Affiliates or any of them with respect to the Preferred Stock
and the Common Stock. No representation, statement, condition or warranty not
contained in this Agreement will be binding on the Members or Manager or have
any force or effect whatsoever.
Section 10.2 Binding Effect. Subject to the provisions of this Agreement
relating to transferability, this Agreement will be binding upon and inure to
the benefit of the Members, and their respective successors and assigns.
Section 10.3 Parties in Interest. Except as expressly provided in the
Act, nothing in this Agreement shall confer any rights or remedies under or by
reason of this Agreement on any
33
Persons other than the Members, the Manager, the Affiliated Class A Members,
Zhone and their respective successors and assigns nor shall anything in this
Agreement relieve or discharge the obligation or liability of any third person
to any party to this Agreement, nor shall any provision give any third person
any right of subrogation or action over or against any party to this Agreement.
Section 10.4 Interpretation. All pronouns and all variations thereof
shall be deemed to refer to the masculine, feminine, or neuter, singular or
plural, as the context in which they are used may require. Any reference to the
Code, the Regulations, the Act, or other statutes or laws will include all
amendments, modifications, or replacements of the specific sections and
provisions concerned. All headings herein are inserted only for convenience and
ease of reference and are not to be considered in the construction or
interpretation of any provision of this Agreement. If any claim is made by any
Member relating to any conflict, omission or ambiguity in this Agreement, no
presumption or burden of proof or persuasion shall be implied by virtue of the
fact that this Agreement was prepared by or at the request of a particular
Member or the Member's counsel. Numbered or lettered articles, sections and
subsections herein contained refer to articles, sections and subsections of this
Agreement unless otherwise expressly stated.
Section 10.5 Governing Law. Except as provided in Section 10.13, all
questions with respect to the interpretation of this Agreement and the rights
and liabilities of the Members shall be governed by the laws of the State of
Delaware, without considering Delaware choice of law principles.
Section 10.6 Severability. If any provision of this Agreement or the
application of such provision to any Person or circumstance shall be held
invalid, the remainder of this Agreement or the application of such provision to
Persons or circumstances other than those to which it is held invalid shall not
be affected thereby.
Section 10.7 Additional Documents and Acts. Each Member agrees to execute
and deliver such additional documents and instruments and to perform such
additional acts as may be necessary or appropriate to effectuate, carry out and
perform all of the terms, provisions, and conditions of this Agreement and the
transactions contemplated hereby.
Section 10.8 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. Such notices will be given to a Member or Manager at
the address specified in Section 2.4 hereto. Any notice to Zhone under this
Agreement shall be given to Zhone at ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇. Notices provided in accordance with this Section 10.8 shall be deemed
delivered upon actual receipt. All notices, requests, consents and other
communications under this Agreement shall also be delivered in accordance with
the provisions of this Section 10.8 to the Class A Member of the Purchaser. Any
party may, at any time by giving five (5) days' prior written notice to the
other parties, designate any other address in substitution of the foregoing
address to which such notice will be given.
34
Section 10.9 Amendments. All amendments to this Agreement will be in
writing and signed by a Majority Interest and approved by the Zhone Board. In
the absence of any opinion of counsel as to the effect thereof, no amendment to
this Agreement shall be made which violates the Act or is likely to cause the
Company to be taxed as a corporation.
Section 10.10 Reliance on Authority of Person Signing Agreement. If a
Member is not a natural person, neither the Company nor any Member will (a) be
required to determine the authority of the individual signing this Agreement to
make any commitment or undertaking on behalf of such entity or to determine any
fact or circumstance bearing upon the existence of the authority of such
individual or (b) be responsible for the application or distribution of proceeds
paid or credited to individuals signing this Agreement on behalf of such entity.
Section 10.11 No Interest in Company Property; Waiver of Action for
Partition. No Member or Assignee has any interest in specific property of the
Company. Without limiting the foregoing, each Member and Assignee irrevocably
waives during the term of the Company any right that it may have to maintain any
action for partition with respect to the property of the Company.
Section 10.12 Multiple Counterparts. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an original, but all of
which shall constitute one and the same instrument.
Section 10.13 Binding Arbitration. Except to the extent that a party
hereto seeks to pursue the remedies specified in Section 3.3(c)(i) hereof, the
Company, the Class A Member and the Class B Members 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 10.14 of this Agreement, all fees and expenses of the arbitration shall
be borne by the parties equally.
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.
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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, the Class A Member and the Class B
Members irrevocably submit to the non-exclusive jurisdiction of the Superior
Court of the State of California, Santa ▇▇▇▇▇ 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, the Class A Member and the Class B Members further agree that
personal jurisdiction over it or them may be effected by service of process by
registered or certified mail addressed as provided in Section 10.8 of this
Agreement, and that when so made shall be as if served upon it personally within
the State of California.
Section 10.14 Attorney Fees. In the event that any dispute among any or
all of the Company, the Members, and the Manager 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:
(a) attorney fees shall include, without limitation, attorney
fees incurred in the following:
(i) arbitration;
(ii) post-arbitration order or judgment motions;
(iii) contempt proceedings;
(iv) garnishment, levy, and debtor and third party
examinations;
(v) discovery; and
(vi) bankruptcy litigation, and
(b) For purposes of this Section 10.14, "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.
Section 10.15 Time is of the Essence. All dates and times in this
Agreement are of the essence.
Section 10.16 Remedies Cumulative. The remedies under this Agreement are
cumulative and shall not exclude any other remedies to which any Person may be
lawfully entitled.
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Section 10.17 Publicity. Except as required by law, no Member or Manager
will make any announcement regarding the formation of the Company or the
commencement of the Company's business or the identity of the Members or any
other information related to the Member's ownership of a Membership Interest in
the Company, without the prior written consent of the other Member or Manager,
as applicable, which consent shall not be unreasonably denied.
Section 10.18 MFN Clause. The Founders shall not enter into an operating
agreement with respect to an Affiliated LLC or Zhone Investors FF, L.L.C. except
on such terms as are identical to this Agreement in all material respects or as
approved by the Class A Member, which approval shall not be unreasonably
withheld.
All of the Members of Zhone Investors, L.L.C., a Delaware limited liability
company, have executed this Agreement, effective as of ___________________.
Class A Member Class B Members
By:____________________________________ By:_______________________________
By:_______________________________
By:_______________________________
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EXHIBIT A
CLASS A MEMBER
--------------------------------------------------------------------------------
Capital
Series A Preferred Contribution
Name Address Units Commitment for
Series A Preferred
Units
--------------------------------------------------------------------------------
EXHIBIT B
CLASS B MEMBERS
--------------------------------------------------------------------------------
Shares of Zhone
Series B Common Common Stock
Name Address Units Contributed
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
EXHIBIT C
FORM OF STOCK PURCHASE AGREEMENT
EXHIBIT D
FORM OF AGREEMENT FOR REPURCHASE OPTION
ii
EXHIBIT E
RIGHTS AGREEMENT