Zhone Technologies to Acquire Paradyne Networks; Combination Provides Scale and Solutions to Address U.S. and Global Network Ope

Zhone Technologies, Inc. (Nasdaq: ZHNE), the first
company dedicated solely to delivering the full spectrum of
next-generation access infrastructure equipment, today announced that
it will acquire Paradyne Networks, Inc. (Nasdaq: PDYN), a leading
provider of triple play broadband loop carriers (BLCs) and Ethernet
access equipment.
   Under the terms of the agreement, Zhone will issue 1.0972 shares
of Zhone common stock for each outstanding share of Paradyne common
stock, and each option, warrant and other security exercisable or
convertible into Paradyne common stock will be assumed by Zhone and
become exercisable or convertible into Zhone common stock, with
appropriate adjustments based on the merger exchange ratio. Based on
Zhone's closing price yesterday, the transaction is valued at $3.917
per Paradyne common share. On a fully-diluted basis, the current
stockholders of Paradyne will own approximately 36.8% of the combined
company and the current stockholders of Zhone will own approximately
63.2% of the combined company. The proposed stock-for-stock
transaction is intended to qualify as tax-free to the stockholders of
Paradyne.
   The acquisition of Paradyne by Zhone is expected to have the
following results:

   --  Provide scale to allow for further growth and more
        comprehensive sales, service and support.

   --  Bolster Zhone's position as a leading provider of next
        generation Broadband Loop Carrier access network solutions.

   --  Provide service providers with more comprehensive solutions
        for delivering packet based voice, data and video services as
        these technologies converge.

   --  Provide for substantial cost savings from the reduction of
        operating expenses and is immediately accretive excluding any
        acquisition related charges.

   --  Strengthen Zhone's balance sheet with a larger net cash
        balance.

   The transaction is also expected to expand the customer base of
the combined company to include twelve of the top twenty-five U.S.
Independent Telephone companies, including five of the top ten as well
as two of the top three U.S. cable operators and leading U.S.
competitive carriers. Also of significance, the transaction will scale
operations in every operating region with complementary key accounts
in EMEA, APAC, Japan and CALA. The combined company will have
employees operating in 21 countries around the globe.
   "Together, Zhone and Paradyne will deliver a broad array of
products that allow carriers to extend their current access networks,"
said Mory Ejabat, chairman and chief executive officer of Zhone. "The
combined product portfolios will provide customers with unparalleled
ability to maintain legacy services while simultaneously migrating
their operations to pure packet for delivery of new VoIP, data and IP
video services over both copper and fiber."
   "We believe this transaction is beneficial to Zhone stockholders,
Paradyne stockholders and to the respective customers of both
companies," said Sean Belanger, chairman and chief executive officer
of Paradyne. "The combined company will have the scale to accelerate
Paradyne's position as a leader in the telecommunications industry.
Zhone's and Paradyne's solid product portfolios, broad customer bases
and strong financial performances are ingredients for continued
success."
   Both Sean Belanger and Pat Murphy, chief financial officer of
Paradyne, have agreed to remain with Zhone as consultants for up to
two years to assist in the transition.
   The transaction is subject to the approval of each company's
stockholders, regulatory review as well as other customary closing
conditions. The transaction is currently expected to close in the fall
of 2005. The time, location and other details regarding each company's
stockholders meeting will be communicated to stockholders at a later
date.
   Paradyne retained Raymond James as its financial advisor and
Alston & Bird as its legal advisor. Zhone enlisted the assistance of
Needham & Company to facilitate the transaction. Latham & Watkins
served as Zhone's legal advisor in the transaction.
   Zhone also announced today that revenues for its second quarter
are expected to be slightly higher than the guidance previously
provided of between $29 million and $30 million. Other than these
slightly higher revenues, Zhone expects its results to be in line with
previously provided guidance.
   Paradyne also announced today that revenues for its second quarter
are expected to be slightly higher than guidance and that EPS and
gross margin percentage will also slightly exceed guidance.
   Zhone and Paradyne will hold a joint conference call today, July
8, 2005, at approximately 9:00 a.m. Eastern Time to review this
announcement. The call is open to the public by dialing 800.901.5231
for U.S. callers and 617.786.2961 for international callers and
entering the passcode 33604131. A replay of the conference call will
be available for approximately one week after the original call by
dialing 888-286-8010 for U.S. callers and 617-801-6888 for
international callers and entering the passcode 68560491. An audio
webcast replay will also be available online at
www.zhone.com/about/investors/ for approximately one week following
the original call. Additional investor information can be accessed at
www.zhone.com or by calling Zhone's Investor Relations Department at
510-777-7013.
   Please also refer to the Press Release "ZHONE TECHNOLOGIES, INC.
TO REPORT SECOND QUARTER 2005 FINANCIAL RESULTS" issued on July 1,
2005 for details about Zhone's upcoming call regarding second quarter
financial results scheduled for July 20, 2005.

   About Paradyne Networks, Inc.

   Paradyne provides a broad family of IP-based broadband access
solutions, including BLCs, DSLAMs, Ethernet in the First Mile bonded
solutions, IADs, and CPE. Paradyne's products support both residential
triple play solutions and business class bonded SHDSL, ADSL2+, T1/E1,
and DS3 bonded solutions for LAN extension and cell site data backhaul
applications. Paradyne's solutions are designed to enhance carrier
revenue streams with full support for Multimedia Traffic Management
(MTM) and to lower carrier operational expenses through Operational
Intelligence (OpIQ). More information may be obtained by visiting
www.paradyne.com.

   About Zhone Technologies, Inc.

   Zhone designs and manufactures network equipment for network
operators worldwide. Zhone's products allow network operators to
deliver a rich array of voice, data, video, and entertainment services
over their existing networks while simultaneously retooling for
converged packet based voice (VoIP) and video (IPTV) over copper or
fiber access lines. Zhone's advanced networking solutions include the
Single Line Multi-Service architecture (SLMS(TM)), Multi-Access Line
Concentrator (MALC(TM)), Raptor(TM) ATM/IP DSLAMs, Zhone Residential
Gateways (ZRG(TM)), GigaMux(TM) Optical Transport Systems and Zhone
Management System (ZMS(TM)). With deployments at over 300 carriers
including among some of the world's largest networks, Zhone has
enabled network operators to reinvent their businesses. For more
information, please visit www.zhone.com.

   Additional Information Regarding the Proposed Acquisition

   Zhone and Paradyne plan to file a Joint Proxy Statement/Prospectus
with the Securities and Exchange Commission (SEC) in connection with
the proposed acquisition. In addition, Zhone and Paradyne will file
other information and documents concerning the proposed acquisition
and their respective businesses with the SEC. WE URGE INVESTORS TO
REVIEW THE JOINT PROXY STATEMENT/PROSPECTUS AND OTHER INFORMATION TO
BE FILED WITH THE SEC BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION.
Any offer of securities will only be made pursuant to the Joint Proxy
Statement/Prospectus. These documents will be available without charge
on the SEC's web site at www.sec.gov. A free copy of the final Joint
Proxy Statement/Prospectus may also be obtained from Zhone and
Paradyne through their Investor Relations contacts provided below.
INVESTORS SHOULD READ THE JOINT PROXY STATEMENT/PROSPECTUS CAREFULLY
BEFORE MAKING ANY VOTING OR INVESTMENT DECISIONS.
   The officers and directors of Zhone and Paradyne may have
interests in the proposed acquisition, some of which may differ from,
or may be in addition to, those of the stockholders of Zhone and
Paradyne generally. A description of the interests that the officers
and directors of the companies have in the proposed acquisition will
be available in the Joint Proxy Statement/Prospectus.
   In addition, Zhone and Paradyne, their respective officers,
directors and certain other members of their management and employees
may be deemed to be participants in the solicitation of proxies from
the stockholders of Zhone and Paradyne, respectively, in favor of the
acquisition. Information about the officers and directors of Zhone and
their ownership of Zhone securities is set forth in the proxy
statement for Zhone's 2005 Annual Meeting of Stockholders filed with
the SEC on April 1, 2005. Information about the officers and directors
of Paradyne and their ownership of Paradyne securities is set forth in
the proxy statement for Paradyne's 2005 Annual Meeting of Stockholders
filed with the SEC on April 11, 2005. Investors may obtain more
detailed information concerning the participants by reading the Joint
Proxy Statement/Prospectus when it is filed with the SEC.

   Forward-Looking Statements

   This press release contains forward-looking statements made in
reliance on the safe harbor provisions of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, including forward-looking statements
regarding the amount and timing of synergies that may be achieved in
connection with the acquisition, the strength of the combined
company's balance sheet and financial results following the
acquisition, the degree to which the combined company will alter the
competitive landscape in its industry, prevailing market conditions
and the combined company's ability to successfully fulfill its
customers' needs. Actual results could differ materially from those
projected in or contemplated by the forward-looking statements.
Factors that could cause actual results to differ include the
possibility that the acquisition may not close on the terms described
in this release, or at all, the possibility that the intended benefits
of the acquisition may not be fully realized, the failure of the
combined company to retain key employees, the failure of the combined
company to manage the cost of integrating the businesses and assets of
Zhone and Paradyne, general economic conditions, the pace of spending
and timing of economic recovery in the telecommunications industry,
the combined company's inability to sufficiently anticipate market
needs and develop products and product enhancements that achieve
market acceptance, and higher than anticipated expenses the combined
company may incur in future quarters. In addition, please refer to the
risk factors contained in Zhone's SEC filings, including, without
limitation, its Annual Report on Form 10-K filed with the SEC on March
16, 2005, and in Paradyne's SEC filings, including, without
limitation, its Annual Report on Form 10-K filed with the SEC on March
16, 2005. Readers are cautioned not to place undue reliance on any
forward-looking statements, which speak only as of the date on which
they are made. The companies undertake no obligation to update
publicly or revise any forward-looking statements.

   Paradyne is a trademark of Paradyne Networks, Inc. Zhone, the
Zhone logo, and all Zhone product names are trademarks of Zhone
Technologies, Inc. Other brand and product names are trademarks of
their respective holders. Copyright 2005 Zhone Technologies, Inc. and
Paradyne Networks, Inc. All rights reserved.