EXHIBIT 10.15
EXECUTION COPY
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RECAPITALIZATION AGREEMENT
BY AND AMONG
E-TEK DYNAMICS, INC.,
THE PURCHASERS NAMED HEREIN,
▇▇▇▇▇▇▇ ▇▇▇▇▇ PAN,
▇▇▇▇ ▇▇▇▇ PAN
AND
THE TRUSTS NAMED HEREIN
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June 27, 1997
RECAPITALIZATION AGREEMENT
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THIS RECAPITALIZATION AGREEMENT (this "Agreement") is made as of June 27,
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1997, by and among the Persons listed on the Schedule of Purchasers attached
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hereto (each, a "Purchaser" and collectively, the "Purchasers"), E-Tek Dynamics,
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Inc., a California corporation (the "Company"), the Persons listed on the
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Schedule of Trust Shareholders attached hereto (each, a "Trust Shareholder" and
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collectively, the "Trust Shareholders"), ▇▇▇▇▇▇▇ ▇▇▇▇▇ Pan ("T.S. Pan") and Jing
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Jong Pan ("J.J. Pan"). The Trust Shareholders, T.S. Pan and J.J. Pan are
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sometimes collectively referred to herein as the "Shareholders" and individually
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as a "Shareholder". The Purchasers, the Company and the Shareholders are
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sometimes collectively referred to herein as the "Parties" and individually as a
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"Party." Capitalized terms used herein and not otherwise defined herein have the
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meanings given to such terms in Section 9 below.
WHEREAS, the Company desires to reconstitute its capital structure through
the sale of newly issued equity securities and the repurchase of certain of its
outstanding equity securities, in each case on the terms and subject to the
conditions set forth herein;
WHEREAS, the Purchasers desire to purchase newly issued equity securities
of the Company on the terms and subject to the conditions set forth herein;
WHEREAS, the Shareholders desire the Company to repurchase certain equity
securities of the Company held by certain of the Shareholders on the terms and
subject to the conditions set forth herein;
WHEREAS, prior to the date hereof, each of T.S. Pan and J.J. Pan have
transferred all of the Common Stock held by each of them to the Trust
Shareholders;
WHEREAS, each of T.S. Pan and J.J. Pan will receive substantial direct and
indirect benefits from the transactions contemplated by this Agreement and as a
result each of them is executing this Agreement as a "Shareholder" hereunder and
each of them shall be subject to all of the obligations of a Shareholder
hereunder, including pursuant to Section 8B below; and
WHEREAS, prior to the closing of the transactions contemplated by this
Agreement, the Company will consummate a 493.72476 for one stock split of its
Common Stock (the "Stock Split") and all references in this Agreement to a
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number of shares of the Company's Common Stock assume the consummation of the
Stock Split unless otherwise indicated.
NOW, THEREFORE, in consideration of the mutual covenants, agreements and
understandings herein contained, the Parties hereby agree as follows:
Section 1. Recapitalization.
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1A. Authorization.
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(i) The Company shall, and the Shareholders shall cause the Company
to, authorize the filing under the laws of the State of California of the
amended and restated articles of incorporation of the Company in the form of
Exhibit A attached hereto (with any minor (non-substantive) changes thereto as
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may be required by the California Secretary of State in connection with such
filing) (as so amended and restated, the "Articles of Incorporation"). The
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Articles of Incorporation shall be duly filed by the Company on or prior to the
Closing Date and shall be in full force and effect under the laws of the State
of California as of the Closing.
(ii) The Company shall, and the Shareholders shall cause the Company
to, authorize the issuance to the Purchasers of an aggregate of 30,000,000
shares of its Class A Convertible Preferred Stock, no par value per share (the
"Preferred Stock"), having the rights and preferences set forth in Exhibit A
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attached hereto. The Preferred Stock shall be initially convertible into
30,000,000 shares of the Company's Common Stock, no par value per share (the
"Common Stock"), as set forth in Exhibit A attached hereto.
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(iii) The Company shall authorize the repurchase of 30,000,000.17
shares of the Company's Common Stock from the Shareholders (the "Repurchased
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Shares") for an aggregate purchase price equal to $120,000,000 (the "Repurchase
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Price"). The number of Repurchased Shares to be repurchased from each
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Shareholder is set forth on the Schedule of Shareholders attached hereto.
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1B. Investment Transaction. On the basis of the representations,
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warranties, covenants and agreements set forth herein and subject to the
satisfaction or waiver of the conditions set forth in Section 2 below, each of
the Purchasers and the Company agrees to and shall consummate, and the
Shareholders shall cause the Company to consummate, at the Closing, the
following transaction (the "Investment Transaction"): the Company shall sell to
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each Purchaser, and each Purchaser shall purchase from the Company, the number
of shares of Preferred Stock set forth opposite such Purchaser's name on the
Schedule of Purchasers attached hereto, upon payment of immediately available
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funds in the amount set forth opposite such Purchaser's name on the Schedule of
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Purchasers attached hereto, payable in the manner set forth in Paragraph 1D(i)
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below. The aggregate purchase price for such shares of Preferred Stock shall be
equal to $120,000,000 (the "Purchase Price").
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1C. Repurchase Transaction. On the basis of the representations,
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warranties, covenants and agreements set forth herein and subject to the
satisfaction or waiver of the conditions set forth in Section 3 below and the
consummation of the Investment Transaction (the prior consummation of which may
not be waived), the Company and each of the Shareholders agrees to and shall
consummate, at the Closing, the following transaction (the "Repurchase
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Transaction"): the Company shall repurchase from each Shareholder the number of
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Repurchased Shares set forth opposite such Shareholder's name on the Schedule of
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Shareholders attached hereto and shall pay to each such Shareholder (in the
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manner set forth in Paragraphs 1D(iii) and 1D(iv) below) the portion
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of the Repurchase Price set forth opposite such Shareholder's name on the
Schedule of Shareholders attached hereto.
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1D. Closing. The closing of each of the Investment Transaction and
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the Repurchase Transaction (the "Closing") shall take place at the offices of
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Fenwick & West, Two Palo Alto Square, Palo Alto, California, or at such other
place as may be mutually agreeable to each of the Parties, at 10:00 a.m., local
time, on July 23, 1997, or, if any of the conditions to Closing set forth in
Section 2 and Section 3 below have not been satisfied or waived by the Party
entitled to the benefit thereof on or prior to such date, on the business day
following satisfaction or waiver of such conditions (the "Closing Date"). The
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Investment Transaction and the Repurchase Transaction shall each constitute a
separate transaction hereunder. At the Closing the Parties shall consummate the
Investment Transaction and the Repurchase Transaction in the following order:
(i) Each Purchaser shall deliver to the Company such Purchaser's
portion of the Purchase Price as set forth opposite such Purchaser's name on the
Schedule of Purchasers attached hereto, by wire transfer of immediately
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available funds to an account designated by the Company.
(ii) The Company shall deliver to each Purchaser stock certificates
evidencing the shares of Preferred Stock to be issued to such Purchaser as set
forth opposite such Purchaser's name on the Schedule of Purchasers attached
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hereto, registered in such Purchaser's name, upon payment of such Purchaser's
portion of the Purchase Price in the manner described in clause (i) above.
(iii) The Company shall deliver $5,000,000 of the Repurchase Price to
the Escrow Agent for deposit into an escrow account (the "Escrow Account")
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established pursuant to the terms of an escrow agreement in the form of Exhibit
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B attached hereto (the "Escrow Agreement") among the Parties and the Escrow
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Agent. The Escrow Amount shall be available to satisfy amounts owing to the
Company Parties pursuant to Paragraph 8B below.
(iv) The Company shall pay to each Shareholder designated on the
Schedule of Shareholders attached hereto (by wire transfer of immediately
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available funds to an account designated by such Shareholder) an amount equal to
the "Closing Cash Amount" set forth opposite such Shareholder's name on the
Schedule of Shareholders attached hereto.
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(v) Each Shareholder shall deliver to the Company the stock
certificates evidencing the Repurchased Shares held by such Shareholder upon
payment of the Repurchase Price in the manner described in the first sentence of
clause (iii) above and in clause (iv) above, duly endorsed in blank or
accompanied by duly executed stock powers. The Company shall deliver to each
Shareholder a new stock certificate or certificates representing any shares of
Common Stock owned by such Shareholder which were represented by the
certificates delivered pursuant to this clause (v) but which were not
repurchased by the Company in connection with the Repurchase Transaction.
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Section 2. Conditions of the Purchasers' Obligations at the Closing.
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The obligation of the Purchasers to purchase and pay for the Preferred Stock at
the Closing is subject to the satisfaction as of the Closing of the following
conditions:
2A. Representations and Warranties; Covenants. The representations
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and warranties contained in Sections 5 and 6 hereof shall be true and correct in
all material respects at and as of the Closing as though then made and as though
the Closing Date was substituted for the date of this Agreement throughout such
representations and warranties, except to the extent of any changes expressly
contemplated by this Agreement and changes in the ordinary course of business
consistent with past practice which do not constitute or evidence a breach of
any covenants or other obligations of the Company or the Shareholders hereunder
(and none of which is a liability resulting from noncompliance with any
applicable laws, breach of contract, breach of warranty (in excess of any
warranty reserve specifically established with respect thereto and included on
the Latest Balance Sheet), tort, infringement, claim or lawsuit), and except for
any representations and warranties that speak only as of a certain date (which
representations and warranties shall be true and correct as of such date), and
the Company and the Shareholders shall have performed in all material respects
all of the covenants required to be performed by the Company and the
Shareholders hereunder prior to the Closing.
2B. Amendment of Articles of Incorporation. The Articles of
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Incorporation shall have been amended and restated in the form of Exhibit A
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attached hereto (with any minor (non-substantive) changes thereto as may be
required by the California Secretary of State in connection with such filing),
shall be in full force and effect under the laws of the State of California as
of the Closing as so amended and restated and shall not have been further
amended or modified.
2C. Amendment of Bylaws. The Company's Bylaws (the "Bylaws") shall
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have been amended and restated in the form of Exhibit C attached hereto, shall
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be in full force and effect as of the Closing as so amended and restated and
shall not have been further amended or modified.
2D. Shareholders Agreement. The Company, the Shareholders and the
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Executives shall have entered into a shareholders agreement in the form of
Exhibit D attached hereto (the "Shareholders Agreement"), and the Shareholders
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Agreement shall be in full force and effect as of the Closing and shall not have
been amended or modified.
2E. Registration Agreement. The Company and the Shareholders shall
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have entered into a registration agreement in the form of Exhibit E attached
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hereto (the "Registration Agreement"), and the Registration Agreement shall be
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in full force and effect as of the Closing and shall not have been amended or
modified.
2F. Stock Option Plan. The Company shall have adopted a stock option
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plan in the form of Exhibit F attached hereto (the "Stock Option Plan") and the
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Stock Option Plan shall be in full force and effect as of the Closing and shall
not have been amended or modified.
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2G. Escrow Agreement. Each of the Company, the Shareholders and the
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Escrow Agent shall have entered into the Escrow Agreement, and the Escrow
Agreement shall be in full force and effect as of the Closing and shall not have
been amended or modified.
2H. Employment Agreement. The Company and J.J. Pan shall have entered
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into an employment agreement in the form of Exhibit G attached hereto (the
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"Employment Agreement") and the Employment Agreement shall be in full force and
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effect as of the Closing and shall not have been amended or modified.
2I. Executive Agreements. The Company and each of the Executives
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shall have entered into an executive stock purchase and nondisclosure agreement
in the form of Exhibit H-1 attached hereto and T.S. Pan shall have entered into
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a subscription agreement in the form of Exhibit H-2 attached hereto
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(collectively, the "Executive Agreements"), and each of the Executive Agreements
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shall be in full force and effect as of the Closing and shall not have been
amended or modified.
2J. Opinion of the Company's and the Shareholders' Counsel. The
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Purchasers shall have received from Fenwick & West LLP, counsel for the Company
and the Shareholders, an opinion with respect to the matters set forth in
Exhibit I-1 attached hereto, which shall be addressed to the Purchasers, dated
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as of the Closing Date and in form and substance reasonably satisfactory to the
Purchasers. The Purchasers shall have received from Crist, Schulz, ▇▇▇▇▇ &
▇▇▇▇▇▇▇▇, counsel for the Trust Shareholders, an opinion with respect to the
matters set forth in Exhibit I-2 attached hereto, which shall be addressed to
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the Purchasers, dated as of the Closing Date and in form and substance
reasonably satisfactory to the Purchasers.
2K. Repurchase Transaction. The Shareholders shall have
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simultaneously delivered to the Company the Repurchased Shares and shall have
received payment therefor in full, in the manner set forth in Paragraph 1D
above.
2L. Release of Liens. The Company shall have obtained releases of all
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Liens relating to the assets and properties of the Company (other than (i) any
Permitted Encumbrances, (ii) the deed of trust held by Bank of America, N.A.
with respect to the Owned Real Property, and (iii) the Liens securing the
Company's obligations pursuant to the Business Loan Agreement, dated as of
September 29, 1995, between the Company and Bank of America, N.A.).
2M. Audit. The Purchasers shall have received the audited
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consolidated balance sheet of the Company and its Subsidiaries as of May 31,
1997 and the related statements of income and cash flows (or the equivalent) for
the eleven-month period then ended (together with an opinion with respect
thereto from Price Waterhouse LLP containing no exceptions or qualifications)
(the "May Financial Statements") and copies of the management letters delivered
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with respect thereto regarding internal controls, and such May Financial
Statements shall not include any material adverse adjustments from the unaudited
consolidated financial statements delivered pursuant to Paragraph 5E(ii) below
with respect to the Company's business, operations, assets, liabilities,
financial condition, operating results, cash flow or net worth.
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2N. Litigation. No suit, action or other proceeding shall be pending
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before any court or governmental or regulatory official, body or authority in
which it is sought to restrain or prohibit the transactions contemplated hereby
or that could have a Material Adverse Effect (other than any such suit, action
or proceeding brought by any of the Parties), and no injunction, judgment,
order, decree or ruling with respect thereto shall be in effect.
2O. Filings. The Company shall have made all filings required to be
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made by the Company and shall have obtained all permits and other authorizations
required to be obtained by the Company under all applicable laws (including
federal and state securities laws) to consummate the transactions contemplated
by this Agreement in compliance with such laws (other than any securities law
filings required to be made after the Closing, which filings shall be made
promptly after the Closing).
2P. Third Party Consents and Approvals. The Company shall have
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received or obtained all third party and shareholder consents and approvals that
are necessary for the consummation of the transactions contemplated hereby or
that are required in order to prevent a breach of or default under, a
termination or modification of, or acceleration of the terms of, any contract,
agreement or document required to be listed on the attached Contracts Schedule
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(collectively, the "Third Party Approvals"), in each case on terms and
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conditions reasonably satisfactory to the Purchasers.
2Q. Governmental Consents and Approvals. The Parties shall have
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received or obtained all governmental and regulatory consents and approvals
(including all permits from the California Department of Corporations or
appropriate exemptions therefrom) that are necessary for the consummation of the
transactions contemplated hereby, in each case on terms and conditions
satisfactory to the Purchasers, and the waiting period under the ▇▇▇▇-▇▇▇▇▇-
▇▇▇▇▇▇ Antitrust Improvements Act of 1976, as amended (the "▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇
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Act"), shall have expired or been terminated (collectively, the "Governmental
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Approvals"), and the Company shall have received all permits from the California
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Department of Corporations necessary for the consummation of the transactions
contemplated by the Executive Agreements and the Stock Option Plan (or shall
qualify for appropriate exemptions therefrom).
2R. Material Adverse Change. Since May 31, 1997, there shall have
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been no material adverse change or development in the business, financial
condition, operating results, assets, operations, business prospects, cash flow,
net worth or customer, supplier or employee relations of the Company.
2S. Expenses. At the Closing, the Company shall have paid or
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reimbursed the Purchasers for their fees and expenses as provided in Paragraph
11A below.
2T. Real Estate Matters. The Purchasers shall have received an
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estoppel certificate from each lender encumbering the Owned Real Property in
form and substance reasonably satisfactory to the Purchasers and their special
counsel and the endorsements and affidavits specified in Paragraph 4M below.
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2U. Proceedings. All corporate and other proceedings taken or
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required to be taken by the Company and the Shareholders at or prior to the
Closing in connection with the transactions contemplated hereby shall have been
taken and all documents incident thereto shall be reasonably satisfactory in
form and substance to the Purchasers and their special counsel.
2V. Closing Documents. At the Closing, the company shall have
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delivered to the Purchasers all of the following documents:
(i) a certificate of an officer of the Company, dated the Closing
Date, stating the conditions specified in Section 1 and Paragraphs 2A
through 2U (other than ▇▇▇▇▇▇▇▇▇▇ ▇▇, ▇▇, ▇▇, ▇▇, ▇▇, ▇▇, ▇▇▇ ▇▇),
inclusive, have been fully satisfied;
(ii) certified copies of (a) the resolutions duly adopted by the
Company's board of directors authorizing execution, delivery and
performance of this Agreement and each of the other agreements contemplated
hereby (including the Stock Option Plan), the adoption and filing of the
Articles of Incorporation referred to in Paragraph 2B, the Investment
Transaction, the Repurchase Transaction, the issuance of the Executive
Stock and the other transactions contemplated hereby and (b) the
resolutions duly adopted by the Shareholders adopting the amendment and
restatement of the Articles of Incorporation referred to in Paragraph 2B,
the amendment and restatement of the Bylaws referred to in Paragraph 2C and
approving the Stock Option Plan;
(iii) certified copies of the Articles of Incorporation and the
Bylaws, each as in effect at the Closing;
(iv) copies of all Third Party Approvals and Governmental Approvals
(including all blue sky filings and waivers of all preemptive rights and
rights of first refusal);
(v) good standing certificates of the Company from its jurisdiction
of incorporation and each jurisdiction in which the Company is qualified to
do business as a foreign corporation, in each case dated as of a recent
date prior to the Closing Date; and
(vi) such other documents relating to the transactions contemplated
by this Agreement as the Purchasers or their special counsel may reasonably
request.
2W. Waiver. Any condition specified in this Section 2 may be waived
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if consenting to in writing by the Purchasers.
Section 3. Conditions of the Obligations of the Company and the
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Shareholders at the Closing. The obligations of the Company and each Shareholder
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to consummate the transactions contemplated hereby is subject to the
satisfaction as of the Closing of the following conditions.
3A. Representations and Warranties; Covenants. The representations
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and warranties contained in Section 7 hereof shall be true and correct in all
material respects at and as of the Closing as though then made as though the
Closing Date was substituted for the date of
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this Agreement throughout such representations and warranties, except to the
extent of any changes expressly contemplated by this Agreement and except for
any representations and warranties that speak only as of a certain date (which
representations and warranties shall be true and correct as of such date), and
the Purchasers shall have performed in all material respects all of the
covenants required to be performed by the Purchasers prior to the Closing.
3B. Amendment of Articles of Incorporation. The Articles of
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Incorporation of shall be in full force and effect under the laws of the State
of California as of the Closing.
3C. Shareholders Agreement. The Purchasers shall have entered into
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the Shareholders Agreement, and the Shareholders Agreement shall be in full
force and effect as of the Closing and shall not have been amended or modified.
3D. Registration Agreement. The Purchasers shall have entered into
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the Registration Agreement, and the Registration Agreement shall be in full
force and effect as of the Closing and shall not have been amended or modified.
3E. Escrow Agreement. The Purchasers and the Escrow Agent shall have
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entered into the Escrow Agreement, and the Escrow Agreement shall be in full
force and effect as of the Closing and shall not have been amended or modified.
3F. Employment Agreement. The Company shall have entered into the
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Employment Agreement, and the Employment Agreement shall be in full force and
effect as of the Closing and shall not have been amended or modified.
3G. Opinion of the Purchasers' Counsel. The Shareholders shall have
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received from ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇, counsel for the Purchasers, an opinion with
respect to the matters set forth in Exhibit J attached hereto, which shall be
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addressed to the Shareholders and dated as of the Closing Date.
3H. Litigation. No suit, action or other proceeding shall be pending
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before any court or governmental or regulatory official, body or authority in
which it is sought to restrain or prohibit the transactions contemplated hereby
(other than any such suit, action or proceeding brought by any of the Parties)
and no injunction, judgment, order, decree or ruling with respect thereto shall
be in effect.
3I. Governmental Consents and Approvals. The Parties shall have
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received or obtained all Governmental Approvals that are necessary for the
consummation of the transactions contemplated hereby, and the waiting period
under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act shall have expired or been terminated.
3J. Investment Transaction. The Purchasers shall have immediately
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prior thereto purchased the Preferred Stock and the Company shall have received
payment therefor in full, in the manner set forth in Paragraph 1D above.
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3K. Expenses. At the Closing, the Company shall have paid or
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reimbursed the Shareholders for their fees and expenses as provided in Paragraph
11A below.
3L. Closing Certificate. The Purchasers shall have delivered to the
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Company and the Shareholders a certificate of an officer, manager or general
partner of the Purchaser Representative, dated the Closing Date, stating that
the conditions specified in Paragraphs 3A through 3E (other than Paragraph 3B),
inclusive, have been fully satisfied.
3M. Waiver. Any condition specified in this Section 3 (other than the
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condition set forth in Paragraph 3J above) may be waived if consented to in
writing by the Company and each of the Shareholders.
Section 4. Pre-Closing Covenants and Agreements. Each of the Parties
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agrees as follows with respect to the period between the date of this Agreement
and the Closing:
4A. General. Each of the Parties shall use all reasonable efforts to
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take all action and to do all things necessary, proper or advisable in order to
consummate and make effective the transactions contemplated by this Agreement
(including satisfaction, but not waiver, of the conditions set forth in Sections
2 and 3 above). At the Closing, the applicable Parties shall execute and deliver
the Escrow Agreement, the Shareholders Agreement, the Registration Agreement,
the Employment Agreement and the other agreements and instruments contemplated
hereby to be executed and delivered at the Closing.
4B. Maintenance of Business. The Company shall, and the Shareholders
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shall cause the Company to, (i) use all reasonable efforts to maintain its
assets in good operating condition and repair (normal wear and tear excepted),
(ii) maintain insurance reasonably comparable to that in effect on the date of
the Latest Balance Sheet, (iii) maintain inventory, supplies and spare parts at
customary operating levels consistent with current practices, and replace in
accordance with past practice any inoperable, worn out or obsolete assets with
modern assets of comparable quality, (iv) maintain its books, accounts and
records in accordance with past custom and practice as used in the preparation
of the Latest Balance Sheet and the financial statements described in Paragraph
5E below, and (v) use all reasonable efforts to maintain in full force and
effect the existence of all Intellectual Property Rights.
4C. Third Party Notices and Consents. The Company shall, and the
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Shareholders shall cause the Company to, use all reasonable efforts to (i) give
required notices to third parties and (ii) obtain any required third party
consents, in each case in connection with the matters contemplated by this
Agreement.
4D. Governmental Notices and Consents. Each of the Parties shall give
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any notices to, make any filings with, and use all reasonable efforts to obtain,
any authorizations, consents and approvals of governments and governmental
agencies in connection with the matters contemplated by this Agreement. Without
limiting the generality of the foregoing, each of the Parties shall use all
reasonable efforts to obtain an early termination of the waiting period under
the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act, and shall make any further filings pursuant thereto
that may be necessary,
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proper or advisable in connection therewith, and the Company shall pay all
filing and other fees related to any filings under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act.
4E. Operation of Business. The Company shall, and the Shareholders
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shall cause the Company to, operate its business only in the usual and ordinary
course of business consistent with past practice and use all reasonable efforts
to preserve the goodwill and organization of its business and the relationships
with its customers, suppliers, employees and other Persons having business
relations with the Company. Without limiting the generality of the foregoing,
prior to the Closing, and except as expressly contemplated by this Agreement or
with the express prior written consent of the Purchaser Representative, the
Company shall not:
(i) take or omit to take any action that would require disclosure
under Paragraph 5M below or that would otherwise result in a breach of any
of the representations, warranties or covenants made by the Company or the
Shareholders in this Agreement;
(ii) take any action or omit to take any action which act or omission
would reasonably be anticipated to have a Material Adverse Effect;
(iii) (a) enter into any contract out of the ordinary course of
business or restricting in any material respect the conduct of its
business, (b) make any loans or Investments (other than advances to the
Company's employees in the ordinary course of business consistent with past
custom and practice), (c) increase any officer's or employee's
compensation, incentive arrangements or other benefits, except for
increases and bonuses made in the ordinary course of business consistent
with past custom and practice that are set forth on the Employees Schedule
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attached hereto and except that at or immediately prior to the Closing the
Company may pay bonuses to ▇▇▇▇ ▇▇▇▇ and Kung Shih in a total aggregate
amount not to exceed $3,000,000, (d) redeem, purchase or otherwise acquire
directly or indirectly any of its issued and outstanding capital stock, or
any outstanding rights or securities exercisable or exchangeable for or
convertible into its capital stock, or make any distribution or dividend to
any of the Shareholders, (e) amend its articles of incorporation or bylaws
or issue or agree to issue any capital stock or any rights to acquire, or
securities convertible into or exchangeable for, any of its capital stock,
(f) directly or indirectly engage in any transaction, arrangement or
contract with any officer, director, shareholder or other insider or
Affiliate which is not in the ordinary course of business consistent with
past practice and at arm's length, (g) execute any guaranty, issue any debt
or borrow any money, or (h) buy or sell any assets out of the ordinary
course of business consistent with past practice; or
(iv) enter into any transaction, arrangement or contract except on an
arm's-length basis in the ordinary course of business consistent with past
custom and practice.
Notwithstanding the foregoing, nothing in this Paragraph 4E shall
prohibit the Company from taking any other action or omitting to take any other
action as specifically set forth on the Pre-Closing Activities Schedule attached
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hereto.
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4F. Full Access. The Company shall, and the Shareholders shall cause
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the Company to, afford, and cause its officers, directors, employees, attorneys,
accountants and other agents to afford, to the Purchasers and their accounting,
legal and other representatives, as well as their respective officers,
employees, affiliates and other agents, full and complete access at all
reasonable times and during normal business hours to the Company's personnel and
to business, financial, legal, tax, compensation and other data and information
concerning the Company's affairs and operations.
4G. Compliance with Agreements and Laws. The Company shall, and the
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Shareholders shall cause the Company to, (i) comply with all material
obligations pursuant to any contract or agreement, whether oral or written,
express or implied and (ii) comply with all material applicable laws.
4H. Payment of Obligations. The Company shall, and the Shareholders
----------------------
shall cause the Company to, pay and discharge when payable all Taxes,
assessments and governmental charges imposed upon its properties or upon the
income or profits therefrom (in each case before the same becomes delinquent and
before penalties accrue thereon unless contested in good faith by appropriate
proceedings) and pay and discharge all claims for labor, materials or supplies
in the ordinary course of business consistent with past practice.
4I. Notice of Material Developments. Each Party shall give prompt
-------------------------------
written notice to the other Parties of (i) any variances in any of its
representations or warranties contained in Sections 5, 6 or 7 below, as the case
may be, (ii) any breach of any covenant hereunder by such Party and (iii) any
other material development affecting the ability of such Party to consummate the
transactions contemplated by this Agreement.
4J. Exclusivity. None of the Company, the Shareholders or any of
-----------
their respective Affiliates, representatives, officers, employees, directors,
trustees, beneficiaries or agents shall, directly or indirectly, (i) submit,
solicit, initiate, encourage or discuss any proposal or offer from any Person or
enter into any agreement or accept any offer relating to or consummate any (a)
reorganization, liquidation, dissolution or recapitalization of the Company, (b)
merger or consolidation involving the Company, (c) purchase or sale of any
assets or capital stock (or any rights to acquire, or securities convertible
into or exchangeable for, any such capital stock) of the Company (other than a
purchase or sale of assets (including inventory) in the ordinary course of
business consistent with past custom and practice), or (d) similar transaction
or business combination involving the Company or its assets (each of the
foregoing transactions described in clauses (a) through (d), a "Company
-------
Transaction") or (ii) furnish any information with respect to, assist or
-----------
participate in or facilitate in any other manner any effort or attempt by any
Person to do or seek to do any of the foregoing. The Company and each of the
Shareholders agree to notify the Purchasers immediately if any Person makes any
proposal, offer, inquiry or contact with respect to a Company Transaction. In
the event that any of the Company or the Shareholders breaches the provisions of
this Paragraph 4J and the transactions contemplated hereby are not consummated
for any reason, the Company and/or the Shareholders shall promptly reimburse the
Purchasers and their Affiliates for all out-of-pocket fees and expenses incurred
before or after the date of this Agreement by the Purchasers and their
Affiliates related to the transactions contemplated hereby, including fees
-11-
and expenses of legal counsel, accounts and other consultants and advisors
retained by the Purchasers in connection with the transactions contemplated
hereby. The foregoing provisions are in addition to, and not in derogation of,
any statutory or other remedy that the Purchasers may have for a breach of this
Paragraph 4J.
4K. Tax Matters. Without the prior written consent of the Purchaser
-----------
Representative, none of the Shareholders or the Company shall make or change any
election, change an annual accounting period, adopt or change any accounting
method, file any amended Tax Return, enter into any closing agreement, settle
any Tax claim or assessment relating to the Company, surrender any right to
claim a refund of Taxes, consent to any extension or waiver of the limitation
period applicable to any Tax claim or assessment relating to the Company, or
take any other similar action, or omit to take any action relating to the filing
of any Tax Return or the repayment of any Tax, if such election, adoption,
change amendment, agreement, settlement, surrender, consent or other action or
omission would have the effect of increasing the present or future Tax liability
or decreasing any present or future Tax asset of the Company or the Purchasers.
4L. Actions with Respect to Repurchased Shares. Each Shareholder
-------------------------------------------
agrees that such Shareholders shall not sell, redeem, convert, assign, exchange,
transfer, pledge or otherwise dispose of any interest in such Shareholder's
Repurchased Shares (or any other shares of Common Stock), except as expressly
contemplated by this Agreement.
4M. Real Estate Matters. The Company shall, and the Shareholders
-------------------
shall cause the Company to, deliver to the Purchasers (i) a date-down
endorsement dated as of the Closing Date from Chicago Title Company and relating
to Chicago Title Company Policy, number 760352-LM, (ii) an affidavit certifying
to the Purchasers and Chicago Title Insurance Company that there have been no
improvements to the Owned Real Property since the date of the most recent survey
with respect thereto and (iii) the estoppel certificate referred to in Paragraph
2T.
4N. Audit. The Company shall, and the Shareholders shall cause the
-----
Company to, deliver the May Financial Statements to the Purchasers as soon as
practicable after the date hereof, but in any event on or prior to July 15,
1997.
Section 5. Representations and Warranties of the Company and the
-----------------------------------------------------
Shareholders. As a material inducement to the Purchasers to enter into this
------------
Agreement and purchase the Preferred Stock hereunder, the Company and each of
the Shareholders, jointly and severally, hereby represent and warrant to the
Purchasers as follows:
5A. Organization, Corporate Power and Licensees. The Company is a
-------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of California and is qualified to do business in every jurisdiction
in which its ownership of property or conduct of business requires it to
qualify, except where the failure to so qualify would not have a Material
Adverse Effect. The Company possesses all requisite corporate power and
authority necessary to own and operate its properties, to carry on its
businesses as now conducted and presently proposed to be conducted to carry out
the transactions contemplated by this Agreement. The copies of the Company's
charter and documents and bylaws which have been furnished to the Purchaser's
special
-12-
counsel reflect all amendments made thereto at any time prior to the date of
this Agreement and are correct and complete and will be amended prior to the
Closing as required by Paragraphs 2B and 2C above.
5B. Capital Stock and Related Matters.
---------------------------------
(i) As of the date hereof, and without giving effect to the Stock
Split, the authorized capital stock of the Company consists of 1,000,000 shares
of Common Stock, of which 101,271 shares are issued and outstanding and are held
beneficially and of record by the Shareholders as set forth on the
Capitalization Schedule attached hereto (free and clear of all Encumbrances). As
-----------------------
of the Closing and immediately thereafter and after giving effect to the Stock
Split and the issuance of the Executive Stock, the authorized capital stock of
the Company shall consist of (a) 30,000,000 shares of Preferred Stock, all of
which shall be issued and outstanding, and (b) 60,000,000 shares of Common
Stock, of which 22,222,222 shares shall be issued and outstanding and 30,000,000
shares shall be reserved for issuance upon conversion of the Preferred Stock and
3,333,333 shares shall be reserved for issuance upon exercise of the options
authorized pursuant to the Stock Option Plan or pursuant to restricted stock
purchase agreements authorized by the Company's board of directors. Except as
set forth in the immediately preceding sentence, the Company does not have and
will not, as of the Closing Date, have outstanding any stock or securities
convertible or exchangeable for any shares of its capital stock or containing
any profit participation features, nor any rights or options to subscribe for or
to purchase its capital stock or any stock or securities convertible into or
exchangeable for its capital stock or any stock appreciation rights or phantom
stock plans, other than, as of the Closing Date, any options granted pursuant to
the Stock Option Plan as of the Closing Date. The Company is not subject to any
obligation (contingent or otherwise) to repurchase or otherwise acquire or
retire any shares of its capital stock or any warrants, options or other rights
to acquire its capital stock, other than as expressly provided in this Agreement
and, as of the Closing, pursuant to the Articles of Incorporation, the
Shareholders Agreement and the Executive Agreements. As of the date hereof and
as of the Closing and immediately thereafter, all of the outstanding shares of
the Company's capital stock are or shall be validly issued, fully paid and
nonassessable.
(ii) There are no statutory or contractual shareholder preemptive
rights or rights of first refusal or other similar restrictions with respect to
the issuance of the Preferred Stock hereunder, the issuance of the Common Stock
to the Executives pursuant to the Executive Agreements as of the Closing Date
(the "Executive Stock") or the issuance of any Common Stock upon the conversion
---------------
of the Preferred Stock. The Company has not violated any applicable federal or
state securities laws in connection with the offer, sale or issuance of any of
its capital stock and the offer, sale and issuance of the Preferred Stock
hereunder, the offer, sale and issuance of the Executive Stock, the grant of any
stock options under the Stock Option Plan and the issuance of Common Stock upon
the conversion of the Preferred Stock does not require registration under the
Securities Act or any applicable state securities laws. Except for the
Shareholders Agreement to be executed and delivered at the Closing, there are no
agreements between the Company's shareholders or among any other Person with
respect to the voting or transfer of the Company's capital stock or with respect
to any other aspect of the Company's governance.
-13-
5C. Subsidiaries; Investments. Except as set forth on the attached
-------------------------
Investments and Subsidiaries Schedule, the Company does not own or hold the
-------------------------------------
right to acquire any shares of stock or any other security or interest in any
other Person. The attached Investments and Subsidiaries Schedule correctly sets
-------------------------------------
forth the name of each Subsidiary, the jurisdiction of its incorporation and the
Persons owning the outstanding capital stock of such Subsidiary. Each Subsidiary
is duly organized and validly existing under the laws of the jurisdiction of its
incorporation and possesses all requisite corporate power and authority
necessary to own its properties and to carry on its businesses as now being
conducted and as presently proposed to be conducted and is qualified to do
business in every jurisdiction in which its ownership of property or the conduct
of business requires it to qualify. All of the outstanding shares of capital
stock of each Subsidiary are validly issued, fully paid and nonassessable, and
all such shares are owned by the Company or another Subsidiary free and clear of
any Lien and are not subject to any option or right to purchase any such shares.
Except as set forth on the Investments and Subsidiaries Schedule attached
-------------------------------------
hereto, the Company has never had any Subsidiaries. Except as set forth on the
Investments and Subsidiaries Schedule, the Company does not have any obligation
-------------------------------------
to make any additional Investments in any Person.
5D. Authorization; No Breach. The execution, delivery and performance
------------------------
of this Agreement and all other agreements and instruments contemplated hereby
to which the Company is a party, the offering, sale and issuance of the
Preferred Stock hereunder, the offering, sale and issuance of the Executive
Stock, the repurchase of the Repurchased Shares pursuant hereto, the issuance of
Common Stock upon the conversion of the Preferred Stock, the amendment and
restatement of the Articles of Incorporation and the amendment and restatement
of the Bylaws have been duly authorized by the Company. This Agreement
constitutes a valid and binding obligation of the Company, enforceable in
accordance with its terms, and the Articles of Incorporation, when filed under
the laws of the State of California in accordance with the terms hereof, and all
other agreements and instruments contemplated hereby to which the Company is a
party, when executed and delivered by the Company in accordance with the terms
hereof, shall each constitute a valid and binding obligation of the Company,
enforceable in accordance with its terms. Except as set forth on the attached
Restrictions Schedule, the execution and delivery by the Company of this
---------------------
Agreement and all other agreements and instruments contemplated hereby to which
the Company is a party, the offering, sale and issuance of the Preferred Stock
hereunder, the offering, sale and issuance of the Executive Stock, the
repurchase of the Repurchased Shares pursuant hereto, the issuance of Common
Stock upon the conversion of the Preferred Stock, the amendment and restatement
of the Articles of Incorporation, the amendment and restatement of the Bylaws
and the fulfillment of and compliance with the respective terms hereof and
thereof by the Company do not and shall not (i) conflict with or result in a
breach of the terms, conditions or provisions of, (ii) constitute a default
under (whether with or without the passage of time, the giving of notice or
both), (iii) result in the creation of any Lien upon the Company's or any of its
Subsidiaries' capital stock or assets pursuant to, (iv) give any third party the
right to modify, terminate or accelerate any obligation under, (v) result in a
violation of, or (vi) require any authorization, consent, approval, exemption or
other action by or notice or declaration to, or filing with, any third party or
any court or administrative or governmental body or agency pursuant to, the
Company's articles of incorporation or bylaws, any of its Subsidiaries' charter
or bylaws, or any law, statute, rule or regulation to which the Company or any
of its Subsidiaries is subject, or any agreement, instrument, order, judgment or
decree to
-14-
which the Company or any of its Subsidiaries is subject. Neither the Company,
any of its Subsidiaries nor any of the Shareholders is a party to or bound by
any written or oral agreement or understanding with respect to a Company
Transaction other than this Agreement, and all of them have terminated all
discussions with third parties (other than the Purchasers) regarding Company
Transactions.
5E. Financial Statements. Attached hereto as the Financial Statements
-------------------- --------------------
Schedule are the following financial statements:
--------
(i) the audited consolidated balance sheets of the Company and its
Subsidiaries as of June 30, 1996 and June 30, 1995, and the related
statements of income and cash flows (or the equivalent) for the respective
twelve-month periods then ended; and
(ii) the unaudited consolidated balance sheet of the Company and its
Subsidiaries as of May 31, 1997 (the "Latest Balance Sheet"), and the
--------------------
related statements of income and cash flows (or the equivalent) for the
eleven-month period then ended.
Each of the foregoing financial statements (including in all cases the notes
thereto, if any), and the May Financial Statements when delivered pursuant to
Paragraph 4N above, is (or, in the case of the May Financial Statements, will
be) accurate and complete, is (or, in the case of the May Financial Statements,
will be) consistent with the books and records of the Company and its
Subsidiaries (which, in turn, are accurate and complete), fairly presents (or,
in the case of the May Financial Statements, will fairly present) the financial
condition and operating results of the Company and its Subsidiaries and has been
(or, in the case of the May Financial Statements, will be) prepared in
accordance with GAAP consistently applied throughout the periods covered
thereby, subject in the case of the unaudited financial statements to the
absence of footnote disclosure and normal year-end adjustments (none of which
footnote disclosures or year-end adjustments would, alone or in the aggregate,
be materially adverse to the business, operations, assets, liabilities,
financial condition, operating results, cash flow or net worth of the Company
and its Subsidiaries, taken as a whole). Notwithstanding anything herein to the
contrary, after the delivery to the Company and the Purchasers of the audited
balance sheet included in the May Financial Statements, all references in this
Agreement to the "Latest Balance Sheet" shall be deemed to be a reference to
each of (x) such audited balance sheet and (y) the unaudited balance sheet
referred to in clause (ii) above, and each of such balance sheets shall have
independent significance for purposes of this Agreement.
5F. Absence of Undisclosed Liabilities. Except as set forth on the
----------------------------------
attached Liabilities Schedule, neither the Company nor any of its Subsidiaries
--------------------
has any obligation or liability (whether accrued, absolute, contingent,
unliquidated or otherwise, whether due or to become due and regardless of when
asserted) arising out of transactions entered into at or prior to the date
hereof, or any action or inaction at or prior to the date hereof, or any state
of facts existing at or prior to the date hereof, other than: (i) liabilities
set forth on the liabilities side of the Latest Balance Sheet (including any
notes thereto), (ii) liabilities and obligations which have arisen after the
date of the Latest Balance Sheet in the ordinary course of business (none of
which is a liability resulting from noncompliance with any applicable laws,
breach of contract, breach of warranty (in excess of any warranty reserve
specifically established with respect thereto and included on the Latest Balance
-15-
Sheet), tort, infringement, claim or lawsuit) and (iii) other liabilities and
obligations expressly disclosed in the Schedules referred to in this Section 5.
5G. Accounts Receivable. Except as set forth on the attached Accounts
------------------- --------
Receivable Schedule, all accounts receivable reflected on the Latest Balance
-------------------
Sheet and all accounts receivable to be reflected on the Company's and its
Subsidiaries' books and records as of the Closing Date (net of allowances for
doubtful accounts as reflected thereon and as determined in accordance with GAAP
consistently applied) are or shall be valid receivables arising in the ordinary
course of business, and are or shall be current and collectible, subject to no
valid counterclaims or setoffs, at the aggregate recorded amount therefor as
shown on the Latest Balance Sheet and on the Company's or such Subsidiary's
books and records as of the Closing Date, as the case may be (net of allowances
for doubtful accounts as reflected thereon and as determined in accordance with
GAAP consistently applied). No Person has any Lien on such receivables or any
part thereof, and no agreement for deduction, free goods, discount or other
deferred price or quantity adjustment has been made with respect to any such
receivables.
5H. Inventories. Except as set forth on the attached Inventories Schedule,
----------- --------------------
the inventory shown on the Latest Balance Sheet and the inventory to be shown on
the Company's and its Subsidiaries' books and records as of the Closing Date
(net of the reserves applicable thereto as reflected thereon and as determined
in accordance with GAAP consistently applied), consists or shall consist of a
quantity and quality usable and saleable in the ordinary course of business, and
is not excess, obsolete or damaged (as determined in accordance with GAAP).
5I. Product Warranty; Product Certifications.
----------------------------------------
(i) All products and equipment manufactured, sold, leased or delivered by
the Company or any of its Subsidiaries and all services rendered by the Company
and its Subsidiaries have been in conformity in all material respects with all
applicable contractual commitments and all express and implied warranties, and
neither the Company nor any of its Subsidiaries has any liability (and, to the
Company's knowledge, there is no reasonable basis for any present or future
action, suit, proceeding, hearing, investigation, charge, complaint, claim or
demand against it giving rise to any such liability) for replacement or repair
thereof or other damages in connection therewith in excess of any warranty
reserve specifically established with respect thereto and included on the Latest
Balance Sheet. No products or equipment manufactured, sold, leased or delivered
by the Company or any of its Subsidiaries and no services rendered by the
Company or any of its Subsidiaries are subject to any guaranty, warranty or
other indemnity beyond the applicable standard terms and conditions of such
sale, lease or service (including as a result of any course of conduct between
the Company or any of its Subsidiaries and any Person or as a result of any
statements in any of the Company's or any of its Subsidiaries' product or
promotional literature). The attached Product Warranty Schedule includes copies
-------------------------
of such standard terms and conditions of sale, lease and service for the Company
and its Subsidiaries (containing applicable guaranty, warranty and indemnity
provisions). Neither the Company nor any of its Subsidiaries has been notified
in writing of any claims for (and the Company has no knowledge of any threatened
claims for) any extraordinary product returns, warranty obligations or product
services relating to any of its products or services.
-16-
(ii) The Company and its Subsidiaries hold all material product
registrations, accreditations and other certifications required for the conduct
of its business and the Company is ISO 9001 certified (all of such
registrations, accreditations and certifications being referred to herein as
"Product Certifications"). The Company and its Subsidiaries are in compliance
----------------------
with all terms and conditions of all such Product Certifications and no notices
have been received by the Company or any of its Subsidiaries alleging the
failure to hold any Product Certification. To the Company's knowledge, there is
no reasonable basis for any present or future action rescinding any such Product
Certifications and no loss or expiration of any such Product Certifications is
reasonably foreseeable or has had or would reasonably be expected to have a
Material Adverse Effect. All such Product Certifications will be held by the
Company and its Subsidiaries on identical terms immediately following the
Closing.
5J. Product Liability. Except as set forth on the attached Product
----------------- -------
Liability Schedule, neither the Company nor any of its Subsidiaries has any
------------------
liability (and, to the Company's knowledge, there is no reasonable basis for any
present or future action, suit, proceeding, hearing, investigation, charge,
complaint, claim or demand against it giving rise to any liability) arising out
of any injury to individuals or property as a result of the ownership,
possession or use of any products or equipment manufactured, sold, leased or
delivered by the Company or any of its Subsidiaries or with respect to any
services rendered by the Company or any of its Subsidiaries.
5K. Product Recall, etc. Except as set forth on the attached Product
------------------- -------
Recall Schedule, there have been no product or equipment recalls, withdrawals or
---------------
seizures with respect to any products or equipment manufactured, sold, leased or
delivered by the Company or any of its Subsidiaries or with respect to any
services rendered by the Company or any of its Subsidiaries.
5L. No Material Adverse Effect. Since May 31, 1997, there has occurred
--------------------------
no fact, event or circumstance which has had or would reasonably be expected to
have a Material Adverse Effect. Since June 30, 1996, the Company and its
Subsidiaries have conducted their respective businesses only in the ordinary
course of business consistent with past practice.
5M. Absence of Certain Developments.
-------------------------------
Except as expressly contemplated by this Agreement or as set forth on the
attached Developments Schedule, since June 30, 1996, neither the Company nor or
---------------------
any of its Subsidiaries has:
(i) issued any notes, bonds or other debt securities or any capital
stock or other equity securities or any securities or rights convertible,
exchangeable or exercisable into any capital stock or other equity securities;
(ii) borrowed any amount or incurred or become subject to any material
liabilities, except current liabilities incurred in the ordinary course of
business consistent with past practice;
(iii) discharged or satisfied any material Lien or paid any material
obligation or liability, other than current liabilities paid in the ordinary
course of business;
-17-
(iv) declared, set aside or made any payment or distribution of cash
or other property to any Shareholder with respect to such Shareholder's capital
stock or other equity securities or purchased, redeemed or otherwise acquired
any shares of its capital stock or other equity securities (including any
warrants, options or other rights to acquire its capital stock or other equity
securities);
(v) mortgaged or pledged any of its properties or assets or subjected
them to any Lien, except for Permitted Encumbrances;
(vi) sold, assigned, transferred, leased, licensed or otherwise
encumbered any of its tangible assets, except in the ordinary course of business
consistent with past practice, or canceled any material debts or claims;
(vii) sold, assigned, transferred, leased, licensed or otherwise
encumbered any Intellectual Property Rights or other intangible assets,
disclosed any material proprietary confidential information to any Person (other
than to the Purchasers and other than in the ordinary course of business
consistent with past practice in circumstances in which it has imposed
reasonable confidentiality restrictions), or abandoned or permitted to lapse any
Intellectual Property Rights;
(viii) made or granted any bonus or any wage or salary increase to any
employee or group of employees (except as required by pre-existing contracts
described on the attached Contracts Schedule), or made or granted any increase
------------------
in any employee benefit plan or arrangement, or amended or terminated any
existing employee benefit plan or arrangement or adopted any new employee
benefit plan or arrangement;
(ix) suffered any extraordinary losses or waived any rights of
material value (whether or not in the ordinary course of business or consistent
with past practice) in excess of $25,000 in the aggregate;
(x) made capital expenditures or commitments therefor that aggregate
in excess of $200,000;
(xi) delayed or postponed the payment of any accounts payable or any
other liability or obligation or agreed or negotiated with any party to extend
the payment date of any accounts payable or accelerated the collection of any
accounts or notes receivable;
(xii) made any loans or advances to, guarantees for the benefit of, or
any Investments in, any Persons (other than advances to the Company's employees
in the ordinary course of business consistent with past practice);
(xiii) made any charitable contributions or pledges exceeding in the
aggregate $10,000;
(xiv) suffered any damage, destruction or casualty loss exceeding in
the aggregate $25,000, whether or not covered by insurance;
-18-
(xv) made any change in any method of accounting or accounting
policies, other than those required by GAAP which have been disclosed in writing
to the Purchasers, or made any write-down in the value of its inventory that is
material or that is other than in the usual, regular and ordinary course of
business consistent with past practice;
(xvi) made any Investment in or taken any steps to incorporate any
Subsidiary;
(xvii) amended its articles of incorporation, by-laws or other
organizational documents;
(xviii) entered into any agreement or arrangement prohibiting or
restricting it from freely engaging in any business or otherwise restricting the
conduct of its business;
(xix) entered into any contract other than in the ordinary course of
business consistent with past practice, entered into any other material
transaction, whether or not in the ordinary course of business or consistent
with past practice or materially changed any business practice; or
(xx) agreed, whether orally or in writing, to do any of the foregoing.
5N. Assets.
------
(i) Except as set forth on the attached Assets Schedule, the Company
---------------
and its Subsidiaries have good and valid title to, a valid leasehold interest
in, or a valid license to use, the properties and assets, tangible or
intangible, used by it, located on their premises or shown on the Latest Balance
Sheet or acquired thereafter, free and clear of all Liens, except for properties
and assets disposed of in the ordinary course of business since the date of the
Latest Balance Sheet and except for Liens disclosed on the Latest Balance Sheet
(including any notes thereto) and Permitted Encumbrances.
(ii) Except as set forth on the attached Assets Schedule, all of the
---------------
Company's and its Subsidiaries' buildings, equipment, machinery, fixtures,
improvements and other tangible assets (whether owned or leased) are in good
condition and repair (except for ordinary wear and tear) and are fit for use in
the ordinary course of the Company's and such Subsidiaries' respective
businesses as presently conducted and as presently proposed to be conducted. All
such assets have been installed and maintained in all material respects in
accordance with all applicable laws, regulations and ordinances.
(iii) Except as set forth on the attached Assets Schedule, each of the
---------------
Company and its Subsidiaries owns, has a valid leasehold interest in, or has a
valid license to use, all the material assets, properties and rights, whether
tangible or intangible, necessary for the conduct of its business as presently
conducted and as presently proposed to be conducted prior to the Closing.
-19-
5O. Tax Matters.
-----------
(i) Except as set forth on the attached Taxes Schedule:
--------------
(a) the Company and each of its Subsidiaries have filed all Tax
Returns which it is required to file under applicable laws and regulations, and
all such Tax Returns are complete and correct and have been prepared in
compliance with all applicable laws and regulations;
(b) the Company and each of its Subsidiaries have paid all Taxes due
and owing by it (whether or not such Taxes are shown or required to be shown on
a Tax Return) and has withheld and paid over to the appropriate taxing authority
all Taxes which it is required to withhold from amounts paid or owing to any
employee, shareholder, creditor or other third party;
(c) neither the Company nor any of its Subsidiaries has waived any
statute of limitations with respect to any Taxes or agreed to any extension of
time for filing any Tax Return which has not been filed; and neither the Company
nor any of its Subsidiaries has consented to extend to a date later than the
date hereof the period in which any Tax may be assessed or collected by any
Taxing Authority;
(d) the accrual for Taxes on the Latest Balance Sheet would be
adequate to pay all Tax liabilities of the Company and its Subsidiaries if its
current tax year were treated as ending on the date of the Latest Balance Sheet
(excluding any amount recorded which is attributable solely to timing
differences between book and Tax income);
(e) since June 30, 1996, neither the Company nor any of its
Subsidiaries has incurred any liability for Taxes other than in the ordinary
course of business;
(f) the assessment of any additional Taxes for periods for which Tax
Returns have been filed by the Company or any of its Subsidiaries shall not
exceed the recorded liability therefor on the Latest Balance Sheet (excluding
any amount recorded which is attributable solely to timing differences between
book and Tax income);
(g) the federal income Tax Returns of the Company and its Subsidiaries
have been audited and are closed for all tax years through 1994;
(h) no foreign, federal, state or local tax audits or administrative
or judicial Tax proceedings are pending or being conducted with respect to the
Company or any of its Subsidiaries;
(i) neither the Company nor any of its Subsidiaries has received from
any foreign, federal, state or local taxing authority (including jurisdictions
where the Company or any of its Subsidiaries has filed Tax Returns) any (i)
written notice indicating an intent to open an audit or other review, (ii)
request for information related to Tax matters or (iii)
-20-
notice of deficiency or proposed adjustment for any amount of Tax proposed,
asserted or assessed by any taxing authority against the Company or any of its
Subsidiaries;
(j) there are no material unresolved questions or claims concerning
the Company's or any of its Subsidiaries' Tax liability;
(k) no claim has ever been made by a taxing authority in a
jurisdiction where the Company or any of its Subsidiaries do not file Tax
Returns that the Company or any of its Subsidiaries are or may be subject to
Taxes assessed by such jurisdiction;
(l) neither the Company nor any of its Subsidiaries has been a member
of an Affiliated Group or filed or been included in a combined, consolidated or
unitary income Tax Return;
(m) neither the Company nor any of its Subsidiaries is a party to or
bound by any Tax allocation or Tax sharing agreement;
(n) there are no Liens for Taxes (other than for current Taxes not yet
due and payable) upon the assets of the Company or any of its Subsidiaries;
(o) neither the Company nor any of its Subsidiaries shall be required
to (i) as a result of a change in method of accounting for a taxable period
ending on or prior to the Closing Date, include any adjustment in taxable income
for any taxable period (or portion thereof) ending after the Closing Date, (ii)
as a result of any "closing agreement," as described in Section 7121 of the Code
(or any corresponding provision of state, local or foreign income Tax law)
executed on or before the Closing Date, include any item of income in, or
exclude any item of deduction from, taxable income for any taxable period (or
portion thereof) ending after the Closing Date, (iii) as a result of any sale
reported on the installment method where such sale occurred on or prior to the
Closing Date, include any item of income in, or exclude any item of deduction
from, taxable income for any taxable period (or portion thereof) ending after
the Closing Date, or (iv) as a result of any prepaid amount received on or prior
to the Closing Date, include any item of income in, or exclude any item of
deduction from, taxable income for any taxable period (or portion thereof)
ending after the Closing Date; and.
(p) the E-Tek Dynamics Foreign Sales Corporation currently is and has
been since the date of its creation, an FSC, as described in Section 922 of the
Code (or any corresponding provision of state, local or foreign income Tax law).
(ii) Neither the Company nor any of its Subsidiaries:
(a) has made an election under Section 341(f) of the Code; and
-21-
(b) is presently liable for the Taxes of another Person (1) under
Treas. Reg. Section 1.1502-6 (or comparable provisions of state, local or
foreign law), (2) as a transferee or successor, or (3) by contract or
indemnity or otherwise.
5P. Contracts and Commitments.
-------------------------
(i) Except as expressly contemplated by this Agreement or as set forth on
the attached Contracts Schedule, the attached Intellectual Property Schedule,
------------------ ------------------------------
the attached Employees Schedule, or the attached Employee Benefits Schedule,
------------------ --------------------------
neither the Company nor any of its Subsidiaries is a party to or bound by any
written or oral:
(a) pension, profit sharing, stock option, employee stock purchase or
other plan or arrangement providing for deferred or other compensation to
employees or any other employee benefit plan, arrangement or practice,
whether formal or informal;
(b) collective bargaining agreement or any other contract with any
labor union, or severance agreements, programs, policies or arrangements;
(c) management agreement, contract for the employment of any officer,
individual employee or other Person on a full-time, part-time, consulting
or other basis providing annual cash or other compensation in excess of
$50,000 or providing for the payment of any cash or other compensation or
benefits upon the consummation of the transactions contemplated hereby;
(d) contract or agreement requiring the consent of any party thereto
upon a change in control of the Company or such Subsidiary, containing any
provision which would result in a modification of any rights or obligations
of any party thereunder upon a change in control of the Company or such
Subsidiary or which would provide any party any remedy (including
rescission or liquidated damages) in the event of a change in control of
the Company or such Subsidiary;
(e) contract under which it has advanced or loaned monies to any other
Person or otherwise agreed to advance, loan or invest any funds (other than
advances to the Company's employees in the ordinary course of business
consistent with past practice);
(f) agreement or indenture relating to borrowed money or other
Indebtedness or the mortgaging, pledging or otherwise placing a Lien on any
material asset or material group of assets of the Company or any of its
Subsidiaries or any letter of credit arrangements;
(g) guaranty of any obligation for borrowed money or otherwise other
than endorsements made for collection in the ordinary course of business;
(h) lease or agreement under which the Company or any of its
Subsidiaries is lessee of or holds or operates any personal property, owned
by any other
-22-
party, except for any lease of personal property under which the aggregate
annual rental payments do not exceed $25,000;
(i) lease or agreement under which the Company or any of its
Subsidiaries is lessor of or permits any third party to hold or operate any
property, real or personal, owned or controlled by the Company;
(j) license or royalty agreements;
(k) nondisclosure or confidentiality agreements (other than any such
agreements entered into in the ordinary course of business which require
the recipient to maintain confidentiality for a period of three to five
years after disclosure);
(l) local service agreements (including cleaning, guard service, lawn
and snow removal) and maintenance agreements (including vehicle and
equipment maintenance agreements) involving annual payments in excess of
$25,000;
(m) contract or group of related contracts with the same party or
group of affiliated parties for the purchase of raw materials, commodities,
supplies, products, equipment or other personal property or for the receipt
of services under which the undelivered balance of such products and
services has a selling price in excess of $50,000 (other than any purchase
order or group of purchase orders received in the ordinary course of
business with an undelivered balance of less than $200,000);
(n) contract or group of related contracts with the same party or
group of affiliated parties for the sale of raw materials, commodities,
supplies, products or other personal property or for the furnishing of
services under which the undelivered balance of such products or services
due from the Company or any of its Subsidiaries has a selling price in
excess of $50,000 (other than any purchase order or group of purchase
orders received in the ordinary course of business with an undelivered
balance of less than $200,000);
(o) other contract or group of related contracts with the same party
or group of affiliated parties continuing over a period of more than six
months from the date or dates thereof, not terminable by the Company or any
of its Subsidiaries upon 30 days' or less notice without penalty or
involving more than $50,000;
(p) contract or group of related contracts requiring the payment of
any fee, penalty or other amount by the Company or any of its Subsidiaries
in the event of any failure to perform or late performance of such contract
or contracts by the Company or such Subsidiary;
(q) contract relating to the marketing, sale, advertising or
promotion of its products;
-23-
(r) warranty agreement with respect to products sold or leased (other
than any such agreement containing the standard terms and conditions
described on the attached Product Warranty Schedule) or indemnity agreement
-------------------------
with any supplier under which it is obligated to indemnify such supplier
against product liability claims;
(s) agreements relating to the ownership of or investments in any
business or enterprise, including investments in joint ventures and
minority equity investments;
(t) assignment, license, indemnification or other agreement with
respect to any intangible property (including any Intellectual Property
Rights);
(u) agreement under which it has granted any Person any registration
rights (including demand or piggyback registration rights);
(v) broker, agent, sales representative, sales or distribution
agreement or agreement relating to the export and/or import of any goods or
equipment ;
(w) power of attorney or other similar agreement or grant of agency;
(x) contract or agreement prohibiting it from freely engaging in any
business or competing anywhere in the world; or
(y) other agreement which is material to its operations and business
prospects or involves a consideration in excess of $50,000 annually,
whether or not in the ordinary course of business.
(ii) All of the contracts, agreements and instruments set forth or required
to be set forth on the attached Contracts Schedule are valid, binding and
------------------
enforceable in accordance with their respective terms and shall be in full force
and effect without penalty in accordance with their terms upon consummation of
the transactions contemplated hereby. Each of the Company and its Subsidiaries
has performed all material obligations required to be performed by it and is not
in default under or in breach of nor in receipt of any claim of default or
breach under any contract, agreement or instrument to which the Company or such
Subsidiary is subject; no event has occurred which with the passage of time or
the giving of notice or both would result in a default, breach or event of
noncompliance by the Company or any of its Subsidiaries under any material
contract, agreement or instrument to which the Company or any of its
Subsidiaries is subject; neither the Company nor or any of its Subsidiaries has
any present expectation or intention of not fully performing on a timely basis
all such obligations required to be performed by the Company or such Subsidiary
under any contract, agreement or instrument to which the Company or such
Subsidiary is subject; no partially-filled or unfilled customer purchase order
or sales order is subject to cancellation or any other material modification by
the other party thereto or is subject to any penalty, right of set-off or other
charge by the other party thereto for late performance or delivery; and neither
the Company nor or any of its Subsidiaries has any knowledge of any breach or
cancellation or anticipated cancellation by the other parties to any contract,
agreement, instrument or commitment to which it is a party. Neither the Company
nor or any of its Subsidiaries is a party to
-24-
any contract, agreement or commitment the performance of which could reasonably
be expected to have a Material Adverse Effect.
(iii) The Purchasers' special counsel has been supplied with a true and
correct copy of each of the written instruments, plans, contracts and agreements
and an accurate description of each of the oral arrangements, contracts and
agreements which are referred to on the attached Contracts Schedule, together
------------------
with all amendments, waivers or other changes thereto.
5Q. International Trade Laws and Regulations. Except as set forth on the
----------------------------------------
attached International Trade Compliance Schedule:
---------------------------------------
(i) The Company, each of its Subsidiaries and each of the Shareholders
have complied and are in compliance with all International Trade Laws and
Regulations applicable to such Person in connection with the conduct of the
respective businesses of the Company and its Subsidiaries and neither the
Company, any of its Subsidiaries nor any of the Shareholders has committed any
violation of any International Trade Laws and Regulations.
(ii) Each of the Company and its Subsidiaries holds, and has maintained
in satisfactory condition, all permits, licenses, bonds, approvals,
certificates, registrations and other authorizations required by all
International Trade Laws and Regulations or required by federal, foreign or
international authorities for the conduct of the Company's business activities
in, and its import, export and other trade activities with, the United States
and foreign jurisdictions.
(iii) Neither the Company, any of its Subsidiaries nor any of the
Shareholders have received any oral or written notice, whether in the form of
claims, reports, notices, assessments, letters, demands, instructions, forms or
written or oral requests for additional information, pertaining to the direct or
indirect export from, or importation into, the United States or any foreign
jurisdiction of the Company's products, equipment, services, or technology.
(iv) Neither the Company, any of its Subsidiaries nor any of the
Shareholders are or have been the subject of any civil or criminal
investigation, litigation, audit, penalty, proceeding or assessment, liquidated
damages proceeding or claim, forfeiture or forfeiture action, claim for
additional customs duties or fees, denial orders, suspension of export
privileges, governmental sanctions, or any other action, proceeding or claim by
any foreign, federal, state or local governmental agency involving or otherwise
relating to any alleged or actual violation of International Trade Laws and
Regulations or relating to any alleged or actual underpayment of customs duties,
fees, taxes or other amounts owed pursuant to any International Trade Laws and
Regulations and, to the knowledge of the Company, there is no basis for any of
the foregoing.
(v) Neither the Company, any of its Subsidiaries nor any of the
Shareholders have made or provided any material false statement or material
omission to any agency of federal, state or local government, purchaser of
products, or foreign government or foreign agency, in connection with the
exportation of merchandise (including with respect to export licenses,
exceptions, and other export authorizations and any filings required for or
related to exportation of any item), the importation of merchandise (including
the valuation or classification of imported merchandise, the
-25-
duty treatment of imported merchandise, the eligibility of imported merchandise
for favorable duty rates or other special treatment, country-of-origin marking,
NAFTA Certificates, other statements or certificates concerning origin, quota or
visa rights) or other approvals required by a foreign government or agency or
any other requirement relating to any International Trade Laws and Regulations.
(vi) Neither the Company, any of its Subsidiaries nor any of the
Shareholders have made any payment, offer, gift, promise to give, or authorized
or otherwise participated in, assisted or facilitated any payment or gift that
is prohibited by the United States Foreign Corrupt Practices Act.
(vii) Neither the Company, any of its Subsidiaries nor any of the
Shareholders have engaged in or otherwise participated in, assisted or
facilitated any transaction that is prohibited by any applicable embargo or
related trade restriction imposed by the United States Office of Foreign Assets
Control or any other agency of the United States government.
(viii) The Company and its Subsidiaries have paid in full all customs
duties and assessments relating to imports or exports (including regular duties,
tariffs, marking duties, dumping and antidumping duties, countervailing duties,
merchandise processing fees, harbor maintenance fees, and any other charge, fee
or assessment relating to imports or exports) and any interest, penalties,
liquidated damages, or other additions to these amounts due and owing by it.
Since June 30, 1996, neither the Company nor any of its Subsidiaries has
incurred any liability for any of the foregoing amounts other than in the
ordinary course of business consistent with past practice.
(ix) Neither the Company nor any of its Subsidiaries has received from
any foreign, federal, state or local customs or other similar authority any (i)
written or oral notice indicating an intent to open an audit or other review,
(ii) request for information related to customs duties matters, or (iii) notice
of deficiency or proposed adjustment for any amount of customs duties assessed,
proposed or asserted by any customs or other similar authority against the
Company or such Subsidiary.
(x) There are no material unresolved questions or claims concerning
any liability of the Company or any of its Subsidiaries with respect to any
International Trade Law or Regulations.
(xi) Each of the Company and its Subsidiaries has complied with and
continues to comply with all recordkeeping requirements of all applicable
International Trade Laws and Regulations, including the recordkeeping
requirements of the U.S. Customs Service relating to imports and the
recordkeeping requirements of the U.S. Department of Commerce and the U.S.
Department of State relating to exports.
(xii) The attached International Trade Compliance Schedule sets forth a
---------------------------------------
list of each foreign jurisdiction to which the Company or any of its
Subsidiaries exports any products, equipment, services or technology, each
foreign jurisdiction from which the Company or any of its Subsidiaries imports
any products, equipment, services or technology and each foreign jurisdiction
-26-
to which the Company's or any of its Subsidiaries' products, equipment, services
or technology or products of such technology are reexported.
5R. Intellectual Property Rights.
----------------------------
(i) The attached Intellectual Property Schedule contains a complete and
------------------------------
accurate list of all (a) patented or registered Intellectual Property Rights
owned or, to the Company's knowledge, used by the Company or any of its
Subsidiaries, (b) pending patent applications and applications for registrations
of other Intellectual Property Rights filed by the Company or any of its
Subsidiaries, and (c) material unregistered Intellectual Property Rights owned
or used by the Company or any of its Subsidiaries. The attached Intellectual
------------
Property Schedule also contains a complete and accurate list of all licenses
-----------------
and other rights granted by the Company or any of its Subsidiaries to any third
party with respect to any Intellectual Property Rights and all licenses and
other rights granted by any third party to the Company or any of its
Subsidiaries with respect to any Intellectual Property Rights, in each case
identifying the subject Intellectual Property Rights. Each of the Company and
its Subsidiaries owns all right, title and interest to, or has the right to use
pursuant to a valid license, all Intellectual Property Rights necessary for the
operation of its business as presently conducted and as presently proposed to be
conducted prior to the Closing, free and clear of all Liens. Without limiting
the generality of the foregoing, the Company owns all right, title and interest
in and to all Intellectual Property Rights created or developed by or under the
direction or supervision of J.J. Pan relating to the business of the Company or
any of its Subsidiaries or to the actual or demonstratively anticipated research
or development conducted by the Company or any of its Subsidiaries. The Company
does not believe it is or will be necessary to utilize any Intellectual Property
Rights of any of its employees developed, invented or made prior to their
employment by the Company except for any such Intellectual Property Rights that
have previously been assigned to the Company. Except as set forth on the
attached Intellectual Property Schedule, the loss or expiration of any
------------------------------
Intellectual Property Right or related group of Intellectual Property Rights
owned or used by the Company or any of its Subsidiaries has not had and would
not reasonably be expected to have a Material Adverse Effect, and no loss or
expiration of any Intellectual Property Right is, to the Company's knowledge,
threatened, pending or reasonably foreseeable. Each of the Company and its
Subsidiaries has taken commercially reasonable action to maintain and protect
the Intellectual Property Rights which it owns and uses. To the Company's
knowledge, the owners of any Intellectual Property Rights licensed to the
Company and its Subsidiaries have taken commercially reasonable action to
maintain and protect the Intellectual Property Rights which are subject to such
licenses.
(ii) Except as set forth on the attached Intellectual Property Schedule,
------------------------------
(a) there have been no claims made against the Company or any of its
Subsidiaries asserting the invalidity, misuse or unenforceability of any of the
Intellectual Property Rights owned or used by the Company or any of its
Subsidiaries and, to the Company's knowledge, there is no basis for any such
claim, (b) neither the Company nor any of its Subsidiaries has received any
notices of, and has no knowledge of any facts which indicate a likelihood of,
any infringement or misappropriation by, or conflict with, any third party with
respect to such Intellectual Property Rights (including any demand or request
that the Company or any of its Subsidiaries license any rights from a third
party), (c) the conduct of the Company's and its Subsidiaries' respective
businesses has not infringed,
-27-
misappropriated or conflicted with and does not infringe, misappropriate or
conflict with any Intellectual Property Rights of other Persons and (d) to the
Company's knowledge, the Intellectual Property Rights owned by or licensed to
the Company or any of its Subsidiaries have not been infringed, misappropriated
or conflicted by other Persons. The transactions contemplated by this Agreement
will have no material adverse effect on the Company's and its Subsidiaries'
right, title or interest in and to the Intellectual Property Rights listed on
the Intellectual Property Schedule and all of such Intellectual Property Rights
------------------------------
shall be owned or available for use by the Company and its Subsidiaries on
substantially identical terms and conditions immediately after the Closing.
5S. Litigation, etc. Except as set forth on the attached Litigation
--------------- ----------
Schedule, there are no (and, during the five years preceding the date hereof,
--------
there have not been any) actions, suits, proceedings (including any arbitration
proceedings), orders, investigations or claims pending or, to the Company's
knowledge, threatened against or affecting the Company or any of its
Subsidiaries (or to the Company's knowledge, pending or threatened against or
affecting any of the officers, directors or employees of the Company with
respect to its business or proposed business activities), or pending or
threatened by the Company or any of its Subsidiaries against any third party, at
law or in equity, or before or by any governmental department, commission,
board, bureau, agency or instrumentality (including any actions, suits,
proceedings or investigations with respect to the transactions contemplated by
this Agreement); neither the Company nor any of its Subsidiaries is subject to
any arbitration proceedings under collective bargaining agreements or otherwise
or any governmental investigations or inquiries; and, to the Company's
knowledge, there is no basis for any of the foregoing. The foregoing includes,
without limitation, actions pending or threatened involving the prior employment
of any of the Company's employees, their use in connection with the Company's or
any of its Subsidiaries' businesses of any information or techniques allegedly
proprietary to any of their former employers or their obligations under any
agreements with prior employers. The Company is fully insured with respect to
each of the matters set forth on the attached Litigation Schedule. Neither the
-------------------
Company nor any of its Subsidiaries is subject to any judgment, order or decree
of any court or other governmental agency, and neither the Company nor any of
its Subsidiaries has received any opinion or memorandum or legal advice from
legal counsel to the effect that it is exposed, from a legal standpoint, to any
liability which would be expected to have a Material Adverse Effect.
5T. Brokerage. Except for the Company's obligations to Broadview
---------
Associates, LLC or up to $3,000,000 pursuant to the agreement described on the
Contracts Schedule attached hereto, there are and shall be no claims for
------------------
brokerage commissions, finders' fees or similar compensation in connection with
the transactions contemplated by this Agreement based on any arrangement or
agreement to which the Company or any of its Subsidiaries are a party or to
which the Company or any of its Subsidiaries are subject.
5U. Insurance. The attached Insurance Schedule contains a description of
--------- ------------------
each insurance policy maintained by the Company with respect to its and its
Subsidiaries' properties, assets and business, and each such policy shall be in
full force and effect as of the Closing. The Company is not in default with
respect to its obligations under any insurance policy maintained by it, and the
Company has never been denied insurance coverage. Except as set forth on the
attached Insurance Schedule, the Company has no self-insurance or co-insurance
------------------
programs, and the reserves
-28-
set forth on the Latest Balance Sheet are adequate to cover all anticipated
liabilities with respect to any such self-insurance or co-insurance programs.
5V. Employees. To the Company's knowledge, no executive or key employee of
---------
the Company and no group of employees of the Company has any plans to terminate
employment with the Company other than T.S. Pan. None of the Company's
Subsidiaries has any employees or pays any compensation to any Person as an
employee, independent contractor or consultant. The Company has complied and is
in compliance, in all material respects, with all laws relating to the
employment of labor (including provisions thereof relating to wages, hours,
equal opportunity, immigration, collective bargaining and the payment of social
security and other taxes), and the Company has no material labor relations
problems (including any union organization activities, threatened or actual
strikes or work stoppages or material grievances). The Employees Schedule
------------------
attached hereto contains a correct and complete list of all employees of the
Company who are not citizens of the United States of America and who are not
permanent residents of the United States of America together with a listing of
each such employee's visa status and visa expiration date. The Company has not
engaged in any unfair labor practices and during the past five years the Company
has not suffered any labor strike, lockout, work stoppage or other material
labor dispute. None of the Company, the Shareholders, the Executives or, to
Company's knowledge, any of its other employees or consultants are subject to
any noncompete, nondisclosure, confidentiality, employment, consulting or other
agreement or judgment, decree or order of any court or administrative agency,
relating to, affecting or in conflict with the present or proposed business
activities of the Company or such Person's duties to the Company, except for
agreements between the Company and its present and former employees. The Company
has not received any notice alleging that any violation of any such agreements
has occurred. The Employees Schedule attached hereto contains a correct and
------------------
complete list of all employees and consultants of the Company which have
executed and delivered to the Company any (i) agreement providing for the
nondisclosure by such Person of any confidential information of the Company or
(ii) agreement providing for the assignment or license by such Person to the
Company of any Intellectual Property Rights (an "Inventions Agreement"). No
--------------------
current employee or consultant of the Company has excluded works or inventions
made prior to his or her employment with the Company from any Inventions
Agreement between the Company and such Person. Except as set forth on the
attached Employee Benefits Schedule, no employee of the Company has been granted
--------------------------
the right to any material compensation following termination of employment with
the Company except as provided by law.
5W. ERISA.
-----
(i) The Company does not have any obligation to contribute to (or any
other liability, including current or potential withdrawal liability, with
respect to) any "multiemployer plan" (as defined in Section 3(37) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")).
-----
(ii) The Company does not maintain or have any obligation to contribute to
(or any other liability with respect to) any plan or arrangement, whether or not
terminated, which provides medical, health, life insurance or other welfare-type
benefits for current or future retired or terminated employees or any dependents
of such employees (except for limited continued medical
-29-
benefit coverage required to be provided under Section 4980B of the Code
("COBRA") or as required under applicable state law).
-----
(iii) The Company does not maintain, contribute to or have any actual or
potential liability under (or with respect to) any employee plan which is a
"defined benefit plan" (as defined in Section 3(35) of ERISA).
(iv) The Company does not maintain, contribute to or have any actual or
potential liability under (or with respect to) any employee plan which is a
"defined contribution plan" (as defined in Section 3(34) of ERISA), whether or
not terminated, other than the E-Tek Dynamics, Inc. 401(k) Plan (the "401(k)
------
Plan"). The 401(k) Plan is listed on the Employee Benefits Schedule.
---- --------------------------
(v) Except as set forth on the attached Employee Benefits Schedule under
--------------------------
the heading "Other Plans" (the "Other Plans"), the Company does not maintain,
-----------
contribute to or have any actual or potential liability under (or with respect
to) any plan or arrangement providing benefits or remuneration to current or
former employees or independent contractors, including any employment contract,
bonus or incentive plan, plan for deferred compensation, employee health or
other welfare benefit plan, severance arrangement or other material policy,
program or arrangement, whether or not terminated. The attached Employee
--------
Benefits Schedule sets forth the aggregate amount of bonuses and other incentive
-----------------
compensation reasonably expected to be paid by the Company for the fiscal year
ending June 30, 1997.
(vi) With respect to the 401(k) Plan and the Other Plans set forth on the
attached Employee Benefits Schedule (the "Plans"), all required payments,
-------------------------- -----
premiums, contributions, reimbursements or accruals for all periods ending prior
to or as of the Closing Date shall have been made or properly accrued. None of
the Plans has any material unfunded liabilities which are not reflected on the
Latest Balance Sheet.
(vii) The Plans and all related trusts, insurance contracts and funds have
been maintained, funded and administered in compliance in all material respects
with the applicable provisions of ERISA, the Code and other applicable laws. The
Company has timely complied with all reporting and disclosure obligations as
they apply to the Plans, and the Company has complied with the requirements of
COBRA. To the Company's knowledge, none of the Company or any trustee or
administrator of any Plan has engaged in any transaction with respect to the
Plans which would subject the Company or any trustee or administrator of the
Plans, or any party dealing with any such Plan, nor do the transactions
contemplated by this Agreement constitute transactions which would subject any
such party, to either a civil penalty assessed pursuant to Part 502(i) of ERISA,
or any other penalty or excise tax or the tax or penalty on prohibited
transactions imposed by Section 4975 of the Code or any other penalty or excise
tax. No actions, suits or claims with respect to the assets of the Plans (other
than routine claims for benefits) are pending or, to the Company's knowledge,
threatened which could result in or subject the Company to any liability and
there are no circumstances which would give rise to or be expected to give rise
to any such actions, suits or claims.
-30-
(viii) A favorable determination letter from the Internal Revenue
Service has been received by the Company with respect to the 401(k) Plan to the
effect that it is qualified under Section 401(a) of the Code (including
requirements imposed by the Tax Reform Act of 1986 and subsequent legislation),
and, to the Company's knowledge, there are no circumstances which would cause
the 401(k) Plan to lose such qualified status.
(ix) The Company has provided the Purchasers with (a) the most recent
favorable determination letter issued with respect to the 401(k) Plan, (b) true
and complete copies of all documents pursuant to which the Plans are maintained
and administered, including the most recent summary plan description and (c) the
two most recent annual reports (Form 5500 and attachments) for the Plans.
(x) For purposes of this Paragraph 5W, the term "Company" includes
-------
all organizations under common control with the Company pursuant to Section 414
of the Code.
5X. Compliance with Laws; Permits: Certain Operations. Except as set
-------------------------------------------------
forth on the attached Compliance Schedule:
-------------------
(i) Each of the Company and its Subsidiaries has complied and
is in compliance in all respects with all applicable laws, ordinances, codes,
rules, requirements and regulations of foreign, federal, state and local
governments and all agencies thereof relating to the operation of its business.
No notices have been received by and no claims have been filed against the
Company or any of its Subsidiaries alleging a violation of any such laws,
ordinances, codes, rules, requirements or regulations.
(ii) Each of the Company and its Subsidiaries holds all
permits, licenses, certificates, accreditations and other authorizations of all
foreign, federal, state and local governmental agencies required for the conduct
of its business and the ownership of its properties, and the attached Permits
-------
Schedule sets forth a list of all of such permits, licenses, certificates,
--------
accreditations and other authorizations. No notices have been received by the
Company or any of its Subsidiaries alleging the failure to hold any permit,
license, certificate, accreditation or other authorization. Each of the Company
and its Subsidiaries is in compliance with all terms and conditions of all
permits, licenses, accreditations and authorizations which it holds. All of such
permits, licenses, accreditations and authorizations will be available for use
by the Company and its Subsidiaries, as the case may be, immediately after the
Closing.
(iii) No officer, director, employee, consultant, advisor or
agent of the Company or any of its Subsidiaries has been or is authorized to
make or receive, and none of the Company, any of its Subsidiaries or any of its
officers, directors, employees, consultants, advisors or agents has made or
received any bribe, kickback payment or other similar payment at any time with
respect to its business. Neither the Company nor any of its Subsidiaries has
made any political contributions or pledges.
-31-
5Y. Environmental and Safety Matters.
--------------------------------
(i) Except as set forth on the attached Environmental Schedule:
----------------------
(a) Each of the Company and its Subsidiaries has complied with and is
currently in compliance in all respects with all Environmental and Safety
Requirements. Neither the Company nor any of its Subsidiaries have received
any oral or written notice. report or information regarding any violations
or alleged violations of or any liabilities (whether accrued, absolute,
contingent, unliquidated or otherwise) or corrective, investigatory or
remedial obligations arising under Environmental and Safety Requirements
which relate to the Company or any of their current or former properties or
facilities.
(b) Without limiting the generality of the foregoing, each of the
Company and its Subsidiaries has obtained and complied with, and is
currently in compliance with, all permits, licenses and other
authorizations that may be required pursuant to any Environmental and
Safety Requirements for the occupancy of its properties or facilities or
the operation of its business. A list of all such permits, licenses and
other authorizations is set forth on the attached Permits Schedule.
----------------
(c) Neither this Agreement nor the consummation of the transactions
contemplated by this Agreement shall impose any obligations on the Company
or any of its Subsidiaries for site investigation or cleanup, or
notification to or consent of any government agencies or third parties
under any Environmental and Safety Requirements (including any so called
"transaction-triggered" or "responsible property transfer" laws and
regulations).
(d) None of the following exists at any property or facility owned,
occupied or operated by the Company or any of its Subsidiaries:
(1) underground storage tanks;
(2) asbestos-containing materials in any form or condition;
(3) materials or equipment containing polychlorinated
biphenyls; or
(4) landfills, surface impoundments or other disposal
areas.
(e) Neither the Company nor any of its Subsidiaries has treated,
stored, disposed of, arranged for or permitted the disposal of,
transported, handled or Released any substance (including any hazardous
substance) or owned, occupied or operated any facility or property (and no
such property or facility is contaminated by any such substance) in a
manner that has given or could give rise to any liabilities (including any
liability for response costs, corrective action costs, personal injury,
natural resource damages, property damage or attorneys fees or any
investigative, corrective or remedial obligations) pursuant to CERCLA or
any other Environmental and Safety Requirements.
-32-
(f) Without limiting the generality of the foregoing, no facts, events
or conditions relating to the past or present properties, facilities or
operations of the Company or any of its Subsidiaries shall prevent, hinder
or limit continued compliance with Environmental and Safety Requirements,
give rise to any material corrective, investigatory or remedial obligations
pursuant to Environmental and Safety Requirements or give rise to any other
liabilities (whether accrued, absolute, contingent, unliquidated or
otherwise) pursuant to Environmental and Safety Requirements (including
those liabilities relating to onsite or offsite Releases or threatened
Releases of hazardous materials, substances or wastes, personal injury,
property damage or natural resources damage).
(g) Neither the Company nor any of its Subsidiaries has, either
expressly or by operation of law, assumed or undertaken any liability or
corrective, investigatory or remedial obligation of any other Person
relating to any Environmental and Safety Requirements.
(h) No Environmental Lien has attached to any property owned, leased
or operated by the Company or any of its Subsidiaries.
5Z. Affiliated Transactions. Except as set forth on the attached
-----------------------
Affiliated Transactions Schedule, no officer, director, shareholder or Affiliate
--------------------------------
of the Company or any of its Subsidiaries or, to the Company's knowledge,
employee of the Company or any individual related by blood, marriage or adoption
to any such individual or any entity in which any such Person or individual owns
any beneficial interest, is a party to any agreement, contract, commitment or
transaction with the Company or has any material interest in any material
property used by the Company or any of its Subsidiaries (including any
Intellectual Property Rights).
5AA. Names and Locations. Except as set forth on the attached Names and
------------------- ---------
Locations Schedule, during the five-year period prior to the execution and
------------------
delivery of this Agreement, neither the Company nor any of its Subsidiaries has
used any name or names under which it has invoiced account debtors, maintained
records concerning its assets or otherwise conducted business. All of the
tangible assets and properties of the Company and its Subsidiaries are located
at the locations set forth on the Names and Locations Schedule.
----------------------------
5BB. Suppliers and Customers. The Suppliers and Customers Schedule attached
----------------------- --------------------------------
hereto accurately sets forth a list of the top ten customers and suppliers of
the Company by dollar volume of sales and purchases, respectively, for each of
the fiscal years ended June 30, 1996 and June 30, 1995. The Company has not
received any indication from any material supplier to the effect that, and the
Company has no reason to believe that, such supplier will stop, materially
decrease the rate of, or materially change the terms (whether related to
payment, price or otherwise) with respect to, supplying materials, products or
services to the Company (whether as a result of the consummation of the
transactions contemplated hereby or otherwise). The Company has not received any
indication from any material customer of the Company to the effect that, and the
Company has no reason to believe that, such customer will stop, or materially
decrease the rate of, buying products of the Company (whether as a result of the
consummation of the transactions contemplated hereby or otherwise).
-33-
5CC. Real Property.
-------------
(i) The Real Property Schedule attached hereto sets forth a list of all
----------------------
real property owned by the Company or any of its Subsidiaries (collectively, the
"Owned Real Property"). With respect to each such parcel of Owned Real Property:
-------------------
(a) such parcel is free and clear of all Liens, except Permitted Encumbrances
and the deed of trust in favor of Bank of America, N.A. described on the
attached Real Property Schedule; (b) there are no leases, subleases, licenses,
----------------------
concessions, or other agreements, written or oral, granting to any person the
right of use or occupance of any portion of such parcel other than as set forth
on the Real Property Schedule attached hereto; and (c) there are no outstanding
----------------------
actions or rights of first refusal to purchase such parcel, or any portion
thereof or interest therein.
(ii) The Real Property Schedule attached hereto sets forth a list of all
----------------------
of the leases, subleases and licenses ("Leases") of real property in which the
------
Company or any of its Subsidiaries have a leasehold, subleasehold and licensed
interest. The Company or such Subsidiary holds a valid and existing leasehold,
subleasehold or license interest under each of the Leases. With respect to each
Lease listed on the attached Real Property Schedule, there are no disputes, oral
----------------------
agreements, or forbearance programs in effect as to such Leases and neither the
Company nor any of its Subsidiaries have assigned, transferred, conveyed,
mortgaged, deeded in trust or encumbered any interest in the Lease.
(iii) Except for the real property set forth on the attached Real Property
-------------
Schedule (the "Real Property"), there is no real property leased or owned by the
-------- -------------
Company or used in the Company's business.
(iv) There are no proceedings in eminent domain or other similar
proceedings pending or, to the Company's knowledge, threatened or affecting any
portion of the Real Property. There exists no writ, injunction, decree, order or
judgment outstanding, nor any litigation, pending or threatened, relating to the
ownership, lease, use, occupancy or operation by any Person of the Real
Property.
(v) The current use of the Real Property does not violate any instrument
of record or agreement affecting such Real Property. There is no violation of
any covenant, condition, restriction, easement, agreement or order of any
governmental authority having jurisdiction over any of the Real Property that
affects such real property or the use or occupancy thereof. No damage or
destruction has occurred with respect to any of the Real Property that,
individually or in the aggregate, has had or resulted in, or will have or result
in, a Material Adverse Effect.
(vi) All buildings and all components of all buildings, structures and
other improvements included within the Real Property (the "Improvements") are in
------------
good condition and repair and adequate to operate such facilities as currently
used. There are no facts or conditions affecting any of the Improvements which
would, individually or in the aggregate, interfere in any significant respect
with the use, occupancy or operation thereof as currently used, occupied or
operated or intended to be used, occupied or operated. There are no structural
deficiencies or latent defects affecting any Improvements located upon the Real
Property. All utilities and other similar
-34-
systems serving the Real Property are installed and operating and are sufficient
to enable the Real Property to continue to be used and operated in the manner
currently being used and operated, and any so-called hook-up fees or other
associated charges have been fully paid. Each such utility or other service is
provided by a public or private utility or service company and enters the Real
Property from an adjacent public street or valid private easement owned by the
supplier of such utility or other service. Each Improvement has direct access to
a public street adjoining the Real Property on which such Improvement is
situated over the driveways and accessways currently being used in connection
with the use and operation of such Improvement and no existing accessway crosses
or encroaches upon any property or property interest not owned by the Company or
any of its Subsidiaries. No Improvement or portion thereof is dependent for its
access, operation or utility on any land, building or other improvement not
included in the Real Property.
(vii) The Real Property is in compliance with all applicable building,
zoning, subdivision and other land use and similar laws affecting the Real
Property (collectively, the "Real Property Laws"), and neither the Company nor
------------------
any of its Subsidiaries has received any notice of violation or claimed
violation of any Real Property Law. There is no pending or, to the Company's
knowledge, any anticipated change in any law that will have or result in a
significant adverse effect upon the ownership, alteration, use, occupancy or
operation of the Real Property or any portion thereof. No current use by the
Company or any of its Subsidiaries of any of the Real Property is dependent on a
nonconforming use or other approval from a governmental authority, the absence
of which would limit the use of any of the properties or assets in its operation
of its business.
5DD. Regulatory Status. Since its date of incorporation, neither the
-----------------
Company nor any of its Subsidiaries has been, and as of the Closing Date shall
not be, a "United States real property holding corporation," as defined in
Section 897(c)(2) of the Code and in Section 1.897-2(b) of the Treasury
Regulations issued thereunder. Neither the Company nor any of its Subsidiaries
is an "investment company" or an "affiliated person" of, or "promoter" or
"principal underwriter" for, an "investment company," as such terms are defined
under the Investment Company Act of 1940, as amended. Neither the Company nor
any of its Subsidiaries is subject to any law which regulates the incurring of
Indebtedness by the Company or such Subsidiary, including any laws relating to
common contract carriers or the sale of electricity, gas, steam, water or other
public utility services.
5EE. Margin Securities. Neither the Company nor any of its Subsidiaries
-----------------
is engaged in the business of extending credit for the purpose of buying or
carrying "margin securities" within the meaning of Regulations G, T, U or X
promulgated by the Board of Governors of the Federal Reserve Board.
5FF. Disclosure. Neither this Agreement, any of the Exhibits or Schedules
----------
attached hereto nor any of the written statements, documents, certificates or
other items prepared and supplied to the Purchasers by or on behalf of the
Company or the Shareholders with respect to the transactions contemplated
hereby, when taken together as a whole, contain any untrue statement of a
material fact or omit a material fact necessary to make each statement contained
herein or therein, in light of the circumstances in which they were made, not
misleading. There is no fact which the Company has not disclosed to the
Purchasers in writing and of which any of its shareholders,
-35-
officers, directors or executive employees is aware which has had or would
reasonably be expected to have a Material Adverse Effect.
5GG. Closing Date. The representations and warranties of the Company
------------
contained in this Section 5 and elsewhere in this Agreement and all information
contained in any Exhibit, Schedule or attachment hereto or in any certificate or
other writing delivered by, or on behalf of, the Company to the Purchasers shall
be true and correct in all respects on the Closing Date as though then made and
as though the Closing Date was substituted for the date of this Agreement
throughout such representations and warranties, except to the extent of changes
expressly contemplated hereby and except for any representations and warranties
that speak only as of a certain date (which representations and warranties shall
be true and correct as of such date).
Section 6. Representations and Warranties of the Shareholders. As a
--------------------------------------------------
material inducement to the Purchasers to enter into this Agreement and purchase
the Preferred Stock hereunder, each Shareholder hereby, jointly and severally,
represents and warrants to the Purchasers and the Company as follows:
6A. Capacity; Power and Authority. Each Shareholder possesses all
-----------------------------
requisite power and authority necessary to carry out the transactions
contemplated by this Agreement. Each of the Trust Shareholders holds its
interests in the Company subject to a trust agreement that is valid, existing,
and enforceable under the laws of the State of California, and that provides its
trustees with all necessary power and authority to execute, deliver, and perform
its obligations under this Agreement and the other agreements contemplated
hereby to which such Trust Shareholder is a party. Each Trust Shareholder
executing this Agreement and such other agreements contemplated hereby is a duly
appointed, qualified, and acting trustee of such Trust Shareholder with all
requisite power and authority to execute, deliver, and perform all of such Trust
Shareholder's obligations under this Agreement and such other agreements
contemplated hereby. The copies of the trust instruments and other
organizational documents relating to each Trust Shareholder which have been
furnished to the Purchasers' special counsel reflect all amendments made thereto
prior to the date of this Agreement and are correct and complete.
6B. Authorization; No Breach. This Agreement and all other agreements
------------------------
contemplated hereby to which any Shareholder is a party, when executed and
delivered by such Shareholder in accordance with the terms hereof, shall each
constitute a valid and binding obligation of such Shareholder, enforceable in
accordance with its terms. The execution and delivery by each Shareholder of
this Agreement and all other agreements contemplated hereby to which such
Shareholder is a party, the repurchase of the Repurchased Shares hereunder, and
the fulfillment of and compliance with the respective terms hereof and thereof
by such Shareholder, do not and shall not (i) conflict with or result in a
breach of the terms, conditions or provisions of, (ii) constitute a default
under (whether with or without the passage of time, the giving of notice or
both), (iii) result in the creation of any lien, security interest, charge or
encumbrance upon such Shareholder's assets pursuant to, (iv) give any third
party the right to modify, terminate or accelerate any obligation under, (v)
result in a violation of, or (vi) require any authorization, consent, approval,
exemption or other action by or notice or declaration to, or filing with, any
third party or any court or administrative or governmental body or agency
pursuant to, or any law, statute, rule or regulation
-36-
to which such Shareholder or the Company is subject, or any agreement,
instrument, order, judgment or decree to which such Shareholder is subject or by
which such Shareholder was formed (including any trust instrument), except for
any filing, notice or authorization required pursuant to the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇
Act.
6C. Title to Shares. All of the Repurchased Shares are owned of record and
---------------
beneficially by the Shareholders, and each Shareholder has good and marketable
title to the Repurchased Shares owned by such Shareholder, free and clear of all
Liens, agreements, voting trusts, proxies and other arrangements or restrictions
of any kind whatsoever (collectively, "Encumbrances"). At the Closing, the
------------
Shareholders shall sell to the Company good and marketable title to the
Repurchased Shares free and clear of all Encumbrances.
6D. Brokerage. There are no claims for brokerage commissions, finders'
---------
fees or similar compensation in connection with the transactions contemplated by
this Agreement based on any arrangement or agreement to which any Shareholder is
a party or to which any Shareholder is subject. Each Shareholder shall pay, and
hold the Company and the Purchasers harmless against, any liability, loss or
expense (including reasonable attorneys' fees and out-of-pocket expenses)
arising in connection with any such claim, including all amounts in excess of
$3,000,000 owing to Broadview Associates, LLC by the Company in connection with
the transactions contemplated hereby (whether pursuant to the agreement
described on the attached Contracts Schedule or otherwise).
------------------
6E. Litigation, etc. There are no actions, suits, proceedings (including
---------------
any arbitration proceedings), orders, investigations or claims pending or, to
any of the Shareholder's knowledge, threatened against or affecting any of the
Shareholders in which it is sought to restrain or prohibit or to obtain damages
or other relief in connection with the transactions contemplated hereby.
6F. Company Transactions. Neither of the Shareholders is a party to or
--------------------
bound by any agreement with respect to a Company Transaction other than this
Agreement, and each of the Shareholders has terminated all discussions with
third parties (other than the Purchasers) regarding Company Transactions.
6G. Closing Date. The representations and warranties of the Company
------------
contained in Section 5 and elsewhere in this Agreement, the representations and
warranties of the Shareholders contained in this Section 6 and elsewhere in this
Agreement and all information contained in any Exhibit, Schedule or attachment
hereto or in any certificate or other writing delivered by, or on behalf of, any
of the Shareholders or the Company to the Purchasers shall be true and correct
in all respects on Closing Date as though then made and as though the Closing
Date was substituted for the date of this Agreement throughout such
representations and warranties, except to the extent of any changes expressly
contemplated hereby and except for any representations and warranties that speak
only as of a certain date (which representations and warranties shall be true
and correct as of such date).
-37-
Section 7. Representations and Warranties of the Purchasers. As a material
------------------------------------------------
inducement to the Company and the Shareholders to enter into this Agreement and
take the actions set forth in Section 1, each Purchaser, with respect to itself
and not jointly with respect to any of the other Purchasers, hereby represents
and warrants to the Company and the Shareholders as follows:
7A. Organization, Power and Authority. Such Purchaser is duly
---------------------------------
organized, validly existing and in good standing under the laws of its
jurisdiction of organization. Such Purchaser possesses all requisite power and
authority necessary to carry out the transactions contemplated by this
Agreement.
7B. Authorization; No Breach. The execution, delivery and performance
------------------------
of this Agreement and all other agreements contemplated hereby to which such
Purchaser is a party have been duly authorized by such Purchaser. This Agreement
and all other agreements contemplated hereby to which such Purchaser is a party,
when executed and delivered by such Purchaser in accordance with the terms
hereof, shall each constitute a valid and binding obligation of such Purchaser,
enforceable in accordance with its terms. The execution and delivery by such
Purchaser of this Agreement and all other agreements contemplated hereby to
which such Purchaser is a party, the purchase of the Preferred Stock hereunder,
and the fulfillment of and compliance with the respective terms hereof and
thereof by such Purchaser, do not and shall not (i) conflict with or result in a
breach of the terms, conditions or provisions of, (ii) constitute a default
under (whether with or without the passage of time, the giving of notice or
both), (iii) give any third party the right to modify, terminate or accelerate
any obligation under, (iv) result in a violation of, or (v) require any
authorization, consent, approval, exemption or other action by or notice or
declaration to, or filing with, any court or administrative or governmental body
or agency pursuant to, the organizational documents of such Purchaser, or any
law, statute, rule or regulation to which such Purchaser is subject, or any
agreement, instrument, order, judgment or decree to which such Purchaser is
subject, except for any filing, notice or authorization required pursuant to the
▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act.
7C. Financing. Such Purchaser has, or will have on the Closing Date,
---------
sufficient funds available to pay its respective portion of the Purchase Price
as set forth on the Schedule of Purchasers attached hereto in immediately
----------------------
available funds on the Closing Date.
7D. Brokerage. There are no claims for brokerage commissions, finders'
---------
fees or similar compensation in connection with the transactions contemplated by
this Agreement based on any arrangement or agreement to which such Purchaser is
a party or to which such Purchaser is subject. Each of the Purchasers shall pay,
and hold the Company and the Shareholders harmless against, any liability, loss
or expense (including reasonable attorneys' fees and out-of-pocket expenses)
arising in connection with any such claim.
7E. Investment Representations.
--------------------------
(i) Such Purchaser hereby represents that it is acquiring the
Restricted Securities to be purchased by it hereunder for its own account, not
as a nominee or agent, with the present intention of holding such securities for
purposes of investment, and that it has no intention of selling such securities,
or granting any participation in such securities, in a public distribution in
violation
-38-
of the federal securities laws or any applicable state securities laws; provided
--------
that nothing contained herein shall prevent any Purchaser or any subsequent
----
holder of any of the Restricted Securities from transferring such securities in
compliance with the provisions of Paragraph 11C below.
(ii) Such Purchaser is an "accredited investor" as defined in Rule 501(a)
under the Securities Act.
(iii) Such Purchaser understands that the purchase of the Restricted
Securities involves substantial risk. Such Purchaser or its officers, members or
partners has experience as an investor in securities of companies in the
development or growth stage and acknowledges that such Purchaser is able to fend
for itself, can bear the economic risk of such Purchaser's investment in the
Restricted Securities and has such knowledge and experience in financial or
business matters that such Purchaser is capable of evaluating the merits and
risks of its investment in the Restricted Securities and protecting its own
interests in connection with its investment and/or has a preexisting personal or
business relationship with the Company and certain of its officers, directors or
controlling persons of a nature and duration that enables such Purchaser to be
aware of the character, business acumen and financial circumstances of such
persons.
(iv) Such Purchaser understands that the Restricted Securities to be
purchased by it hereunder have not been registered under the Securities Act on
the basis that the sale provided for in this Agreement is exempt from the
registration provisions thereof and that the Company's reliance on such
exemption is predicated in part upon the representations of such Purchaser set
forth herein.
(v) Such Purchaser acknowledges that the offer and sale of the
Restricted Securities to such Purchaser has not been accomplished by the
publication of any advertisement.
7F. Closing Date. The representations and warranties of such Purchaser
------------
contained in this Section 7 and elsewhere in this Agreement shall be true and
correct in all respects on Closing Date as though then made and as though the
Closing Date was substituted for the date of this Agreement throughout such
representations and warranties, except to the extent of any changes expressly
contemplated hereby and except for any representations and warranties that speak
only as of a certain date (which representations and warranties shall be true
and correct as of such date).
Section 8. Indemnification and Other Agreements.
------------------------------------
8A. Survival of Representations and Warranties. The representations and
------------------------------------------
warranties in this Agreement and the Schedules and Exhibits attached hereto or
in any writing delivered by any Party to another Party in connection with this
Agreement shall survive the Closing as follows:
(i) the representations and warranties in ▇▇▇▇▇▇▇▇▇ ▇▇ (▇▇▇ ▇▇▇▇▇▇▇),
▇▇▇▇▇▇▇▇▇ ▇▇ (International Trade Laws and Regulations), Paragraph 5W (ERISA),
Paragraph 5X (Compliance with Laws; Permits; Certain Operations), Paragraph 5Y
(Environmental and Safety Matters) and Paragraph 5CC(vii) (Real Property) shall
terminate when the applicable statutes of
-39-
limitations with respect to the liabilities in question expire (after giving
effect to any extensions or waivers thereof), plus sixty (60) days;
(ii) the representations and warranties in Paragraph 5B (Capital Stock
and Related Matters), Paragraph 5T (Brokerage), Paragraph 6A (Organization;
Power and Authority), Paragraph 6C (Title to Shares), Paragraph 6D (Brokerage),
Paragraph 6F (Company Transactions), Paragraph 7D (Brokerage), the first and
last sentences of Paragraph 5D (Authorization; No Breach), the first sentence of
Paragraph 6B (Authorization; No Breach) and the first sentence of Paragraph 7B
(Authorization; No Breach) shall not terminate; and
(iii) all other representations and warranties in this Agreement and the
Schedules and Exhibits attached hereto or in any writing delivered by any Party
to another Party in connection with this Agreement shall terminate sixty (60)
days after the receipt by the Purchasers of the Company's audited financial
statements for the fiscal year ended June 30, 1998 (together with a duly
executed opinion with respect thereto from the Company's independent outside
accountants);
provided that any representation or warranty in respect of which indemnity may
-------- ----
be sought under Paragraph 8B, and the indemnity with respect thereto, shall
survive the time at which it would otherwise terminate pursuant to this
Paragraph 8A if notice of the inaccuracy or breach or potential inaccuracy or
breach thereof giving rise to such right or potential right of indemnity shall
have been given to the Party against whom such indemnity may be sought prior to
such time. The representations and warranties in this Agreement and the
Schedules and Exhibits attached hereto or in any writing delivered by any Party
to another Party in connection with this Agreement shall survive for the periods
set forth in this Paragraph 8A and shall in no event be affected by any
investigation, inquiry or examination made for or on behalf of any Party, or the
knowledge of any Party's officers, directors, shareholders, employees or agents
or the acceptance by any Party of any certificate or opinion hereunder.
8B. General Indemnification.
-----------------------
(i) Indemnification for the Benefit of the Company and the Purchasers by
--------------------------------------------------------------------
the Shareholders. The Shareholders, jointly and severally (except that T.S. Pan
----------------
shall not be responsible for any breaches of any covenant, agreement or
provision by J.J. Pan as described in clause (iii) below following the Closing
and except that J.J. Pan shall not be responsible for any breaches of any
covenant, agreement or provision by T.S. Pan as described in clause (iii) below
following the Closing), shall indemnify each of the Company and the Purchasers
and their respective Affiliates, shareholders (other than the Shareholders),
partners, officers, directors, employees, agents, representatives, successors
and permitted assigns (collectively, the "Company Parties") and save and hold
---------------
each of them harmless against and pay on behalf of or reimburse such Company
Parties as and when incurred for any loss, liability, demand, claim, action,
cause of action, cost, damage, deficiency, Tax, penalty, fine or expense,
whether or not arising out of third party claims (including interest, penalties,
reasonable attorneys' fees and expenses and all amounts paid in investigation,
defense or settlement of any of the foregoing) (collectively, "Losses"), which
------
any such Company Party may suffer, sustain or become subject to, as a result of,
in connection with, relating or incidental to or by virtue of: (i) any breach of
any representation or warranty of the Company or the
-40-
Shareholders under this Agreement or any of the Schedules or Exhibits attached
hereto, or in any of the certificates or other instruments or documents
furnished by the Company or the Shareholders pursuant to this Agreement; (ii)
any nonfulfillment or breach of any covenant, agreement or other provision by
the Company or any Shareholder under this Agreement or any of the Schedules and
Exhibits attached hereto required to be performed or complied with by the
Company or such Shareholder at or prior to the Closing; (iii) any nonfulfillment
or breach of any covenant, agreement or other provision by such Shareholder
under this Agreement or any of the Schedules or Exhibits attached hereto
required to be performed or complied with by such Shareholder after the Closing;
(iv) any claim by any Person (other than the Purchasers) with respect to, or
arising as a result of, any Company Transaction proposed prior to the Closing
Date; or (v) any of the matters set forth on the Indemnification Schedule
------------------------
attached hereto; provided that the Shareholders shall not have any liability
-------- ----
under clause (i) above (other than with respect to the representations and
warranties contained in Paragraph ▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇,
▇▇▇▇▇▇▇▇▇ ▇▇, ▇▇▇▇▇▇▇▇▇ 6F and the first and last sentences of Paragraph 5D) or
clause (v) above unless the aggregate of all Losses relating thereto for which
the Shareholders would, but for this proviso, be liable exceeds on a cumulative
basis an amount equal to $250,000, and then the Shareholders shall be liable
only to the extent of such excess; and provided further that the Shareholders'
-------- -------
aggregate liability under clause (i) above (other than with respect to the
representations and warranties contained in Paragraph ▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇,
▇▇▇▇▇▇▇▇▇ ▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇, ▇▇▇▇▇▇▇▇▇ 6F and the first and last
sentences of Paragraph 5D) and clause (v) above shall in no event exceed
$12,000,000 (it being understood, however, that nothing in this Agreement
(including this Paragraph 8B) shall limit or restrict any of the Company
Parties' right to maintain or recover any amounts in connection with any action
or claim based upon fraudulent misrepresentation or deceit). All indemnification
payments for the benefit of the Company under this Paragraph 8B shall be deemed
adjustments to the Repurchase Price set forth in ▇▇▇▇▇▇▇▇▇ ▇▇ above. All
indemnification payments for the benefit of any Purchaser under this Paragraph
8B shall be deemed to be adjustments to the Purchase Price set forth in
Paragraph 1B above. In no event shall the Shareholders' obligations in respect
of the indemnification provided for in this Paragraph 8B, or any expense
reimbursement obligation of the Company provided for herein, be treated as
subordinated indebtedness of the Company or as a restricted payment pursuant to
any agreement to which the Company is a party or be otherwise restricted or
deferred. If and to the extent any provision of this Paragraph 8B is
unenforceable for any reason, each Shareholder hereby agrees to make the maximum
contribution to the payment and satisfaction of any Loss for which
indemnification is provided for in this Paragraph 8B which is permissible under
applicable laws.
(ii) Indemnification for the Benefit of the Company by the Purchasers. Each
----------------------------------------------------------------
Purchaser shall, with respect to itself and not jointly with respect to any of
the other Purchasers, indemnify the Company and its Affiliates, shareholders
(including the Shareholders but excluding the Purchaser), officers, directors,
employees, agents, representatives, successors and permitted assigns
(collectively, the "Purchaser Indemnified Parties") and hold them harmless
-----------------------------
against any Losses which the Purchaser Indemnified Parties may suffer, sustain
or become subject to, as a result of, in connection with, relating or incidental
to or by virtue of: (i) any breach of any representation or warranty of such
Purchaser under this Agreement or any of the Schedules or Exhibits attached
hereto, or in any of the certificates or other instruments or documents
furnished by such Purchaser pursuant to this Agreement; or (ii) any
nonfulfillment or breach of any covenant, agreement or other
-41-
provision by such Purchaser under this Agreement or any of the Schedules and
Exhibits attached hereto.
(iii) Manner of Payment. Any indemnification of the Company Parties or the
-----------------
Purchaser Indemnified Parties pursuant to this Paragraph 8B shall be effected by
wire transfer of immediately available funds from one or more of the
Shareholders or the Purchasers, as the case may be, to an account designated by
any Company Party or Purchaser Indemnified Party, as the case may be, within 15
days after the determination thereof. Any such indemnification payments shall
include interest at the Applicable Rate calculated on the basis of the actual
number of days elapsed over 360, from the date any such Loss is suffered or
sustained to the date of payment. Any amounts owing from the Shareholders
pursuant to this Paragraph 8B shall first be made to the extent possible from
the Escrow Funds (as defined in the Escrow Agreement) in the Escrow Account and
thereafter shall be made directly by the Shareholders in accordance with the
terms of this Paragraph 8B(iii).
(iv) Defense of Third Party Claims. Any Person making a claim for
-----------------------------
indemnification under this Paragraph 8B (an "Indemnitee") shall notify the
------------
indemnifying party (an "Indemnitor") of the claim in writing promptly after
----------
receiving written notice of any action, lawsuit, proceeding, investigation or
other claim against it (if by a third party), describing the claim, the amount
thereof (if known and quantifiable) and the basis thereof; provided that the
-------- ----
failure to so notify an Indemnitor shall not relieve the Indemnitor of its
obligations hereunder except to the extent that (and only to the extent that)
such failure shall have caused the damages for which the Indemnitor is obligated
to be greater than such damages would have been had the Indemnitee given the
Indemnitor prompt notice hereunder. Any Indemnitor shall be entitled to
participate in the defense of such action, lawsuit, proceeding, investigation or
other claim giving rise to an Indemnitee's claim for indemnification at such
Indemnitor's expense, and at its option (subject to the limitations set forth
below) shall be entitled to assume the defense thereof by appointing a reputable
counsel reasonably acceptable to the Indemnitee to be the lead counsel in
connection with such defense; provided that, prior to the Indemnitor assuming
-------- ----
control of such defense it shall first (a) verify to the Indemnitee in writing
that such Indemnitor shall be fully responsible (with no reservation of any
rights) for all liabilities and obligations relating to such claim for
indemnification and that it shall provide full indemnification (whether or not
otherwise required hereunder) to the Indemnitee with respect to such action,
lawsuit, proceeding, investigation or other claim giving rise to such claim for
indemnification hereunder and (b) enter into an agreement with the Indemnitee in
form and substance satisfactory to the Indemnitee which agreement
unconditionally guarantees the payment and performance of any liability or
obligation which may arise with respect to such action, lawsuit, proceeding,
investigation or facts giving rise to such claim for indemnification hereunder;
and provided further, that:
-------- -------
(1) the Indemnitee shall be entitled to participate in the defense
of such claim and to employ counsel of its choice for such purpose;
provided that the fees and expenses of such separate counsel shall be borne
-------- ----
by the Indemnitee (other than any fees and expenses of such separate
counsel that are incurred prior to the date the Indemnitor effectively
assumes control of such defense which, notwithstanding the foregoing, shall
be borne by the Indemnitor);
-42-
(2) the Indemnitor shall not be entitled to assume control of such
defense and shall pay the fees and expenses of counsel retained by the
Indemnitee (it being understood, however, that the Indemnitor shall only be
required to pay such fees and expenses if it is determined that the
Indemnitor has any indemnification obligations with respect to such claim
pursuant to this Agreement) if (i) the claim for indemnification relates to
or arises in connection with any criminal proceeding, action, indictment,
allegation or investigation; (ii) the Indemnitee reasonably believes an
adverse determination with respect to the action, lawsuit, investigation,
proceeding or other claim giving rise to such claim for indemnification
would be detrimental to or injure the Indemnitee's reputation or future
business prospects; (iii) the claim seeks an injunction or equitable relief
against the Indemnitee; (iv) the claim involves environmental or
international trade matters, in which case the Indemnitee shall have sole
control and management authority over the resolution of such claim,
including hiring legal counsel and consultants, conducting investigations
and environmental cleanups, negotiating with governmental agencies and
third parties and defending or settling claims and actions; provided that
-------- ----
the Indemnitee shall keep the Indemnitor reasonably apprised of any major
developments relating to any such environmental or international trade
claim; (v) the Indemnitee has been advised in writing by counsel that a
reasonable likelihood exists of a conflict of interest between the
Indemnitor and the Indemnitee; or (vi) upon petition by the Indemnitee, the
appropriate court rules that the Indemnitor failed or is failing to
vigorously prosecute or defend such claim;
(3) if the Indemnitor shall control the defense of any such claim, the
Indemnitor shall obtain the prior written consent of the Indemnitee (which
consent shall not be unreasonably withheld) before entering into any
settlement of a claim or ceasing to defend such claim if, pursuant to or as
a result of such settlement or cessation, injunctive or other equitable
relief will be imposed against the Indemnitee or if such settlement does
not expressly and unconditionally release the Indemnitee from all
liabilities and obligations with respect to such claim, without prejudice;
and
(4) if the Indemnitee shall control the defense of any such claim, the
Indemnitee shall obtain the prior written consent of the Indemnitor (which
consent shall not be unreasonably withheld) before entering into any
settlement of a claim if such settlement does not expressly and
unconditionally release the Indemnitor from all liabilities and obligations
with respect to such claim, without prejudice, and if such consent is not
obtained from the Indemnitor (which consent shall not be unreasonably
withheld), the Indemnitor may contest the amount of the indemnification
claim pursuant to Section 8G below.
(v) Certain Waivers; etc. Each Shareholder hereby agrees that such
--------------------
Shareholder shall not make any claim for indemnification hereunder against the
Company by reason of the fact that such Shareholder is or was a shareholder,
director, officer, employee or agent of the Company or is or was serving at the
request of the Company as a partner, trustee, director, officer, employee or
agent of another entity (whether such claim is for judgments, damages,
penalties, fines, costs,
-43-
amounts paid in settlement, losses, expenses or otherwise) with respect to any
action, suit, proceeding, complaint, claim or demand brought by any of the
Company Parties against such Shareholder pursuant to this Agreement and such
Shareholder hereby acknowledges and agrees that such Shareholder shall have no
claims or right to contribution or indemnity from the Company with respect to
any amounts paid by the Shareholders pursuant to this Paragraph 8B. Nothing in
this Paragraph 8B(v), however, shall prohibit, restrict or modify any right of
the Shareholders to receive indemnification from the Company to the extent such
Shareholder is otherwise entitled to indemnification pursuant to the Articles of
Incorporation and applicable law with respect to any claim which does not give
rise to or evidence the existence of a breach of any of the representations,
warranties, covenants or agreements of the Company or the Shareholders contained
in this Agreement and which does not give rise to or evidence the existence of
an indemnification obligation by the Shareholders pursuant to this Paragraph 8B.
Each of the Purchasers hereby consents to the consummation of the Repurchase
Transaction pursuant to Sections 503 and 506 of the General Corporation Law of
the State of California as in effect as of the date hereof and as of the Closing
Date and agrees not to bring any claim or cause of action alleging any violation
of Section 500, 501 or 502 of the General Corporation Law of the State of
California as a result of the consummation of the Repurchase Transaction.
8C. Press Release and Announcements. Unless required by law (in which case
-------------------------------
each Party agrees to consult with the other Parties prior to any such disclosure
as to the form and content of such disclosure), no press releases or other
releases of information related to this Agreement or the transactions
contemplated hereby will be issued or released without the consent of the
Company, the Purchasers and the Shareholders.
8D. Non-Compete; Non-Solicitation.
-----------------------------
(i) Each Shareholder acknowledges that such Shareholder is familiar with
the trade secrets of the Company and with other confidential information
concerning the Company, including all (a) inventions, technology and research
and development of the Company, (b) customers and clients and customer and
client lists of the Company, (c) products (including products under development)
and services of the Company and related costs and pricing structures and
manufacturing techniques, (d) accounting and business methods and practices of
the Company and (e) similar and related confidential information and trade
secrets of the Company. Each Shareholder further acknowledges that such
Shareholder's services have been and shall be of special, unique and
extraordinary value to the Company, that such Shareholder (in the case of T.S.
Pan and J.J. Pan) is one of the founders of the Company and that such
Shareholder has been substantially responsible for the growth and development of
the Company and the creation and preservation of the Company's goodwill. Each
Shareholder acknowledges and agrees that the Company would be irreparably
damaged if such Shareholder were to provide services to any person or entity
competing with the Company or engaged in a similar business and that such
competition by such Shareholder would result in a significant loss of goodwill
by the Company. Each Shareholder further acknowledges and agrees that the
covenants and agreements set forth in this Paragraph 8D were a material
inducement to the Purchasers to enter into this Agreement and to perform their
obligations hereunder, and that the Purchasers would not obtain the benefit of
the bargain set forth in this Agreement as specifically negotiated by the
Parties if such Shareholder breached the provisions of
-44-
this Paragraph 8D. Therefore, in further consideration of the Repurchase Price
to be paid to the Shareholders hereunder for the Repurchased Shares (which
Repurchase Price is being funded with the proceeds from the Investment
Transaction hereunder) and the goodwill of the Company sold by the Shareholders.
T.S. Pan agrees that until the third anniversary of the Closing Date and J.J.
Pan agrees that until the earlier of (i) two years following termination of the
Employment Period (as defined in the Employment Agreement) or (ii) the fifth
anniversary of the Closing Date, such Shareholder shall not directly or
indirectly own any interest in, manage, control, participate in (whether as an
officer, director, employee, partner, agent, representative or otherwise),
consult with, render services for, or in any manner engage in any business
competing with, or similar to, the business of the Company and its Subsidiaries
as of the Closing Date and engaged in such competing or similar business
anywhere in the Restrictive Territories, including any business engaged in the
manufacture, development, sale or distribution of fiber optic related equipment,
parts, components, systems or subsystems for telecommunication, communication or
networking applications; provided that nothing herein shall prohibit such
-------- ----
Shareholder from being a passive owner of not more than 5% of the outstanding
stock of any class of a corporation which is publicly traded or from being the
passive owner of any interest in any private equity investment fund, so long as
in each case such Shareholder has no active participation in the business of
such Person. For purposes of this Agreement, "Restrictive Territories" shall
-----------------------
mean (i) the California counties of Los Angeles, Orange, San Bernadino, San
Diego, Ventura, Fresno, Alameda, Alpine, ▇▇▇▇▇▇, Butte, Calaveras, Colusa,
Contra Costa, Del Norte, El ▇▇▇▇▇▇, ▇▇▇▇▇, Humboldt, Imperial, Inyo, ▇▇▇▇,
Kings, Lake, Lassen, Madera, Marin, Mariposa, Mendocino, Merced, Modoc, Mono,
Monterey, Napa, Nevada, Placer, Plumas, Riverside, Sacramento, San ▇▇▇▇▇▇, San
Francisco, San ▇▇▇▇▇▇▇, San ▇▇▇▇ Obispo, San Mateo, Santa ▇▇▇▇▇▇▇, Santa ▇▇▇▇▇,
Santa ▇▇▇▇, ▇▇▇▇▇▇, Sierra, Siskiyou, ▇▇▇▇▇▇, Sonoma, Stanislaus, Sutter,
Tehama, Trinity, Tulare, Tuolumne, Yolo and Yuba, and (ii) any other states,
possessions, territories or jurisdictions of the United States of America and
all other countries, nations, territories and areas of the world. Each
Shareholder acknowledges that the business of the Company has been conducted on
a worldwide scale (including as the same relates to the production, promotion,
marketing and sale of its products and services), that approximately fifty
percent of the Company's sales are made in foreign jurisdictions and that the
geographic restrictions set forth above are reasonable and necessary to protect
the goodwill of the Company's business being sold by the Shareholders pursuant
to this Agreement.
(ii) Until the third anniversary of the Closing Date, neither
Shareholder shall directly, or indirectly through another entity, (a) induce or
attempt to induce any employee of the Company or any of its Subsidiaries to
leave the employ of the Company or such Subsidiary, or in any way interfere with
the relationship between the Company or any of its Subsidiaries and any employee
thereof, (b) hire any person who was an employee of the Company or any of its
Subsidiaries at any time during the 90 day period immediately prior to the date
on which such hiring would take place (it being conclusively presumed by the
Parties so as to avoid any disputes under this Paragraph 8D(ii) that any such
hiring within such 90-day period is in violation of clause (a) above), or (c)
call on, solicit or service any customer, supplier, licensee, licensor or other
business relation of the Company or any of its Subsidiaries in order to induce
or attempt to induce such Person to cease doing business with the Company or
such Subsidiary, or in any way interfere with the relationship between any such
customer, supplier, licensee or business relation and the Company
-45-
or any of its Subsidiaries (including making any negative statements or
communications about the Company or any of its Subsidiaries).
(iii) If, at the time of enforcement of the covenants contained in
this Paragraph 8D (the "Restrictive Covenants"), a court shall hold that the
---------------------
duration, scope or area restrictions stated herein are unreasonable under
circumstances then existing, the Parties agree that the maximum duration, scope
or area reasonable under such circumstances shall be substituted for the stated
duration, scope or area and that the court shall be allowed to revise the
restrictions contained herein to cover the maximum period, scope and area
permitted by law. Each Shareholder has consulted with legal counsel regarding
the Restrictive Covenants and based on such consultation has determined and
hereby acknowledges that the Restrictive Covenants are reasonable in terms of
duration, scope and area restrictions and are necessary to protect the goodwill
of the Company's business and the substantial investment in the Company made by
the Purchasers hereunder. Each Shareholder further acknowledges and agrees that
the Restrictive Covenants are being entered into by such Shareholder solely in
connection with the sale by such Shareholder of the goodwill of the Company's
business and not directly or indirectly in connection with such Shareholder's
employment or other relationship with the Company.
(iv) If a Shareholder breaches, or threatens to commit a breach of,
any of the Restrictive Covenants, the Company shall have the following rights
and remedies, each of which rights and remedies shall be independent of the
others and severally enforceable, and each of which is in addition to, and not
in lieu of, any other rights and remedies available to the Company at law or in
equity:
(a) the right and remedy to have the Restrictive Covenants
specifically enforced by any court of competent jurisdiction, it being
agreed that any breach or threatened breach of the Restrictive Covenants
would cause irreparable injury to the Company and that money damages would
not provide an adequate remedy to the Company; and
(b) the right and remedy to require such Shareholder to
account for and pay over to the Company any profits, monies, accruals,
increments or other benefits derived or received by such Shareholder as the
result of any transactions constituting a breach of the Restrictive
Covenants.
(vi) In the event of any breach or violation by a Shareholder of any
of the Restrictive Covenants, the time period of such covenant with respect to
such Shareholder shall be tolled until such breach or violation is resolved.
8E. Confidentiality. The Purchasers acknowledge that all
---------------
"confidential information" (as defined in the Confidentiality Agreement)
provided to them by the Company is subject to the terms of a Confidentiality
Agreement between the Company and Summit Partners, L.P. (the "Confidentiality
---------------
Agreement"), the terms of which are incorporated herein by reference. If the
---------
transactions contemplated hereby are not consummated, the Purchasers shall
return to the Company and the Shareholders and keep confidential all information
and materials regarding the
-46-
Company and the Shareholders reasonably designated by the Company or the
Shareholders as confidential (except to the extent (i) disclosure of such
information is required by law, (ii) the information was previously known to the
Purchasers or (iii) the information becomes publicly known except through the
actions or inactions of the Purchasers). Effective upon the consummation of the
transactions contemplated hereby, the Confidentiality Agreement shall terminate.
Whether or not the transactions contemplated hereby are consummated, the Company
and the Shareholders shall return to the Purchasers and keep confidential all
information and materials regarding any of the Purchasers reasonably designated
by any of the Purchasers as confidential (except to the extent (i) disclosure of
such information is required by law, (ii) the information was previously known
to the Company or the Shareholders or (iii) the information becomes publicly
known except through the actions or inactions of the Company or the
Shareholders). If the transactions contemplated hereby are consummated, each
Shareholder agrees not to disclose or use at any time, either during such
Shareholder's employment with the Company or thereafter, any Confidential
Information (whether or not such information is or was developed by such
Shareholder), except to the extent that such disclosure or use is directly
related to and required by the performance of such Shareholder's duties to the
Company. Such Shareholder further agrees to take all appropriate steps to
safeguard such Confidential Information and to protect it against disclosure,
misuse, espionage, loss and theft. In the event any Party hereto is required by
law to disclose any confidential information, such Party shall promptly notify
each other Party in writing, which notification shall include the nature of the
legal requirement and the extent of the required disclosure, and shall cooperate
with each other Party to preserve the confidentiality of such information
consistent with applicable law.
8F. Intellectual Property Rights Protection. The Shareholders shall
---------------------------------------
provide the Company and its Subsidiaries and their respective successors,
assigns or other legal representatives full cooperation and assistance at the
Company's or such Subsidiaries' request and expense in the protection of all
Intellectual Property Rights now or hereafter owned by or used by the Company or
its Subsidiaries against any claims or demands of invalidity or
unenforceability, and in the prosecution or defense of any interference,
opposition, reexamination, reissue, infringement or other proceeding that may
arise in connection with the Company's or any of its Subsidiaries' right, title
and interest in and to such Intellectual Property Rights, including execution
and delivery of any and all affidavits, testimonies, declarations, oaths,
exhibits, assignments, powers of attorney or other documentation as may be
reasonably required.
8G. Dispute Resolution.
------------------
(i) In the event of any dispute or disagreement between the Parties
following the Closing as to the interpretation of any provision of this
Agreement or the performance of any obligations hereunder (including the scope
and amount of any indemnity requested hereunder), the matter, upon written
request of any Party, shall be referred to representatives of the Parties for
decision (the "Representatives"). The Representatives shall promptly meet in a
---------------
good faith effort to resolve the dispute. If the Representatives do not agree
upon a decision within 30 calendar days after reference of the matter to them,
each of the Parties shall be free to exercise the remedies available to it under
Paragraph 8G(ii) below.
-47-
(ii) Any controversy, dispute or claim arising out of or relating in
any way to this Agreement or the transactions arising hereunder that cannot be
resolved by negotiation pursuant to Paragraph 8G(i) above shall be settled
exclusively by arbitration in the City of San Francisco, California. Such
arbitration shall be administered by the Center for Public Resources Institute
for Dispute Resolutions (the "Institute") in accordance with its then
---------
prevailing Rules for Non-Administered Arbitration of Business Disputes (except
as otherwise provided herein) by one independent and impartial arbitrator who
shall be selected by the Shareholders and the Purchasers in accordance with such
Rules. Notwithstanding anything to the contrary provided in Paragraph 110
hereof, the arbitration shall be governed by the United States Arbitration Act,
9 U.S.C. Section 1 et seq. The fees and expenses of the Institute and the
-- ---
arbitrator shall be shared equally by the Purchasers on the one hand and the
Shareholders on the other and advanced by them from time to time as required;
provided that at the conclusion of the arbitration, the arbitrator shall award
-------- ----
costs and expenses (including the costs of the arbitration previously advanced
and the fees and expenses of attorneys, accountants and other experts) and
interest at the Applicable Rate to the prevailing Party or Parties. The
arbitrator shall permit and facilitate such discovery as the Party initiating
such claim shall reasonably request. The Parties shall keep confidential any
proprietary information, trade secrets or other non-public information disclosed
in discovery. The arbitrator shall render his or her award within 90 days of the
conclusion of the arbitration hearing. The arbitrator shall be expressly
empowered to award to any Party any consequential damages, lost profits or
punitive damages in connection with any dispute between the Parties arising out
of or relating in any way to this Agreement or the other agreements contemplated
hereby or the transactions arising hereunder or thereunder, and each Party
hereby irrevocably waives any objection to the recovery by the other Parties
hereto of such damages. Notwithstanding anything to the contrary provided in
this Paragraph 8G(ii) and without prejudice to the above procedures, any Party
may apply to any court of competent jurisdiction for temporary injunctive or
other provisional judicial relief if such action is necessary to avoid
irreparable damage or to preserve the status quo until such time as the
arbitrator is selected and available to hear such Party's request for temporary
relief. The award rendered by the arbitrator shall be final and not subject to
judicial review, and judgment thereon may be entered in any court of competent
jurisdiction. Notwithstanding anything to the contrary provided in Paragraph
8G(i) or this Paragraph 8G(ii), the Company or the Purchasers (in the discretion
of the Purchasers holding a majority of the Preferred Stock) may elect to
enforce any of the provisions of Paragraphs 8D or 8E or the other Exhibits
attached hereto (including the Employment Agreement) by application to a court
of competent jurisdiction for equitable or legal relief (including damages or
injunctive relief) rather than pursuant to the above procedures.
8H. Further Assurances. In case at any time after the Closing any
------------------
further action is necessary or desirable to carry out the purposes of this
Agreement or the transactions contemplated hereby, each of the Parties will take
such further action (including the execution and delivery of such further
instruments and documents) as any other Party may reasonably request, all at the
sole cost and expense of the requesting Party (unless the requesting Party is
entitled to indemnification therefor under Paragraph 8B above).
8I. Employee Benefits. Until the first anniversary of the Closing
-----------------
Date, the Purchasers agree to cause the Company to maintain employee benefit
plans and programs substantially similar in the aggregate to those retirement,
defined contribution, employee health and
-48-
welfare and incentive compensation benefit plans and programs set forth on the
attached Employee Benefits Schedule.
--------------------------
8J. Post-Close Employment. T.S. Pan hereby acknowledges her intent
---------------------
and willingness to continue to serve as the Company's President for at least
three months after the hiring by the Company of a new Chief Executive Officer
following the Closing.
8K. Guarantees; Certain Restrictions. T.S. Pan and J.J. Pan hereby
--------------------------------
jointly and severally guarantee the due and punctual payment and/or performance
of all obligations under this Agreement, the Schedules and Exhibits attached
hereto and the other agreements and documents contemplated hereby, of each Trust
Shareholder (including all obligations of such Trust Shareholder pursuant to
Paragraph 8B above). Each trustee of any Shareholder which is a trust
unconditionally and forever covenants and agrees that such trustee shall make no
distributions or transfers of property other than those expressly permitted
under the applicable governing trust instrument or if such distribution or
transfer would impair the ability of such Shareholder to comply with its
obligations hereunder, including pursuant to Paragraph 8B above, and such
trustee acknowledges that such covenant shall be binding upon any successor
trustee or trustees.
8L. Resignation of Director. J.J. Pan hereby agrees to resign from
-----------------------
the board of directors of the Company immediately after the Closing.
Section 9. Definitions. For the purposes of this Agreement, the
-----------
following terms have the meanings set forth below:
"Affiliate" of any particular Person means any other Person
---------
controlling, controlled by or under common control with such particular Person,
where "control" means the possession, directly or indirectly, of the power to
-------
direct the management and policies of a Person whether through the ownership of
voting securities, contract or otherwise.
"Affiliated Group" means any affiliated group as defined in Code
----------------
Section 1504 that has filed a consolidated return for federal income tax
purposes (or any similar group under state, local or foreign law) for a period
during which the Company or any of its Subsidiaries was a member.
"Agreement" has the meaning set forth in the Preamble.
---------
"Applicable Rate" means the prime rate of interest as announced from
---------------
time to time in the Wall Street Journal plus two percent (2%).
-------------------
"Articles of Incorporation" has the meaning set forth in Paragraph
-------------------------
1A(i).
"Bylaws" has the meaning set forth in Paragraph 2C.
------
"CERCLA" means the Comprehensive Environmental Response, Compensation
------
and Liability Act of 1980, as amended.
-49-
"Closing" has the meaning set forth in Paragraph 1D.
-------
"Closing Date" has the meaning set forth in Paragraph 1D.
------------
"COBRA" has the meaning set forth in Paragraph 5W(ii).
-----
"Code" means the Internal Revenue Code of 1986, as amended, and any
----
reference to any particular Code section shall be interpreted to include any
revision of or successor to that section regardless of how numbered or
classified.
"Common Stock" has the meaning set forth in Paragraph 1A(ii).
------------
"Company" has the meaning set forth in the Preamble; provided that
------- -------- ----
with respect to any provision of this Agreement that relates to a period prior
to the date hereof, the term "Company" shall be deemed to include the Company,
-------
all predecessors of the Company and any entity merged with or into the Company.
"Company Parties" has the meaning set forth in Paragraph 8B(i).
---------------
"Company Transaction" has the meaning set forth in Paragraph 4J.
-------------------
"Confidential Information" means all information of a confidential or
------------------------
proprietary nature (whether or not specifically labeled or identified as
"confidential"), in any form or medium, that is or was disclosed to, or
developed or learned by, any Shareholder in connection with such Shareholder's
prior relationship with the Company and that relates to the business, products,
services, research or development of the Company or its suppliers, distributors
or customers. Confidential Information includes but is not limited to the
following: (i) internal business information (including information relating to
strategic and staffing plans and practices, business, training, marketing,
promotional and sales plans and practices, cost, rate and pricing structures and
accounting and business methods); (ii) identities of, individual requirements
of, specific contractual arrangements with, and information about, the Company's
suppliers, distributors and customers and their confidential information; (iii)
trade secrets, know-how, compilations of data and analyses, techniques, systems,
formulae, research, records, reports, manuals, documentation, models, data and
data bases relating thereto; and (iv) inventions, innovations, improvements,
developments, methods, designs, analyses, drawings, reports and all similar or
related information (whether or not patentable). Confidential Information shall
not include information that a Shareholder can demonstrate: (a) is publicly
known through no wrongful act or breach of any obligation of confidentiality;
(b) was lawfully known by such Shareholder prior to the time such Shareholder
began rendering services to the Company and its predecessors; or (c) was
rightfully received by such Shareholder from a third party without a breach of
any obligation of confidentiality by such third party.
"Confidentiality Agreement" has the meaning set forth in Paragraph 8E.
-------------------------
"Employment Agreement" has the meaning set forth in Paragraph 2H.
--------------------
-50-
"Encumbrances" has the meaning set forth in Paragraph 6C.
------------
"Environmental Lien" shall mean any Lien, whether recorded or
------------------
unrecorded, in favor of any governmental entity, relating to any liability of
the Company arising under any Environmental and Safety Requirements.
"Environmental and Safety Requirements" shall mean all federal, state,
-------------------------------------
local and foreign statutes, regulations, ordinances and other provisions having
the force or effect of law, all judicial and administrative orders and
determinations, all contractual obligations and all common law, in each case
concerning public health and safety, worker health and safety and pollution or
protection of the environment (including all those relating to the presence,
use, production, generation, handling, transport, treatment, storage, disposal,
distribution, labeling, testing, processing, discharge, Release, threatened
Release, control or cleanup of any hazardous or otherwise regulated materials,
substances or wastes, chemical substances or mixtures, pesticides, pollutants,
contaminants, toxic chemicals, petroleum products or byproducts, asbestos,
polychlorinated biphenyls, noise, radiation or radon).
"ERISA" has the meaning set forth in Paragraph 5W(i).
-----
"Escrow Account" has the meaning set forth in Paragraph 1D(iii).
--------------
"Escrow Agent" means State Street Bank.
------------
"Escrow Agreement" has the meaning set forth in Paragraph 1D(iii).
----------------
"Escrow Amount" has the meaning set forth in Paragraph 1D(iii).
-------------
"Exchange Act" means, the Securities Exchange Act of 1934, as amended,
------------
or any similar federal law there in force.
"Executive Agreements" has the meaning set forth in ▇▇▇▇▇▇▇▇▇ ▇▇.
--------------------
"Executive Stock" has the meaning set forth in Paragraph 5B(ii).
---------------
"Executives" shall mean ▇▇▇▇ ▇▇▇▇ and Kung Shih.
----------
"401(k) Plan" has the meaning set forth in Paragraph 5W(iv).
-----------
"GAAP" means United States generally accepted accounting principles.
----
"Governmental Approvals" has the meaning set forth in Paragraph 2R.
----------------------
"▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act" has the meaning set forth in Paragraph 2R.
---------------------
"Improvements" has the meaning set forth in Paragraph 5CC(vi).
------------
-51-
"Indebtedness" means at a particular time, without duplication, (i)
------------
any indebtedness for borrowed money or issued in substitution for or exchange of
indebtedness for borrowed money. (ii) any indebtedness evidenced by any note,
bond, debenture or other debt security, (iii) any indebtedness for the deferred
purchase price of property or services with respect to which a Person is liable,
contingently or otherwise, as obligor or otherwise (other than trade payables
and other current liabilities incurred in the ordinary course of business which
are not more than six months past due), (iv) any commitment by which a Person
assures a creditor against loss (including contingent reimbursement obligations
with respect to letters of credit), (v) any indebtedness guaranteed in any
manner by a Person (including guarantees in the form of an agreement to
repurchase or reimburse), (vi) any obligations under capitalized leases with
respect to which a Person is liable, contingently or otherwise, as obligor,
guarantor or otherwise, or with respect to which obligations a Person assures a
creditor against loss, (vii) any indebtedness secured by a Lien on a Person's
assets and (viii) any unsatisfied obligation for "withdrawal liability" to a
"multiemployer plan" as such terms are defined under ERISA.
"Indemnitee" has the meaning set forth in Paragraph 8B(iv).
----------
"Indemnitor" has the meaning set forth in Paragraph 8B(iv).
----------
"Institute" has the meaning set forth in Paragraph 8G(ii).
---------
"Intellectual Property Rights" means all (i) patents, patent
----------------------------
applications, patent disclosures and inventions, (ii) trademarks, service marks,
trade dress, trade names, logos and corporate names and registrations and
applications for registration thereof together with all of the goodwill
associated therewith, (iii) copyrights (registered or unregistered) and
copyrightable works and registrations and applications for registration thereof,
(iv) mask works and registrations and applications for registration thereof, (v)
computer software, data, data bases and documentation thereof, (vi) trade
secrets and other confidential information (including, ideas, formulas,
compositions, inventions (whether patentable or unpatentable and whether or not
reduced to practice), know-how, manufacturing and production processes and
techniques, research and development information, drawings, specifications,
designs, plans, proposals, technical data, copyrightable works, financial and
marketing plans and customer and supplier lists and information), (vii) other
intellectual property rights and (viii) copies and tangible embodiments thereof
(in whatever form or medium).
"International Trade Laws and Regulations" shall mean all federal,
----------------------------------------
state, local and foreign statutes, executive orders, proclamations, regulations,
rules, directives, decrees, ordinances and similar provisions having the force
or effect of law and all judicial and administrative orders, rulings,
determinations and common law concerning the importation of merchandise, the
export or reexport of products, services and technology, the terms and conduct
of international transactions, making or receiving international payments and
the authorization to hold an ownership interest in a business located in a
country other than the United States, including but not limited to the Tariff
Act of 1930 as amended and other laws administered by the United States Customs
Service, regulations issued or enforced by the United States Customs Service,
the Export Administration Act of 1979 as amended, the Export Administration
Regulations, the International Emergency Economic
-52-
Powers Act, the Arms Export Control Act, the International Traffic in Arms
Regulations, any other export controls administered by an agency of the United
States government, Executive Orders of the President regarding embargoes and
restrictions on trade with designated countries and Persons, the embargoes and
restrictions administered by the United States Office of Foreign Assets Control,
the Foreign Corrupt Practices Act, the antiboycott regulations administered by
the United States Department of Commerce, the antiboycott regulations
administered by the United States Department of the Treasury, legislation and
regulations of the United States and other countries implementing the North
American Free Trade Agreement (NAFTA), antidumping and countervailing duty laws
and regulations, laws and regulations by other countries concerning the ability
of U.S. Persons to own businesses and conduct business in those countries,
restrictions by other countries on holding foreign currency and repatriating
funds and other laws and regulations adopted by the governments or agencies of
other countries relating to the same subject matter as the United States
statutes and regulations described above.
"Inventions Agreement" has the meaning set forth in Paragraph 5V.
--------------------
"Investment" as applied to any Person means (i) any direct or indirect
----------
purchase or other acquisition by such Person of any notes, obligations,
instruments, stock, securities or ownership interests (including partnership
interests and joint venture interests) of any other Person and (ii) any capital
contribution by such Person to any other Person.
"Investment Transaction" has the meaning set forth in Paragraph 1B.
----------------------
"Latest Balance Sheet" has the meaning set forth in Paragraph 5E(ii).
--------------------
"Lien" or "Liens" means any mortgage, pledge, security interest,
---- -----
encumbrance, lien or charge of any kind (including any conditional sale or other
title retention agreement or lease in the nature thereof), any sale of
receivables with recourse against the Company, any filing or agreement to file a
financing statement as debtor under the Uniform Commercial Code or any similar
statute (other than to reflect ownership by a third party of property leased to
the Company under a lease which is not in the nature of a conditional sale or
title retention agreement), or any subordination arrangement in favor of another
Person.
"Loss" or "Losses" has the meaning set forth in Paragraph 8B(i).
---- ------
"Material Adverse Effect" means a material and adverse effect upon the
-----------------------
business, operations, assets, liabilities, financial condition, operating
results, cash flow, net worth or employee, customer or supplier relations of the
Company, taken as a whole.
"May Financial Statements" has the meaning set forth in Paragraph 2N.
------------------------
"Other Plans" has the meaning set forth in Paragraph 5W(v).
-----------
"Owned Real Property" has the meaning set forth in Paragraph 5CC(i).
-------------------
-53-
"Party" or "Parties" has the meaning set forth in the Preamble.
----- -------
"Permitted Encumbrances" shall mean (i) statutory liens for current
----------------------
Taxes or other governmental charges not yet due and payable or the amount or
validity of which is being contested in good faith by appropriate proceedings by
the Company and for which appropriate reserves have been established in
accordance with GAAP; (ii) mechanics', carriers', workers', repairers' and
similar statutory liens arising or incurred in the ordinary course of business
for amounts which are not delinquent and which are not, individually or in the
aggregate, material to the Company's business; (iii) zoning, entitlement,
building and other land use regulations imposed by governmental agencies having
jurisdiction over the Real Property which are not violated by the current use
and operation of the Real Property; (iv) covenants, conditions, restrictions,
easements and other similar matters of record affecting title to the Real
Property which do not materially impair the occupancy or use of the Real
Property for the purposes for which it is currently used in connection with the
Company's business; and (v) any lease of any equipment or other property that
would be accounted for as a capital lease in accordance with GAAP.
"Person" means an individual, a partnership, a corporation, a limited
------
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Plans" has the meaning set forth in Paragraph 5W(vi).
-----
"Preferred Stock" has the meaning set forth in Paragraph 1A(ii).
---------------
"Product Certifications" has the meaning set forth in Paragraph
----------------------
51(ii).
"Purchase Price" has the meaning set forth in Paragraph 1B.
--------------
"Purchaser Indemnified Parties" has the meaning set forth in Paragraph
-----------------------------
8B(ii).
"Purchaser" or "Purchasers" has the meaning set forth in the Preamble.
--------- ----------
"Purchaser Representative" means Summit/E-Tek Holdings, L.L.C.
------------------------
"Real Property" has the meaning set forth in Paragraph 5CC(iii).
-------------
"Registration Agreement" has the meaning set forth in Paragraph 2E.
----------------------
"Release" shall have the meaning set forth in CERCLA.
-------
"Representatives" has the meaning set forth in Paragraph 8G(i).
---------------
"Repurchase Price" has the meaning set forth in Paragraph 1A(iii).
----------------
"Repurchase Transaction" has the meaning set forth in Paragraph 1C.
----------------------
-54-
"Repurchased Shares" has the meaning set forth in Paragraph 1A(iii).
------------------
"Restrictive Covenants" has the meaning set forth in Paragraph
---------------------
8D(iii).
"Restricted Securities" means (i) the Preferred Stock issued
---------------------
hereunder, (ii) the Common Stock issued upon conversion of the Preferred Stock,
(iii) any other securities of the Company held by any of the Parties (including
any Common Stock held by the Shareholders) as of the Closing Date and (iv) any
securities issued or exchanged with respect to the securities referred to in
clauses (i), (ii) and (iii) by way of a stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization. As to any particular Restricted Securities, such
securities shall cease to be Restricted Securities when they have been (a)
effectively registered under the Securities Act and disposed of in accordance
with the registration statement covering them, (b) been distributed to the
public through a broker, dealer or market maker pursuant to Rule 144 (or any
similar provision then in force) under the Securities Act or become eligible for
sale pursuant to Rule 144(k) (or any similar provision then in force) under the
Securities Act or (c) been otherwise transferred and new certificates for them
not bearing the Securities Act legend set forth in Paragraph 11C(v) have been
delivered by the Company in accordance with Paragraph 11C(v). Whenever any
particular securities cease to be Restricted Securities, the holder thereof
shall be entitled to receive from the Company, without expense, new securities
of like tenor not bearing a Securities Act legend of the character set forth in
Paragraph 11C(v).
"Securities Act" means the Securities Act of 1933, as amended, or any
--------------
similar federal law then in force.
"Shareholder" or "Shareholders" has the meaning set forth in the
----------- ------------
Preamble.
"Shareholders Agreement" has the meaning set forth in Paragraph 2D.
----------------------
"Stock Option Plan" has the meaning set forth in ▇▇▇▇▇▇▇▇▇ ▇▇.
-----------------
"Stock Split" has the meaning set forth Preamble.
-----------
"Subsidiary" means, with respect to any Person, any corporation,
----------
limited liability company, partnership, association or other business entity of
which (i) if a corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof, or (ii) if a limited
liability company, partnership, association or other business entity, a majority
of the partnership or other similar ownership interest thereof is at the time
owned or controlled, directly or indirectly, by that Person or one or more
Subsidiaries of that Person or a combination thereof. For purposes hereof, a
Person or Persons shall be deemed to have a majority ownership interest in a
limited liability company, partnership, association or other business entity if
such Person or Persons shall be allocated a majority of limited liability
company, partnership, association or other business entity gains or losses or
shall be or control any managing
-55-
director or general partner of such limited liability company, partnership,
association or other business entity.
"Tax" or "Taxes" means federal, state, county, local, foreign or other
--- -----
income, gross receipts, ad valorem, franchise, profits, sales or use, transfer,
registration, excise, utility, environmental, communications, real or personal
property, capital stock, license, payroll, wage or other withholding,
employment, social security, severance, stamp, occupation, alternative or add-on
minimum, estimated and other taxes of any kind whatsoever (including
deficiencies, penalties, additions to tax, and interest attributable thereto)
whether disputed or not.
"Tax Return" means any return, information report or filing with
----------
respect to Taxes, including any schedules attached thereto and including any
amendment thereof.
"Third Party Approvals" has the meaning set forth in Paragraph 2Q.
---------------------
"Treasury Regulations" means the United States Treasury Regulations
--------------------
promulgated under the IRC, and any reference to any particular Treasury
Regulation section shall be interpreted to include any final or temporary
revision of or successor to that section regardless of how numbered or
classified.
Section 10. Termination.
-----------
10A. Conditions of Termination. This Agreement may be terminated at
-------------------------
any time prior to the Closing:
(i) by the mutual written consent of the Parties;
(ii) by the Purchaser Representative if there has been a material
misrepresentation, material breach of warranty or material breach of a covenant
by the Company or any Shareholder in the representations and warranties or
covenants set forth in this Agreement or the Schedules and Exhibits attached
hereto, which in the case of any breach of covenant has not been cured within
ten days after written notification thereof by the Purchasers to the Company and
the Shareholders;
(iii) by the Purchaser Representative if the Purchasers are not
satisfied with the results of their due diligence investigation and evaluation
of the matters set forth on the attached Due Diligence Schedule; provided that
---------------------- -------- ----
the Purchasers shall not be entitled to terminate this Agreement pursuant to
this subparagraph 10A(iii) unless the Purchasers deliver written notice of
termination to the Company and the Shareholders on or prior to July 15, 1997;
(iv) by the Company and the Shareholders if there has been a
material misrepresentation, material breach of warranty or material breach of a
covenant by any Purchaser in the representations and warranties or covenants set
forth in this Agreement or the Schedules and Exhibits attached hereto, which in
the case of any breach of covenant has not been cured within ten days after
written notification thereof by the Company and the Shareholders to the
Purchasers; or
-56-
(v) by the Purchaser Representative or the Shareholders if the
transactions contemplated hereby have not been consummated by August 31, 1997;
provided that the Party electing termination pursuant to clause (v) of this
-------- ----
Paragraph 10A is not in breach of any of its representations, warranties,
covenants or agreements contained in this Agreement or the Schedules and
Exhibits attached hereto. In the event of termination by either the Purchasers
or the Company and the Shareholders pursuant to this Paragraph 10A, written
notice thereof (describing in reasonable detail the basis therefor) shall
forthwith be delivered to the other Parties.
10B. Effect of Termination. In the event of termination of this
---------------------
Agreement by either the Purchasers or the Company and the Shareholders as
provided above, this Agreement shall forthwith become void and of no further
force and effect, except that the covenants and agreements set forth in the last
two sentences of Paragraph 4J and Paragraphs 8E, ▇▇▇, ▇▇▇, ▇▇▇, ▇▇▇, ▇▇▇, ▇▇▇,
▇▇▇, ▇▇▇, 11H, ▇▇▇, ▇▇▇, ▇▇▇, ▇▇▇, ▇▇▇, 11Q and 11R shall survive such
termination indefinitely, and except that nothing in Paragraph 10A or this
Paragraph 10B shall be deemed to release any Party from any liability for any
breach by such Party of the terms and provisions of this Agreement (except to
the extent expressly limited pursuant to Paragraph 11A below) or to impair the
right of any Party to compel specific performance by another Party of its
obligations under this Agreement.
Section 11. Miscellaneous.
-------------
11A. Fees and Expenses. Subject to the provisions of this Paragraph
-----------------
11A, the Company shall pay all of the Purchasers' (other than Broadview
Associates, LLC) and the Shareholders' fees and expenses (including fees and
expenses of legal counsel, accountants, investment bankers and other
representatives and consultants), or reimburse such Parties for such fees and
expenses, incurred in connection with this Agreement and the transactions
contemplated hereby whether or not the transactions contemplated hereby are
consummated. Such fees and expenses shall be paid or reimbursed at the Closing
or, if the Closing does not occur, shall be payable on demand. In the event the
transactions contemplated hereby are not consummated for any reason (other than
as specifically provided below) then the aggregate amount of fees and expenses
of the Purchasers (other than Broadview Associates, LLC) paid or reimbursed by
the Company shall not exceed $175,000. In the event the transactions
contemplated hereby are not consummated solely as a result of the termination of
this Agreement by the Purchasers pursuant to subparagraph 10A(iii) above, then
each of the Purchasers shall pay all of its own fees and expenses and the
Company shall have no obligation to pay such fees and expenses. In the event the
transactions contemplated hereby are not consummated by reason of the breach by
the Company or the Shareholders of any provision of this Agreement, then the
Company shall pay or reimburse all of the Purchasers' (other than Broadview
Associates, LLC) fees and expenses without regard to the $175,000 limit set
forth in this Paragraph 11A and the Company's obligation to pay or reimburse the
Purchasers for such fees and expenses shall be in addition to, and not in lieu
of, any other rights or remedies the Purchasers may have for any breach of this
Agreement; provided that in the event the transactions contemplated hereby are
-------------
not consummated as a result of any breach of any representations or warranties
made by the Company or the Shareholders in this Agreement the Purchasers' sole
remedy prior to the Closing
-57-
shall be the payment or reimbursement of the Purchasers' fees and expenses as
set forth in this Paragraph 11A (in an aggregate amount not to exceed $175,000,
unless any such breach or breaches constitute fraudulent misrepresentation or
deceit, in which case the provisions set forth above in this sentence shall
apply without regard to the limitations set forth in this proviso). If the
Purchasers terminate this Agreement solely because such Purchasers are not
satisfied with the results of their due diligence investigation and evaluation
of the matters set forth on the Due Diligence Schedule attached hereto under the
----------------------
heading "Business Matters", the Purchasers shall reimburse the Company and the
Shareholders for their reasonable fees and expenses incurred in connection with
this Agreement and the transactions contemplated hereby (in an aggregate amount
not to exceed $100,000). Any fees and expenses of Broadview Associates, LLC
(other than up to $3,000,000 pursuant to the agreement described on the attached
Contracts Schedule) shall be satisfied in full by the Shareholders and not
------------------
directly or indirectly by the Company. In addition, the Company shall pay, and
shall hold each Purchaser harmless against liability for the payment of, all
stamp and other Taxes which may be payable in respect of the execution and
delivery of this Agreement, the issuance, delivery or acquisition of any shares
of Preferred Stock and the issuance, delivery or acquisition of any shares of
Common Stock upon conversion of the Preferred Stock. If any legal action or
other proceeding relating to this Agreement, the agreements contemplated hereby,
the transactions contemplated hereby or the enforcement of any provision of this
Agreement or the agreements contemplated hereby is brought against any Party,
the prevailing Party in such action or proceeding shall be entitled to recover
all expenses relating thereto (including attorneys' fees and expenses) from the
Party against which such action or proceeding is brought in addition to any
other relief to which such prevailing Party may be entitled.
11B. Remedies. The Purchasers and the Shareholders shall have all
--------
rights and remedies set forth in this Agreement and the Articles of
Incorporation and all rights and remedies which the Purchasers and the
Shareholders have been granted at any time under any other agreement or contract
executed in connection with this transaction and all of the rights which such
Persons have under applicable law. Each of the Parties acknowledges and agrees
that the other Parties would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each of the Parties agrees that
the other Parties shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof in any action instituted in any
court of the United States or any state thereof having jurisdiction over the
Parties and the matter.
11C. Transfer of Restricted Securities.
---------------------------------
(i) Restricted Securities are transferable only pursuant to (a)
public offerings registered under the Securities Act, (b) Rule 144 or Rule 144A
of the Securities and Exchange Commission (or any similar rule or rules then in
force) if such rule is available and (c) subject to the conditions specified in
subparagraph (ii) below, any other legally available means of transfer.
(ii) In connection with the transfer of any Restricted Securities
(other than a transfer described in clause (a) or (b) of subparagraph (i)
above), the holder thereof shall deliver written notice to the Company
describing in reasonable detail the transfer or proposed transfer,
-58-
together with an opinion of ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇, ▇▇▇▇▇▇▇ & West LLP or other
counsel which (to the Company's reasonable satisfaction) is knowledgeable in
securities law matters to the effect that such transfer of Restricted Securities
may be effected without registration of such Restricted Securities under the
Securities Act. In addition, if the holder of the Restricted Securities delivers
to the Company an opinion of ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇, ▇▇▇▇▇▇▇ & West LLP or such other
counsel that no subsequent transfer of such Restricted Securities shall require
registration under the Securities Act, the Company shall promptly upon such
contemplated transfer deliver new certificates or instruments, as the case may
be, for such Restricted Securities which do not bear the Securities Act legend
set forth in Paragraph 11C(v) below. If the Company is not required to deliver
new certificates or instruments, as the case may be, for such Restricted
Securities not bearing such legend, the holder thereof shall not transfer the
same until the prospective transferee has confirmed to the Company in writing
its agreement to be bound by the conditions contained in this Paragraph 11C(ii)
and Paragraph 11C(v) below.
(iii) Upon the request of a holder of Restricted Securities, the
Company shall promptly supply to such holder or such holder's prospective
transferees all information regarding the Company required to be delivered in
connection with a transfer pursuant to Rule 144A of the Securities and Exchange
Commission.
(iv) If any Restricted Securities become eligible for sale pursuant
to Rule 144(k), the Company shall, upon the request of the holder of such
Restricted Securities, remove the legend set forth in Paragraph 11C(v) from the
certificates or instruments, as the case may be, representing such Restricted
Securities.
(v) Each certificate or instrument representing Restricted
Securities shall be imprinted with a legend in substantially the following form:
"The securities represented hereby have not been registered under the
Securities Act of 1933, as amended. The transfer of the securities
represented hereby is subject to the conditions specified in the
Recapitalization Agreement dated as of June 27, 1997, by and among the
issuer (the "Company") and certain investors, and the Company
-------
reserves the right to refuse the transfer of such securities until such
conditions have been fulfilled with respect to such transfer. A copy of
such conditions shall be furnished by the Company to the holder hereof upon
written request and without charge."
11D. Consent to Amendments. This Agreement may be amended, or any
---------------------
provision of this Agreement may be waived; provided that any such amendment or
-------- ----
waiver shall be binding upon the Company only if set forth in a writing executed
by the Company and referring specifically to the provision alleged to have been
amended or waived, any such amendment or waiver shall be binding upon a
Shareholder only if set forth in a writing executed by such Shareholder and
referring specifically to the provision alleged to have been amended or waived,
and any such amendment or waiver shall be binding upon any Purchaser only if set
forth in a writing executed by the Purchasers holding a majority of the Common
Stock issued or issuable upon conversion of the Preferred Stock held (or to be
purchased hereunder) by all Purchasers and referring specifically to the
provision
-59-
alleged to have been amended or waived. No course of dealing between or among
the Parties shall be deemed effective to modify, amend or discharge any part of
this Agreement or any rights or obligations of any Party under or by reason of
this Agreement.
11E. Successors and Assigns.
----------------------
(i) This Agreement and all covenants and agreements contained
herein and rights, interests or obligations hereunder, by or on behalf of any of
the Parties hereto, shall bind and inure to the benefit of the respective
successors and permitted assigns of the Parties hereto whether so expressed or
not, except that neither this Agreement nor any of the covenants and agreements
herein or rights, interests or obligations hereunder may be assigned or
delegated by any Shareholder, or assigned or delegated by the Company prior to
the Closing, without the prior written consent of the Purchasers.
(ii) Each of the Purchasers may (at any time prior to the
Closing), in its sole discretion, assign in whole or in part its rights and
obligations pursuant to this Agreement (including the right to purchase any
Preferred Stock) to one or more of its Affiliates or to any other Person or
Persons, and each of the Purchasers may, in its sole discretion, direct the
Company to convey any Preferred Stock to one or more of its Affiliates or to any
other Person or Persons, subject to compliance with applicable securities laws;
provided that in no event shall the Purchasers collectively assign the right to
-------- ----
purchase or direct the Company to convey any shares of Preferred Stock having a
purchase price in excess of $20,000,000 in the aggregate; and provided further
-------- -------
that none of the Purchasers (other than the Purchase Representative) may assign
----
any right to purchase any Preferred Stock hereunder without the prior written
consent of the Purchaser Representative. In connection with any such assignment,
the assigning Purchaser shall cause the prospective assignee to execute and
deliver to the Parties a counterpart to this Agreement and the Shareholders
Agreement and an acknowledgment by such Person agreeing to be bound by all terms
and provisions hereof as a "Purchaser" hereunder and as "Investor" and
"Shareholder" under the Shareholders Agreement. Each of the Purchasers and,
following the Closing, the Company and its Subsidiaries may assign its rights
pursuant to this Agreement, including its rights to indemnification, to any of
its lenders as collateral security. Each of the Purchasers and, following the
Closing, the Company and its Subsidiaries may assign this Agreement and its
rights and obligations hereunder in connection with a merger or consolidation
involving the Company or any of its Subsidiaries or in connection with a sale of
stock or assets of the Company or any of its Subsidiaries or other disposition
of the Company or any of its Subsidiaries.
(iii) In addition, and whether or not any express assignment has
been made, the provisions of this Agreement which are for a Party's benefit as a
holder of Restricted Securities are also for the benefit of, and enforceable by,
any subsequent holder of such Restricted Securities.
11F. Severability. Whenever possible, each provision of this Agreement
------------
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement or the application of any
such provision to any Person or circumstance shall be held to be prohibited by,
illegal or unenforceable under applicable law in any respect by a court of
competent jurisdiction, such provision shall be ineffective only to the extent
of such prohibition or
-60-
illegality or unenforceability, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
11G. Counterparts. This Agreement may be executed simultaneously in
------------
counterparts (including by means of telecopied signature pages), any one of
which need not contain the signatures of more than one Party, but all such
counterparts taken together shall constitute one and the same Agreement.
11H. Descriptive Headings; Interpretation. The headings and captions
------------------------------------
used in this Agreement and the table of contents to this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Any capitalized terms used in any Schedule or
Exhibit attached hereto and not otherwise defined therein shall have the
meanings set forth in this Agreement. The use of the word "including" herein
shall mean "including without limitation." The Parties intend that each
representation, warranty and covenant contained herein shall have independent
significance. If any Party has breached any representation, warranty or covenant
contained herein in any respect, the fact that there exists another
representation, warranty or covenant relating to the same subject matter
(regardless of the relative levels of specificity) which the Party has not
breached shall not detract from or mitigate the fact that the Party is in breach
of the first representation, warranty or covenant.
11I. Entire Agreement. This Agreement and the agreements and documents
----------------
referred to herein contain the entire agreement and understanding between the
Parties with respect to the subject matter hereof and supersede all prior
agreements and understandings (including that certain letter agreement (and the
attachments thereto) dated May 23, 1997, between Summit Partners, L.P. and the
Shareholders), whether written or oral, relating to such subject matter in any
way.
11J. No Third-Party Beneficiaries. This Agreement is for the sole
----------------------------
benefit of the Parties and their permitted successors and assigns and nothing
herein expressed or implied shall give or be construed to give any Person, other
than the Parties and such permitted successors and assigns, any legal or
equitable rights hereunder.
11K. Schedules. Nothing in any Schedule attached hereto shall be
---------
adequate to disclose an exception to a representation or warranty made in this
Agreement unless such Schedule identifies the exception with particularity and
describes the relevant facts in reasonable detail. Without limiting the
generality of the foregoing, the mere listing (or inclusion of a copy) of a
document or other item shall not be adequate to disclose an exception to a
representation or warranty made in this Agreement, unless the representation or
warranty has to do with the existence of the document or other item itself. No
exceptions to any representations or warranties disclosed on one Schedule shall
constitute an exception to any other representations or warranties made in this
Agreement unless the substance of such exception is disclosed as provided herein
on each such other applicable Schedule or a specific cross-reference to a
disclosure on another Schedule is made.
11L. Cooperation on Tax Matters. The Parties shall cooperate fully, as
--------------------------
and to the extent reasonably requested by each Party and at the requesting
Party's expense, in connection with
-61-
any audit, litigation or other proceeding with respect to Taxes. Such
cooperation shall include the retention and (upon any Party's request) the
provision of records and information which are reasonably relevant to any such
audit, litigation or other proceeding and making employees available on a
mutually convenient basis to provide additional information and explanation of
any material provided hereunder. The Parties agree (i) to retain all books and
records with respect to Tax matters pertinent to the Company and its
Subsidiaries relating to any taxable period beginning before the Closing Date
until the expiration of the statute of limitations (and, to the extent notified
by any Party, any extensions thereof) applicable to such taxable periods, and to
abide by all record retention agreements entered into with any taxing authority,
and (ii) to give each Party reasonable written notice prior to transferring,
destroying or discarding any such books and records and, if any Party so
requests, the Purchasers, the Company or the Shareholders, as the case may be,
shall allow such party to take possession of such books and records.
11M. Schedules and Exhibits. All Schedules and Exhibits attached
----------------------
hereto or referred to herein are hereby incorporated in and made a part of this
Agreement as if set forth in full herein.
11N. Treatment of the Preferred Stock. The Company covenants and
--------------------------------
agrees that (i) so long as federal income tax laws prohibit a deduction for
distributions made by the Company with respect to Preferred Stock, it shall
treat all distributions paid by it on the Preferred Stock as nondeductible
dividends on all of its tax returns, (ii) it shall treat the Preferred Stock as
preferred stock in all of its financial statements and other reports and shall
treat all distributions paid by it on the Preferred Stock as dividends on
preferred stock in such statements and reports and (iii) the Company will not
report constructive dividends under Treasury Regulation Section 1.305-5(b) with
respect to the Preferred Stock.
11O. Governing Law. The corporate law of the State of California shall
-------------
govern all issues and questions concerning the relative rights and obligations
of the Company and the holders of its equity securities. All other issues and
questions concerning the construction, validity, enforcement and interpretation
of this Agreement and the Schedules and Exhibits hereto shall be governed by,
and construed in accordance with, the laws of the State of California without
giving effect to any choice of law or conflict of law rules or provisions
(whether of the State of California or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of
California. In furtherance of the foregoing, the internal law of the State of
California shall control the interpretation and construction of this Agreement
(and all Schedules and Exhibits hereto), even though under that jurisdiction's
choice of law or conflict of law analysis, the substantive law of some other
jurisdiction would ordinarily apply.
11P. Notices. All notices, demands or other communications to be given
-------
or delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given when delivered personally to the
recipient, one day after being sent to the recipient by reputable overnight
courier service (charges prepaid), upon acknowledgment of receipt after
transmittal by facsimile or five days after being mailed to the recipient by
certified or registered mail, return receipt requested and postage prepaid. Such
notices, demands and other communications shall be sent to the Purchasers, the
Shareholders and the Company at the addresses
-62-
indicated below or to such other address or to the attention of such other
person as the recipient party has specified by prior written notice to the
sending party.
The Company (prior to the Closing):
----------------------------------
E-Tek Dynamics, Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: President
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
--------------
(which shall not constitute notice to the Company)
Fenwick & West LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
The Company (after the Closing):
-------------------------------
E-Tek Dynamics, Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: President
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with copies to:
--------------
(which shall not constitute notice to the Company)
Summit Partners, L.P.
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
-63-
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇ ▇. ▇▇▇▇, Esq.
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
The Shareholders:
----------------
▇▇▇▇▇▇▇ ▇▇▇▇▇ Pan
▇▇▇▇ ▇▇▇▇ Pan
[Address]
[Phone]
with a copy to:
--------------
(which shall not constitute notice to the Shareholders)
Fenwick & West LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
The Purchasers:
--------------
To the Purchasers at their respective addresses
listed on the Schedule of Purchasers attached hereto
----------------------
with copy to:
------------
(which shall not constitute notice to the Purchasers)
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇ ▇. ▇▇▇▇, Esq.
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
11Q. No Strict Construction. The Parties have participated jointly in
----------------------
the negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties, and no presumption or burden of proof
shall arise favoring or disfavoring any Party by virtue of the authorship of any
of the provisions of this Agreement.
-64-
11R. Community Property Waiver. Each Shareholder hereby acknowledges
-------------------------
that such Shareholder has read this Agreement and understands its contents. Such
Shareholder is aware that this Agreement provides for the repurchase of shares
of Common Stock from such Shareholder's spouse. Such Shareholder hereby
acknowledges and agrees that such spouse's interest in the Common Stock is
subject to this Agreement and any interest such Shareholder may have in such
Common Stock shall be irrevocably bound by this Agreement and further that such
Shareholder's community property interest, if any, shall be similarly bound by
this Agreement. Such Shareholder has sought legal advice with respect to such
waiver or has determined after carefully reviewing this Agreement that such
Shareholder will waive such community property right.
* * * * *
-65-
IN WITNESS WHEREOF, the parties hereto have executed this
Recapitalization Agreement on the date first written above.
E-TEK DYNAMICS, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇ Pan
-----------------------------
Its: PRESIDENT
----------------------------
[Signature Page to Recapitalization Agreement]
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇ Pan
-----------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇ Pan
/s/ ▇▇▇▇ ▇▇▇▇ Pan
-----------------------------
▇▇▇▇ ▇▇▇▇ Pan
[Signature Page to Recapitalization Agreement]
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
-----------------------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Trustee of the ▇. ▇. ▇▇▇▇▇ Pan
Charitable Remainder Unitrust UTA dated May 16, 1997
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
-----------------------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Trustee of the ▇▇▇▇▇▇▇ ▇▇▇▇▇ Pan
Charitable Remainder Unitrust UTA dated May 16, 1997
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
-----------------------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Trustee of the ▇▇▇▇ ▇▇▇▇ Pan
Charitable Remainder Unitrust UTA dated June 26, 1997
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
-----------------------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Trustee of the ▇▇▇▇▇▇▇ ▇▇▇▇▇ Pan
Charitable Remainder Unitrust I UTA dated June 26,
1997
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
-----------------------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Trustee of the ▇▇▇▇▇▇▇ ▇▇▇▇▇ Pan
Charitable Remainder Unitrust II UTA dated June 26,
1997
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
-----------------------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Trustee of the ▇▇▇▇▇▇▇ ▇▇▇▇▇ Pan
Charitable Remainder Unitrust III UTA dated June 26,
1997
[Signature Page to Recapitalization Agreement]
SUMMIT/E-TEK HOLDINGS, L.L.C.
By: Summit Ventures IV, L.P., its
Member
By Summit Partners IV, L.P., its
General Partner
By: Stamps, ▇▇▇▇▇▇▇ & Co. IV, its
General Partner
By: [Signature]
_____________________________
General Partner
[Signature Page to Recapitalization Agreement]
Mellon Bank, N.A., solely in its
capacity as Trustee for FIRST PLAZA
GROUP TRUST, (as directed by General
Motors Investment Management
Corporation), and not in its
individual capacity
By: [Signature]
---------------------------------
Name:
Title: Vice President
[Signature Page to Recapitalization Agreement]
▇▇▇▇▇ ▇. ▇▇▇▇▇▇. as nominee for
the Broadview Partners Group
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------
Its: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ as nominee
-----------------------------
[Signature Page to Recapitalization Agreement]
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇
------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇
BAIN SECURITIES, INC.
By:_________________________________
▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Its: Treasurer
[Signature Page to Recapitalization Agreement]
__________________________________
▇▇▇▇▇▇ ▇▇▇▇▇
BAIN SECURITIES, INC.
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
------------------------------
▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Its: Treasurer
[Signature Page to Recapitalization Agreement]
▇▇▇▇▇▇▇▇ STREET PARTNERS
By: /s/ [SIGNATURE]
------------------------------
Its: Managing Partner
-----------------------------
▇▇▇▇▇▇▇▇ STREET PARTNERS DIF,
LLC
By: /s/ [SIGNATURE]
------------------------------
Its: Managing Member
-----------------------------
[Signature Page to Recapitalization Agreement]
F&W INVESTMENTS 1997
By: [SIGNATURE]
------------------------------
Its: General Partner
-----------------------------
[Signature Page to Recapitalization Agreement]
SCHEDULE OF PURCHASERS
----------------------
Number of
Shares of
Preferred Purchase Price for
Name and Address Stock Preferred Stock
----------------------- ------------ --------------------
Summit/E-Tek Holdings, L.L.C. 27,000,000 $108,000,000
c/o Summit Partners, L.P.
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Mellon Bank, N.A., as Trustee for First 2,300,000 $ 9,200,000
Plaza Group Trust as directed by General
Motors Investment Management
Corporation
Mellon Bank
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
General Motors Investment Management
Corporation
▇▇▇ ▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, as nominee for the 250,000 $ 1,000,000
Broadview Partners Group
c/o Broadview Associates
▇▇▇ ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
SCHEDULE OF SHAREHOLDERS
------------------------
Number of
Repurchased Repurchase Closing Cash
Name and Address Shares Price Amount
-------------------------------- ------------- --------------- ---------------
▇▇▇▇ ▇▇▇▇ Pan and ▇▇▇▇▇▇▇ ▇▇▇▇▇ 19,575,495.59 $ 78,301,981.91 $ 73,301,981.91
Pan, Trustees of the J.J. &
▇▇▇▇▇▇▇ Pan Revocable Trust
dated February 14, 1997
▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Trustee of the 1,499,935.82 $ 5,999,743.25 $ 5,999,743.25
▇.▇. ▇▇▇▇▇ Pan Charitable
Remainder Unitrust UTA dated
May 16, 1997
▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Trustee of the 1,499,935.82 $ 5,999,743.25 $ 5,999,743.25
▇▇▇▇▇▇▇ ▇▇▇▇▇ Pan Charitable
Remainder Unitrust UTA dated
May 16, 1997
▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Trustee of the 2,468,623.80 $ 9,874,495.14 $ 9,874,495.14
▇▇▇▇ ▇▇▇▇ Pan Charitable
Remainder Unitrust UTA dated
June 26, 1997
▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Trustee of the 1,499,935.82 $ 5,999,743.25 $ 5,999,743.25
▇▇▇▇▇▇▇ ▇▇▇▇▇ Pan Charitable
Remainder Unitrust 1 UTA dated
June 26, 1997
▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Trustee of the 1,728,036.66 $ 6,912,146.60 $ 6,912,146.60
▇▇▇▇▇▇▇ ▇▇▇▇▇ Pan Charitable
Remainder Unitrust II UTA
dated June 26, 1997
▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Trustee of the 1,728,036.66 $ 6,912,146.60 $ 6,912,146.60
▇▇▇▇▇▇▇ ▇▇▇▇▇ Pan Charitable
Remainder Unitrust III UTA
dated June 26, 1997
============= ============== ==============
Totals: 30,000,000.17 120,000,000.00 115,000,000.00
▇▇▇▇▇▇ ▇▇▇▇▇ 250,000 $1,000,000
c/o Digital Link Corporation
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Bain Securities, Inc. 62,500 $ 250,000
c/o Bain & Company, Inc.
▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇▇▇▇▇▇ Street Partners 62,500 $ 250,000
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇. ▇▇▇▇▇
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (312) 861-2200
▇▇▇▇▇▇▇▇ Street Partners DIF, LLC 62,500 $ 250,000
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇. ▇▇▇▇▇
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
F&W Investments 1997 12,500 $ 50,000
c/o Fenwick & ▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
========== ============
Totals: 30,000,000 $120,000,000
SCHEDULE OF TRUST SHAREHOLDERS
------------------------------
▇▇▇▇ ▇▇▇▇ Pan and ▇▇▇▇▇▇▇ ▇▇▇▇▇ Pan, Trustees of the J.J. & ▇▇▇▇▇▇▇ Pan
Revocable Trust dated February 14, 1997
▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Trustee of the ▇.▇. ▇▇▇▇▇ Pan Charitable Remainder Unitrust UTA
dated May 16, 1997
▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Trustee of the ▇▇▇▇▇▇▇ ▇▇▇▇▇ Pan Charitable Remainder Unitrust
UTA dated May 16, 1997
▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Trustee of the ▇▇▇▇ ▇▇▇▇ Pan Charitable Remainder Unitrust UTA
dated June 26, 1997
▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Trustee of the ▇▇▇▇▇▇▇ ▇▇▇▇▇ Pan Charitable Remainder Unitrust
I UTA dated June 26, 1997
▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Trustee of the ▇▇▇▇▇▇▇ ▇▇▇▇▇ Pan Charitable Remainder Unitrust
II UTA dated June 26, 1997
▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Trustee of the ▇▇▇▇▇▇▇ ▇▇▇▇▇ Pan Charitable Remainder Unitrust
III UTA dated June 26, 1997
EXECUTION COPY
AMENDMENT NO. 1 TO RECAPITALIZATION AGREEMENT
---------------------------------------------
This AMENDMENT NO. 1 TO RECAPITALIZATION AGREEMENT (this "Amendment"),
---------
dated as of July 15, 1997, is by and among E-Tek Dynamics, Inc., a California
corporation (the "Company"), Summit/E-Tek Holdings, L.L.C., a Delaware limited
-------
liability company (the "Purchaser"), and ▇▇▇▇▇▇▇ ▇▇▇▇▇ Pan (the "Shareholder
--------- -----------
Representative").
--------------
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company, the Purchasers and the Shareholders are parties
to that certain Recapitalization Agreement, dated as of June 27, 1997 (the
"Recapitalization Agreement");
--------------------------
WHEREAS, the Company, the Purchasers and the Shareholders desire to
amend the Recapitalization Agreement as provided herein; and
WHEREAS, capitalized terms used herein and not otherwise defined
herein shall have the meanings set forth in the Recapitalization Agreement.
NOW, THEREFORE, in consideration of the premises and covenants
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Subparagraph 10A(iii) of the Recapitalization Agreement is hereby
amended to read in its entirety as set forth below:
"(iii) by the Purchaser Representative if the Purchasers are not
satisfied with the results of their due diligence investigation and
evaluation of the matters set forth on the attached Due Diligence Schedule
----------------------
or Supplemental Due Diligence Schedule; provided that the Purchaser
----------------------------------- -------- ----
Representative shall not be entitled to terminate this Agreement pursuant
to this subparagraph 10A(iii) with respect to any of the matters set forth
on the Due Diligence Schedule unless the Purchaser Representative delivers
----------------------
written notice of termination to the Company and the Shareholders on or
prior to July 15, 1997 and the Purchaser Representative shall not be
entitled to terminate this Agreement pursuant to this subparagraph 10A(iii)
with respect to any of the matters set forth on the Supplemental Due
----------------
Diligence Schedule unless the Purchaser Representative delivers written
------------------
notice of termination to the Company and the Shareholders on or prior to
July 21, 1997 (it being understood that the Due Diligence Schedule and the
----------------------
Supplemental Due Diligence Schedule shall have independent significance for
-----------------------------------
purposes of this subparagraph 10A(iii) notwithstanding any duplication of
certain matters set forth on such Schedules);"
2. The Supplemental Due Diligence Schedule attached hereto is hereby
---------------------------------------
added as a Schedule to the Recapitalization Agreement.
3. The Company hereby represents and warrants that this Amendment has
been duly authorized, executed and delivered by the Company and constitutes the
valid and binding obligation of the Company, enforceable in accordance with its
terms. The Shareholder Representative hereby represents and warrants that she
has been duly authorized to act on behalf of the Shareholders with respect to
the execution and delivery of this Amendment, and that this Amendment has been
duly executed and delivered by the Shareholder Representative on behalf of the
Shareholders and constitutes a valid and binding obligation of the Shareholders,
enforceable in accordance with its terms.
4. This Amendment may be executed in one or more counterparts
(including by means of telecopied signature pages), all of which shall be
considered one and the same agreement, and shall become effective when one or
more of such counterparts have been signed by each of the parties and delivered
to the other parties.
5. Except as expressly set forth in this Amendment, no other
amendment or modification is made to any other provision of the Recapitalization
Agreement, and the Recapitalization Agreement shall remain in full force and
effect, as amended hereby, and as so amended the Company, the Purchasers and the
Shareholders hereby reaffirm all of their respective rights and obligations
thereunder.
* * * * *
- 2 -
SUPPLEMENTAL DUE DILIGENCE SCHEDULE
-----------------------------------
I. International Trade Matters
Review matters relating to the Company's export practices during the past
five years, including a review of products exported or deemed exported
during the past five years and the countries involved, a review of the
Company's marking practices, and a review of information relating to any
Department of Commerce or other similar agency investigations, audits,
proceedings, inquiries or penalties.
II. Intellectual Property Matters
A. Analysis of scope, ownership and validity of the Company's existing
rights in the technology used by the Company with respect to any
aspect of the Designated Products. For purposes of this Schedule,
"Designated Products" shall mean all aspects of the products generally
-------------------
known as wavelength division multiplexers, isolators and couplers.
B. Analysis of potential and claimed infringement of the intellectual
property rights of others by the Company or the Company's technology,
Intellectual Property Rights or manufacturing processes with respect
to any aspect of the Designated Products.
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed and delivered as of the date first written above.
E-TEK DYNAMICS, INC.
[Signature]
By: ---------------------------------------
Its: PRESIDENT
---------------------------------------
SUMMIT/E-TEK HOLDINGS, L.L.C.
By: Summit Ventures IV, L.P., its Member
By: Summit Partners IV, L.P., its
General Partner
By: Stamps, ▇▇▇▇▇▇▇ & Co. IV, its
General Partner
By: ____________________________________
General Partner
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇ Pan
--------------------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇ Pan
(on her own behalf and on behalf of all of
the other Shareholders)
-3-
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed and delivered as of the date first written above.
E-TEK DYNAMICS, INC.
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇ Pan
By: ________________________________________
PRESIDENT
Its: _______________________________________
SUMMIT/E-TEK HOLDINGS, L.L.C.
By: Summit Ventures IV, L.P., its Member
By: Summit Partners IV, L.P., its
General Partner
By: Stamps, ▇▇▇▇▇▇▇ & Co. IV, its
General Partner
By: [Signature]
------------------------------------
General Partner
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇ Pan
___________________________________________
▇▇▇▇▇▇▇ ▇▇▇▇▇ Pan
(on her own behalf and on behalf of all of
the other Shareholders)
-3-
AMENDMENT NO. 2 TO RECAPITALIZATION AGREEMENT
---------------------------------------------
THIS AMENDMENT NO. 2 TO RECAPITALIZATION AGREEMENT ("Amendment") is made as
of August 17, 1998, by and among the undersigned.
WHEREAS, the undersigned, and certain others, entered into that June 27,
1997 Recapitalization Agreement and that July 15, 1997 Amendment No. 1 To
Recapitalization Agreement (collectively, "Agreement"), and the undersigned now
wish to amend the same on the terms set forth below; and,
WHEREAS, this Amendment is made in connection with and in consideration of
an amendment of even date herewith to that certain July 23, 1997 Employment
Agreement ("Employment Agreement") between E-Tek Dynamics, Inc., a California
corporation, and ▇▇▇▇ ▇▇▇▇ Pan ("Pan").
1. Paragraph 8D(i) of the Agreement is hereby amended to modify the
duration of the non-compete provisions applying to Pan by deleting the clause
that reads:
"...and J.J. Pan agrees that until the earlier of (i) two years
following termination of the Employment Period (as defined in the
Employment Agreement) or (ii) the fifth anniversary of the Closing Date,"
and replacing it with:
"...and J.J. Pan agrees that until the earlier of (i) July 23, 1999;
or, (ii) the termination of his employment by the Company without cause,"
2. For purposes of the preceding paragraph, termination of employment by
the Company shall be deemed with cause if it is based on Pan's commission of a
material act of dishonesty, wrongful use or disclosure of the Company's
confidential or proprietary information, material breach of this Agreement or
the Employment Agreement, gross carelessness or misconduct in the performance of
his duties, or any other actions that have or are likely to have an adverse
effect on the Company's business or reputation.
3. Each of the undersigned represents and warrants that this Amendment has
been duly executed and delivered by such person, and constitutes a valid and
binding obligation of such person, enforceable in accordance with its terms.
//
[Remainder of Page Intentionally Left Blank]
4. The capitalized terms that are used in this Amendment shall have the
same definitions provided in the Agreement. Except as expressly stated in this
Amendment, the Agreement shall remain unmodified and in full force and effect.
IN WITNESS WHEREOF, the parties have duly executed this Amendment effective
as of the date first written above.
E-Tek Dynamics, Inc. ▇▇▇▇ ▇▇▇▇ Pan and ▇▇▇▇▇▇▇ ▇▇▇▇▇
Pan, Trustees of the J.J. & ▇▇▇▇▇▇▇
Pan Revocable Trust dated
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇ February 14, 1997
-----------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇,
President and CEO /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇ Pan
----------------------------
SUMMIT/E-TEK HOLDINGS, L.L.C ▇▇▇▇▇▇▇ ▇▇▇▇▇ Pan, Trustee
/s/ ▇▇▇▇ ▇▇▇▇ Pan
----------------------------
By: Summit Ventures IV, L.P., its Member ▇▇▇▇ ▇▇▇▇ Pan, Trustee
By: Summit Partners IV, L.P., its General /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇ Pan
Partner ----------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇ Pan
By: Stamps, ▇▇▇▇▇▇▇ & Co. IV, its /s/ ▇▇▇▇ ▇▇▇▇ Pan
General Partner ----------------------------
▇▇▇▇ ▇▇▇▇ Pan
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
----------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇,
General Partner
Page 2