<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 18, 1998
REGISTRATION NO. 333-
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
E-TEK DYNAMICS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
<TABLE>
<CAPTION>
DELAWARE 3674 592337308
<S> <C> <C>
(STATE OR OTHER JURISDICTION (IRS EMPLOYER
OF INCORPORATION OR (PRIMARY STANDARD INDUSTRIAL IDENTIFICATION NUMBER)
ORGANIZATION) CLASSIFICATION CODE NUMBER)
</TABLE>
1865 LUNDY AVENUE
SAN JOSE, CALIFORNIA 95131
(408) 546-5000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
MICHAEL J. FITZPATRICK
PRESIDENT AND CHIEF EXECUTIVE OFFICER
E-TEK DYNAMICS, INC.
1865 LUNDY AVENUE
SAN JOSE, CALIFORNIA 95131
(408) 546-5000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES TO:
<TABLE>
<S> <C> <C>
LARRY W. SONSINI MATTHEW J. LUCERO DONALD M. KELLER, JR.
AARON J. ALTER CORPORATE COUNSEL TAE HEA NAHM
WILSON SONSINI GOODRICH &
ROSATI E-TEK DYNAMICS, INC. VENTURE LAW GROUP
PROFESSIONAL CORPORATION 1865 LUNDY AVENUE A PROFESSIONAL CORPORATION
650 PAGE MILL ROAD SAN JOSE, CALIFORNIA 95131 2800 SAND HILL ROAD
PALO ALTO, CALIFORNIA 94304 (408) 546-5000 MENLO PARK, CALIFORNIA 94025
(650) 493-9300 (650) 854-4488
</TABLE>
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable on or after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
----------------
CALCULATION OF REGISTRATION FEE
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- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TILE OF EACH CLASS OF SECURITIEST PROPOSED MAXIMUM
TO BE REGISTERED AGGREGATE OFFERING PRICE(1) AMOUNT OF REGISTRATION FEE
-------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock $.001 par value.... $89,700,000 $26,461.50
</TABLE>
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(1) Estimated solely for the purpose of computing the registration fee
pursuant to Rule 457(o).
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES
AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED AUGUST 18, 1998
SHARES
LOGO
COMMON STOCK
(PAR VALUE $.001 PER SHARE)
-----------
Of the shares of Common Stock being offered hereby, are being offered
by E-Tek Dynamics, Inc. ("E-Tek" or the "Company") and are being offered
by the Selling Stockholders. See "Principal and Selling Stockholders". The
Company will not receive any of the proceeds from the sale of the shares being
offered by the Selling Stockholders.
Prior to this offering, there has been no public market for the Common Stock.
It is currently estimated that the initial public offering price per share will
be between $ and $ . For factors to be considered in determining the
initial public offering price, see "Underwriting".
SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR CERTAIN CONSIDERATIONS RELEVANT TO
AN INVESTMENT IN THE COMMON STOCK.
Application has been made for quotation of the Common Stock on the Nasdaq
National Market under the symbol "ETEK".
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
-----------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO PROCEEDS TO SELLING
OFFERING PRICE DISCOUNT(1) COMPANY(2) STOCKHOLDERS
-------------- ------------ ----------- -------------------
<S> <C> <C> <C> <C>
Per Share.......... $ $ $ $
Total(3)........... $ $ $ $
</TABLE>
- -----
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting".
(2) Before deducting estimated expenses of $ payable by the Company.
(3) The Selling Stockholders have granted the Underwriters an option for 30
days to purchase up to additional shares at the initial public offering
price per share, less the underwriting discount, solely to cover over-
allotments. If such option is exercised in full, the total initial public
offering price, underwriting discount, proceeds to the Company and proceeds
to Selling Stockholders will be $ , $ , $ and $ , respectively.
See "Underwriting".
-----------
The shares offered hereby are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to
their right to reject any order in whole or in part. It is expected that the
shares will be ready for delivery in New York, New York, on or about , 1998,
against payment therefor in immediately available funds.
GOLDMAN, SACHS & CO. MORGAN STANLEY DEAN WITTER
DAIN RAUSCHER WESSELS NATIONSBANC MONTGOMERY SECURITIES LLC
A DIVISION OF DAIN RAUSCHER INCORPORATED
-----------
The date of this Prospectus is , 1998.
<PAGE>
The inside cover of the prospectus contains the captions: "E-Tek is a leader
in the design, packaging and manufacturing of high quality passive components
and modules for fiber optic networks" and "Creating the building blocks of the
next generations of fiber optics networks" and shows a picture of a person
manufacturing a fiber optic component, superimposed on a picture of the world,
surrounded by pictures of the Company's family of products, including
isolators, wavelength division multiplexing components and modules, couplers
and micro-optic integrated components.
----------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF
THE COMPANY, INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING
TRANSACTIONS IN SUCH SECURITIES, AND THE IMPOSITION OF A PENALTY BID, IN
CONNECTION WITH THE OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors" and the Consolidated Financial Statements
and Notes thereto appearing elsewhere in this Prospectus. This Prospectus
contains forward-looking statements that involve risks and uncertainties. The
Company's actual results may differ materially from the results discussed in
the forward-looking statements. Factors that might cause such a difference
include, but are not limited to, those discussed in "Risk Factors" and
elsewhere in this Prospectus. Unless otherwise indicated, the information in
this Prospectus (i) assumes no exercise of the Underwriters' over-allotment
option, (ii) reflects, except in the Consolidated Financial Statements, the
conversion of all outstanding shares of Convertible Preferred Stock into Common
Stock upon completion of this offering and (iii) assumes the reincorporation of
the Company from California to Delaware before the effective date of this
offering, and the associated changes in the Company's charter documents.
THE COMPANY
E-Tek Dynamics, Inc. ("E-Tek" or the "Company") is a leader in the design,
packaging and manufacturing of high quality passive components and modules for
fiber optic networks. The Company offers a broad product line and believes it
has a leading share in markets for several key passive components required by
telecommunications equipment manufacturers. The Company is focused on
delivering high performance and reliable optical components for applications
which include wavelength division multiplexing ("WDM") and optical amplifiers.
The Company's products are designed for the established terrestrial and
submarine long-haul markets as well as emerging short-haul markets, such as
metropolitan area networks. The Company's customers include telecommunications
equipment manufacturers such as Alcatel, CIENA, Corning, Lucent, Nortel and
Pirelli. The Company has been profitable for the last five years and had $107
million in net revenues and $18 million in net income for the fiscal year ended
June 30, 1998.
The volume of traffic carried by telecommunication service providers has
rapidly increased over the last several years, creating capacity constraints on
heavily used short- and long-haul routes that were originally designed for
significantly less traffic. This has resulted in the widespread deployment of
new fiber optic networks and the adoption of new technologies to increase the
bandwidth capacity of existing fiber optic networks. The Company believes that
the growth of new and existing applications for optical networking will drive
the need for higher performance and increasingly integrated components and
modules, which are the key building blocks for systems and subsystems in these
networks. According to data provided by Electronicast, a market research firm
specializing in communication network products, the worldwide optical network
market, including passive and active components as well as subsystems, but
excluding fiber optic cable, is expected to grow at 28.7% per year from $2.3
billion in 1996 to $8.1 billion in 2001.
E-Tek's strategy is to leverage its market leadership to provide a broad
range of high quality components in large volumes for current and next
generation optical networking systems. Key elements of this strategy include:
(i) investing in product enhancements and developing new products to maintain
and expand E-Tek's leadership in passive optical components; (ii) leveraging
its design and packaging expertise to manufacture integrated components and
modules; (iii) continuing to deliver a high level of value-added service to
strengthen its existing customer relationships and develop new ones; (iv)
enhancing its manufacturing capabilities to provide rapid delivery of large
volumes of high quality, lower cost components; and (v) strengthening its
position in existing markets as well as penetrating new markets by expanding
its sales and marketing efforts to target new customers.
The Company was incorporated in Florida in May 1983, reincorporated in
California in September 1987 and will reincorporate in Delaware prior to the
effective date of this offering. The Company's principal executive offices are
located at 1865 Lundy Avenue, San Jose, California 95131, and its telephone
number is (408) 546-5000.
---------------
E-Tek, the E-Tek Dynamics logo and Unifuse are trademarks of the Company. All
other brand names or trademarks appearing in this Prospectus are the property
of their respective owners.
3
<PAGE>
THE OFFERING
<TABLE>
<C> <S>
Common Stock offered by the Company................ Shares
Common Stock offered by Selling Stockholders....... Shares
Common Stock to be outstanding after the offering.. Shares(1)
Use of Proceeds.................................... For general corporate
purposes, including
working capital, capital
expenditures and repayment
of outstanding debt. See
"Use of Proceeds."
Proposed Nasdaq National Market symbol............. "ETEK"
</TABLE>
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
----------------------------------------
1994 1995 1996 1997 1998
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues..................................... $14,590 $31,661 $40,382 $73,076 $106,924
Gross profit..................................... 8,892 21,209 25,670 42,477 57,861
Operating expenses:
Research and development....................... 2,116 2,270 2,444 3,953 7,702
Selling, general and administrative............ 3,279 6,697 8,773 15,290 21,097
Operating income................................. 3,497 12,242 14,453 23,234 29,062
Net income....................................... 1,930 7,706 9,271 15,148 17,924
Convertible Preferred Stock accretion(2)......... -- -- -- -- 9,021
Net income available to Common Stockholders...... $ 1,930 $ 7,706 $ 9,271 $15,148 $ 8,903
Net income per share:
Basic(3)....................................... $ 0.04 $ 0.15 $ 0.19 $ 0.30 $ 0.39
Diluted(3)..................................... 0.04 0.15 0.19 0.30 0.32
Shares used in net income per share calculations:
Basic(3)....................................... 50,000 50,000 50,000 50,000 22,970
Diluted(3)..................................... 50,000 50,000 50,000 50,000 55,561
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1998
---------------------------------
AS
ACTUAL PRO FORMA(4) ADJUSTED(5)
------- ------------ -----------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................... $21,918 $21,918 $
Working capital............................. 33,582 33,582
Total assets................................ 89,378 89,378
Long-term debt, net of current portion...... 13,808 13,808
Mandatorily Redeemable Convertible Preferred
Stock(2)................................... 125,144 --
Stockholders' equity (deficit).............. (74,498) 50,646
</TABLE>
- --------
(1) Excludes 7,700,748 shares of Common Stock reserved for issuance under the
Company's stock option and stock purchase plans, under which options to
purchase 3,050,198 shares at a weighted average exercise price of $4.05
were outstanding as of June 30, 1998. See "Management--Stock Plans" and
Note 8 of Notes to Consolidated Financial Statements.
(2) See Note 6 of Notes to Consolidated Financial Statements for a description
of Mandatorily Redeemable Convertible Preferred Stock and related
accretion.
(3) See Note 7 of Notes to Consolidated Financial Statements for the methods
used to calculate net income per share and the number of shares used in the
net income per share calculations.
(4) Pro forma to reflect conversion upon the closing of this offering of all
outstanding shares of Mandatorily Redeemable Convertible Preferred Stock
into 30,000,000 shares of Common Stock.
(5) As adjusted to reflect conversion upon the closing of this offering of all
outstanding shares of Convertible Preferred Stock into 30,000,000 shares of
Common Stock and the sale of Common Stock offered by the Company hereby
(assuming an initial public offering price of $ per share) and the
application of the estimated net proceeds therefrom after deducting the
underwriting discount and estimated offering expenses. See "Use of
Proceeds" and "Capitalization."
4
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered by this Prospectus
involves a high degree of risk. Prospective purchasers of the Common Stock
offered hereby should carefully review the following risk factors as well as
the other information set forth in this Prospectus. This Prospectus contains
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those set
forth in the following risk factors and elsewhere in this Prospectus.
DEPENDENCE ON A LIMITED NUMBER OF MAJOR CUSTOMERS
A small number of customers have accounted for a significant portion of the
Company's net revenues to date, and the Company expects that this trend will
continue for the foreseeable future. In fiscal 1998, sales to the Company's
largest customers, affiliates of Alcatel Alsthom ("Alcatel"), affiliates of
Pirelli SpA ("Pirelli") and Corning, Inc. ("Corning") accounted for
approximately 30.2%, 16.5% and 14.3%, respectively, of the Company's net
revenues in fiscal 1998 and 43.5%, 5.2% and 15.0%, respectively, of the
Company's net revenues in the fourth quarter of fiscal 1998. Moreover, sales
to the Company's five largest customers and their affiliates represented
approximately 73.4% and 77.5% of the Company's net revenues in fiscal 1998 and
in the fourth quarter of fiscal 1998, respectively. The Company expects to
continue to be substantially dependent on sales to its largest customers. In
addition, the telecommunications equipment industry is dominated by a small
number of large companies and is currently consolidating, thereby further
reducing the number of potential customers in the industry. The Company's
dependence on large orders from very few customers makes the relationship
between the Company and each customer critically important to the Company's
business. There can be no assurance that the Company will retain its largest
customers or that it will be able to attract additional customers. The Company
has in the past experienced delays and reductions in orders from its major
customers. Further, the Company's customers have in the past and will in the
future seek price concessions from the Company. The loss of one or more of the
Company's largest customers, any reduction or delay in sales to these
customers, the inability of the Company to successfully develop relationships
with additional customers, or any further price concessions could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Almost all of the Company's customers are third party original equipment
manufacturers ("OEMs") that purchase the Company's components and modules for
use in systems manufactured and sold by them. In order for an OEM customer to
incorporate the Company's products into its systems, the Company must
demonstrate that its products provide significant commercial advantages over
competing products. There can be no assurance that the Company can
successfully demonstrate such advantages or that the Company's products will
continue to provide any advantages. Moreover, even if the Company is able to
demonstrate such advantages, there can be no assurance that OEMs will elect to
incorporate the Company's products into their current or future systems.
Further, the business strategies and manufacturing practices of the Company's
OEM customers are subject to change and any such change may result in
decisions by the customers to decrease their purchases of the Company's
products, seek other sources for products currently manufactured by the
Company or manufacture these products internally. Failure of OEMs to
incorporate the Company's products into their systems, the failure of such
OEMs' systems to achieve market acceptance or any other event causing a
decline in the Company's sales to OEMs would have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
FLUCTUATIONS IN QUARTERLY AND ANNUAL RESULTS; SEASONALITY
The Company's net revenues and operating results have in the past varied and
may in the future vary significantly from quarter to quarter and from year to
year as a result of a number of factors.
5
<PAGE>
These factors may include the size and timing of customer orders, the ability
to obtain sufficient supplies of sole or limited source materials for the
Company's products, the ability to manufacture products to meet customer
demands on a timely basis, pricing pressure from customers and competitors,
customer requirements, the ability to meet customer specifications, changes in
the product mix and shipments of components and product qualification, among
other factors. The Company's dependence on a small number of customers
increases the revenue impact of each customer's actions relative to these
factors. In addition, a significant portion of the Company's expenses are
relatively fixed in advance, based in large part on the Company's forecasts of
future sales. If sales are below expectations in any given period, the adverse
effect of a shortfall in sales on the Company's operating results may be
magnified by the Company's inability to adjust spending to compensate for such
shortfall. For example, in the second and third quarters of fiscal 1998, net
revenues decreased in part due to a decline in sales to a major customer, as
well as a reduction in average selling prices ("ASPs"). Due to this likelihood
of significant quarterly fluctuation in operating results, the Company
believes quarter to quarter comparisons of its results of operations may not
necessarily be meaningful indicators of annual performance.
The Company's orders fluctuate from quarter to quarter. To achieve its
revenue objectives, the Company is generally dependent upon obtaining orders
for shipment in that same quarter. Further, the Company's agreements with its
customers generally do not contain binding commitments to purchase and
generally provide that the customers may change delivery schedules and cancel
orders within specified timeframes without significant penalty. The Company
generally recognizes revenue upon shipment of products to the customer.
Refusal of customers to accept shipped products, returns of shipped products
or delays or difficulties in collecting accounts receivable could result in
significant charges against income, which could have a material adverse effect
on the Company's business, financial condition and results of operations. The
inability to obtain sufficient orders in any quarter, or the cancellation or
deferral of such orders in a quarter, could have a material adverse effect on
the Company's business, financial condition and results of operations.
The Company has experienced and expects to continue to experience
seasonality in its business. The Company's sales have been affected by a
seasonal decrease in demand in the last quarter of each calendar year. The
Company expects this trend to continue, although other trends may emerge.
These trends, or other fluctuations in the timing of customer orders, may
cause quarterly or annual fluctuations and could have a material adverse
effect on the Company's business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
DEPENDENCE ON LIMITED NUMBER OF PRODUCT LINES
A small number of products have historically accounted for a majority of the
Company's net revenues, and the Company expects that this trend will continue
for the foreseeable future. In particular, sales of isolators accounted for
approximately 51.2% of the Company's net revenues in fiscal 1998. The
Company's other significant products include wavelength division multiplexing
("WDM") components and modules. The Company expects to continue to be
substantially dependent on sales of a limited number of product lines in the
near future. The Company anticipates, however, that growth in sales of its
isolators will decline in the future due to continued declines in their ASPs
as well as the trend toward integration of isolators into micro-optic
integrated components ("MOICs"). There can be no assurance that the Company
will be successful in developing any other products or taking other steps to
mitigate the risks associated with reduced demand for its existing products.
Reduced demand for the Company's existing products would have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business--Products."
6
<PAGE>
DEPENDENCE ON TELECOMMUNICATIONS INDUSTRY
The Company's future success is dependent on the continued growth and
success of the telecommunications industry, which is evolving rapidly as
telecommunication markets around the world deregulate and open to global
competition. Generally, these factors have resulted in increased competition
and demand for telecommunications products and services, which have in turn
driven increased demand for the Company's products. There can be no assurance,
however, that the globalization, deregulation and other trends causing an
increase in the need for bandwidth that are currently driving growth in the
telecommunications industry will continue in a manner that is favorable to the
Company. The telecommunications industry is also experiencing rapid
consolidation and re-alignment as industry participants position themselves to
capitalize on the rapidly changing competitive landscape developing around new
communications technologies such as fiber optics and wireless communications
networks, as well as the Internet. Further, the rate at which long distance
carriers and other fiber optic network users have built new fiber optic
networks or installed new systems in their existing fiber optic networks has
fluctuated in the past and such fluctuations may continue in the future. Such
fluctuations may result in reduced demand for new or upgraded fiber optic
systems that utilize the Company's products and, therefore, result in reduced
demand for the Company's products, which would have a material adverse effect
on the Company's business, financial condition and results of operations.
There can be no assurance that technological or other developments in the
telecommunications industry will favor growth in the markets served by the
Company's products. Moreover, as the telecommunications industry consolidates
and re-aligns to accommodate technological and other developments, there is a
risk that certain of the Company's customers and telecommunication service
providers may align themselves together in a manner that materially and
adversely affects the Company's business, financial condition and results of
operations.
RISKS OF LONG AND UNPREDICTABLE SALES CYCLES; LIMITED LONG-TERM CONTRACTS;
SHORT LEAD TIMES
The period of time between the Company's initial contact with a customer and
the receipt of an actual purchase order may span a year or more. In addition,
customers perform, and require the Company to perform, extensive and lengthy
product evaluation and testing of new components and modules before purchasing
and using them in their equipment. The Company's customers do not typically
share information on the duration or magnitude of planned purchasing programs,
nor do they generally provide to the Company advance notice of contemplated
changes in their component purchasing priorities. These uncertainties
substantially complicate the Company's manufacturing planning. Curtailment or
termination of customer purchasing programs, decreases in purchased volumes or
reductions in the purchasing of certain components, particularly if
unanticipated by the Company, could have a material adverse effect on the
Company's business, financial condition and results of operations. The Company
generally does not have long-term contracts with its customers. Sales are
typically made pursuant to individual purchase orders, often with extremely
short lead times, that may be canceled or deferred by customers on short
notice without significant penalty. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
DECLINE IN AVERAGE SELLING PRICES
The fiber optic component industry is characterized by declining ASPs
resulting from such factors as increased competition and greater unit volumes
as telecommunication service providers continue to deploy fiber optic
networks. The Company has in the past and may in the future experience
substantial period to period fluctuations in operating results due to ASP
declines. The Company anticipates that ASPs will decrease in the future in
response to product introductions by competitors or the Company or other
factors, including price pressures from significant customers. In particular,
the market for low-end isolators and couplers has experienced and may continue
to experience significant ASP declines that have contributed and may in the
future continue to contribute to a decline in the Company's gross margins.
Therefore, the Company must continue to develop and introduce on a
7
<PAGE>
timely basis new products that incorporate features that can be sold at higher
ASPs, as well as reduce its manufacturing costs. Failure to achieve any or all
of the foregoing could cause the Company's net revenues and gross margins to
decline, which would have a material adverse effect on the Company's business,
financial condition and results of operations.
COMPETITION; CUSTOMERS AS COMPETITORS
The market for fiber optic components is intensely competitive and
characterized by rapidly changing technology. The Company currently
experiences competition from various companies including, among others: (i)
FDK Corporation, Kyocera Corp. and Shinkosha K.K. in isolators, (ii) Lucent
Technologies Inc., Corning, Inc. and JDS FITEL, Inc. in WDM components and
modules and (iii) ADC Telecommunications, Inc. and Gould Electronics, Inc. in
couplers. The Company also faces competition from numerous smaller companies.
Many of the Company's current and potential competitors have significantly
greater financial, technical, marketing, purchasing and other resources than
the Company, and as a result, may be able to respond more quickly to new or
emerging technologies or standards and to changes in customer requirements, to
devote greater resources to the development, promotion and sale of products,
or to deliver competitive products at a lower price. Many of these competitors
manufacture their products in countries offering significantly lower labor
costs.
Existing and potential customers are also current and potential competitors
of the Company. These companies may develop or acquire additional competitive
products or technologies in the future and thereby reduce or cease their
purchases from the Company. For example, one of the Company's customers
recently purchased a fiber optic component manufacturer and began
manufacturing a product internally that it formerly purchased from the
Company. The Company may also face competition in the future from these and
other parties that develop fiber optic components based upon the technologies
similar to or different from the technologies employed by the Company. The
Company expects competition in general to intensify substantially, and further
expects competition to be broadly based on varying combinations of
manufacturing capacity, ability to deliver on-time, technical features,
quality and reliability, customization to customer specifications, strength of
distribution channels, price and the comprehensiveness of the product
offering. There can be no assurance that the Company will be able to compete
successfully with its existing or new competitors or that competitive
pressures faced by the Company will not result in lower prices for the
Company's products, loss of market share, or reduced gross margins, either of
which could materially and adversely affect the Company's business, financial
condition and results of operations.
MANUFACTURING AND FACILITY EXPANSION RISKS
The Company currently manufactures all of its products at its facilities in
San Jose, California. The Company is in the process of increasing its
manufacturing capacity at these facilities and adding overseas manufacturing
capabilities. The Company has increased its capacity by expanding the size of
its San Jose facilities from approximately 90,000 square feet to approximately
160,000 square feet. The Company has been moving portions of its operations,
including manufacturing, to these buildings as space becomes available. There
can be no assurance that the Company will not experience business
interruptions as it relocates certain of its personnel and equipment. Any such
interruptions or other transition difficulties could have a material adverse
effect on the Company's business, financial condition and results of
operations.
In addition, in an effort to increase the Company's manufacturing capacity
and reduce its manufacturing costs, as well as to expand the Company's sales
and marketing presence in Asia, the Company has recently entered into a joint
venture with a Taiwanese company (the "FibX Joint Venture") to build and
operate a fiber optic component manufacturing facility in Taiwan. The Company
believes that this new facility will begin commercial production in 1999. The
construction of the new
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facility and the expansion of the existing facilities entail significant
risks, including shortages of materials and skilled labor, unavailability or
late delivery of process equipment, unforeseen environmental or engineering
problems, work stoppages, political instability, weather interferences and
unanticipated cost increases, any of which could have a material adverse
effect on the building, equipping and production start-up of the new facility.
In addition, unexpected changes or concessions required by regulatory agencies
with respect to necessary licenses, land use permits, site approvals and
building permits could involve significant additional costs and delay the
scheduled opening of the facility and could reduce the Company's anticipated
net revenues. Following the completion of the FibX facility, the Company must
install equipment and perform necessary testing and qualification procedures
prior to commencing commercial production at the facility. As a result of the
foregoing and other factors, there can be no assurance that the project will
be completed within its current budget or within the period currently
scheduled by the Company, which could have a material adverse effect on its
business, financial condition and operating results. Furthermore, if the
Company is unable to achieve adequate manufacturing yields at the FibX
facility in a timely manner or if the Company's net revenues do not increase
commensurate with the anticipated increase in manufacturing capacity
associated with the new facility and the expansion of its existing facilities,
the Company's business, financial condition and operating results could also
be materially adversely affected.
The Company's manufacturing expansion and related capital expenditures are
being made in anticipation of a level of customer orders that may not be
sustained over multiple quarters, if at all. If the anticipated level of
customer orders is not received, the Company will not be able reduce its
expenses quickly enough to prevent a decline in the Company's gross margins
and operating income. Such declines would have a material adverse effect on
the Company's business, financial condition and results of operations.
The Company will be required to hire, train and manage additional production
personnel in order to increase its production capacity as scheduled. The
Company has in the past experienced and in the future may continue to
experience substantial manufacturing capacity constraints. In the past, the
Company has been unable to accept certain orders from, and deliver products in
a timely manner to, its customers due to such constraints. In the event the
Company's plans to expand its manufacturing capacity are not implemented on a
timely basis, the Company could face production capacity constraints, which
could have a material adverse effect on the Company's business, financial
condition and operating results. In addition, the Company may be required to
make additional capital investments in its new or existing manufacturing
facilities. To the extent such capital investments are required, the Company's
gross margins and, as a result, its business, financial condition and
operating results, could be materially and adversely affected.
The Company will also have to effectively coordinate and manage two
manufacturing facilities to successfully meet its overall production goals.
The Company has no experience in coordinating and managing production
facilities that are located at different sites or in the transfer of
manufacturing operations from one facility to another. As a result of these
and other factors, the failure of the Company to successfully coordinate and
manage multiple sites or to transfer the Company's manufacturing operations
could adversely affect the Company's overall production and could have a
material adverse effect on its business, financial condition and operating
results. See "Business--Manufacturing."
MANAGEMENT OF EXPANSION
The Company is rapidly expanding certain aspects of its operations,
particularly its manufacturing operations, and the Company anticipates that
this expansion will continue in the near future. As part of this expansion,
the Company has rapidly increased its employee base, from 439 employees on
June 30, 1997 to 657 employees on June 30, 1998. The Company intends to
continue to add and train new employees as its expands. The pace of the
Company's expansion, in combination with the
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complexity of the technology involved in the manufacture of the Company's
products, demands an unusually high level of managerial effectiveness in
anticipating, planning, coordinating and meeting the operational and personnel
needs of the Company and the needs of the Company's customers for quality,
reliability and timely delivery. Many of the Company's key employees have not
had previous experience in managing companies undergoing such rapid expansion.
Any inability to manage the expansion of the Company's business could have a
material adverse effect on its business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
DEPENDENCE ON SUPPLIERS
The Company is dependent on a limited number of suppliers of materials for
its products as well as equipment used to manufacture its products. Some of
the Company's suppliers are sole sources, and finding an alternative source
may involve significant expense and delays, if such a source could be found at
all. The Company has in the past been unable to ship products due to shortages
of sole-sourced materials. The reliance on a sole or limited number of
suppliers has in the past and could in the future result in lost orders,
reduced control over pricing, quality and delivery schedules, as well as the
need to redesign a product due to a failure to obtain a single source
component. Any interruption in supply of single source materials could have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company has to date conducted its business with suppliers through the
issuance of conventional purchase orders based on the Company's forecasted
requirements. The Company has in the past experienced delays in the receipt of
key materials and has been unable to accept customer orders for Company
products that require such materials. The Company generally does not maintain
long-term agreements with its suppliers, and therefore the supply of a
particular material could be terminated at any time without penalty to the
supplier. Any future difficulty in obtaining sufficient and timely delivery of
materials could result in delays or reductions in product shipments. In the
event that any significant supplier or subcontractor were to become unable or
unwilling to continue to manufacture or ship materials in required volumes,
the Company would have to identify and qualify acceptable replacements. A
delay or reduction in material shipments or any need to identify and qualify
replacement suppliers could have a material adverse affect on the Company's
business, financial condition and results of operations.
DEPENDENCE ON THIRD PARTY SALES REPRESENTATIVES
The Company sells substantially all of its products through a network of
seven domestic and 22 international sales representatives. The Company's sales
representatives participate in the Company's sales and marketing efforts by
developing and maintaining relationships with key customer contacts, cross-
marketing the Company's products to its existing customer base, communicating
technical specifications and other requirements of its customers to the
Company's product development engineers, and providing customer support after
the sale. Although the Company intends to increase the number of sales
representatives that market and sell its products as its customer base
expands, and to selectively expand its direct marketing and sales force to
take advantage of new customer opportunities, the Company expects that it will
continue to rely on its independent sales representatives to market, sell and
support many of its products. In addition, some of the Company's sales
representatives have exclusive rights to sell the Company's products in
certain territories, which limits the Company's ability to add additional
sales representatives. As a result, the Company's success depends in part on
the continued viability and financial stability of the Company's sales
representatives. The sales representative industry has been historically
characterized by rapid change and instability resulting from widespread
financial difficulties, industry consolidation and the emergence of competing
distribution channels. In addition, certain of its sales representatives carry
products of
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one or more of the Company's competitors, or may carry such products in the
future. Accordingly, there is a risk that the Company's sales representatives
may emphasize the products of one or more of the Company's competitors at the
expense of their sales and marketing efforts on behalf of the Company's
products. There can be no assurance that the Company's sales representatives
will recommend, or continue to recommend, the Company's products, or that the
Company's sales representatives will devote sufficient resources to market the
Company's products or provide sufficient customer support for such products.
The loss of, or reduction in sales made by, one or more of the Company's key
sales representatives, or the inability to attract and retain new sales
representatives that satisfy the Company's standards, could have a material
adverse effect on the Company's business, financial condition or results of
operations.
TECHNOLOGICAL CHANGE AND NEW PRODUCTS
The Company expects that new technologies will emerge as competition in the
telecommunications equipment industry increases and the need for higher and
more cost efficient bandwidth expands. The Company's ability to anticipate
changes in technology, industry standards, customer requirements and product
offerings and to develop and introduce new and enhanced products will be
significant factors in determining the Company's long-term success. The market
for fiber optic components is characterized by significant capital investment,
diverse and competing technologies, rapid product introduction and
obsolescence of existing products. The introduction of new products
incorporating new technologies or the emergence of new industry standards
could render the Company's existing products uncompetitive, obsolete or
unmarketable. The development of new, technologically advanced products is a
complex and uncertain process requiring high levels of innovation and highly
skilled assembly and manufacturing processes, as well as the accurate
anticipation of technological and market trends. Many of the Company's
competitors have substantially greater financial, technical, manufacturing and
marketing resources with which to develop new technologies and to promote
market acceptance of their products. There can be no assurance that the
Company will be able to identify, develop, manufacture, market or support new
or enhanced products successfully or on a timely basis, that new Company
products will gain market acceptance or that the Company will be able to
respond effectively to product announcements by competitors, technological
changes or emerging industry standards. Any of these outcomes would have a
material and adverse effect on the Company's business, financial condition and
results of operations.
PRODUCT COMPLEXITY
Products as complex as those offered by the Company may contain defects when
first introduced or as new versions are released and new products often take
longer to develop than originally anticipated. In the past, the Company has
experienced such defects and delays in development and volume production. In
particular, the Company has experienced defects and delays in production of
integrated products. Delivery of products with production defects or
reliability or quality problems could significantly delay or hinder market
acceptance of such products, which could damage the Company's reputation and
adversely affect the Company's ability to retain its existing customers and to
attract new customers. Moreover, such defects could cause problems,
interruptions, delays or cessation of sales to the Company's customers.
Alleviating such problems may require significant expenditures of capital and
resources by the Company. There can be no assurance that, despite testing by
the Company, its suppliers or its customers, defects will not be found in new
products after commencement of commercial production, resulting in additional
development costs, loss of, or delays in, market acceptance, diversion of
technical and other resources from the Company's other development efforts,
claims by the Company's customers or others against the Company, or the loss
of credibility with the Company's current and prospective customers. Any such
event would have a material adverse effect on the Company's business,
financial condition and results of operations.
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RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS; CURRENCY RISKS
The Company generates a significant portion of its revenues from sales to
companies located outside the United States, principally in Europe.
Approximately 53.4%, 42.2% and 36.5% of the Company's net revenues in fiscal
1998, 1997 and 1996, respectively, were derived from sales to customers
located outside the United States, and the Company anticipates that
international sales will continue to account for a significant portion of its
net revenues. As a result, a significant portion of the Company's sales and
operations may continue to be subject to certain risks, including government
controls, export licensing requirements and restrictions, tariffs and other
trade barriers, slower accounts receivable cycles, currency exchange risks and
exchange controls and potential adverse tax consequences. Demand for the
Company's products could also be adversely affected by seasonality of
international sales and economic conditions in Europe and the Company's other
overseas markets. These factors could have a material adverse effect on future
sales of the Company's products to international customers and, consequently,
on the Company's business, financial condition and results of operations.
The Company anticipates shifting the manufacturing of certain of its mature
products offshore to the FibX facility in 1999. Foreign manufacturing is
subject to a number of other risks, including currency fluctuations,
transportation delays and interruptions, difficulties in staffing, potentially
adverse tax consequences and unexpected changes in regulatory requirements,
tariffs and other trade barriers, and political and economic instability. The
location of the FibX facility will also subject the Company to the risk of
political instability in Taiwan, including but not limited to the potential
for conflict between Taiwan and the People's Republic of China. Any of these
risks could have a material adverse effect on the Company's business,
financial condition and results of operations.
Currently, all of the Company's international sales are U.S. dollar-
denominated. As a result, an increase in the value of the U.S. dollar relative
to foreign currencies could make the Company's products less competitive in
international markets. There can be no assurance that the Company will not be
required to or otherwise accept payment in foreign currencies in the future.
The Company's operating results could become subject to significant
fluctuations based upon changes in the exchange rates of certain currencies in
relation to the U.S. dollar. Although management will continue to monitor the
Company's exposure to currency fluctuations, and, when appropriate, may use
financial hedging techniques in the future to minimize the effect of these
fluctuations, there can be no assurance that exchange rate fluctuations will
not have a material adverse effect on the Company's business, financial
condition and results of operations in the future.
RECENT MANAGEMENT ADDITIONS AND DEPENDENCE ON KEY EMPLOYEES
The Company's senior management personnel have worked together for only a
short time. The Company's Chief Executive Officer joined the Company in
October 1997 and three of the Company's other four executive officers have
joined the Company since that time. The success of the Company is dependent,
in large part, on the long-term effectiveness of its executive officers and
their continued service to the Company. The Company does not have key man life
insurance coverage on any of its executive officers. The loss of the services
of any of the Company's executive officers could have a material adverse
effect on the Company's business, financial condition and results of
operations. See "Management."
The Company's success will also depend in large part upon its ability to
attract and retain highly-skilled technical, managerial, sales and marketing
personnel, particularly those skilled and experienced with fiber optics.
Competition for such personnel, particularly in the United States, is intense.
The Company has in the past recruited engineering and technical personnel from
China, Taiwan and other countries and assisted such personnel in obtaining the
necessary visas to work in the United States. There can be no assurance that
the Company will be able to recruit key personnel from such countries
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in the future or that the Company will be able to obtain visas for the skilled
workers it seeks to hire. Furthermore, there can be no assurance that the
Company will be able to retain its existing key personnel or any new key
personnel. Failure to attract and retain key personnel would have a material
adverse effect on the Company's business, financial condition and results of
operations.
RISKS ASSOCIATED WITH PATENTS AND INTELLECTUAL PROPERTY RIGHTS
The Company's success will depend, in part, on its ability to protect its
intellectual property. The Company relies primarily on patent, copyright,
trademark and trade secret laws, as well as nondisclosure agreements and other
methods to protect its proprietary technologies and processes. There can be no
assurance that such measures will provide meaningful protection for the
Company's proprietary technologies and processes. As of June 30, 1998, the
Company had 42 U.S. patents issued and 24 U.S. and 18 foreign patent
applications pending. These patents expire between 2007 and 2016. There can be
no assurance that any patent will issue as a result of these applications or
future applications or, if issued, that any patent claims allowed will be
sufficiently broad to protect the Company's technology. In addition, there can
be no assurance that any existing or future patents will not be challenged,
invalidated or circumvented, or that any right granted thereunder would
provide meaningful protection to the Company. The failure of any patents to
provide protection to the Company's technology would make it easier for the
Company's competitors to offer similar products. The Company also generally
enters into confidentiality agreements with its employees and strategic
partners, and generally controls access to and distribution of its
documentation and other proprietary information. Despite these precautions, it
may be possible for a third party to copy or otherwise obtain and use the
Company's products or technology without authorization, develop similar
technology independently or design around the Company's patents. In addition,
effective patent, copyright, trademark and trade secret protection may be
unavailable or limited in certain foreign countries. Further, the Company
occasionally incorporates the intellectual property of its customers into its
designs, and the Company has certain obligations with respect to the non-use
and non-disclosure of such intellectual property. There can be no assurance
that the steps taken by the Company to prevent misappropriation or
infringement of the intellectual property of the Company or its customers will
be successful. Moreover, litigation may be necessary in the future to enforce
the Company's intellectual property rights, to protect the Company's trade
secrets or to determine the validity and scope of proprietary rights of
others, including its customers. Such litigation could result in substantial
costs and diversion of the Company's resources and could have a material
adverse effect on the Company's business, financial condition and results of
operations.
The telecommunications equipment industry is characterized by vigorous
protection and pursuit of intellectual property rights. From time to time, the
Company has received, and may continue to receive in the future, notices of
claims of infringement of other parties' proprietary rights. There can be no
assurance that the Company will prevail in actions alleging infringement by
the Company of third-party patents or the invalidity of the patents held by
the Company will not be asserted or prosecuted against the Company, or that
any assertions of infringement or prosecutions seeking to establish the
invalidity of Company-held patents will not materially and adversely affect
the Company's business, financial condition and results of operations. For
example, in a patent or trade secret action, an injunction could issue against
the Company requiring that the Company withdraw certain products from the
market or necessitating that certain products offered for sale or under
development be redesigned. The Company has also entered into certain
indemnification obligations in favor of its customers and strategic partners
that could be triggered upon an allegation or finding of the Company's
infringement of other parties' proprietary rights. Irrespective of the
validity or successful assertion of such claims, the Company would likely
incur significant costs and diversion of its resources with respect to the
defense of such claims, which could also have a material adverse effect on the
Company's business, financial condition and results of operations. To address
any potential claims or actions asserted against it, the Company may seek to
obtain a license under a third party's intellectual property rights. There can
be no
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assurance that under such circumstances a license would be available on
commercially reasonable terms, if at all.
Substantial inventories of intellectual property are held by a few industry
participants, such as Lucent Technologies Inc., Northern Telecom Limited and
certain major universities and research laboratories. This concentration of
intellectual property in the hands of a few major entities also poses certain
risks to the Company in seeking to hire qualified personnel. The Company has
on a few occasions recruited such personnel from competitors. There can be no
assurance that other companies will not claim the misappropriation or
infringement of their intellectual property, particularly when and if
employees of these companies leave to work for the Company. There can be no
assurance that the Company will be able to avoid litigation in the future,
particularly if new employees join the Company after having worked for a
competing company. Such litigation could be very expensive to defend,
regardless of the merits of the claims, and could have a material adverse
effect on the Company's business, financial condition and results of
operations.
RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS AND STRATEGIC INVESTMENTS
The Company expects to review acquisition and strategic investment prospects
that would complement its existing product offerings, augment its market
coverage, secure supplies of critical materials or enhance its technological
capabilities. Although the Company has no current agreements with respect to
any material acquisitions or investments, the Company may make acquisitions of
or investments in businesses, products or technologies in the future. From
time to time, the Company has considered increasing its ownership interest in
a joint venture with its German distributor, AMS OptoTech GmbH. Future
acquisitions or investments by the Company, including an increase in ownership
interests in joint ventures, could result in potentially dilutive issuances of
equity securities, large one-time write-offs, the incurrence of debt and
contingent liabilities and amortization expenses related to goodwill and other
intangible assets.
Furthermore, acquisitions entail numerous risks, including difficulties in
the assimilation of operations, personnel, technologies, products and the
information systems of the acquired companies, diversion of management's
attention from other business concerns, the diversion of resources from the
Company's existing businesses, products or technologies, risks of entering
geographic and business markets in which the Company has no or limited prior
experience and the potential loss of key employees of acquired organizations.
The Company has not made any material acquisitions in the past. No assurance
can be given as to the ability of the Company to successfully integrate any
businesses, products, technologies or personnel that might be acquired in the
future. The failure of the Company to do so could have a material adverse
effect on the Company's business, financial condition and results of
operations.
ENVIRONMENTAL AND DISASTER RISKS
The Company owns its facilities in San Jose and recently purchased five
acres of vacant land near these facilities. Although the Company believes that
it has complied with all applicable environmental regulations in connection
with its land purchases, there can be no assurance that the Company will not
be required to undertake environmental remediation in order to comply with
current or future environmental laws. The cost of any remedial actions or the
paying of penalties or damages for environmental matters, regardless of fault,
could have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company is subject to extensive federal, state and local environmental
laws, rules, regulations and ordinances that govern activities or operations
that may have adverse environmental effects, such as discharges to air and
water, as well as handling and disposal practices for solid and hazardous
wastes, and impose liability for the costs of cleaning up, and certain damages
resulting
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from, past spills, disposals or other releases of hazardous substances
(together, "Environmental Laws"). The Company handles small amounts of
hazardous materials as part of its manufacturing activities. Although the
Company endeavors to handle all such materials in compliance with applicable
law, penalties or damages for violations of Environmental Laws relating to the
Company's handling of these materials, or for violations of any other
Environmental Laws, could have a material adverse effect on the Company's
business, financial condition and results from operations.
The Company's facilities, which are located in a seismically active area,
are susceptible to damage from earthquakes as well as from fire, floods, power
loss, telecommunications failures and similar events. The Company does not
currently have a disaster recovery plan in effect to respond to these events.
The occurrence of any of these events could significantly disrupt the
Company's operations and would have a material adverse effect on the Company's
business, financial condition and results of operations.
YEAR 2000 COMPLIANCE
Many currently installed computer systems, software products and other
control devices are coded to accept only two digit entries in the date code
fields, which will need to accept four digit entries to distinguish 21st
century dates from 20th century dates. As a result, many companies' computer
systems, software products and control devices may need to be upgraded or
replaced in order to comply with such "Year 2000" requirements. The Company
relies on its systems, applications and control devices in operating and
monitoring all major aspects of its business. The Company believes that its
recently installed new Enterprise Resource Planning ("ERP") software is Year
2000 compliant and its other systems, software and devices generally are Year
2000 compliant. The Company is in the process of reviewing the effect of Year
2000 issues on its other systems, software and devices and expects to complete
the review by the end of calendar 1998. The Company also relies, directly and
indirectly, on external systems of its customers, suppliers, creditors,
financial organizations, utilities providers and governmental entities, both
domestic and international. Consequently, the Company could be affected
through disruptions in the operations of the enterprises with which the
Company interacts. Furthermore, the purchasing frequency and volume of
customers or potential customers may be affected by Year 2000 issues as
companies expend significant resources to make their current systems Year 2000
compliant. The incomplete or untimely resolution of any of these issues could
have a material adverse effect on the Company's business, financial condition
and results of operations.
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Sales of a substantial number of shares of Common Stock after the offering
could adversely affect the market price of the Common Stock and could impair
the Company's ability to raise capital through the sale of equity securities.
Upon completion of the offering, the Company will have outstanding shares
of Common Stock ( shares if the Underwriters' over-allotment option is
exercised in full), assuming no exercise of options after June 30, 1998. Of
these shares, the shares offered hereby ( shares if the Underwriters'
over-allotment option is exercised in full) will be freely tradable without
restriction or further registration under the Securities Act of 1933, as
amended (the "Securities Act"), unless purchased by "affiliates" of the
Company as that term is defined in Rule 144 under the Securities Act ("Rule
144") described below. The remaining shares of Common Stock outstanding
upon the closing of this offering will be "restricted securities" as that term
is defined in Rule 144 (assuming no exercise of the Underwriters' over-
allotment option).
Restricted securities may be sold in the public market only if registered or
if they qualify for any exemption from the registration under Rules 144,
144(k) or 701 promulgated under the Securities Act. As a result of the
contractual restrictions described below and the provisions of Rules 144,
144(k) and
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701, additional shares will be available for sale in the public market as
follows: shares will be eligible for sale upon expiration of the lock-up
agreements between stockholders of the Company and the representatives of the
Underwriters following the expiration of 180 days from the date of this
Prospectus, of which shares shall initially be subject to the volume and
manner of sale restrictions under Rule 144. In addition to the foregoing, as
of June 30, 1998, there were options outstanding under the Company's 1997
Equity Incentive Plan and 1997 Executive Equity Incentive Plan (the "Plans"),
to purchase an aggregate of 3,050,198 shares of Common Stock, of which options
to purchase 580,588 shares were vested. The shares underlying such options
will be eligible for sale upon expiration of the lock-up provisions contained
in the plans following the expiration of 180 days from the date of this
Prospectus, subject in certain cases to such shares underlying outstanding
options becoming eligible for sale more than 180 days after the date of this
Prospectus as such options vest. The Company has agreed not to release shares
from these lock-up provisions without the prior written consent of Goldman,
Sachs & Co. In addition, the Company intends to register, following this
offering, the sale of shares of Common Stock subject to outstanding options or
reserved for issuance under the Company's new and existing plans, thereby
permitting the resale of such shares by nonaffiliates in the public market
without restriction under the Securities Act. Further, certain stockholders
holding approximately shares of Common Stock are entitled to demand
registration of their shares of Common Stock following the expiration of 180
days from the date of this Prospectus as well as to "piggy-back" on certain
registration statements filed by the Company in the future. By exercising
their demand registration rights, such stockholders could cause a large number
of securities to be registered and sold in the public market, which could have
an adverse effect on the market price of the Common Stock. See "Management--
Stock Plans," "Underwriting," "Shares Eligible for Future Sale" and
"Description of Capital Stock--Registration Rights."
NO PRIOR TRADING MARKET FOR THE COMMON STOCK; POSSIBLE VOLATILITY OF STOCK
PRICE
Prior to this offering, there has been no public market for the Common Stock
of the Company. The initial public offering price will be determined by
negotiations among the Company and the representatives of the Underwriters and
may not be indicative of the price that will prevail on the open market. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price. There can be no assurance that an active
public market will develop or be sustained after this offering or that the
market price of the Common Stock will not decline below the public offering
price. Future announcements concerning the Company or its competitors,
quarterly or annual variations in operating results, announcements of
technological innovations, the introduction of new products or changes in
product pricing policies by the Company or its competitors, proprietary rights
or product liability litigation or changes in earnings estimates by analysts
could cause the market price of the Common Stock to fluctuate substantially.
In addition, the stock market has from time to time experienced significant
price and volume fluctuations that have particularly affected the market
prices for the securities of technology companies. In the past, following
periods of volatility in the market price of a particular company's
securities, securities class action litigation has often been brought against
such company. There can be no assurance that such litigation will not occur in
the future with respect to the Company. Such litigation could result in
substantial costs and a diversion of management's attention and resources,
which could have a material adverse effect upon the Company's business,
operating results and financial condition.
CONTROL BY EXISTING STOCKHOLDERS
The Company's founders, officers, directors and their affiliates will, in
the aggregate, beneficially own approximately % of the Company's outstanding
shares after this offering. As a result, these stockholders, if acting
together, would be able effectively to control substantially all matters
requiring approval by the stockholders of the Company, including the election
of directors and approval of significant corporate transactions. This ability
may have the effect of delaying or preventing a change in control of the
Company, or causing a change in control of the Company which may not be
favored by the Company's other stockholders. See "Principal and Selling
Stockholders."
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DISCRETIONARY USE OF PROCEEDS
The net proceeds to the Company from the offering, estimated at
approximately $ million, a substantial portion of which will be used for
general corporate purposes and have not been designated for any particular
purpose. Accordingly, the Company will have broad discretion as to the
application of such proceeds. See "Use of Proceeds."
EFFECT OF CERTAIN CHARTER, BYLAW AND OTHER PROVISIONS
Certain provisions of the Company's Certificate of Incorporation (the
"Certificate of Incorporation") and bylaws could have the effect of making it
more difficult for a third party to acquire, or of discouraging a third party
from attempting to acquire, control of the Company. In addition, the Company
licenses technology from certain third parties pursuant to licenses that
contain provisions restricting or eliminating the Company's rights to use the
technology following an acquisition of the Company. Any of the foregoing
provisions could limit the price that certain investors might be willing to
pay in the future for shares of the Company's Common Stock. Certain of these
provisions allow the Company to issue preferred stock with rights senior to
those of the Common Stock without any further vote or action by the
stockholders, provide for a classified board of directors, eliminate the right
of the stockholders to call a special meeting of stockholders, eliminate the
right of stockholders to act by written consent, and impose various procedural
and other requirements which could make it difficult for stockholders to
effect certain corporate actions. See "Description of Capital Stock."
ABSENCE OF DIVIDENDS; IMMEDIATE AND SUBSTANTIAL DILUTION
The Company currently intends to retain any future earnings to fund its
growth and, therefore, does not anticipate paying any dividends in the
foreseeable future. Purchasers of the Common Stock offered hereby will suffer
immediate and substantial dilution of $ per share in the net tangible book
value of the Common Stock from the initial public offering price (at an
assumed initial public offering price of $ per share). To the extent
outstanding options to purchase the Company's Common Stock are exercised,
there will be further dilution. See "Dividend Policy," "Dilution" and "Shares
Eligible for Future Sale."
17
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common
Stock offered by the Company hereby are estimated to be approximately $
million at an assumed initial public offering price of $ per share, after
deducting the underwriting discount and estimated offering expenses.
The Company intends to utilize the net proceeds from this offering for
working capital and general corporate purposes, including $32 million of
capital expenditures to support manufacturing, product development, and
selling, general and administrative activities and for repayment of
outstanding debt. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources." A
portion of the proceeds may also be used to acquire or invest in complementary
businesses or products or to obtain the right to use complementary
technologies. From time to time, in the ordinary course of business, the
Company evaluates potential acquisitions of or investments in such businesses,
products or technologies. However, the Company has no present understandings,
commitments or agreements with respect to any material acquisition of or
strategic investment in other businesses, products or technologies. Pending
use of the net proceeds for any purposes, the Company intends to invest such
funds in short-term, interest-bearing, investment grade obligations. The
Company will not receive any proceeds from the sale of the shares being sold
by the Selling Stockholders. See "Principal and Selling Stockholders."
DIVIDEND POLICY
The Company has never paid or declared any cash dividends on its capital
stock. It is the present policy of the Company to retain earnings to finance
the growth and development of the business and, therefore, the Company does
not anticipate declaring or paying cash dividends on its Common Stock in the
foreseeable future. In addition, the Company's line of credit restricts the
Company from paying cash dividends on its capital stock without the lender's
prior consent.
18
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1998 (i) on an actual basis, (ii) on a pro forma basis to reflect the
conversion of all outstanding shares of Convertible Preferred Stock into
30,000,000 shares of Common Stock upon the closing of this offering and the
reincorporation of the Company in Delaware and (iii) as adjusted to reflect
the sale of shares of Common Stock offered by the Company hereby (at an
assumed initial public offering price of $ per share) and the application of
the estimated net proceeds therefrom. This table should be read in conjunction
with the Company's Consolidated Financial Statements and Notes thereto
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1998
--------------------------------
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Capital lease obligations, net of current
portion....................................... $ 3,557 $ 3,557
-------- -------- ----
Long-term debt, net of current portion......... 10,251 10,251
-------- -------- ----
Mandatorily Redeemable Convertible Preferred
Stock, no par value, 30,000,000 shares
authorized, 30,000,000 shares issued and
outstanding (actual); no shares authorized,
issued and outstanding (pro forma and as
adjusted)(1).................................. 125,144 --
-------- -------- ----
Stockholders' equity:
Preferred Stock, none authorized, issued and
outstanding (actual); $0.01 par value,
25,000,000 shares authorized, none issued and
outstanding (pro forma and as adjusted)....... -- --
Common Stock, no par value, 65,000,000 shares
authorized, 27,299,252 shares issued and
outstanding (actual); $0.001 par value,
300,000,000 shares authorized, 57,299,252
shares issued and outstanding (pro forma);
$0.001 par value, 300,000,000 shares
authorized, shares issued and outstanding
(as adjusted)(2)(3)........................... 19,468 144,612
Notes receivable from stockholders............. (14,215) (14,215)
Deferred compensation.......................... (4,753) (4,753)
Distribution in excess of net book value....... (83,901) (83,901)
Retained earnings.............................. 8,903 8,903
-------- -------- ----
Total stockholders' equity (deficit)........... (74,498) 50,646
-------- -------- ----
Total capitalization........................... $ 64,454 $ 64,454 $
======== ======== ====
</TABLE>
- --------
(1) See Note 6 of Notes to Consolidated Financial Statements.
(2) See Note 8 of Notes to Consolidated Financial Statements.
(3) Excludes 7,700,748 shares of Common Stock reserved for issuance under the
Company's 1997 Equity Incentive Plan and 1997 Executive Equity Incentive
Plan, under which options to purchase 3,050,198 shares at a weighted
average exercise price of $4.05 were outstanding as of June 30, 1998. See
"Management--Stock Plans" and Note 8 of Notes to Consolidated Financial
Statements.
19
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of June 30, 1998 was
$50.6 million or approximately $0.88 per share of Common Stock. Pro forma net
tangible book value per share represents the amount of the Company's pro forma
stockholders' equity, divided by 57,299,252 pro forma shares of Common Stock
outstanding as of June 30, 1998. The preceding pro forma information gives
effect to the conversion of the Company's Convertible Preferred Stock into
30,000,000 shares of Common Stock. Assuming the sale by the Company and the
Selling Stockholders of shares of Common Stock offered hereby at an
assumed initial public offering price of $ per share and receipt of the
estimated net proceeds therefrom, the pro forma adjusted net tangible book
value of the Company as of June 30, 1998 would have been approximately $
million or $ per share. This represents an immediate increase in such net
tangible book value of $ per share to existing stockholders and an immediate
dilution of $ per share to new investors. The following table illustrates
this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share...................... $
Pro forma net tangible book value per share as of June 30, 1998.... $
Increase per share attributable to new investors...................
----
Pro forma net tangible book value per share after the offering.......
----
Dilution per share to new investors.................................. $
====
</TABLE>
The following table summarizes, on an adjusted basis as of June 30, 1998,
after giving effect to the conversion of all Convertible Preferred Stock into
Common Stock, the difference between the total number of shares of Common
Stock purchased from the Company, the total consideration paid to the Company
and the average price per share paid by existing stockholders and by new
investors (at an assumed initial public offering price of $ per share and
without giving effect to the underwriting discount and estimated offering
expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------ -------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)..... 57,299,252 % $116,333,000 % $2.03
New investors(2).............
---------- ----- ------------ -----
Total........................ 100.0% $ 100.0%
========== ===== ============ =====
</TABLE>
- --------
(1) Excludes 7,700,748 shares of Common Stock reserved for issuance under the
Company's 1997 Equity Incentive Plan and 1997 Executive Equity Incentive
Plan, under which options to purchase 3,050,198 shares at a weighted
average exercise price of $4.05 were outstanding as of June 30, 1998. See
"Management--Stock Plans" and Note 8 of Notes to Consolidated Financial
Statements.
(2) If the Underwriter's over-allotment option is exercised, the number of
shares held by new investors will increase to shares, or
approximately % of the total number of shares to be outstanding after
the Offering.
20
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's Consolidated Financial Statements
and the Notes thereto included elsewhere in this Prospectus. The consolidated
statement of operations data for the fiscal years ended June 30, 1996, 1997
and 1998, and the consolidated balance sheet data at June 30, 1997 and 1998
are derived from audited Consolidated Financial Statements included herein.
The consolidated statement of operations data for the fiscal year ended June
30, 1995 and the consolidated balance sheet data at June 30, 1995 and 1996
have been derived from audited Consolidated Financial Statements not included
herein. The consolidated statement of operations data for the fiscal year
ended June 30, 1994 and the Consolidated Balance Sheet at June 30, 1994 have
been derived from the unaudited Consolidated Financial Statements not included
herein.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
--------------------------------------------
1994 1995 1996 1997 1998
------- ------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net revenues.................... $14,590 $31,661 $40,382 $73,076 $106,924
Cost of goods sold.............. 5,698 10,452 14,712 30,599 49,063
------- ------- ------- ------- --------
Gross profit.................. 8,892 21,209 25,670 42,477 57,861
------- ------- ------- ------- --------
Operating expenses:
Research and development...... 2,116 2,270 2,444 3,953 7,702
Selling, general and
administrative............... 3,279 6,697 8,773 15,290 21,097
------- ------- ------- ------- --------
Total operating expenses.... 5,395 8,967 11,217 19,243 28,799
------- ------- ------- ------- --------
Operating income................ 3,497 12,242 14,453 23,234 29,062
Interest income................. 36 84 408 962 1,992
Interest expense................ (33) (54) (66) (571) (988)
------- ------- ------- ------- --------
Income before income taxes...... 3,500 12,272 14,795 23,625 30,066
Provision for income taxes...... 1,570 4,566 5,524 8,477 12,142
------- ------- ------- ------- --------
Net income...................... 1,930 7,706 9,271 15,148 17,924
Convertible Preferred Stock
accretion(1)................... -- -- -- -- 9,021
------- ------- ------- ------- --------
Net income available to Common
Stockholders................... $ 1,930 $ 7,706 $ 9,271 $15,148 $ 8,903
======= ======= ======= ======= ========
Net income per share:
Basic(2)...................... $ 0.04 $ 0.15 $ 0.19 $ 0.30 $ 0.39
Diluted(2).................... 0.04 0.15 0.19 0.30 0.32
Shares used in net income per
share calculations:
Basic(2)...................... 50,000 50,000 50,000 50,000 22,970
Diluted(2).................... 50,000 50,000 50,000 50,000 55,561
<CAPTION>
JUNE 30,
--------------------------------------------
1994 1995 1996 1997 1998
------- ------- ------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents....... $ 59 $ 3,992 $ 8,026 $ 8,259 $ 21,918
Working capital................. 2,524 9,464 18,342 27,706 33,582
Total assets.................... 7,409 16,665 26,709 61,760 89,378
Long-term debt, net of current
portion........................ -- -- -- 9,577 13,808
Mandatorily Redeemable
Convertible Preferred
Stock(1)....................... -- -- -- -- 125,144
Stockholders' equity (deficit).. 3,974 11,680 20,951 36,099 (74,498)
</TABLE>
- --------
(1) See Note 6 of Notes to Consolidated Financial Statements for a description
of Mandatorily Redeemable Preferred Stock and related accretion.
(2) See Note 7 of Notes to Consolidated Financial Statements for the methods
used to calculate the net income per share and the number of shares used
in the net income per share calculations.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
information included elsewhere in this Prospectus. The information in this
Prospectus contains certain forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from the
results discussed in the forward-looking statements as a result of certain
factors, including those set forth under "Risk Factors" and elsewhere in this
Prospectus.
OVERVIEW
The Company designs, packages, manufactures and sells high quality passive
components for fiber optic networks. E-Tek was incorporated in Florida in May
1983, reincorporated in California in 1987 and will be reincorporated in
Delaware prior to the effective date of this offering. The Company has been
profitable for the last five years, and has focused on providing optical
components for the telecommunications industry since 1989. In July 1997, the
Company underwent a recapitalization in which it sold a controlling stake in
the Company through the issuance of Convertible Preferred Stock which has
significant rights and preferences over the Common Stock, including rights to
elect a majority of the Company's directors, cumulative dividends and a
liquidation preference. In connection with the recapitalization, the Company
also repurchased Common Stock from the Company's founders. In late calendar
1997, E-Tek hired a number of new executive officers, including its Chief
Executive Officer and Chief Financial Officer, to lead the Company in
anticipation of future growth and expansion.
The Company generates revenues primarily from the sale of components and
modules. Revenue from product sales is generally recognized at the time the
product is shipped, with provisions established for estimated product returns
and allowances. A relatively small number of telecommunications equipment
manufacturers have accounted for a significant portion of the Company's
revenue to date. This has historically resulted in an uneven order flow driven
by fluctuating demand for the Company's products. In addition, the Company's
sales have been affected by a seasonal decrease in demand in the last quarter
of each calendar year.
The fiber optic components industry is characterized by declining ASPs
resulting from such factors as increased competition and increasing unit
volumes as telecommunication service providers continue to deploy and expand
fiber optic networks. Cost and component size reductions driven by advances in
component technology and manufacturing efficiencies, as well as the increasing
integration of components, are expected to accelerate the rate of growth in
existing optical components markets and enable new markets such as
metropolitan area networks. As a result, telecommunications equipment
manufacturers are increasingly demanding high volume manufacture of low cost,
high performance, integrated components.
The Company is engaged in continuing efforts to expand its manufacturing
capabilities to address historical capacity constraints and anticipated unit
volume growth. Beginning in December 1997, the Company increased the size of
its San Jose facility from approximately 90,000 square feet to approximately
160,000 square feet and purchased approximately $7 million of capital
equipment. The Company increased its number of manufacturing employees from
396 in December 1997 to 525 in June 1998. In addition, the Company has
recently entered into a joint venture with a Taiwanese company (the "FibX
Joint Venture") to build and operate a fiber optic component manufacturing
facility in Taiwan. The Company anticipates it will begin manufacturing
certain of its mature products at the FibX facility in 1999.
In fiscal 1998, the Company derived approximately 53.4% of its revenues from
sales to customers outside the United States, principally in Europe. All sales
are denominated in U.S. dollars and the Company had no foreign exchange
exposures at June 30, 1998.
22
<PAGE>
Fluctuations in the Company's operating results have occurred in the past
and are likely to occur in the future due to a variety of factors, any of
which may have a material adverse effect on the Company's operating results.
In particular, the Company's quarterly and annual results of operations have
in the past varied and may in the future vary significantly due to general
business conditions in the fiber optic equipment industry, changes in demand
for the products of the Company's customers, changes in the mix of products
sold by the Company, the timing and amount of orders from the Company's
customers, cancellations or delays of customer product orders, new product
introductions by the Company or its competitors, cancellations, changes or
delays of deliveries of products to the Company by its suppliers, increases in
the costs of products from the Company's suppliers, fluctuations in product
life cycles, decline in ASPs, competition, changes in the Company's
manufacturing capacity, seasonal fluctuations in demand, intellectual property
disputes and general economic conditions. Since a large portion of the
Company's operating expenses, including salaries and depreciation, is fixed
and difficult to reduce, the material adverse effect of any revenue shortfall
will be magnified by the fixed nature of these operating expenses. All of the
above factors are difficult for the Company to forecast, and these and other
factors could have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, the Company's
visibility regarding future customer demand is limited. As a result of all of
the foregoing, there can be no assurance that the Company will be able to
sustain profitability on a quarterly or an annual basis. Moreover, the Company
believes that period to period comparisons are not necessarily meaningful and
should not be relied upon as indicative of future operating results. The
Company's operating results in a future quarter or quarters are likely to fall
below the expectations of public market analysts or investors. In such event,
the price of the Company's Common Stock will likely be materially adversely
affected.
DEFERRED COMPENSATION EXPENSE
Through July 1998, the Company recorded aggregate deferred stock
compensation of $2.5 million in connection with the issuance of stock options
to employees. This deferred compensation, representing the difference between
the deemed fair value of the Company's Common Stock and the exercise price of
the stock options at the date of grant, is amortized on a straight-line basis
over the vesting period, which is generally 48 months. The Company recognized
approximately $290,000 in deferred stock compensation expense during fiscal
1998. The Company expects amortization of approximately $550,000 during each
of the next four fiscal years.
During fiscal 1998, under the Company's stock option plans, the Company
issued 7,211,000 shares of Common Stock to employees and officers of the
Company in exchange for promissory notes in an aggregate principal amount of
$18,215,000. Because the notes do not bear interest, the $18,215,000 face
value was discounted using a 6% interest rate to $13,615,000 with the
difference recorded as deferred compensation cost. As this cost is expensed,
it will be offset by a corresponding non-cash interest income benefit,
resulting in no net effect pre-tax or net income. During fiscal 1998, the
Company recognized $600,000 in employee compensation expense, which was offset
by $600,000 in imputed interest income. In fiscal 1999 the Company expects to
recognize approximately $1.2 million in offsetting compensation expense and
interest income.
These amortization amounts will be allocated to cost of goods sold, research
and development, and selling, general and administrative expenses based on the
applicable job function of each optionee.
23
<PAGE>
RESULTS OF OPERATIONS
FISCAL YEARS ENDED JUNE 30, 1996, 1997 AND 1998
The following table sets forth, for the periods indicated, the percentages
of net revenues represented by certain items reflected in the Company's
Consolidated Statement of Operations:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
-------------------------------------
1996 1997 1998
----------- ----------- -----------
(AS A PERCENTAGE OF NET REVENUES)
<S> <C> <C> <C>
Net revenues............................. 100.0% 100.0% 100.0%
Cost of goods sold....................... 36.4 41.9 45.9
----------- ----------- -----------
Gross profit........................... 63.6 58.1 54.1
----------- ----------- -----------
Operating expenses:
Research and development............... 6.1 5.4 7.2
Selling, general and administrative.... 21.7 20.9 19.7
----------- ----------- -----------
Total operating expenses............. 27.8 26.3 26.9
----------- ----------- -----------
Operating income......................... 35.8 31.8 27.2
Interest income.......................... 1.0 1.3 1.8
Interest expense......................... (0.2) (0.8) (0.9)
----------- ----------- -----------
Income before income taxes............... 36.6 32.3 28.1
Provision for income taxes............... 13.6 11.6 11.4
----------- ----------- -----------
Net income............................... 23.0% 20.7% 16.7%
=========== =========== ===========
</TABLE>
NET REVENUES. Net revenues increased 46.2% to $106.9 million for fiscal 1998
from $73.1 million for fiscal 1997, and increased 80.9% for fiscal 1997 from
$40.4 million for fiscal 1996. The revenue increases were primarily due to
increased unit shipments of the Company's isolators, WDM components and
modules, micro-optic integrated components, and couplers, and in fiscal 1998,
also due to substantial growth in sales of products for submarine
applications. Unit volume increases were partially offset by a general decline
in ASPs. A relatively small number of customers have accounted for a
significant portion of the Company's total revenue to date, and the Company
expects that this trend will continue for the foreseeable future. Sales to the
Company's three largest customers, Alcatel, Pirelli and Corning accounted for
approximately 30.2%, 16.5% and 14.3% respectively, of the Company's net
revenues in fiscal year 1998.
GROSS PROFIT. Gross profit increased 36.2% to $57.9 million for fiscal 1998
from $42.5 million for fiscal 1997, and increased 65.5% for fiscal 1997 from
$25.7 million for fiscal 1996. Cost of goods sold consists of raw material
costs, direct labor costs, warranty costs, royalties and overhead related to
the Company's manufacturing operations. Gross profit margins declined during
this period primarily due to declining ASPs and the Company's substantial
expansion of its manufacturing capacity to address historical capacity
constraints and anticipated unit volume growth. The Company's gross margins in
the future may be affected by a number of factors, including market pricing,
manufacturing volumes, efficiencies and yields, fluctuations in the
availability and price of raw materials, product mix and labor costs.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses consist
of compensation costs for research and development staff, depreciation of
equipment, prototype materials and overhead allocations for facilities and
services. Research and development expenses were $7.7 million, $4.0 million
and $2.4 million for fiscal 1998, 1997 and 1996, respectively, representing
7.2%, 5.4% and 6.1% of net revenues, respectively. The increase for
expenditures over this period was primarily due to the Company's investment in
the development of new products and
24
<PAGE>
product enhancements and an increase in personnel. The Company expects to
continue to make substantial investments in research and development and
anticipates that research and development expenses will continue to increase
in fiscal 1999 in absolute dollars. To date, the Company has not capitalized
any research and development costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses consist of compensation costs for selling, general and
administrative staff, sales commissions, travel expenses, marketing staff and
programs, professional services, accounting, human resources, executive
management and consulting. Selling, general and administrative expenses were
$21.1 million, $15.3 million and $8.8 million for fiscal 1998, 1997 and 1996,
respectively, representing 19.7%, 20.9% and 21.7% of net revenues,
respectively. The absolute increase in expenditures over this period reflected
the hiring of additional selling, marketing and administrative personnel and
increased commissions paid on higher revenues, as well as the amortization of
deferred compensation expense described above. The Company anticipates that
its selling, general and administrative expenses will increase in absolute
dollars during fiscal 1999 as additional personnel are hired and commissions
increase.
INTEREST INCOME AND INTEREST EXPENSE. The Company's interest income was
approximately $2.0 million, $1.0 million and $408,000 for fiscal 1998, 1997
and 1996, respectively.The Company earns interest income on its short-term
investments. In addition, the Company recognized imputed interest income in
fiscal 1998 of $600,000 related to notes receivable from stockholders.
Interest expense, incurred on borrowings secured by the Company's real
property and on capital leases, was $988,000, $571,000 and $66,000 for fiscal
1998, 1997 and 1996, respectively.
PROVISION FOR INCOME TAXES. The Company's combined federal and state income
tax rate was approximately 40%, 36% and 37% in fiscal 1998, 1997 and 1996,
respectively. The effective income tax rate for fiscal 1998 is higher than the
rates for fiscal 1997 and fiscal 1996 because of a permanent tax difference
related to the Company's investment in the FibX Joint Venture. This permanent
difference is a result of a license fee from the FibX Joint Venture for
certain technology, which is recognized as revenue for income tax purposes but
not for financial reporting purposes.
25
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth unaudited quarterly results for the six
quarters ended June 30, 1998, as well as such data expressed as a percentage
of the Company's net revenues for each quarter. This information has been
presented on the same basis as the audited Consolidated Financial Statements
appearing elsewhere in this Prospectus and, in the opinion of management,
includes all adjustments, consisting only of normal recurring adjustments,
that the Company considers necessary to present fairly the unaudited quarterly
results. This information should be read in conjunction with the Company's
audited Consolidated Financial Statements and Notes thereto appearing
elsewhere in this Prospectus. The operating results for any quarter are not
necessarily indicative of results for any future period. See "Risk Factors--
Fluctuations in Quarterly and Annual Results; Seasonality."
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1997 1997 1997 1997 1998 1998
--------- -------- --------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Net revenues........................... $20,983 $23,886 $27,309 $25,311 $23,729 $30,575
Cost of goods sold..................... 8,791 10,089 11,893 11,155 11,182 14,833
------- ------- ------- ------- ------- -------
Gross profit......................... 12,192 13,797 15,416 14,156 12,547 15,742
------- ------- ------- ------- ------- -------
Operating expenses:
Research and development............. 1,199 1,201 1,655 1,746 1,921 2,380
Selling, general and administrative.. 4,441 4,991 5,198 5,112 5,168 5,619
------- ------- ------- ------- ------- -------
Total operating expenses........... 5,640 6,192 6,853 6,858 7,089 7,999
------- ------- ------- ------- ------- -------
Operating income....................... 6,552 7,605 8,563 7,298 5,458 7,743
Interest income........................ 253 292 353 428 514 697
Interest expense....................... (254) (141) (171) (188) (112) (517)
------- ------- ------- ------- ------- -------
Income before income taxes............. 6,551 7,756 8,745 7,538 5,860 7,923
Provision for income taxes............. 2,351 2,784 3,499 3,014 2,439 3,190
------- ------- ------- ------- ------- -------
Net income............................. 4,200 4,972 5,246 4,524 3,421 4,733
Convertible Preferred Stock accretion.. -- -- 1,842 2,393 2,393 2,393
------- ------- ------- ------- ------- -------
Net income available to Common
Stockholders.......................... $ 4,200 $ 4,972 $ 3,404 $ 2,131 $ 1,028 $ 2,340
======= ======= ======= ======= ======= =======
Net income per share:
Basic................................ $ 0.08 $ 0.10 $ 0.12 $ 0.10 $ 0.05 $ 0.11
Diluted.............................. 0.08 0.10 0.10 0.08 0.06 0.08
Shares used in net income per share
calculations:
Basic................................ 50,000 50,000 28,073 21,205 21,258 21,308
Diluted.............................. 50,000 50,000 51,922 55,007 57,222 58,092
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1997 1997 1997 1997 1998 1998
--------- -------- --------- -------- --------- --------
(AS A PERCENTAGE OF NET REVENUES)
<S> <C> <C> <C> <C> <C> <C>
Net revenues............ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold...... 41.9 42.2 43.5 44.1 47.1 48.5
----- ----- ----- ----- ----- -----
Gross profit.......... 58.1 57.8 56.5 55.9 52.9 51.5
----- ----- ----- ----- ----- -----
Operating expenses:
Research and
development.......... 5.7 5.0 6.1 6.9 8.1 7.8
Selling, general and
administrative....... 21.2 20.9 19.0 20.2 21.8 18.4
----- ----- ----- ----- ----- -----
Total operating
expenses........... 26.9 25.9 25.1 27.1 29.9 26.2
----- ----- ----- ----- ----- -----
Operating income........ 31.2 31.9 31.4 28.8 23.0 25.3
Interest income......... 1.2 1.2 1.3 1.7 2.2 2.3
Interest expense........ (1.2) (0.5) (0.6) (0.7) (0.5) (1.7)
----- ----- ----- ----- ----- -----
Income before income
taxes.................. 31.2 32.6 32.1 29.8 24.7 25.9
Provision for income
taxes.................. 11.2 11.8 12.8 11.9 10.3 10.4
----- ----- ----- ----- ----- -----
Net income............ 20.0% 20.8% 19.3% 17.9% 14.4% 15.5%
===== ===== ===== ===== ===== =====
</TABLE>
NET REVENUES. Quarterly net revenues increased in each of the three quarters
ended September 30, 1997 due to higher unit shipments of both existing
products and new products and the overall growth of the fiber optic market.
Net revenues declined in the quarters ended December 31, 1997 and March 31,
1998 primarily due to a decline in sales to a major customer, as well as a
reduction in ASPs. In addition, the results for the quarter ended December 31,
1997 were adversely affected by reduced seasonal demand for optical
components. Net revenues increased in the quarter ended June 30, 1998
primarily due to a resumption of product purchases by such customer, an
increase in product sales for submarine applications and increasing unit
shipments generally.
GROSS PROFIT. Gross profit declined over the six quarters from 58.1% in the
quarter ended March 30, 1997 to 51.5% in the quarter ended June 30, 1998
primarily due to declining ASPs and, beginning in December 1997, due to the
increase in the Company's manufacturing capacity to address historical
capacity constraints and anticipated unit volume growth. This capacity
expansion has substantially increased the Company's fixed costs, and the
Company's gross profits will therefore be adversely affected if anticipated
levels of customer sales do not occur or are delayed.
OPERATING EXPENSES. Research and development expenses increased as a
percentage of revenues through the quarter ended June 30, 1998 as the Company
developed additional products, including associated personnel costs, facility
costs, and related project material purchases. Selling, general and
administration expenses also increased in fiscal 1998 as a result of the
amortization of deferred compensation costs related to employee stock options
and to non-interest bearing notes receivable from stockholders. Selling,
general and administrative expenses generally increased as a percentage of net
revenues during the same period although such expenses declined in absolute
dollars in the quarters ended December 31, 1997 and March 31, 1998 due to
lower sales commissions resulting from lower revenues.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and products are coded to accept
only two digit entries in the date code fields, which will need to accept four
digit entries to distinguish 21st century dates from 20th century dates. As a
result, many companies' computer systems may need to be upgraded or replaced
in order to comply with such "Year 2000" requirements. The Company relies on
its systems, applications and control devices in operating and monitoring all
major aspects of its business.
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The Company believes that its recently installed new Enterprise Resource
Planning ("ERP") software is Year 2000 compliant and its other systems,
software and devices generally are Year 2000 compliant. The Company is in the
process of reviewing the effect of Year 2000 issues on its other systems,
software and devices and expects to complete the review by the end of calendar
1998. The Company also relies, directly and indirectly, on external systems of
its customers, suppliers, creditors, financial organizations, utilities
providers and on governmental entities, both domestic and international.
Consequently, the Company could be affected through disruptions in the
operation of the enterprises with which the Company interacts. Furthermore,
the purchasing frequency and volume of customers or potential customers may be
affected by Year 2000 issues as companies expend significant resources to make
their current systems Year 2000 compliant. The incomplete or untimely
resolution of any of these issues could have a material adverse effect on the
Company's business, financial condition and results of operations.
RECAPITALIZATION
In July 1997, the Company completed a recapitalization, pursuant to which it
sold a controlling stake in the Company through the issuance of Convertible
Preferred Stock for $120 million which has significant rights and preferences
over the Common Stock including rights to elect a majority of the Company's
directors, cumulative dividends and a liquidation preference. In connection
with the recapitalization, the Company also repurchased $120 million in Common
Stock from the Company's founders (the "Recapitalization"). The Company
recorded Convertible Preferred Stock accretion of $9.0 million during fiscal
1998 related to the 8% per annum dividends payable on Convertible Preferred
Stock. Upon consummation of the offering, all shares of Convertible Preferred
Stock will convert to Common Stock and there will be no additional accretion.
The balance of the Preferred Stock, including accretion to date, will be
transferred to Common Stock. See "Certain Transactions--Recapitalization" and
Note 1 of Notes to the Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations and met its capital
expenditure requirements primarily through cash flows from operations and
borrowings. The Company's operating activities provided cash of $27.7 million
for fiscal 1998 as compared to $13.5 million for fiscal 1997 and $10.2 million
for fiscal 1996.
Net cash used in investing activities was $12.4 million for fiscal 1998 as
compared to $21.4 million for fiscal 1997 and $4.8 million for fiscal 1996,
and consisted primarily of capital expenditures. Capital expenditures for
fiscal 1998 were $19.1 million as compared to $18.2 million for fiscal 1997
and $1.9 million for fiscal 1996. The substantial increases in capital
expenditures in fiscal 1997 and 1998 were related to the November 1996
acquisition of the Company's previously leased San Jose manufacturing
facility, as well as additions to machinery and equipment, computers and
leasehold improvements in connection with such purchase. In fiscal 1999, the
Company expects to invest approximately $25 million in production equipment
and leasehold improvements in order to expand its San Jose manufacturing
capabilities and approximately $7 million in research and development and,
general and administrative activities.
Net cash used in financing activities was $1.6 million for fiscal 1998 as
compared to $8.1 million provided by financing activities for fiscal 1997 and
$1.4 million used in financing activities for fiscal 1996. The fiscal 1998
amount reflects the net effect of the Recapitalization as well as the addition
of $3.0 million of long term debt. The fiscal 1997 amount reflects the
incurrence of $7.7 million in long-term debt in connection with the purchase
of real estate and improvements for the Company's San Jose facilities.
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As of June 30, 1998, the Company had $33.6 million of working capital,
including $21.9 million in cash and cash equivalents as compared to $27.7
million of working capital as of June 30, 1997, including $8.3 million in cash
and cash equivalents and $10.8 million in short-term investments.
The Company has a $15.0 million revolving credit agreement which expires on
September 30, 1998 which is secured by the Company's accounts receivable,
inventories and equipment and contains customary restrictive covenants,
including covenants requiring the Company to maintain certain financial
ratios. The borrowings thereunder bear interest at a rate of LIBOR plus 1.5%.
At June 30, 1998, the Company had no borrowings outstanding under the
revolving credit agreement.
The Company may in the future pursue acquisitions of, or strategic
investments in, businesses, products and technologies, or enter into
additional joint venture arrangements, that could complement or expand the
Company's business. From time to time, the Company has considered increasing
its ownership interest in a joint venture with its German distributor, AMS
OptoTech GmbH. Any material acquisition, strategic investment or joint venture
could result in a decrease in the Company's working capital depending on the
amount, timing and nature of the consideration to be paid.
Pursuant to the FibX Joint Venture, the Company and the other investor each
contributed $7.0 million in cash for a 50% interest. Under the FibX Joint
Venture agreement and a related license agreement, the Company anticipates
receiving $7.0 million from the FibX Joint Venture for certain technologies of
the Company that was licensed to the FibX Joint Venture. See Note 3 of Notes
to Consolidated Financial Statements.
The Company believes that the net proceeds from the offering, cash flow from
operations, existing cash and cash equivalent balances, short-term investment
balances, available borrowings under the revolving credit agreement and
capital leases will satisfy the Company's working capital and capital
expenditure requirements for at least the next 12 months, although the Company
may seek to raise additional capital during that period. There can be no
assurance the Company will not require additional funds prior to the
expiration of such 12 month period. The Company requires substantial working
capital to fund its business, particularly to finance accounts receivable and
inventory, and for investments in property, plant and equipment, and may
consume working capital more rapidly than currently anticipated resulting in
the need for additional capital. The Company's need to raise additional equity
or debt financing in the future will depend on many factors, including the
rate of sales growth, the market acceptance of the Company's existing and new
products, the amount and timing of research and development expenditures, the
timing and size of any acquisitions of complementary businesses or the
increase of its ownership interest in existing joint ventures, products or
technologies and the expansion of sales and marketing efforts. There can be no
assurance that such financing will be available on acceptable terms, if at
all, or that such financing will not be dilutive to the Company's
stockholders.
RECENT FINANCIAL PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued two new
Statements of Financial Accounting Standards ("SFAS"). SFAS 130, "Reporting
Comprehensive Income," establishes standards for reporting and display of
comprehensive income within a financial statement. This statement requires the
Company to report additional information on comprehensive income to supplement
the reporting of income. SFAS 130 is effective for fiscal years beginning
after December 15, 1997. Comparative financial statements provided for earlier
periods are required to be reclassified so that comprehensive income is
displayed in a comparative format for all periods presented. SFAS 131,
"Disclosures about Segments of an Enterprise and Related Information,"
establishes standards for reporting information about operating segments in
annual and interim financial statements. This statement also establishes
standards for related disclosures about products and services, geographic
areas and major customers. SFAS 131 is effective for financial statements for
fiscal years beginning
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after December 15, 1997. The Company will adopt SFAS 130 for fiscal 1999 and
does not expect its provisions to have a material effect on the Company's
presentation of its consolidated financial statements. The Company will adopt
SFAS 131 for the year ending June 30, 1999 and is currently studying its
provisions.
In June 1998, the Financial Accounting Standards Board issued SFAS 133
"Accounting for Derivative Instruments and Hedging Activities." SFAS 133
establishes accounting and reporting standards for derivative instruments and
for hedging activities and is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. The Company does not expect the adoption
of SFAS 133 to have a material impact on the Company's results of operations.
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BUSINESS
OVERVIEW
E-Tek is a leader in the design, packaging and manufacturing of high quality
passive components for fiber optic networks. The Company offers a broad
product line and believes it has a leading share in markets for several key
passive components required by telecommunications equipment manufacturers. The
Company is focused on delivering high performance and reliable optical
components for applications which include wavelength division multiplexing
("WDM") and optical amplifiers. The Company's products are designed for the
established terrestrial and submarine long-haul markets as well as emerging
short-haul markets, such as metropolitan area networks. The Company's
customers include telecommunications equipment manufacturers such as
affiliates of Alcatel Alsthom ("Alcatel"), CIENA Corporation, Corning, Inc.
("Corning"), Lucent Technologies Inc. ("Lucent"), Northern Telecom Limited
("Nortel") and affiliates of Pirelli SpA ("Pirelli"). The Company has been
profitable for the last five years and had $107 million in revenues and $18
million in net income for the fiscal year ended June 30, 1998.
INDUSTRY BACKGROUND
The volume of traffic carried by telecommunication service providers on
their networks has rapidly increased over the last several years as a result
of the rapidly growing amount of data traffic and, to a lesser extent, voice
traffic. Data traffic has increased due to a proliferation of bandwidth
intensive applications such as Internet access, distributed computing, e-mail,
remote access and electronic commerce. Although telecommunication service
providers have increased the capacity of their networks by deploying fiber
optic cable for long-haul routes and, more recently, for short-haul routes
such as metropolitan area networks, the increase in demand for bandwidth has
created capacity constraints on these routes, which were originally designed
for significantly less traffic. Telecommunication service providers can
address their capacity constraints by either installing new fiber or expanding
the transmission capacity of existing fiber utilizing technologies such as
time division multiplexing ("TDM") and, more recently, WDM. TDM increases the
transmission speed of optical signals whereas WDM increases the number of
optical signals transmitted simultaneously on a single fiber. Regardless of
the method used for addressing capacity constraints, the demand for optical
networking equipment, including components, modules, subsystems and systems is
expected to increase.
Optical components and modules are the building blocks of optical systems
and subsystems. There are two basic segments of optical components: passive
optical components, such as isolators, filters and couplers, which route and
guide light; and active components which generate light (source lasers),
amplify light (pump lasers) or detect light (photodetectors). The performance
of optical components is determined by the quality and processing of raw
materials and the quality of "packaging," which includes coating, fiber
alignment and encapsulation into a functional component. To minimize the
number of components, and thereby reduce costs and improve system reliability,
telecommunications equipment manufacturers are increasingly requiring the
integration of multiple components into a single module. For example, a
subsystem such as an Erbium Doped Fiber Amplifier (an "EDFA") is comprised of
multiple passive and active components. According to IGI Consulting, a market
research company specializing in telecommunications, the market for EDFAs
alone is expected to grow from $95 million in 1996 to $1.2 billion in 2002.
The Company believes that the growth of new and existing applications for
optical networking will continue to drive the need for components and modules.
Improvements in component technology that increase component integration,
enhance performance, lower cost and increase reliability and quality are
expected to enable the increased deployment of optical networking equipment in
high growth markets such as submarine networks and metropolitan area networks.
In addition, these improvements may enable advancements in optical cross
connect and optical switching technology which are
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expected to be the catalyst for the shift to all optical networks. According
to data provided by Electronicast, a market research firm specializing in
communication network products, the worldwide optical network market,
including passive and active components as well as subsystems, but excluding
fiber optic cable, is expected to grow at 28.7% per year from $2.3 billion in
1996 to $8.1 billion in 2001.
The large number of different components and the rapid rate of technological
change make it difficult for telecommunications equipment manufacturers to
produce a full suite of components in-house without creating a large and
dedicated engineering and manufacturing workforce. When purchasing components
from third-party suppliers, telecommunications equipment manufacturers are
faced with a fragmented optical component market that includes a large number
of small vendors. Small vendors often possess a limited product line, lack the
ability to integrate components and are unable to scale production to deliver
high volumes of quality products in a timely manner. Because of these factors,
telecommunications equipment manufacturers often experience difficulty in
obtaining sufficient quantities of reliable and low-cost optical components to
meet their growing demand for optical networking systems.
THE E-TEK SOLUTION
E-Tek is a leader in the design, packaging and manufacturing of high quality
passive components for fiber optic networks. The Company offers a broad
product line and believes it has a leading share in markets for several key
passive components required by telecommunications equipment manufacturers. The
Company is focused on delivering high performance and reliable optical
components for applications which include WDM and optical amplifiers. The
Company's products are designed for established terrestrial and submarine
long-haul markets as well as emerging short-haul markets, such as metropolitan
area networks. The Company believes it offers the following key advantages to
its customers:
. BROAD PRODUCT LINE FOR OPTICAL SYSTEMS. The Company offers a broad line
of high quality passive optical components such as isolators, WDM
components and modules, couplers and micro-optic integrated components
for telecommunications systems. The Company leverages product expertise
from its multiple product lines to more effectively design and develop
value-added integrated components and modules.
. SUPERIOR COMPONENT DESIGN, PACKAGING AND INTEGRATION. E-Tek's ten years
of experience in designing and packaging optical components enable it to
integrate multiple optical functions into one micro-optic integrated
component (a "MOIC"). For example, the Company recently introduced a
product that combines tap coupler and isolator functions into a single
module for use in EDFAs. MOICs are attractive to telecommunications
equipment manufacturers because they reduce discrete component count,
speed up the assembly process, increase system reliability and lower
system costs. The Company is designing and manufacturing additional
integrated components and modules to meet the evolving needs of its
customers.
. HIGH QUALITY, RELIABLE PRODUCTS. E-Tek has a reputation and proven track
record of providing high quality, reliable passive optical components
that are a mission critical element of telecommunications systems. The
Company has attained high ratings in internal and external quality
assurance evaluations and has been ISO 9001 certified since 1995. The
Company's ability to design and manufacture quality products has enabled
it to successfully penetrate high-growth markets such as the submarine
optical systems market which requires components that can operate
reliably in an undersea environment where maintenance is extremely
expensive.
. VALUE-ADDED CUSTOMER RELATIONSHIPS. E-Tek has established strong customer
relationships with certain telecommunication equipment manufacturers. The
Company works closely with these customers from the initial product
design stage through the manufacturing process. This ongoing level of
interaction enables the Company to better align its product development
efforts with its customers' evolving product needs.
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. SCALABLE MANUFACTURING CAPABILITIES. Telecommunications equipment
manufacturers increasingly require a high volume supply of components
with shorter lead times. E-Tek has invested in expanding manufacturing
capacity and developing proprietary manufacturing processes and tools
that enable volume production of a broad array of optical components and
modules. The Company's large, skilled work force can be reallocated to
different product lines in response to changes in product and volume
demands. The combination of the Company's flexible manufacturing process
and highly trained work force helps to ensure the reliable delivery of
large orders to its customers.
THE E-TEK STRATEGY
E-Tek's strategy is to leverage its market leadership to provide a broad
range of high quality components in large volumes for current and next
generation optical networking systems. Key elements of this strategy include:
. MAINTAIN AND EXPAND LEADERSHIP IN OPTICAL COMPONENT TECHNOLOGY. The
Company intends to continue to invest in new product development and
product enhancements that will drive the growth of optical systems and
will provide additional competitive advantages. As of June 30, 1998, the
Company had 42 U.S. patents issued and 24 U.S. and 18 foreign patent
applications pending. The Company currently focuses its product
development efforts on components for strategic growth areas such as WDM,
EDFAs and optical switching.
. DESIGN AND BUILD INCREASINGLY INTEGRATED COMPONENTS AND MODULES. The
Company intends to leverage its design and packaging expertise to
manufacture value-added integrated components and modules. The Company
believes that there is growing demand from telecommunications equipment
manufacturers for more highly integrated components. Integration provides
many benefits to the Company's customers, including cost reductions as
well as performance and reliability improvements. In addition, these
integrated components allow telecommunications equipment manufacturers to
design smaller systems than can be more easily manufactured.
. STRENGTHEN EXISTING AND DEVELOP NEW CUSTOMER RELATIONSHIPS. The Company
believes that strong customer relationships are a competitive advantage
that enable it to more effectively target its product development and
manufacturing efforts. The Company has established relationships with key
telecommunications equipment manufacturers by working as a partner to
solve their product needs. The Company intends to strengthen its existing
customer relationships by continuing to deliver a high level of value-
added service and leverage its reputation for high quality products to
penetrate new key accounts.
. ENHANCE MANUFACTURING CAPABILITIES. Telecommunications equipment
manufacturers are increasingly demanding higher volumes of components
with shorter delivery lead times and are requiring higher quality and
lower cost components. To meet these demands, the Company is increasing
its manufacturing capacity, investing in automated manufacturing
processes and establishing lower cost offshore manufacturing facilities.
. TARGET ATTRACTIVE SEGMENTS OF THE OPTICAL NETWORKING MARKET. The Company
intends to leverage its expertise to strengthen its position in the
terrestrial and submarine long-haul markets as well as penetrate new
markets, such as metropolitan area networks. The Company believes that
technology advancements and cost reductions in optical components and
modules will enable the continued growth of optical networking into
markets beyond established terrestrial and submarine long-haul
applications.
. EXPAND SALES AND MARKETING EFFORTS. The nature of the target customer
base for the Company's optical components and modules requires a focused
sales and marketing effort. The Company believes it is necessary to
expand these efforts to improve service to existing customers and
effectively target new customers. The Company intends to selectively
expand its
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direct sales force and independent sales representatives network to pursue
additional customer opportunities.
TECHNOLOGY AND PRODUCTS
Fiber optic systems manufactured by the Company's customers are used to
transmit, amplify, isolate, route, monitor and receive optical signals, or
wavelengths. The performance of optical components is determined by the
quality and processing of raw materials and the quality of "packaging," which
includes coating, fiber alignment and encapsulation into a functional
component. The Company believes that its capabilities in these areas enable it
to produce components with higher levels of performance, reliability and
management and control of optical signals.
The Company's technological expertise allows it to be a leading provider of
passive components for fiber optic systems and subsystems, including WDM
systems and EDFAs. The following diagram illustrates where the Company's
components are used in WDM systems and EDFAs:
GRAPHIC
[The graphics shown in this section show a schematic of a wavelength division
multiplexing (WDM) system containing an Erbium Doped Fiber Amplifier (EDFA)
and shows the various components contained in the system, with the components
manufactured or packaged by the Company indicated by shading.]
The Company's products are divided into five main categories: optical
isolators, WDM components and modules, couplers, MOICs and other products.
Prices vary by product line but typically range from $200 for a simple
component to $5,000 or more for more complex products.
OPTICAL ISOLATORS. The Company began manufacturing isolators in 1989, and
currently offers a wide range of isolator products, including a recently
introduced high reliability isolator for submarine networks. Isolators act as
a one way valve for wavelengths. Since optical signals travel along a fiber in
either direction, any disturbance in the fiber can cause a portion of the
signal traveling in one direction to reflect in the opposite direction. These
reflected signals can cause interference in the network. An optical isolator
prevents the reflected signals from traveling past it in the wrong direction
while still allowing the unimpeded passage of signals in the original
direction. In the basic form of the isolator product, a short section of
optical fiber is attached with micron-scale precision to a lens to expand the
optical signal to a parallel beam. Attached to this assembly are small
crystals with optical asymmetry to direct the beam along the optical path and
to divert any light traveling in the reverse
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direction off to the side. A lens attached to a second short section of
optical fiber collects the light in the beam.
The key performance parameters for an isolator are the percentage of the
original light in the first fiber that passes to the second and the amount of
residual light that passes from the second fiber back to the first. The
performance parameters are directly affected by the skill employed in the
optical design, the ability to secure precision parts and the procedures used
to assemble the parts with exactness. The Company believes its competence in
manufacturing optical isolators with uniformly high percentages of passed
through light and exceedingly small residual light is a key strength.
WDM COMPONENTS AND MODULES. Since 1995, the Company has produced WDM
components and modules, including multiplexers, de-multiplexers, optical
add/drops and gain flattening filters. A WDM multiplexer combines light
sources of different wavelengths for simultaneous transmission along a single
fiber. The combining and separating of wavelengths can be accomplished in
several ways, one of which involves building a WDM component similar in design
and manufacturing process to the optical isolator. In this WDM component,
optically asymmetric crystals used in an isolator are replaced with thin
dielectric filters that enable the passage of specific optical wavelengths and
the reflection of others. These WDM components are then cascaded and spliced
together to create WDM multiplexer and de-multiplexer modules. The key
performance parameters are the efficiency with which the individual
wavelengths are directed to (and only to) the proper fiber section. The
Company believes that it has leading-edge capability in the design and
packaging of dielectric thin-film filter technology.
COUPLERS. Since 1991, the Company has manufactured several types of
couplers, including wideband and narrowband tree and star couplers, two window
wideband couplers, ultra-low PDL couplers, and single-fusion 1x3 and 1x4
couplers. A coupler is used to combine and/or split optical signals. Couplers
are often used to tap off a small portion of a light stream for monitoring
purposes or to distribute the signal to multiple points. If the portion is
approximately half, the component is typically called a fiber coupler. If the
portion is small (a few percent), the product is referred to as an optical
tap. In either case, the function can be performed with the same technology--
fusing two fibers together with the proper spacing to achieve the desired
crossing of light from the main fiber to the branching fiber. The Company has
developed a new, patented technology (Unifuse(TM)) which it believes produces
more robust, reliable taps and couplers.
MICRO-OPTIC INTEGRATED COMPONENTS. MOICs are modules that integrate two or
more optical component functions into a single package. These functions
include, but are not limited to, isolator, WDM and tap coupler functions. For
example, the Company recently introduced a product that combines tap coupler
and isolator functions into a single module for use in EDFAs. This integration
reduces the total component count in a system and provides many benefits for
the Company's customers, including reductions in inventory, the physical
dimensions of the subsystem or system and production costs as well as
improvements in performance and reliability. The Company designs and
manufactures a range of MOICs for a variety of applications.
OTHER. The Company manufactures a variety of other components and modules
that perform various functions within an optical system. These products
include attenuators, circulators, mechanical switches and laser controllers.
The Company also has a decade of experience in making assembly and test
equipment for internal use as well as for external sale. Recent products in
this category emphasize the generation and control of the multiple wavelengths
of laser light needed to test and evaluate broad-spectrum optical assemblies
such as fiber amplifiers.
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CUSTOMERS
The Company sells its products primarily to telecommunications equipment
manufacturers. The Company's customers include:
Alcatel ITS, Inc. MCI Communications Corporation
Alcatel Network Systems, Inc. NEC Corporation
Alcatel Submarine Networks, Limited Northern Telecom Limited
CIENA Corporation Pirelli Cable Corp.
Corning, Inc. Pirelli Cavi SpA
Hewlett-Packard Company Cables Pirelli SA
Lucent Technologies Inc. Tyco Submarine Systems Ltd.
Williams Communications Group
The Company has established strong relationships with certain
telecommunications equipment manufacturers. The Company works closely with
these customers from the initial product design through the manufacturing
process to delivery of the final product. This ongoing level of interaction
also enables the Company to better align its product development efforts with
its customers' evolving product needs.
A small number of customers have historically accounted for a substantial
portion of the Company's net revenues. Sales to Alcatel, Pirelli and Corning
represented approximately 30.2%, 16.5% and 14.3%, respectively, of the
Company's net revenues for fiscal 1998. Sales to the Company's five largest
customers represented approximately 73.4% and 77.5% of the Company's net
revenues for fiscal 1998 and the fourth quarter of fiscal 1998, respectively.
The loss of any key customer could have a material adverse effect on the
Company's business, financial condition and results of operations. See "Risk
Factors--Dependence on a Limited Number of Customers."
RESEARCH AND DEVELOPMENT
The Company currently has 51 employees engaged in research and development,
including 27 engineers with advanced degrees, 12 of whom have Ph.D.s. The
Company seeks to continue to develop core technologies with applications for
product solutions in each of the Company's target markets, which enables the
Company to leverage its ability to address various component markets with a
relatively focused investment in research and development. The Company's
research and development expenses for fiscal 1998 and fiscal 1997 were
approximately $7.7 million and $4.0 million, respectively. The Company plans
to increase its research and development budget and staffing levels in fiscal
1999. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
MANUFACTURING
The Company currently manufactures and packages its component products at
its facilities in San Jose, California. The Company's in-house manufacturing
capabilities include product design, optical assembly, integration and testing
of its component products. The Company maintains a proprietary system of
optical assembly stations located in clean rooms throughout its facilities to
manufacture custom engineered and standard products. By leveraging these
manufacturing skills, the Company seeks to maintain flexible manufacturing
processes designed to meet customer expectations for innovative product
solutions, high volume capacity, high quality and on-time delivery.
Telecommunications equipment manufacturers require high quality and
reliability in the components incorporated into their systems. The Company
emphasizes quality assurance through ongoing staff training and internal
manufacturing systems and procedures throughout the Company's various
manufacturing processes, including the design, assembly, integration,
packaging and test
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functions of these processes. Quality control procedures necessary to meet
increasingly stringent customer demands are in place throughout the Company,
including appropriate levels of incoming inspection and outgoing testing. The
Company has attained high ratings in internal and external evaluations and has
been ISO 9001 certified since 1995.
The raw materials which the Company requires for the manufacture of its
products are generally available from several sources, although a number of
raw materials are available only from sole source suppliers. See "Risk
Factors--Dependence on Suppliers."
To further enhance its manufacturing capabilities and reduce manufacturing
costs, the Company intends to increase its level of manufacturing automation
and expand into additional facilities as required. The Company has recently
increased its capacity by expanding the size of its facilities from
approximately 90,000 square feet to approximately 160,000 square feet. The
Company has been moving portions of its operations, including manufacturing
operations, as this space becomes available. In addition, the Company entered
into the FibX Joint Venture to build and operate a fiber optic component
manufacturing facility in Taiwan. The Company anticipates that it will begin
manufacturing certain of its mature products at this facility in 1999. See
"Risk Factors--Manufacturing and Facility Expansion Risks."
SALES AND MARKETING
The Company markets and sells its products primarily through a network of
seven domestic and 22 international sales representatives and distributors.
The Company's sales representatives are independent organizations that
generally have exclusive geographic territories and are compensated on a
commission basis.
The Company also employs a 32 person sales and marketing staff located in
San Jose, which manages key customer accounts and supports the Company's sales
representatives and distributors. The Company's customers often have unique
technical specifications and performance requirements for components and
typically require specific product designs. As a result, the Company's sales
efforts are dependent on close cooperation between the Company's independent
sales representatives and the Company's in-house personnel.
In support of its selling effort, the Company conducts marketing programs
intended to position and promote its products within the telecommunications
industry. Marketing personnel coordinate the Company's participation in trade
shows and design and implement the Company's advertising efforts. In addition,
the marketing group gathers and maintains market research and tracks industry
trends and developments in order to anticipate customer needs for new products
and develop pricing strategies.
COMPETITION
The market for fiber optic components is intensely competitive and
characterized by rapidly changing technology. The Company currently
experiences competition from various companies including, among others: (i)
FDK Corporation, Kyocera Corp. and Shinkosha K.K. in isolators, (ii) Lucent,
Corning, and JDS FITEL, Inc. in WDM components and modules and (iii) ADC
Telecommunications, Inc. and Gould Electronics, Inc. in couplers. The Company
also faces competition from numerous smaller companies. Many of the Company's
current and potential competitors have significantly greater financial,
technical, marketing, purchasing and other resources than the Company, and as
a result, may be able to respond more quickly to new or emerging technologies
or standards and to changes in customer requirements, to devote greater
resources to the development, promotion and sale of products, or to deliver
competitive products at a lower price. Many of these competitors manufacture
their products in countries offering significantly lower labor costs.
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Existing and potential customers are also current or potential competitors
of the Company. These companies may develop or acquire additional competitive
products or technologies in the future and thereby reduce or cease their
purchases from the Company. For example, one of the Company's customers
recently purchased a fiber optic component manufacturer and began
manufacturing a product internally that it formerly purchased from the
Company. The Company may also face competition in the future from these and
other parties that develop fiber optic components based upon the technologies
similar to or different from the technologies employed by the Company. The
Company expects competition in general to intensify substantially, and further
expects competition to be broadly based on varying combinations of
manufacturing capacity, ability to deliver on-time, technical features,
quality and reliability, customization to customer specifications, strength of
distribution channels, price, and the comprehensiveness of the product
offering. There can be no assurance that the Company will be able to compete
successfully with its existing or new competitors or that competitive
pressures faced by the Company will not result in lower prices for the
Company's products, loss of market share, or reduced gross margins, either of
which could materially and adversely affect the Company's business, financial
condition and results of operations.
PATENTS AND INTELLECTUAL PROPERTY RIGHTS
The Company's success will depend, in part, on its ability to protect its
intellectual property. The Company relies primarily on patent, copyright,
trademark and trade secret laws, as well as nondisclosure agreements and other
methods to protect its proprietary technologies and processes. There can be no
assurance that such measures will provide meaningful protection for the
Company's proprietary technologies and processes. As of June 30, 1998, the
Company had 42 U.S. patents issued and 24 U.S. and 18 foreign patent
applications pending. These patents expire between 2007 and 2016. There can be
no assurance that any patent will issue as a result of these applications or
future applications or, if issued, that any patent claims allowed will be
sufficiently broad to protect the Company's technology. In addition, there can
be no assurance that any existing or future patents will not be challenged,
invalidated or circumvented, or that any right granted thereunder would
provide meaningful protection to the Company. The failure of any patents to
provide protection to the Company's technology would make it easier for the
Company's competitors to offer similar products. The Company also generally
enters into confidentiality agreements with its employees and strategic
partners, and generally controls access to and distribution of its
documentation and other proprietary information. Despite these precautions, it
may be possible for a third party to copy or otherwise obtain and use the
Company's products or technology without authorization, develop similar
technology independently or design around the Company's patents. In addition,
effective patent, copyright, trademark and trade secret protection may be
unavailable or limited in certain foreign countries. Further, the Company
occasionally incorporates the intellectual property of its customers into its
designs, and the Company has certain obligations with respect to the non-use
and non-disclosure of such intellectual property. There can be no assurance
that the steps taken by the Company to prevent misappropriation or
infringement of the intellectual property of the Company or its customers will
be successful. Moreover, litigation may be necessary in the future to enforce
the Company's intellectual property rights, to protect the Company's trade
secrets or to determine the validity and scope of proprietary rights of
others, including its customers. Such litigation could result in substantial
costs and diversion of the Company's resources and could have a material
adverse effect on the Company's business, financial condition and results of
operations.
The telecommunications equipment industry is characterized by vigorous
protection and pursuit of intellectual property rights. From time to time, the
Company has received, and may continue to receive in the future, notices of
claims of infringement of other parties' proprietary rights. There can be no
assurance that the Company will prevail in actions alleging infringement by
the Company of third-party patents or the invalidity of the patents held by
the Company will not be asserted or prosecuted against the Company, or that
any assertions of infringement or prosecutions seeking to establish the
invalidity
38
<PAGE>
of Company-held patents will not materially and adversely affect the Company's
business, financial condition and results of operations. For example, in a
patent or trade secret action, an injunction could issue against the Company
requiring that the Company withdraw certain products from the market or
necessitating that certain products offered for sale or under development be
redesigned. The Company has also entered into certain indemnification
obligations in favor of its customers and strategic partners that could be
triggered upon an allegation or finding of the Company's infringement of other
parties' proprietary rights. Irrespective of the validity or successful
assertion of such claims, the Company would likely incur significant costs and
diversion of its resources with respect to the defense of such claims, which
could also have a material adverse effect on the Company's business, financial
condition and results of operations. To address any potential claims or
actions asserted against the Company, the Company may seek to obtain a license
under a third party's intellectual property rights. There can be no assurance
that under such circumstances a license would be available on commercially
reasonable terms, if at all.
Substantial inventories of intellectual property are held by a few industry
participants, such as Lucent, Nortel and certain major universities and
research laboratories. This concentration of intellectual property in the
hands of a few major entities also poses certain risks to the Company in
seeking to hire qualified personnel. The Company has on a few occasions
recruited such personnel from competitors. There can be no assurance that
other companies will not claim the misappropriation or infringement of their
intellectual property, particularly when and if employees of these companies
leave to work for the Company. There can be no assurance that the Company will
be able to avoid litigation in the future, particularly if new employees join
the Company after having worked for a competing company. Such litigation could
be very expensive to defend, regardless of the merits of the claims, and could
have a material adverse effect on the Company's business, financial condition
and results of operations.
EMPLOYEES
As of June 30, 1998, the Company employed 657 persons, of whom 525 were
primarily engaged in manufacturing, 51 were engaged in research and
development, 32 were engaged in sales, marketing and technical support and 49
were engaged in administration. The Company's employees are not represented by
any collective bargaining agreement, and the Company has not experienced a
work stoppage. The Company believes its employee relations are good.
FACILITIES
The Company's principal offices and facilities are located in San Jose,
California. The Company owns three buildings in San Jose aggregating
approximately 180,000 square feet, 20,000 square feet of which is leased to a
third party through May 2001, as well as five acres of vacant land nearby. The
Company also leases 5,148 square feet in close proximity to its San Jose
facilities. This lease expires on March 31, 2000. The Company believes that
its existing facilities are adequate to meet its current needs.
LEGAL PROCEEDINGS
The Company has in the past received notifications alleging that it is
infringing the intellectual property rights of third parties. The Company is
involved in disputes and litigation in the normal course of its business. The
Company does not believe that the outcome of any of these infringement
allegations or these disputes or litigation will have a material adverse
effect on the Company's business, financial condition or results of
operations.
39
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to each of
the executive officers and directors of the Company as of the date of this
offering.
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- --- -----------
<S> <C> <C>
Michael J. 49 President, Chief Executive Officer and Director
Fitzpatrick(1).........
Ming Shih............... 45 Senior Vice President, Sales and Marketing
Sanjay Subhedar......... 46 Senior Vice President, Operations, Chief
Financial Officer and Secretary
Philip J. Anthony....... 46 Vice President, Engineering
Jim Northington......... 51 Vice President, Manufacturing
Walter G. 39 Chairman of the Board of Directors
Kortschak(1)(2)........
David W. Dorman(1)...... 44 Director
Donald J. Listwin....... 39 Director
Joseph W. Goodman(2).... 62 Director
Peter Y. Chung(2)....... 30 Director
</TABLE>
- --------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
MICHAEL J. FITZPATRICK joined the Company as President and Chief Executive
Officer and as a Director in November 1997. Prior to joining the Company, Mr.
Fitzpatrick served as President and Chief Executive Officer of Pacific Telesis
Enterprises ("Pacific Telesis"), a telecommunication service provider, from
July 1994 to November 1997. While at Pacific Telesis, Mr. Fitzpatrick also
served as Executive Vice President of Marketing and Sales from January 1994 to
July 1994 and Executive Vice President of Statewide Markets with Pacific Bell,
an affiliate of Pacific Telesis, from September 1993 to January 1994. From
October 1991 to August 1993, Mr. Fitzpatrick was President and Chief Executive
Officer of Network Systems Corporation, an internetworking company. Mr.
Fitzpatrick received a B.A. from Duke University.
MING SHIH, one of the founders of the Company, was promoted to Senior Vice
President, Sales and Marketing in July 1998. Prior to that he served as
corporate vice president as well as in various senior management roles at the
Company, with responsibility for engineering, manufacturing and sales and
marketing. Mr. Shih received an M.S. from the Illinois Institute of Technology
and an M.S. from the Florida Institute of Technology.
SANJAY SUBHEDAR joined the Company in December 1997 as Vice President,
Finance and Chief Financial Officer and was promoted to Senior Vice President,
Operations and Chief Financial Officer in July 1998. Mr. Subhedar was also
appointed as the Secretary of the Company in March 1998. From February 1986 to
July 1996, Mr. Subhedar served as Chief Financial Officer of StrataCom, Inc.,
a wide area networking company. Following StrataCom's merger with Cisco
Systems, Inc. ("Cisco"), an internetworking company, in July 1996, Mr.
Subhedar served as Vice President of Cisco's WAN Business Unit until October
1997. Mr. Subhedar received a B.S. from the University of Bombay, India, and
an M.B.A. from Indiana University.
PHILIP J. ANTHONY joined the Company in June 1998 as Vice President,
Engineering. Prior to joining the Company, Dr. Anthony served in various
capacities at Lucent Technologies, Inc., a manufacturer of communications
systems, software and products (and at its predecessors Bell Laboratories and
AT&T Corp.), most recently as Director of Passive Devices and Integrated
Optical Modules in the Optoelectronic Business of the Lucent Microelectronics
Group from October 1997 to June 1998. From September 1987 to October 1997, he
served as the department head of various research and development departments
in the photonics laboratories of Bell Laboratories. Dr. Anthony received a
B.S. from the University of Dayton, and an M.S. and Ph.D. from the University
of
Illinois.
40
<PAGE>
JIM NORTHINGTON joined the Company in July 1998 as Vice President,
Manufacturing. From November 1994 to July 1998, Mr. Northington served in
various capacities at SMART Modular Technologies, Inc. ("SMART Modular"), a
manufacturer of computer memory modules and cards. While at SMART Modular, he
served as the Vice President, Worldwide Operations from November 1997 to July
1998, as Vice President, Quality Assurance and Corporate Development from July
1996 to November 1997, and as Vice President, Operations from November 1994 to
July 1996. From August 1989 to November 1994, Mr. Northington was a Principal
at APS Products where, as a self-employed consultant, he provided
manufacturing operations expertise to clients with a primary focus on adapter
cards, peripherals and systems products. Mr. Northington received a B.S. from
Long Beach State College.
WALTER G. KORTSCHAK has been the Chairman of the Board of Directors of the
Company since July 1997. Mr. Kortschak is a General Partner of Summit
Partners, a private equity capital firm in Palo Alto, California, where he has
been employed since June 1989. Summit Partners and its affiliates manage a
number of venture capital funds, including Summit Ventures IV, L.P., Summit
Investors III, L.P. and Summit Subordinated Debt Fund II, L.P., which are all
of the members of Summit/E-Tek Holdings, L.L.C., a principal stockholder of
the Company. Mr. Kortschak also serves as a director of Aspec Technology,
Inc., a provider of implementation technology solutions for integrated circuit
design, and HMT Technology Corporation, a thin film disk drive media company,
as well as several privately held companies. Mr. Kortschak received a B.S.
from Oregon State University, an M.S. from The California Institute of
Technology and an M.B.A. from the University of California, Los Angeles.
DAVID W. DORMAN has been a director of the Company since June 1998. Mr.
Dorman has served as the Chairman, President and Chief Executive Officer of
PointCast Incorporated ("PointCast"), a company providing broadcast news
through the Internet and corporate intranets, since November 1997. Prior to
joining PointCast, Mr. Dorman served as the Executive Vice President of SBC
Communications ("SBC") from August 1997 to November 1997, following the merger
of SBC and Pacific Telesis. Prior to that, Mr. Dorman served as President and
Chief Executive Officer of Pacific Bell, a telecommunications company, from
July 1994 to August 1997. From 1981 to July 1994, Mr. Dorman held various
senior management positions at Sprint Corporation, a telecommunications
company. Mr. Dorman also serves as a director of 3Com Corporation, a supplier
of data, voice and video communications technology, Science Applications
International Corporation, a diversified professional and technical services
and technology manufacturing company, and Scientific-Atlanta, Inc., a provider
of products and services for development of advanced terrestrial and satellite
networks. Mr. Dorman received a B.S. from the Georgia Institute of Technology.
DONALD J. LISTWIN has been a director of the Company since July 1998. Mr.
Listwin is an Executive Vice President at Cisco Systems, Inc., where he has
been employed since 1990. In April 1997, Mr. Listwin was named the Senior Vice
President of Cisco's Service Provider Line of Business. Prior to that, he was
Senior Vice President of Cisco's IOS Development and Marketing from August
1996 to April 1997, Vice President and General Manager of Cisco's Access
Business Unit from September 1995 to August 1996 and Vice President of
Marketing from September 1993 to September 1995. Mr. Listwin also serves as a
director of Software.com, Inc., a provider of carrier-scale Internet messaging
infrastructure software products. Mr. Listwin received a B.S. from the
University of Saskatchewan, Canada.
JOSEPH W. GOODMAN has been a director of the Company since July 1998. Since
September 1996, he has been the Senior Associate Dean of the School of
Engineering at Stanford University. Prior to becoming the Senior Associate
Dean at Stanford, Dr. Goodman served as the Chairman of the Department of
Electrical Engineering from January 1988 to September 1996. Mr. Goodman has
also been the William E. Ayer Professor of Electrical Engineering at Stanford
since 1988. He has been employed by Stanford University in various other
capacities since 1963. Dr. Goodman received a B.A. from Harvard University and
an M.S. and Ph.D. from Stanford University.
41
<PAGE>
PETER Y. CHUNG was a director of the Company from July 1997 until July 1998.
Upon the closing of this offering, he will rejoin the Company's Board of
Directors. Mr. Chung is a Principal of Summit Partners, a private equity
capital firm in Palo Alto, California, where he has been employed since August
1994. Summit Partners and its affiliates manage a number of venture capital
funds, including Summit Ventures IV, L.P., Summit Investors III, L.P. and
Summit Subordinated Debt Fund II, L.P., which are all of the members of
Summit/E-Tek Holdings, L.L.C., a principal stockholder of the Company. From
August 1989 to July 1992, Mr. Chung worked in the Mergers and Acquisitions
Department of Goldman, Sachs & Co. Mr. Chung also serves as a director of
Splash Technology Holdings, Inc., a developer of color server systems, as well
as several privately held companies. Mr. Chung received a B.A. from Harvard
University and an M.B.A. from Stanford University.
The Company's Board of Directors will be divided into three classes,
designated Class I, Class II and Class III. Each class of directors will
consist of two or more directors. At each annual meeting of stockholders
following the offering, one class of directors will be elected to a three-year
term to succeed the directors of the same class whose terms are then expiring.
The initial Class I directors, whose terms will expire at the Company's 1999
Annual Meeting of Stockholders, will be Joseph W. Goodman and Peter Y. Chung.
The initial Class II directors, whose terms will expire at the Company's 2000
Annual Meeting of Stockholders, will be David W. Dorman and Donald J. Listwin.
The initial Class III directors, whose terms will expire at the Company's 2001
Annual Meeting of Stockholders, will be Walter G. Kortschak and Michael J.
Fitzpatrick. See "Description of Capital Stock--Antitakeover Effects of
Certificate of Incorporation, Bylaws and Delaware Law."
Executive officers of the Company are elected by, and serve at the
discretion of, the Board of Directors.
There are no family relationships among the directors or officers of the
Company, including Mr. Chung who does not currently serve on the Company's
Board of Directors, but who will join the Board of Directors upon the closing
of this offering.
BOARD COMMITTEES
The Board of Directors has established an Audit Committee of directors to
make recommendations concerning the engagement of independent public
accountants, review the plans and results of the audit engagement with the
Company's independent public accountants, review the independence of the
Company's independent public accountants, consider the range of audit and non-
audit fees and review the adequacy of the Company's internal accounting
controls. Upon the closing of the offering, the Audit Committee will consist
of Peter Y. Chung, Joseph W. Goodman and Walter G. Kortschak.
The Board of Directors has also established a Compensation Committee of
directors to determine compensation for the Company's executive officers and
to administer the Company's 1998 Stock Plan, 1998 Director Option Plan and
1998 Employee Stock Purchase Plan. Upon the closing of the offering, the
Compensation Committee will consist of David W. Dorman, Michael J. Fitzpatrick
and Walter G. Kortschak.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1998 (the "Last Fiscal Year"), Michael J. Fitzpatrick, Walter
G. Kortschak and Theresa Pan served as members of the Compensation Committee
of the Company's Board of Directors. Mr. Fitzpatrick was the President and
Chief Executive Officer of the Company beginning in November 1997. During such
period, Ms. Pan was the President and Chief Executive Officer of the Company
until November 1997, and Chief Financial Officer of the Company until December
1997. In
42
<PAGE>
addition, Ms. Pan was a principal stockholder of the Company at all times
during the Last Fiscal Year. Mr. Kortschak is a General Partner of Summit
Partners, a private equity capital firm which manages Summit Ventures IV,
L.P., Summit Investors III, L.P. and Summit Subordinated Debt Fund II, L.P.,
which are all members of Summit/E-Tek Holdings, L.L.C., a principal
stockholder of the Company. See "Principal and Selling Stockholders" and
"Certain Transactions."
No member of the Compensation Committee serves as a member of the board of
directors or compensation committee of any entity that has one or more
executive officers serving as a member of the Company's Board of Directors or
Compensation Committee. Prior to the formation of the Compensation Committee
in August 1997, the Board of Directors of the Company as a whole made
decisions relating to compensation of the Company's executive officers.
DIRECTOR COMPENSATION
The Company does not currently compensate its directors, but directors are
reimbursed for out-of-pocket expenses incurred in connection with attendance
at meetings of the Board of Directors or any committees thereof. The directors
of the Company are generally eligible to participate in the Company's 1998
Stock Plan and, to the extent that a director is also an employee of the
Company, to participate in the Company's 1998 Employee Stock Purchase Plan.
The directors of the Company who are not employees of the Company will also
receive periodic stock option grants under the Company's 1998 Director Option
Plan. See "Stock Plans."
EXECUTIVE COMPENSATION
The following table sets forth all compensation paid by the Company during
the Company's Last Fiscal Year to the Company's Chief Executive Officer and
the Company's only other executive officer whose total salary and bonus for
services rendered to the Company in all capacities during such year exceeded
$100,000 in the aggregate (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
-------------------------------- --------------------------------------
NAME AND PRINCIPAL OTHER ANNUAL RESTRICTED STOCK SECURITIES UNDERLYING
POSITIONS SALARY BONUS COMPENSATION AWARDS OPTIONS
- ------------------------ --------- --------- ------------ ---------------- ---------------------
<S> <C> <C> <C> <C> <C>
Michael J. $ 188,077 $ 300,000 $258,000(2) -- 2,825,000
Fitzpatrick(1).........
President and Chief
Executive Officer
Ming Shih............... 233,423 215,000 187,000(2) 555,555 1,055,556
Senior Vice President,
Sales and Marketing
Theresa Pan(3).......... 389,718 175,000 -- -- --
President, Chief
Executive Officer and
Chief Financial Officer
</TABLE>
- --------
(1) Mr. Fitzpatrick's employment with the Company commenced on November 3,
1997 at an annual base salary of $300,000.
(2) Represents imputed interest income resulting from a 0% interest loan made
to fund the exercise of options to purchase Common Stock of the Company.
(3) Ms. Pan resigned as President and Chief Executive Officer of the Company
in November 1997 and as Chief Financial Officer of the Company in December
1997. Ms. Pan thereafter served on the Board of Directors and as a member
of its Compensation Committee until July 1998.
43
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information concerning grants of options to
purchase the Company's Common Stock made during the Company's Last Fiscal Year
to each of the Named Executive Officers.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------- POTENTIAL REALIZABLE
% OF TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS DEEMED ANNUAL RATES OF STOCK
SECURITIES GRANTED TO VALUE PER APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE SHARE ON OPTION TERM(4)
OPTIONS IN FISCAL PRICE PER EXPIRATION DATE OF -------------------------------
GRANTED(#) 1998(1) SHARE(2) DATE GRANT(3) 0% 5% 10%
---------- ---------- --------- ---------- --------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Michael J. Fitzpatrick.. 2,825,000(5) 26.8% $2.30 10/14/2007 $2.30 -- $4,086,278 $10,355,342
Ming Shih............... 555,556 10.6% 2.30 07/23/2007 2.30 -- 803,595 2,036,396
Ming Shih............... 500,000 4.8% 3.25 02/04/2008 3.75 $250,000 1,429,188 3,238,188
Theresa Pan............. -- -- -- -- -- -- -- --
</TABLE>
- --------
(1) Based on an aggregate of 10,524,641 options to purchase Common Stock of
the Company granted by the Company during the Last Fiscal Year under the
Company's 1997 Equity Incentive Plan and 1997 Executive Equity Incentive
Plan.
(2) All options were granted at an exercise price equal to the fair market
value of the Company's Common Stock as determined by the Board of
Directors of the Company on the date of grant. The Company's Common Stock
was not publicly traded at the time of the option grants.
(3) The deemed value for the date of grant was determined after the date of
grant solely for financial accounting purposes.
(4) Potential realizable values are net of exercise price, but before taxes
associated with exercise. Amounts represent hypothetical gains that could
be achieved for the respective options if exercised at the end of the
option term. The assumed 0%, 5% and 10% rates of stock price appreciation
are provided in accordance with rules of the Securities and Exchange
Commission and do not represent the Company's estimate or projection of
the future Common Stock price. The assumed rate of appreciation of 0%
indicates the value at the effective date of the offering based on the
deemed value for financial accounting purposes, less the exercise price.
Actual gains, if any, on stock option exercises are dependent on the
future performance of the Common Stock, overall market conditions and the
option holders' continued employment through the vesting period. This
table does not take into account any appreciation in the price of the
Common Stock from the date of grant to date.
(5) All such options were immediately exercised by Mr. Fitzpatrick on the date
of grant, but 2,260,000 shares acquired upon such exercise are subject to
a right of repurchase by the Company which lapses periodically over a
four-year vesting period which commenced in November 1997, and 188,333
shares acquired upon such exercise are subject to a right of repurchase by
the Company which lapses periodically over a five year period and on an
accelerated basis upon the achievement of certain milestones.
44
<PAGE>
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
The following table sets forth the number of shares of Common Stock acquired
upon the exercise of stock options by the Named Executive Officers during the
Company's Last Fiscal Year, and the number and value of securities underlying
unexercised options held by the Named Executive Officers as of June 30, 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
NUMBER OF UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED JUNE 30, 1998(1) JUNE 30, 1998(2)
ON ------------------------- -------------------------
NAME EXERCISE EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Michael J. Fitzpatrick.. 2,825,000(3) -- -- -- --
Ming Shih............... 555,556(4) 150,000 350,000 $1,012,500 $2,362,500
Theresa Pan............. -- -- -- -- --
</TABLE>
- --------
(1) All options are immediately exercisable at the date of grant, but shares
purchased upon exercise of options are subject to repurchase by the
Company based upon a prescribed vesting schedule.
(2) Calculated on the basis of the fair market value of the Company's Common
Stock as of June 30, 1998 ($10.00 per share), as determined by the
Company's Board of Directors, less the aggregate exercise price.
(3) Includes 2,260,000 shares owned by Mr. Fitzpatrick that are subject to a
right of repurchase by the Company which lapses periodically over a four-
year vesting period which commenced in November 1997, and 188,333 shares
owed by Mr. Fitzpatrick that are subject to a right of repurchase by the
Company which lapses periodically over a five-year period and on an
accelerated basis upon the achievement of certain milestones. As
calculated in accordance with the rules of the Securities and Exchange
Commission, there was no "value realized" by Mr. Fitzpatrick upon the
exercise of such options because the aggregate exercise price of such
options was equal to the aggregate fair market value of such shares on the
date of exercise.
(4) Includes 555,556 shares owned by Mr. Shih which are fully vested. As
calculated in accordance with the rules of the Securities and Exchange
Commission, there was no "value realized" by Mr. Shih upon the exercise of
such options because the aggregate exercise price of such options was
equal to the aggregate fair market value of such shares on the date of
exercise.
EMPLOYMENT AGREEMENTS AND CHANGE OF CONTROL ARRANGEMENTS
On October 1, 1997, the Company entered into an employment agreement with
Michael J. Fitzpatrick to serve as the Company's President and Chief Executive
Officer. The agreement provides that Mr. Fitzpatrick is an "at-will" employee
of the Company, that he will be paid a minimum base salary of $300,000 per
annum, and that he will be eligible to receive an annual bonus of at least
$300,000. The agreement also provides that in the event that Mr. Fitzpatrick
is terminated for any reason other than "cause," if he resigns for "good
reason," or upon a change of control of the Company (each as defined therein),
(i) he will be entitled to receive a severance payment in an amount equal to
his monthly base salary and pro rated bonus until the earlier of the
expiration of 12 months or his commencement of employment with another firm
and (ii) the vesting of all options and restricted stock subject to a right of
repurchase by the Company held by him will be accelerated by 12 months. In
addition, the agreement provides that in the event that Mr. Fitzpatrick's
employment with the Company is terminated by him or the Company within 6
months following a "change of control" (as defined therein) of the Company,
the vesting of all options and restricted stock held by him will be fully
accelerated and Mr. Fitzpatrick will be entitled to receive a severance
payment in an amount equal to two times his base salary and bonus.
45
<PAGE>
On December 2, 1997, the Company entered into an employment agreement with
Sanjay Subhedar to serve as the Company's Vice President and Chief Financial
Officer. The agreement provides that Mr. Subhedar is an "at-will" employee of
the Company, that he will be paid a minimum base salary of $175,000 per annum,
and that he will be eligible to receive an annual bonus of up to $100,000. The
agreement also provides that in the event that Mr. Subhedar is terminated for
any reason other than "cause," or if he resigns for "good reason" (each as
defined therein), (i) he will be entitled to receive a severance payment in an
amount equal to his monthly base salary until the earlier of the expiration of
12 months or his commencement of employment with another firm and (ii) the
vesting of all options and restricted stock subject to a right of repurchase
by the Company held by him will be accelerated by 12 months. In addition, the
agreement provides that upon a "change of control" (as defined therein) of the
Company, the vesting of all options and restricted stock held by him will be
accelerated by 12 months (but will not be further accelerated beyond the
acceleration described in the foregoing sentence upon any subsequent
termination of his employment with the Company following such change of
control).
On May 26, 1998, the Company entered into an employment agreement with
Philip J. Anthony to serve as the Company's Vice President of Engineering. The
agreement provides that Mr. Anthony will be an "at-will" employee of the
Company, that he will be paid a base salary of $160,000 per annum (subject to
annual review), and that he will be entitled to receive a bonus of up to 30%
of his then current base salary. The agreement also provides that in the event
that Mr. Anthony is terminated for any reason other than "cause," or if he
resigns for "good reason" (each as defined therein), (i) he will be entitled
to receive a severance payment in an amount equal to his monthly base salary
until the earlier of the expiration of 12 months or his commencement of
employment with another firm, and (ii) the vesting of all options and
restricted stock subject to a right of repurchase by the Company held by him
will be accelerated by 12 months.
On July 21, 1998, the Company entered into an employment agreement with Jim
Northington to serve as the Company's Vice President of Manufacturing. The
agreement provides that Mr. Northington will be an "at-will" employee of the
Company, that he will be paid a base salary of $160,000 per annum (subject to
annual review), and that he will be entitled to receive a bonus of up to 30%
of his then current base salary.
STOCK PLANS
1997 EQUITY INCENTIVE PLAN
The Company's 1997 Equity Incentive Plan (the "1997 Plan") was adopted by
the Board of Directors and approved by the stockholders in June 1997. A total
of 10,555,555 shares of Common Stock have been reserved for issuance under the
1997 Plan. As of June 30, 1998, 1,855,535 shares of Common Stock subject to
repurchase by the Company had been issued upon exercise of options, 1,418,717
shares of Common Stock not subject to repurchase by the Company had been
issued upon exercise of options, and 3,050,198 shares of Common Stock options
were outstanding at a weighted average exercise price of $4.05. The Board of
Directors has determined that no further options will be granted under the
1997 Plan after the completion of this offering. Unless terminated sooner, the
1997 Plan will terminate automatically in June 2007.
The 1997 Plan provides for the grant of incentive stock options, within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), to employees of the Company and for the grant of nonstatutory stock
options and restricted stock awards to employees, directors and consultants of
the Company.
Options granted under the 1997 Plan must generally be exercised within three
months after the end of an optionee's status as an employee, director or
consultant of the Company, or within twelve
46
<PAGE>
months after such optionee's termination by death or disability, but in no
event later than the expiration of the option term. In the event an optionee
is terminated for cause, his or her option shall terminate immediately.
Options and restricted stock awards granted under the 1997 Plan are
generally not transferable by the optionee other than by will or by the laws
of descent and distribution, and each option and restricted stock award is
exercisable during the lifetime of the optionee only by such optionee. The
1997 Plan provides that in the event of a (i) dissolution or liquidation of
the Company, (ii) certain mergers or consolidations or (iii) a sale of all or
substantially all of the assets of the Company, each option and restricted
stock award shall be assumed or an equivalent option or award substituted for
by the successor corporation. If the outstanding options and restricted stock
awards are not assumed or substituted for by the successor corporation, such
options and restricted stock awards shall terminate.
1997 EXECUTIVE EQUITY INCENTIVE PLAN
The Company's 1997 Executive Equity Incentive Plan (the "1997 Executive
Plan") was adopted by the Board of Directors in October 1997 and approved by
the stockholders in December 1997. A total of 4,444,445 shares of Common Stock
have been reserved for issuance under the 1997 Executive Plan. As of June 30,
1998, 4,025,000 shares of Common Stock subject to repurchase by the Company
had been issued upon exercise of options granted under the 1997 Executive
Plan. The Board of Directors has determined that no further options will be
granted under the 1997 Executive Plan after the completion of this offering.
Unless terminated sooner, the 1997 Executive Plan will terminate automatically
in October 2007.
The 1997 Executive Plan provides for the grant of incentive stock options,
within the meaning of Section 422 of the Code, non-qualified stock options,
restricted stock awards and stock bonuses (each, an "Award") to employees of
the Company who are also directors or officers of the Company.
Options granted under the 1997 Executive Plan must generally be exercised
within three months after the end of an optionee's status as an employee,
director or consultant of the Company, or within twelve months after such
optionee's termination by death or disability, but in no event later than the
expiration of the option term. In the event an optionee is terminated for
cause, his or her option shall terminate immediately.
Awards granted under the 1997 Executive Plan are generally not transferable
by the optionee other than by will or by the laws of descent and distribution,
and each Award is exercisable during the lifetime of the optionee only by such
optionee. The 1997 Executive Plan provides that in the event of a (i)
dissolution or liquidation of the Company, (ii) certain mergers or
consolidations or (iii) a sale of all or substantially all of the assets of
the Company, each Award shall be assumed or an award substituted for by the
successor corporation. If the outstanding Awards are not assumed or
substituted for by the successor corporation, vesting of the Awards shall
accelerate immediately prior to the consummation of such transaction and shall
terminate on the consummation of such transaction.
1998 STOCK PLAN
The Company's 1998 Stock Plan (the "1998 Plan") was adopted by the Board of
Directors in August 1998 and approved by the stockholders in September 1998.
As of the date of this Prospectus, no options have been granted under the 1998
Plan.
The 1998 Plan provides for the grant of incentive stock options to employees
(including officers and employee directors) and for the grant of nonstatutory
stock options and stock purchase rights ("SPRs") to employees, directors and
consultants. A total of (i) 3,000,000 shares of Company
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<PAGE>
Common Stock (including shares which have been reserved but unissued under the
Company's 1997 Plan), (ii) any shares returned to the 1997 Plan as a result of
termination of options or repurchase of shares by the Company and (iii) annual
increases to be added on the date of each annual meeting of stockholders
commencing in 1999 equal to the lesser of 3,000,000 shares, 4% of the
outstanding shares, or such lesser amount as may be determined by the Board of
Directors, are currently reserved for issuance pursuant to the 1998 Plan.
Unless terminated sooner, the 1998 Plan will terminate automatically in
September 2008.
The Administrator of the 1998 Plan has the power to determine the terms of
the options or SPRs granted, including the exercise price of the option or
SPR, the number of shares subject to each option or SPR, the exercisability
thereof, and the form of consideration payable upon such exercise. In
addition, the Administrator has the authority to amend, suspend or terminate
the 1998 Plan, provided that no such action may affect any share of Company
Common Stock previously issued and sold or any option or SPR previously
granted under the 1998 Plan.
Options and SPRs granted under the 1998 Plan are generally not transferable
by the optionee, and each option and SPR is exercisable during the lifetime of
the optionee only by such optionee. Options granted under the 1998 Plan must
generally be exercised within three months after the end of an optionee's
status as an employee, director or consultant of the Company, or within twelve
months after such optionee's termination by death or disability, but in no
event later than the expiration of the option term.
In the case of SPRs, unless the Administrator determines otherwise, the
restricted stock purchase agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's employment or consulting relationship with the Company for any
reason (including death or disability). The purchase price for shares
repurchased pursuant to the restricted stock purchase agreement shall be the
original price paid by the purchaser and may be paid by cancellation of any
indebtedness of the purchaser to the Company. The repurchase option shall
lapse at a rate determined by the Administrator.
The exercise price of all incentive stock options granted under the 1998
Plan must be at least equal to the fair market value of the Company Common
Stock on the date of grant. The exercise price of nonstatutory stock options
and SPRs granted under the 1998 Plan is determined by the Administrator, but
with respect to nonstatutory stock options intended to qualify as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the exercise price must be at least equal to the fair market value of
the Company Common Stock on the date of grant. With respect to any participant
who owns stock possessing more than 10% of the voting power of all classes of
the Company's outstanding capital stock, the exercise price of any incentive
stock option granted must be at least equal to 110% of the fair market value
on the grant date and the term of such incentive stock option must not exceed
five years. The term of all other options granted under the 1998 Plan may not
exceed ten years.
The 1998 Plan provides that in the event of a merger of the Company with or
into another corporation, or a sale of substantially all of the Company's
assets, each option and SPR shall be assumed or an equivalent option
substituted for by the successor corporation. If the outstanding options and
SPRs are not assumed or substituted for by the successor corporation, the
Administrator shall provide for the optionee to have the right to exercise the
option or SPR as to all of the optioned stock, including shares as to which it
would not otherwise be exercisable. If the Administrator makes an option or
SPR exercisable in full in the event of a merger or sale of assets, the
Administrator shall notify the optionee that the option or SPR shall be fully
exercisable for a period of fifteen (15) days from the date of such notice,
and the option or SPR will terminate upon the expiration of such period.
48
<PAGE>
1998 EMPLOYEE STOCK PURCHASE PLAN
The Company's 1998 Employee Stock Purchase Plan (the "1998 Purchase Plan")
was adopted by the Board of Directors in August 1998 and approved by the
stockholders in September 1998. A total of 750,000 shares of Company Common
Stock has been reserved for issuance under the 1998 Purchase Plan, plus annual
increases equal to the lesser of (i) 750,000 shares, (ii) 1% of the
outstanding shares on such date, or (iii) such lesser amount as may be
determined by the Board of Directors. As of the date of this Prospectus, no
shares have been issued under the 1998 Purchase Plan.
The 1998 Purchase Plan, which is intended to qualify under Section 423 of
the Code, contains consecutive, overlapping, twenty-four month offering
periods. Each offering period includes four six-month purchase periods. The
offering periods generally start on the first trading day on or after May 1
and November 1 of each year, except for the first such offering period which
commences on the first trading day on or after the effective date of this
offering and ends on the last trading day on or before October 31, 2000.
Employees are eligible to participate if they are customarily employed by
the Company or any participating subsidiary for at least 20 hours per week and
more than five months in any calendar year. However, any employee who (i)
immediately after grant owns stock possessing 5% or more of the total combined
voting power or value of all classes of the capital stock of the Company or
(ii) whose rights to purchase stock under all employee stock purchase plans of
the Company accrues at a rate which exceeds $25,000 worth of stock for each
calendar year may not be granted an option to purchase stock under the 1998
Purchase Plan. The 1998 Purchase Plan permits participants to purchase Common
Stock through payroll deductions of up to 10% of the participant's
"compensation." Compensation is defined as the participant's base straight
time gross earnings and commissions, including payments for overtime, shift
premium, incentive compensation, incentive payments, bonuses and other
compensation. The maximum number of shares a participant may purchase during a
single purchase period is 5,000 shares.
Amounts deducted and accumulated by the participant are used to purchase
shares of Common Stock at the end of each purchase period. The price of stock
purchased under the 1998 Purchase Plan is generally 85% of the lower of the
fair market value of the Common Stock (i) at the beginning of the offering
period or (ii) at the end of the purchase period. In the event the fair market
value at the end of a purchase period is less than the fair market value at
the beginning of the offering period, the participants will be withdrawn from
the current offering period following exercise and automatically re-enrolled
in a new offering period. The new offering period will use the lower fair
market value as of the first date of the new offering period to determine the
purchase price for future purchase periods. Participants may end their
participation at any time during an offering period, and they will be paid
their payroll deductions to date. Participation ends automatically upon
termination of employment with the Company.
Rights granted under the 1998 Purchase Plan are not transferable by a
participant other than by will, the laws of descent and distribution, or as
otherwise provided under the 1998 Purchase Plan. The 1998 Purchase Plan
provides that, in the event of a merger of the Company with or into another
corporation or a sale of substantially all of the Company's assets, each
outstanding right to purchase stock may be assumed or substituted for by the
successor corporation. If the successor corporation refuses to assume or
substitute for the outstanding rights to purchase stock, the offering period
then in progress will be shortened and a new exercise date will be set.
The Board of Directors has the authority to amend or terminate the 1998
Purchase Plan, except that no such action may adversely affect any outstanding
rights to purchase stock under the 1998 Purchase Plan, provided that the Board
of Directors may terminate an offering period on any exercise
49
<PAGE>
date if the Board determines that the termination of the 1998 Purchase Plan is
in the best interests of the Company and its stockholders. Notwithstanding
anything to the contrary, the Board of Directors may in its sole discretion
amend the 1998 Purchase Plan to the extent necessary and desirable to avoid
unfavorable financial accounting consequences by altering the purchase price
for any offering period, shortening any offering period or allocating
remaining shares among the participants. The 1998 Purchase Plan will terminate
in August 2008, unless sooner terminated by the Board of Directors.
1998 DIRECTOR OPTION PLAN
The 1998 Director Option Plan (the "Director Plan") was adopted by the Board
of Directors in August 1998 and approved by the stockholders in September
1998. The Director Plan provides for the grant of nonstatutory stock options
to non-employee directors who are not also partners or members of any venture
capital investor which owns securities of the Company holding more than five
percent (5%) of the total voting power of the Company's outstanding capital
stock ("Outside Directors"). The Director Plan has a term of ten years, unless
terminated sooner by the Board. A total of 250,000 shares of Company Common
Stock, plus an annual increase equal to the optioned stock underlying options
granted in the immediately preceding year (or such lesser amount as may be
determined by the Board of Directors), have been reserved for issuance under
the Director Plan. As of the date of this Prospectus, no options have been
granted under the Director Plan.
The Director Plan provides that each new Outside Director shall
automatically be granted an option to purchase 40,000 shares of Company Common
Stock (the "First Option") on the date which such person first becomes a non-
employee director. In addition to the First Option, each Outside Director
shall automatically be granted an option to purchase 10,000 shares (a
"Subsequent Option") on the date which is two (2) days after the Company's
financial results for the preceding fiscal year are announced to the public,
if on such date he or she shall have served on the Board of Directors for at
least six months. Each First Option and Subsequent Option shall have a term of
10 years. The shares subject to the First Option and Subsequent Option shall
vest as to 25% of the optioned stock one year from the date of grant, and 1/48
of the optioned stock shall vest each month thereafter, provided the person
continues to serve as a Director on such dates. The exercise price of each
First Option and each Subsequent Option shall be 100% of the fair market value
per share of the Company Common Stock.
In the event of a merger of the Company or the sale of substantially all of
the assets of the Company, each option granted to an Outside Director under
the Director Plan shall become fully vested and exercisable for a period of
thirty (30) days from the date the Board notifies the optionee of the option's
full exercisability, after which period the option shall terminate. Options
granted under the Director Plan must be exercised within three months of the
end of the optionee's tenure as a director of the Company, or within twelve
months after such director's termination by death or disability, but in no
event later than the expiration of the option's ten year term. No option
granted under the Director Plan is transferable by the optionee other than by
will or the laws of descent and distribution, and each option is exercisable,
during the lifetime of the optionee, only by such optionee.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Company's Certificate of Incorporation provides that a director of the
Company shall not be personally liable for monetary damages to the Company or
its stockholders for a breach of fiduciary duty as a director, except for
liability as a result of (i) a breach of the director's duty of loyalty to the
Company or its stockholders, (ii) acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law (iii) an act
related to the unlawful stock repurchase or payment of a dividend under
Section 174 of the Delaware General Corporation Law or (iv) transactions from
which the director derived an improper personal benefit. Such limitation of
liability does not affect the availability of equitable remedies such as
injunctive relief or rescission.
50
<PAGE>
The Company's Certificate of Incorporation also authorizes the Company to
indemnify its officers, directors and other agents to the full extent
permitted under the Delaware General Corporation Law. The Company has entered
into separate indemnification agreements with its directors and executive
officers that may, in some cases, provide broader indemnification protection
than the specific indemnification provisions contained in the Delaware General
Corporation Law. The indemnification agreements require the Company, among
other things, to indemnify such officers and directors against certain
liabilities that may arise by reason of their status or service as officers or
directors (other than liabilities arising from willful misconduct of a
culpable nature), and to advance their expenses incurred as a result of any
proceeding against them as to which they could be indemnified. In addition,
these agreements extend similar indemnification arrangements to stockholders
whose representatives serve as directors of the Company.
At present, there is no pending litigation or proceeding involving a
director, officer, employee or agent of the Company where indemnification will
be required or permitted. The Company is not aware of any threatened
litigation or proceeding which may result in a claim for such indemnification.
51
<PAGE>
CERTAIN TRANSACTIONS
Since July 1,1995, there has not been any transaction or series of similar
transactions to which the Company was or is a party in which the amount
involved exceeded or exceeds $60,000 and in which any director, executive
officer, holder of more than 5% of any class of the Company's voting
securities, or any member of the immediate family of any of the foregoing
persons had or will have a direct or indirect material interest, other than
the transactions described below and under "Management--Employment Agreements
and Change of Control Arrangements" and "--Limitation of Liability and
Indemnification."
RECAPITALIZATION
On July 23, 1997, the Company completed a recapitalization (the
"Recapitalization"). Prior to the Recapitalization, the authorized capital
stock of the Company consisted of 1,000,000 shares of Common Stock of which
101,271 shares were issued and outstanding, all of which were beneficially
owned by Jing Jong Pan and Theresa Pan (the "Founders"). In connection with
the Recapitalization, the Company consummated a stock split which resulted in
the conversion of the 101,271 outstanding shares of Common Stock into
50,000,000 shares of Common Stock. The Company then (i) authorized and sold
30,000,000 shares of Convertible Preferred Stock, a controlling stake in the
Company, to certain investors for an aggregate purchase price of $120 million
and (ii) repurchased 30,000,000 shares of Common Stock from the Company's
Founders for $120 million.
The Convertible Preferred Stock has certain rights and privileges, including
the right to receive preferential dividends and participating dividends, the
right to preferential distributions upon a liquidation of the Company, the
ability to require the Company to redeem such shares in certain circumstances,
the right to approve certain actions by the Company, and the right to elect a
majority of the directors of the Company. The Convertible Preferred Stock
issued in the Recapitalization will be converted into Common Stock upon the
closing of the offering and the holders thereof will therefore forfeit any
right to receive accumulated dividends in respect of such Convertible
Preferred Stock.
In connection with the Recapitalization, the Company, the purchasers of the
Convertible Preferred Stock and the Founders also entered into a Shareholders
Agreement relating to the ongoing corporate governance of the Company,
including the composition of the Board of Directors and restrictions on
transfer of the stock of the Company, including rights of first refusal and
co-sale rights. All such restrictions will terminate upon the closing of this
offering.
In connection with Recapitalization, the Company, the purchasers of
Convertible Preferred Stock and the Founders entered into a Registration
Agreement pursuant to which such shareholders acquired certain registration
rights in respect of the shares of the Company's capital stock acquired in
connection with Recapitalization. See "Description of Capital Stock--
Registration Rights."
Pursuant to the Recapitalization, the Company entered into agreements with
the Founders and with certain other executives of the Company pursuant to
which such persons purchased shares of Common Stock of the Company with the
proceeds of a loan from the Company to such persons.
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<PAGE>
The purchasers of Convertible Preferred Stock and Common Stock in connection
with the Recapitalization included, among others, the following directors,
executive officers and holders of more than 5% of the Common Stock, and
certain family members of the foregoing:
<TABLE>
<CAPTION>
NO. OF PURCHASE TYPE OF
NAME TITLE/RELATIONSHIP SHARES PRICE STOCK
---- ---------------------- ---------- ------------ ---------------------
<C> <S> <C> <C> <C>
Summit/E-Tek Holdings, L.L.C. (2).. -- 27,000,000 $108,000,000 Convertible Preferred
Ming Shih ......................... Senior Vice President, 1,111,111(1) 2,555,555 Common
Sales and Marketing
Kung Shih.......................... Brother of Ming Shih 1,111,110(1) 2,555,553 Common
</TABLE>
- --------
(1) Includes 555,555 shares that are subject to a right of repurchase by the
Company which lapses periodically over a three-year period which commenced
in July 1997.
(2) Walter G. Kortschak, Chairman of the Board of Directors of the Company,
and Peter Y. Chung, who will be director of the Company upon the closing
of the offering, are affiliated with Summit Ventures IV, L.P., Summit
Investors III, L.P. and Summit Subordinated Debt Fund II, L.P.
(collectively, the "Summit Funds") which are all of the members of
Summit/E-Tek Holdings, L.L.C., an entity formed by the Summit Funds for
purposes of investing in the Company. See "Management" and "Principal and
Selling Stockholders."
INDEMNIFICATION AGREEMENTS
The Company has entered into indemnification agreements with each of its
directors and executive officers. See "Management--Limitation of Liability and
Indemnification."
LOANS TO OFFICERS
From time to time the Company has made interest-free loans to certain
executive officers of the Company to fund the exercise of stock options held
by such executive officers. These loans are evidenced by promissory notes
which mature on the dates set forth below, subject to certain acceleration
events. Such promissory notes are secured by the shares of Common Stock
purchased with the proceeds of such loans, and are either full recourse or
substantial recourse against the assets of the borrower. The following table
sets forth the name and position of such officers, certain information with
respect to the promissory notes issued to evidence such loans and the number
of shares of the Company's Common Stock purchased with the proceeds of such
loans.
<TABLE>
<CAPTION>
PRINCIPAL SHARES ISSUANCE MATURITY
NAME AND POSITION(S) AMOUNT PURCHASED DATE DATE
-------------------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C>
Michael J. Fitzpatrick................ $5,198,000 2,260,000 11/13/97 11/13/2002
President and Chief Executive Officer 1,289,500 565,000 11/13/97 11/13/2002
Sanjay Subhedar....................... 3,900,000 1,200,000 12/11/97 12/11/2002
Senior Vice President, Operations,
Chief Financial Officer and Secretary
Ming Shih............................. 1,277,776 555,555 .07/23/97 07/23/2006
Senior Vice President, Sales and 1,277,778 555,556 07/23/97 07/23/2006
Marketing
Philip J. Anthony .................... 1,250,000 125,000 06/25/98 06/25/2003
Vice President, Engineering
</TABLE>
The entire principal amount on each of the loans described in the table set
forth above remains outstanding as of the date of this offering.
For a description of certain options granted to the executive officers and
directors of the Company since January 1, 1995, see "Management--Executive
Compensation--Option Grants in Last Fiscal Year," "--Employment Agreements and
Change of Control Arrangements" and "--Stock Plans."
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<PAGE>
The Company believes that all transactions with affiliates described above
were made on terms no less favorable to the Company than could have been
obtained from unaffiliated third parties. All future transactions, including
loans, if any, between the Company and its officers, directors, principal
stockholders and their affiliates will be approved by a majority of the Board
of Directors, including a majority of the independent and disinterested
members of the Board of Directors, and will continue to be on terms no less
favorable to the Company than could be obtained from unaffiliated third
parties.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with a number of its
executive officers, including Michael J. Fitzpatrick, Sanjay Subhedar, Philip
J. Anthony and Jim Northington. See "Management--Employment Agreements and
Change of Control Arrangements." In addition, the Company has entered into an
employment agreement with Jing Jong Pan, dated July 23, 1997, pursuant to
which the Company has agreed to employ Mr. Pan as an "E-Tek Fellow," and as
the head of a small research and development division of the Company, for a
minimum three-year period. The Company may, however, terminate Mr. Pan's
employment with the Company during such three-year period with or without
cause. During the term of the agreement, Mr. Pan will be entitled to receive
an annual base salary of at least $200,000.
DIRECTOR OPTION GRANTS
In July 1998, the Company granted an option to purchase 40,000 shares of
Common Stock of the Company under the Company's 1997 Equity Incentive Plan to
each of directors David W. Dorman, Donald J. Listwin and Joseph W. Goodman.
Such options have an exercise price of $10.00 per share and vest periodically
over a four-year period.
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<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's outstanding Common Stock as of June 30, 1998, and
as adjusted to reflect the sale of the shares offered hereby, by (i) each
stockholder of the Company who is known to the Company to be the beneficial
owner of more than 5% of the Company's Common Stock, (ii) each of the
Company's directors, (iii) each of the Company's Named Executive Officers,
(iv) all officers and directors of the Company as a group and (v) all other
Selling Stockholders.
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY OWNED BENEFICIALLY OWNED
BEFORE OFFERING(2) NUMBER AFTER OFFERING(2)(4)
NAME AND ADDRESS OF --------------------- OF SHARES ------------------------
BENEFICIAL OWNERS(1) NUMBER PERCENT(3) BEING OFFERED NUMBER PERCENT(3)
-------------------- ---------- ---------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Summit/E-Tek Holdings, 27,000,000 47.1%
L.L.C.(5) .............
c/o Summit Partners,
L.P.
499 Hamilton Avenue
Suite 200
Palo Alto, California
94301
Jing Jong Pan(6)........ 10,000,000 17.5
Theresa Pan(7).......... 10,000,000 17.5
Michael J.
Fitzpatrick(8)......... 2,825,000 4.9
Ming Shih(9)............ 1,261,111 2.2
Sanjay Subhedar......... 1,200,000 2.1
Philip J. Anthony....... 125,000 *
Jim Northington......... -- --
Walter G.
Kortschak(10).......... -- --
David W. Dorman(11)..... -- --
Donald J. Listwin(12)... -- --
Joseph W. Goodman(13)... -- --
Peter Y. Chung(14)...... -- --
All officers and
directors as a group
(10 persons)(15)....... 32,411,111 56.6
</TABLE>
- --------
* Represents beneficial ownership of less than 1% of the outstanding shares
of Common Stock of the Company.
(1) Except as otherwise noted, the address of each person listed in the table
is c/o E-Tek Dynamics, Inc., 1865 Lundy Avenue, San Jose, California
95131.
(2) Beneficial ownership is determined in accordance with the Rules of the
Securities and Exchange Commission and includes voting or investment power
with respect to the securities. To the knowledge of the Company, the
persons and entities named have sole voting and investment power with
respect to all shares of Common Stock of the Company beneficially owned by
them, subject to community property laws where applicable and except as
otherwise indicated in the following footnotes to the table. The number of
shares beneficially owned and percentage ownership includes shares of
Common Stock of the Company issuable upon the exercise of options or other
rights to acquire shares of the Company's Common Stock within 60 days
after June 30, 1998, and shares of Common Stock of the Company issuable
upon the conversion of all securities convertible into shares of Common
Stock of the Company.
(3) Percentage of shares beneficially owned is based on 57,299,252 shares of
Common Stock of the Company outstanding as of June 30, 1998 and shares
to be outstanding upon consummation of this offering. Shares issuable upon
the exercise of stock options or other rights to acquire shares of Common
Stock of the Company which are exercisable within 60 days of June 30,
1998, and shares issuable upon the conversion of all securities that are
convertible into shares of Common Stock of the Company, are deemed to be
outstanding for the purpose of
55
<PAGE>
computing the number of shares beneficially owned and the percentage
ownership of the person or entity holding any such shares, but are not
deemed to be outstanding for purposes of computing the number of shares
beneficially owned or the percentage ownership of any other person.
(4) Assumes no exercise of the Underwriters' over-allotment option.
(5) Summit/E-Tek Holdings, L.L.C. ("Holdings") is a Delaware limited
liability company formed by the Summit Funds for the purpose of investing
in the Company. Summit Ventures IV, L.P. and Summit Subordinated Debt
Fund II, L.P. are the Managers of Holdings and jointly have the power to
direct the voting and disposition of all Common Stock of the Company held
by Holdings.
(6) All such shares are held by J.J. & Theresa Pan Revocable Trust, of which
Mr. Pan and Theresa Pan are co-trustees. Mr. Pan and Theresa Pan share
voting power over the shares held by such trust. Mr. Pan is the spouse of
Theresa Pan.
(7) Excludes shares held by the J.J. & Theresa Pan Revocable Trust. See Note
(5). Ms. Pan is the spouse of Jing Jong Pan. All such shares are the
separate property of Ms. Pan.
(8) Excludes 419,445 shares of Common Stock issuable upon the exercise of an
option granted to Mr. Fitzpatrick in July 1998 which may be exercised in
full within 60 days of June 30, 1998.
(9) Ming Shih is the brother of Theresa Stone Pan.
(10) Excludes 27,000,000 shares held by Summit/E-Tek Holdings, L.L.C. Summit
Ventures IV, L.P. and Summit Subordinated Debt Fund II, L.P. are the
Managers of Summit/E-Tek Holdings, L.L.C. Mr. Kortschak, Chairman of the
Board of Directors of the Company, is (i) a general partner of Stamps,
Woodsum & Co. IV, which is the general partner of Summit Ventures IV,
L.P. and (ii) a member of Summit Partners SD II, L.L.C., which is the
general partner of Summit Subordinated Debt Fund II, L.P. Mr. Kortschak
disclaims beneficial ownership of such shares except to the extent of his
pecuniary interest therein.
(11) Excludes 40,000 shares of Common Stock of the Company issuable upon the
exercise of a stock option granted to Mr. Dorman in July 1998, which may
be exercised in full within 60 days of June 30, 1998.
(12) Excludes 40,000 shares of Common Stock of the Company issuable upon the
exercise of a stock option granted to Mr. Listwin in July 1998, which may
be exercised in full within 60 days of June 30, 1998.
(13) Excludes 40,000 shares of Common Stock of the Company issuable upon the
exercise of a stock option granted to Dr. Goodman in July 1998, which may
be exercised in full within 60 days of June 30, 1998.
(14) Excludes 27,000,000 shares held by Summit/E-Tek Holdings, L.L.C. Summit
Subordinated Debt Fund II, L.P. is a Manager of Summit/E-Tek Holdings,
L.L.C. Mr. Chung, who will be a director of the Company upon the closing
of the offering, is a Principal of Summit Partners SD II, L.L.C., which
is a general partner of Summit Subordinated Debt Fund II, L.P. Mr. Chung
disclaims beneficial ownership of such shares except to the extent of his
pecuniary interest therein.
(15) Includes shares of Common Stock of the Company issuable upon the exercise
of stock options and shares beneficially owned by Summit/E-Tek Holdings,
L.L.C., with which Messrs. Kortschak and Chung are associated, as to
which shares they disclaim beneficial ownership, except to the extent of
their pecuniary interest therein. See Note (8).
56
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
Upon the closing of this offering, the authorized capital stock of the
Company will consist of 300,000,000 shares of Common Stock, $0.001 par value,
and 25,000,000 shares of undesignated preferred stock ("Preferred Stock"),
$0.01 par value. The following description of the Company's capital stock does
not purport to be complete and is subject to, and qualified in its entirety
by, the terms of the Certificate of Incorporation and Bylaws of the Company,
copies of which have been filed with the Commission as exhibits to the
Company's Registration Statement of which this prospectus forms a part, and by
the applicable provisions of Delaware law.
COMMON STOCK
As of June 30, 1998, there were 57,299,252 shares of Common Stock of the
Company outstanding and held of record by approximately 126 stockholders,
assuming the conversion of all convertible securities into shares of the
Company's Common Stock. Assuming no exercise of the Underwriters' over-
allotment option and no exercise of options to purchase Common Stock after
June 30, 1998, there will be shares of Common Stock of the Company
outstanding after giving effect to the sale of all the shares of Common Stock
of the Company to be sold in connection with the offering.
Holders of Common Stock are entitled to one vote per share on all matters to
be voted upon by the stockholders of the Company. Holders of Common Stock do
not have cumulative voting rights under the Company's Certificate of
Incorporation or Bylaws and, therefore, holders of a majority of the shares
voting for the election of directors can elect all of the directors of the
Company, subject to the classified board provisions set forth in the Company's
Certificate of Incorporation. See "Management." In such event, the holders of
the remaining shares will not be able to elect any directors. The shares of
Common Stock offered in connection with this offering, when issued, will be
fully paid and nonassessable and will not be subject to any redemption or
sinking fund provisions. Holders of Common Stock do not have any preemptive,
subscription or conversion rights. Holders of Common Stock are entitled to
receive such dividends as may be declared from time to time by the Board of
Directors out of funds legally available therefor, subject to the rights of
preferred stockholders and the terms of any existing or future agreements
between the Company and its debt holders. Since January 1, 1995, the Company
has not declared or paid any cash dividends on its Common Stock. The Company
presently intends to retain future earnings, if any, for use in the operation
and expansion of its business and does not anticipate paying cash dividends in
the foreseeable future. See "Dividend Policy." In the event of the
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to share ratably in all assets legally available for
distribution after payment of all debts and other liabilities and subject to
the prior rights of any holders of Preferred Stock then outstanding.
PREFERRED STOCK
Upon the closing of this offering, the Company will be authorized to issue
25,000,000 shares of Preferred Stock. The Board of Directors has the authority
to issue the Preferred Stock in one or more series and to fix the price,
rights, preferences, privileges and restrictions thereof, including dividend
rights, dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares
constituting a series or the designation of such series, without any further
vote or action by the Company's stockholders. The issuance of Preferred Stock
could have the effect of delaying, deferring or preventing a change in control
of the Company without further action by the stockholders and may adversely
affect the market price, and the voting and other rights, of the holders of
Common Stock. The issuance of Preferred Stock with voting and conversion
rights may adversely affect the voting power of the holders of Common Stock,
including the loss of voting control to others. The Company has no current
plans to issue any shares of Preferred Stock.
57
<PAGE>
ANTI-TAKEOVER EFFECTS OF THE CERTIFICATE OF INCORPORATION, BYLAWS AND DELAWARE
LAW
CERTIFICATE OF INCORPORATION AND BYLAWS
Effective upon the closing of this offering, the Company's Certificate of
Incorporation will provide that the Board of Directors will be divided into
three classes of directors with each class serving a staggered three-year
term. See "Management." The classification system of electing directors may
tend to discourage a third party from making a tender offer or otherwise
attempting to obtain control of the Company and may maintain the incumbency of
the Board of Directors, as it generally makes it more difficult for
stockholders to replace a majority of the directors. The Company's Certificate
of Incorporation will also eliminate, upon the closing of the offering, the
right of stockholders to act without a meeting and does not provide for
cumulative voting in the election of directors. These and other provisions may
have the effect of deterring hostile takeovers or delaying changes in control
or management of the Company. The amendment of any of these provisions would
require approval by holders of at least two thirds of the combined voting
power of all of the outstanding Common Stock and Preferred Stock entitled to
vote, unless an amendment is approved by a majority of the directors of the
Company not affiliated with or associated with any person or entity holding
20% or more of the voting power of the Company's outstanding capital stock.
DELAWARE TAKEOVER STATUTE
The Company is subject to Section 203 of the Delaware General Corporation
Law ("Section 203"), which, subject to certain exceptions, prohibits a
Delaware corporation from engaging in any business combination with any
interested stockholder for a period of three years following the date that
such stockholder became an interested stockholder, unless: (i) prior to such
date, the board of directors of the corporation approved either the business
combination or the transaction that resulted in the stockholder becoming an
interested stockholder; (ii) upon consummation of the transaction that
resulted in the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding for purposes of
determining the number of shares outstanding those shares owned (x) by persons
who are directors and also officers and (y) by employee stock plans in which
employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer; or (iii) on or subsequent to such date, the business
combination is approved by the board of directors and authorized at an annual
or special meeting of stockholders, and not by written consent, by the
affirmative vote of at least 66 2/3% of the outstanding voting stock that is
not owned by the interested stockholder.
Section 203 defines business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii)
any sale, transfer, pledge or other disposition of 10% or more of the assets
of the corporation involving the interested stockholder; (iii) subject to
certain exceptions, any transaction that results in the issuance or transfer
by the corporation of any stock of the corporation to the interested
stockholder; (iv) any transaction involving the corporation that has the
effect of increasing the proportionate share of any class or series of stock
of the corporation beneficially owned by the interested stockholder; or (v)
the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation. In general, Section 203 defines an interested
stockholder as any entity or person beneficially owning 15% or more of the
outstanding voting stock of the corporation and any entity or person
affiliated with or controlling or controlled by such entity or person.
REGISTRATION RIGHTS
Pursuant to the terms of a Registration Agreement entered into in connection
with the Recapitalization, the holders of a majority of the shares held by
certain investors in the Company at the time of the Recapitalization
("Investors") may demand registration by the Company of all or any
58
<PAGE>
portion of their shares of Common Stock of the Company in connection with the
sale of such shares by such Investors. Such demand registrations are not
limited in number, but the Company is not obligated to pay the expenses
associated with more than three demand registrations on Form S-1. The managing
underwriter of an offering involving a demand registration may limit the
number of shares to be included in such registration on the basis of market
considerations. Holders of a majority of the shares held by Investors to be
included in a demand registration are entitled to choose the managing
underwriter, if any, of the offering for which the registration is being
effected. The parties to the Registration Agreement are entitled to notice of,
and to participate in, any registration proposed by the Company (other than
registrations on Form S-4 or Form S-8). The managing underwriter of such a
"piggyback" registration involving an underwritten offering may limit the
number of shares of Common Stock of the Company held by the Investors and the
Founders to be included in such registration. The Registration Agreement
contains a lock-up provision pursuant to which the holders of registrable
securities agree not to sell any securities of the Company during (i) the
seven days prior to and (ii)(A) the 180 days after the effectiveness of a
registration statement filed in connection with the Company's initial public
offering or (B) unless the underwriters otherwise agree, the 90 days after the
effectiveness of a registration statement filed in connection with the
Company's next registered public offering or any underwritten registration
(demand or piggyback) of shares of the Company's Common Stock that includes
shares registered pursuant to the rights granted under the Registration
Agreement.
LISTING
Application has been made for quotation of the Common Stock on the Nasdaq
National Market under the symbol "ETEK."
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is , and its
telephone number is .
59
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the Common
Stock. Future sales of substantial amounts of Common Stock in the public
market could adversely affect the market price of the Common Stock. Future
sales of substantial amounts of Common Stock (including shares issued upon
exercise of outstanding options) in the public market following this offering
could adversely affect market prices prevailing from time to time and could
impair the Company's ability to raise capital through sale of its equity
securities. As described below, no shares currently outstanding will be
available for sale immediately after this offering because of certain
contractual restrictions on resale. Sales of substantial amounts of Common
Stock of the Company in the public market after the restrictions lapse could
adversely affect the prevailing market price and the ability of the Company to
raise equity capital in the future.
Upon completion of this offering, the Company will have outstanding an
aggregate of shares of Common Stock, assuming (i) the issuance
of shares of Common Stock in the offering, (ii) no exercise of the
Underwriters' over-allotment options and (iii) no exercise of options to
purchase Common Stock after June 30, 1998. Of these shares, the shares
sold in the offering will be freely tradable without restriction or further
registration under the Securities Act, except for any shares purchased by
"affiliates" of the Company as that term is defined in Rule 144 under the
Securities Act. Sales by affiliates will be subject to certain limitations and
restrictions described below.
Holders of shares of the Company's capital stock and options to purchase
3,050,198 shares of the Company's capital stock are subject to lock-up
agreements, including all officers and directors of the Company and all of its
other stockholders. Shares covered by these lock-up agreements are subject to
restrictions on resale in the public market for a period of 180 days following
the date of this Prospectus, subject, in most cases, to release, directly or
indirectly, by Goldman, Sachs & Co. Upon expiration of this lock-up period,
shares will become eligible for sale in the public market (assuming no
exercise of the Underwriter's overallotment option), of which will be held
by affiliates of the Company and therefore will be subject to the volume
limitations of Rule 144. In addition, holders of stock options could exercise
these options and sell certain of the shares issued upon exercise as described
below.
As of June 30, 1998, there were a total of 3,050,198 shares of Common Stock
subject to outstanding options granted under the 1997 Equity Incentive Plan
and the 1997 Executive Equity Incentive Plan, 580,588 of which were vested.
The Company intends to file a registration statement on Form S-8 under the
Securities Act to register shares of Common Stock subject to outstanding stock
options or reserved for issuance under the 1997 Equity Incentive Plan, the
1997 Executive Equity Incentive Plan, the 1998 Stock Plan, the 1998 Employee
Stock Purchase Plan and the 1998 Director Option Plan (the "Plans") within 180
days after the date of this Prospectus; thereby permitting the resale of such
shares by nonaffiliates in the public market without restriction under the
Securities Act, subject to restrictions in the lock-up agreements. On the date
180 days after the effective date of this Prospectus, a total of 1,183,774
shares of Common Stock subject to outstanding options will be vested and
exercisable. After the effective date of the registration statement on Form S-
8, shares purchased upon exercise of options granted or otherwise purchased
under the Plans generally would be available for resale in the public market.
Also beginning six months after the date of the offering, holders of
shares of Common Stock of the Company will be entitled to certain rights with
respect to the registration of such shares for sale in the public market. See
"Description of Capital Stock-Registration Rights." Registration of such
shares under the Securities Act would result in such shares becoming freely
tradable without restriction under the Securities Act (except for shares
purchased by affiliates) immediately upon the effectiveness of such
registration.
60
<PAGE>
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares for at least
one year is entitled to sell in "broker's transactions" or to market makers a
number of shares that does not exceed the greater of (i) one percent of the
number of shares of Common Stock then outstanding (approximately
shares immediately after the offering) or (ii) generally, the average weekly
trading volume in the Common Stock during the four calendar weeks preceding
the required filing of a Form 144 with respect to such sale. Sales under Rule
144 are generally subject to the availability of current public information
about the Company. Under Rule 144(k), a person who is not deemed to have been
an affiliate of the Company at any time during the 90 days preceding a sale,
and who has beneficially owned the shares proposed to be sold for at least two
years (including the holding period of any prior owner except an affiliate),
is entitled to sell such shares without having to comply with the manner of
sale, public information, volume limitation or notice filing provisions of
Rule 144. Under Rule 701 under the Securities Act, persons who purchase shares
upon the exercise of options granted prior to the effective date of this
offering are entitled to sell such shares 90 days after the date of this
Prospectus in reliance on Rule 144, without having to comply with the holding
period and notice filing requirements of Rule 144 and, in the case of non-
affiliates, without having to comply with the public information, volume
limitation or notice filing provisions of Rule 144. However, all such persons
(including all affiliates of the Company) have entered into lock-up agreements
restricting the sale of such shares during the 180-day period following this
offering.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission a
Registration Statement on Form S-1 under the Securities Act with respect to
the Common Stock offered hereby. This Prospectus, which constitutes a part of
the Registration Statement, does not contain all of the information set forth
in the Registration Statement, certain items of which are contained in
exhibits to the Registration Statement as permitted by the rules and
regulations of the Commission. For further information with respect to the
Company and the Common Stock offered hereby, reference is made to the
Registration Statement, including the exhibits thereto. Statements made in
this Prospectus concerning the contents of any document referred to herein are
not necessarily complete. With respect to each such document filed with the
Commission as an exhibit to the Registration Statement, reference is made to
the copy of such documents filed as exhibits to the Registration Statement for
a more complete description of the matter involved, and each such document
shall be deemed qualified in its entirety by such reference. The Registration
Statement, including the exhibits thereto, as well as other information filed
with the Commission, may be inspected without charge at the Commission's
principal office at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
Commission's regional offices at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and Seven World Trade Center, Suite 1300, New York, New York
10048. Copies of all or any part thereof may be obtained from the Commission
upon the payment of certain fees prescribed by the Commission. The Commission
also maintains a World Wide Web site at http://www.sec.gov that contains
reports, proxy statements and other information regarding registrants,
including the Company, that file such information electronically with the
Commission.
The Company intends to furnish to its stockholders annual reports containing
audited financial statements and quarterly reports containing unaudited
interim financial information for the first three fiscal quarters of each
fiscal year of the Company.
61
<PAGE>
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Wilson Sonsini Goodrich & Rosati, Professional
Corporation, Palo Alto, California. Certain legal matters related to this
offering will be passed upon for the Underwriters by Venture Law Group, A
Professional Corporation, Menlo Park, California.
EXPERTS
The Consolidated Financial Statements of the Company as of June 30, 1997 and
1998, and for each of the three years in the period ended June 30, 1998,
included in this Prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
62
<PAGE>
E-TEK DYNAMICS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants.......................................... F-2
Consolidated Balance Sheet................................................. F-3
Consolidated Statement of Operations....................................... F-4
Consolidated Statement of Stockholders' Equity (Deficit)................... F-5
Consolidated Statement of Cash Flows....................................... F-6
Notes to Consolidated Financial Statements................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
E-Tek Dynamics, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of stockholders' equity (deficit) and
of cash flows present fairly, in all material respects, the financial position
of E-Tek Dynamics, Inc. and its subsidiaries at June 30, 1997 and 1998 and the
results of their operations and their cash flows for each of the three years
in the period ended June 30, 1998, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
the Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
San Jose, California
July 28, 1998, except as to
Note 12, which is as of August 14, 1998
F-2
<PAGE>
E-TEK DYNAMICS, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, PRO FORMA
---------------- JUNE 30, 1998
1997 1998 (NOTE 1)
------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................... $ 8,259 $ 21,918 $ 21,918
Short-term investments....................... 10,840 -- --
Accounts receivable.......................... 16,049 14,463 14,463
Advance to joint venture..................... -- 7,000 7,000
Inventories.................................. 4,101 6,909 6,909
Deferred tax assets.......................... 3,856 7,873 7,873
Other current assets......................... 685 343 343
------- -------- --------
Total current assets....................... 43,790 58,506 58,506
Property and equipment, net.................... 17,970 30,872 30,872
------- -------- --------
$61,760 $ 89,378 $ 89,378
======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable............................. $ 4,714 $ 8,281 $ 8,281
Accrued liabilities.......................... 9,312 15,187 15,187
Income taxes payable......................... 1,215 -- --
Current portion of capital lease
obligations................................. 736 1,240 1,240
Current portion of long-term debt............ 107 216 216
------- -------- --------
Total current liabilities.................. 16,084 24,924 24,924
Capital lease obligations, net of current
portion....................................... 2,035 3,557 3,557
Long-term debt, net of current portion......... 7,542 10,251 10,251
------- -------- --------
Total liabilities.......................... 25,661 38,732 38,732
------- -------- --------
Commitments and contingencies (Note 11)
Mandatorily Redeemable Convertible Preferred
Stock, no par value, 30,000 shares authorized,
issued and outstanding (actual); none
authorized, issued and outstanding (pro
forma)........................................ -- 125,144 --
------- -------- --------
Stockholders' equity:
Preferred Stock, none authorized, issued or
outstanding (actual); $0.01 par value,
25,000 shares authorized, none issued and
outstanding (pro forma)..................... -- -- --
Common stock, no par value, 60,000 and 65,000
shares authorized, 50,000 and 27,299 shares
issued and outstanding (actual); $0.001 par
value, 300,000 shares authorized, 57,299
shares issued and outstanding (pro forma)... 1,963 19,468 144,612
Notes receivable from stockholders........... -- (14,215) (14,215)
Deferred compensation........................ -- (4,753) (4,753)
Distribution in excess of net book value..... -- (83,901) (83,901)
Retained earnings............................ 34,136 8,903 8,903
------- -------- --------
Total stockholders' equity (deficit)....... 36,099 (74,498) 50,646
------- -------- --------
$61,760 $ 89,378 $ 89,378
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
E-TEK DYNAMICS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
-----------------------------
1996 1997 1998
-------- -------- ---------
<S> <C> <C> <C>
Net revenues................................... $ 40,382 $ 73,076 $ 106,924
Cost of goods sold............................. 14,712 30,599 49,063
-------- -------- ---------
Gross profit................................. 25,670 42,477 57,861
-------- -------- ---------
Operating expenses:
Research and development..................... 2,444 3,953 7,702
Selling, general and administrative.......... 8,773 15,290 21,097
-------- -------- ---------
Total operating expenses................... 11,217 19,243 28,799
-------- -------- ---------
Operating income............................... 14,453 23,234 29,062
Interest income................................ 408 962 1,992
Interest expense............................... (66) (571) (988)
-------- -------- ---------
Income before income taxes..................... 14,795 23,625 30,066
Provision for income taxes..................... 5,524 8,477 12,142
-------- -------- ---------
Net income..................................... 9,271 15,148 17,924
Convertible Preferred Stock accretion.......... -- -- 9,021
-------- -------- ---------
Net income available to Common Stockholders.... $ 9,271 $ 15,148 $ 8,903
======== ======== =========
Net income per share:
Basic........................................ $ 0.19 $ 0.30 $ 0.39
======== ======== =========
Diluted...................................... $ 0.19 $ 0.30 $ 0.32
======== ======== =========
Shares used in net income per share
calculations:
Basic........................................ 50,000 50,000 22,970
======== ======== =========
Diluted...................................... 50,000 50,000 55,561
======== ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
E-TEK DYNAMICS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NOTES DISTRIBUTION
COMMON STOCK RECEIVABLE IN EXCESS TOTAL
---------------- FROM DEFERRED OF NET BOOK RETAINED STOCKHOLDERS'
SHARES AMOUNT STOCKHOLDERS COMPENSATION VALUE EARNINGS EQUITY (DEFICIT)
------- ------- ------------ ------------ ------------ -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30,
1995................... 50,000 $ 1,963 $ -- $ -- $ -- $ 9,717 $ 11,680
Net income.............. -- -- -- -- -- 9,271 9,271
------- ------- -------- ------- -------- -------- ---------
Balance at June 30,
1996................... 50,000 1,963 -- -- -- 18,988 20,951
Net income.............. -- -- -- -- -- 15,148 15,148
------- ------- -------- ------- -------- -------- ---------
Balance at June 30,
1997................... 50,000 1,963 -- -- -- 34,136 36,099
Repurchase of Common
Stock.................. (30,000) (1,963) -- -- (83,901) (34,136) (120,000)
Exercise of Common Stock
options for cash....... 88 210 -- -- -- -- 210
Exercise of Common Stock
options for Notes
Receivable from
stockholders........... 7,211 18,215 (13,615) (4,600) -- -- --
Deferred compensation
related to Common Stock
options................ -- 1,043 -- (1,043) -- -- --
Amortization of deferred
compensation related to
Common Stock options... -- -- -- 290 -- -- 290
Imputed interest and
compensation expense
related to Notes
Receivable............. -- -- (600) 600 -- -- --
Convertible Preferred
Stock accretion........ -- -- -- -- -- (9,021) (9,021)
Net income.............. -- -- -- -- -- 17,924 17,924
------- ------- -------- ------- -------- -------- ---------
Balance at June 30,
1998................... 27,299 $19,468 $(14,215) $(4,753) $(83,901) $ 8,903 $ (74,498)
======= ======= ======== ======= ======== ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
E-TEK DYNAMICS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
----------------------------
1996 1997 1998
------- -------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income..................................... $ 9,271 $ 15,148 $ 17,924
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation................................. 1,422 3,086 6,148
Stock compensation........................... -- -- 890
Imputed interest income...................... -- -- (600)
Changes in assets and liabilities:
Accounts receivable........................ (366) (9,977) 1,586
Inventories................................ (30) (2,519) (2,808)
Deferred tax assets........................ (479) (2,478) (4,017)
Other current assets....................... (602) 160 342
Accounts payable........................... 7 3,273 3,567
Accrued liabilities........................ 647 5,909 5,875
Income taxes payable....................... 361 854 (1,215)
------- -------- ---------
Net cash provided by operating
activities.............................. 10,231 13,456 27,692
------- -------- ---------
Cash flows from investing activities:
Additions to property and equipment............ (1,703) (15,284) (16,267)
Advance to joint venture....................... -- -- (7,000)
Maturities and sale of short-term investments.. -- 354 14,983
Purchase of short-term investments............. (3,068) (6,426) (4,143)
------- -------- ---------
Net cash used in investing activities.... (4,771) (21,356) (12,427)
------- -------- ---------
Cash flows from financing activities:
Repurchase of Common Stock..................... -- -- (120,000)
Proceeds from issuance of Mandatorily
Redeemable Convertible Preferred Stock........ -- -- 116,123
Payment to stockholder for note................ (1,184) (200) --
Proceeds from issuance of Common Stock......... -- -- 210
Principal repayments by stockholders of note
receivable.................................... -- 1,384 --
Principal payments on capital lease
obligations................................... (242) (700) (757)
Borrowing on long-term debt.................... -- 7,700 3,000
Payments on long-term debt..................... -- (51) (182)
------- -------- ---------
Net cash provided by (used in) financing
activities.............................. (1,426) 8,133 (1,606)
------- -------- ---------
Net increase in cash and cash equivalents........ 4,034 233 13,659
Cash and cash equivalents at beginning of
period.......................................... 3,992 8,026 8,259
------- -------- ---------
Cash and cash equivalents at end of period....... $ 8,026 $ 8,259 $ 21,918
======= ======== =========
Supplemental disclosure of cash flow information:
Interest paid.................................. $ 66 $ 514 $ 1,036
Income taxes paid.............................. $ 5,616 $ 10,103 $ 17,549
Non-cash investing and financing activities:
Acquisition of property and equipment through
capital leases................................ $ 193 $ 2,918 $ 2,783
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
E-TEK DYNAMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
THE COMPANY AND DESCRIPTION OF BUSINESS
E-Tek Dynamics, Inc. (the "Company") designs, packages, manufactures and
sells high quality passive components for fiber optic networks.
Until July 23, 1997, the Company was owned by two founders ("the Founders").
In July 1997, the Company underwent a recapitalization in which it sold a
controlling stake in the Company for $120 million in Mandatorily Redeemable
Class A Convertible Preferred Stock ("Convertible Preferred Stock") which has
significant rights and preferences over the Common Stock including rights to
elect a majority of the Company's directors, cumulative dividends and a
liquidation preference. In connection with the recapitalization, the Company
also repurchased $120 million in Common Stock from the Company's Founders. The
redemption was accounted for as a recapitalization and, accordingly, no change
in the accounting basis of the Company's net assets has been made in the
accompanying consolidated financial statements. The amount of cash paid to the
stockholders exceeded the net assets of the Company at the time of the
redemption by $83,901,000. This amount has been recorded in the equity section
as distribution in excess of net book value.
Pursuant to the recapitalization, the Company amended its Articles of
Incorporation to change its authorized number of shares to 90,000,000, of
which 30,000,000 have been designated as Convertible Preferred Stock and
60,000,000 have been designated as Common Stock. Also as of that date, there
was a stock split in which each outstanding share of Common Stock was
converted into 493.72476 shares of Common Stock. All shares and per share
amounts have been restated to reflect the stock split.
On June 18, 1998, the Company amended its Articles of Incorporation again to
increase authorized shares of Common Stock to 65,000,000 shares.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
All intercompany transactions and accounts have been eliminated.
REVENUE RECOGNITION
Revenue from product sales is recognized at the time the product is shipped,
with provisions established for estimated product returns and allowances. Upon
shipment, the Company also provides for the estimated costs that may be
incurred for product warranties.
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company considers all liquid investments purchased with an original
maturity of three months or less to be cash equivalents and those with
original maturities greater than three months to be short-term investments.
The Company's short-term investments at June 30, 1997 consisted of
marketable debt securities (more specifically, municipal bonds and corporate
securities) and mutual funds. The Company has classified all such investments
as available-for-sale. At June 30, 1997, the estimated fair value approximated
the cost of the marketable securities.
F-7
<PAGE>
E-TEK DYNAMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
INVENTORIES
Inventories are valued at the lower of cost or market, cost being determined
using the first-in, first-out basis.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method based upon the estimated useful lives of the assets,
which is twenty-five years for buildings and range from three to five years
for other property and equipment.
IMPAIRMENT OF LONG-LIVED ASSETS
Pursuant to Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-lived Assets to be
Disposed of" ("SFAS 121"), the Company reviews long-lived assets based upon a
gross cash flow basis and will reserve for impairment whenever events or
changes in circumstances indicate the carrying amount of the assets may not be
fully recoverable. Based on its most recent analysis, the Company believes
that there was no impairment of its property and equipment as of June 30,
1998.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the expected tax
consequences of temporary differences between the tax bases of assets and
liabilities and the amounts reported for financial reporting purposes.
STOCK-BASED COMPENSATION
The Company accounts for its stock-based awards using the intrinsic value
method in accordance with Accounting Principles Board No. 25, "Accounting for
Stock Issued to Employees." The Company provides additional pro forma
disclosures as required under Statement of Financial Accounting Standard No.
123, "Accounting for Stock-Based Compensation" ("SFAS 123").
PRO FORMA BALANCE SHEET (UNAUDITED)
Upon consummation of the Offering, all shares of Convertible Preferred Stock
outstanding will convert into an aggregate of 30,000,000 shares of Common
Stock. The effect of this conversion and the effect of the Company's plan to
reincorporate in Delaware have been reflected in the accompanying unaudited
pro forma consolidated balance sheet as of June 30, 1998.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued two new
Statements of Financial Accounting Standards ("SFAS"). SFAS 130, "Reporting
Comprehensive Income," establishes standards for reporting and display of
comprehensive income within a financial statement. This
F-8
<PAGE>
E-TEK DYNAMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Statement requires the Company to report additional information on
comprehensive income to supplement the reporting of income. SFAS 130 is
effective for fiscal year beginning after December 15, 1997. Comparative
financial statements provided for earlier periods are required to be
reclassified so that comprehensive income is displayed in a comparative format
for all periods presented. SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information," establishes standards for reporting
information about operating segments in annual and interim financial
statements. This Statement also establishes standards for related disclosures
about products and services, geographic areas and major customers. SFAS 131 is
effective for financial statements for fiscal year beginning after December
15, 1997. The Company will adopt SFAS 130 for fiscal 1999 and does not expect
its provisions to have a material effect on the Company's presentation of its
consolidated financial statements. The Company will adopt SFAS 131 for fiscal
1999 and is currently studying its provisions.
In June 1998, the Financial Accounting Standards Board issued SFAS 133
"Accounting for Derivative Instruments and Hedging Activities." SFAS 133
establishes accounting and reporting standards for derivative instruments and
for hedging activities and is effective for all quarters of fiscal years
beginning after June 15, 1999. The Company does not expect the adoption of
SFAS 133 to have a material impact on the Company's results of operations.
NOTE 2--BALANCE SHEET DETAIL (IN THOUSANDS):
<TABLE>
<CAPTION>
JUNE 30,
-----------------
1997 1998
------- --------
<S> <C> <C>
Accounts receivable:
Trade receivables..................................... $17,699 $ 20,358
Less: Allowances for doubtful accounts and sales
returns.............................................. (1,650) (5,895)
------- --------
$16,049 $ 14,463
======= ========
Inventories:
Raw materials......................................... $ 2,873 $ 5,359
Work in process....................................... 2,441 3,419
Finished goods........................................ 504 1,884
------- --------
5,818 10,662
Less: Inventory reserves.............................. (1,717) (3,753)
------- --------
$ 4,101 $ 6,909
======= ========
Property and equipment:
Machinery and equipment............................... $10,892 $ 22,429
Computers and software................................ 656 2,008
Furniture and fixture................................. 256 470
Automobiles........................................... 233 138
Leasehold improvements................................ 693 4,734
Land and building..................................... 11,109 11,610
------- --------
23,839 41,389
Less: Accumulated depreciation........................ (5,869) (10,517)
------- --------
$17,970 $ 30,872
======= ========
</TABLE>
F-9
<PAGE>
E-TEK DYNAMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
JUNE 30,
--------------
1997 1998
------ -------
<S> <C> <C>
Accrued liabilities:
Accrued compensation........................................ $3,708 $ 7,408
Accrued warranty............................................ 2,303 3,735
Accrued commissions......................................... 1,463 2,151
Other....................................................... 1,838 1,893
------ -------
$9,312 $15,187
====== =======
</TABLE>
NOTE 3--JOINT VENTURE:
During fiscal 1998, the Company entered into an agreement with a Taiwanese
company to form a joint venture in Taiwan to develop, manufacture and
distribute fiber optic components and products. The Company and the other
investor each contributed $7,000,000 in cash for a 50% interest in the joint
venture. Under the joint venture agreement and a related license agreement,
the Company is to receive $7,000,000 from the joint venture for certain
technology of the Company that was licensed to the joint venture. This amount
was recorded as an advance to the joint venture as of June 30, 1998.
The $7,000,000 cash contributed by the Company and the $7,000,000 receivable
from the joint venture offset so that in substance, the Company received a 50%
interest in the joint venture in exchange for a technology license that had no
carrying value in the Company's financial statements. In accordance with
Emerging Issues Task Force Consensus No. 89-7, the Company did not record any
gain on the exchange and, therefore, the carrying value in the Company's
investment in the joint venture as of June 30, 1998 was nil. The joint
venture, which is to supply certain components to the Company, had not
commenced operations as of June 30, 1998.
NOTE 4--BORROWINGS:
COMMERCIAL LINE OF CREDIT
In September 1996, the Company entered into a loan agreement with a
financial institution for a $6,000,000 commercial line of credit. In September
1997, the Company re-negotiated the line, which resulted in an increase in the
line of credit to $15,000,000. This line of credit bears interest at a rate of
LIBOR plus 1.5% per annum (7.3% as of June 30, 1998). This agreement requires
that the Company maintain certain financial ratios, levels of tangible net
worth and profitability. At June 30, 1998, the Company was in compliance with
these requirements. This line of credit is secured by the Company's accounts
receivable, inventories and equipment and expires on September 30, 1998. As of
June 30, 1998, there were no borrowings on this line of credit.
NOTES PAYABLE
In November 1996, the Company obtained a $7,700,000 term loan from a
financial institution, which bears interest at a rate of 7.85% per annum.
Monthly principal and interest payments are $59,000, with a final payment of
all remaining unpaid principal and interest on December 1, 2001. This loan is
secured by the Company's land and building.
In September 1997, the Company obtained a $3,000,000 term loan from a bank,
which bears interest at a rate of LIBOR plus 1.7% per annum (7.5% as of June
30, 1998). Monthly principal and interest payments amounted to $27,000, with a
final payment of all remaining unpaid principal and
F-10
<PAGE>
E-TEK DYNAMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
interest on September 30, 2000. This loan is secured by the Company's accounts
receivable, inventories and equipment.
Future principal payments under long-term debts are as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30,
--------------------
<S> <C>
1999.............................................................. $ 216
2000.............................................................. 225
2001.............................................................. 2,861
2002.............................................................. 7,165
-------
Total principal payments.......................................... 10,467
Less: Current portion............................................. 216
-------
Long-term portion of principal payments........................... $10,251
=======
</TABLE>
NOTE 5--INCOME TAXES:
The provision for income taxes was as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
------------------------------
1996 1997 1998
-------- --------- ---------
<S> <C> <C> <C>
Current
Federal.................................. $ 5,077 $ 9,492 $ 14,216
State.................................... 926 1,463 1,943
-------- --------- ---------
6,003 10,955 16,159
-------- --------- ---------
Deferred
Federal.................................. (411) (2,170) (3,500)
State.................................... (68) (308) (517)
-------- --------- ---------
(479) (2,478) (4,017)
-------- --------- ---------
$ 5,524 $ 8,477 $ 12,142
======== ========= =========
Tax rate reconciliation:
Federal income tax statutory rate........ 35.0% 35.0% 35.0%
State taxes, net of federal tax benefit.. 3.7 2.9 2.6
Permanent differences related to joint
venture................................. -- -- 4.7
Foreign sales corporation benefit........ (3.0) (2.7) (4.2)
Research and development credit.......... -- (0.7) (1.0)
Other.................................... 1.6 1.4 3.3
-------- --------- ---------
37.3% 35.9% 40.4%
======== ========= =========
</TABLE>
F-11
<PAGE>
E-TEK DYNAMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Deferred tax assets were comprised of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
-------------
1997 1998
------ ------
<S> <C> <C>
Inventory reserves............................................ $ 663 $1,444
Uniform cost capitalization for inventory..................... 516 789
Sales return and bad debt reserves............................ 638 2,268
Warranty reserves............................................. 890 1,437
Vacation and other accruals................................... 173 657
State taxes................................................... 494 693
Other......................................................... 482 585
------ ------
$3,856 $7,873
====== ======
</TABLE>
NOTE 6--MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK:
The holders of the Convertible Preferred Stock have various rights and
preferences as follows:
VOTING
Each share of Convertible Preferred Stock has voting rights equal to an
equivalent number of shares of Common Stock into which it is convertible and
votes together as one class with the Common Stock. Holders of Convertible
Preferred Stock have the right to elect three of the five members of the Board
of Directors.
As long as any shares of the Convertible Preferred Stock remain outstanding,
the Company must obtain approval from a majority of the holders of Convertible
Preferred Stock in order to alter the Articles of Incorporation as related to
the Convertible Preferred Stock, change the authorized number of shares of
Convertible Preferred Stock, repurchase any shares of Common Stock other than
shares subject to the right of repurchase by the Company, change the
authorized number of Directors, authorize a dividend for any class or series
other than the Convertible Preferred Stock, create a new class of stock or
effect a merger, liquidate, dissolve or effect a recapitalization or
reorganization in any form, or sell or transfer more than 25% of the assets of
the Company.
CUMULATIVE DIVIDENDS
Dividends on each share of Convertible Preferred Stock shall accrue at a
rate of 8% per annum of the liquidation value of $4.00 per share. Such
dividends shall accrue whether or not they have been declared and whether or
not there are profits or other funds of the Company legally available for the
payment of dividends, and such dividends shall be cumulative. The accrued and
unpaid dividends should not cause the aggregate stock liquidation value to
exceed $8.00 per share. For the year ended June 30, 1998, the Company recorded
$9,021,000 for the accretion of the value of the Convertible Preferred Stock
related to the 8% dividend per annum on the $120,000,000 liquidation value of
the Convertible Preferred Stock.
The holders of the Convertible Preferred Stock will also be entitled to
participate in dividends on Common Stock, when and if declared by the Board of
Directors, based on the number of shares of Common Stock held on an as-if
converted basis.
The Board of Directors from inception through June 30, 1998 has declared no
other dividends on the capital stock.
F-12
<PAGE>
E-TEK DYNAMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
LIQUIDATION
In the event of any liquidation, dissolution or winding up of the Company,
the holders of the Convertible Preferred Stock are entitled to receive the
greater of (i) an amount of $4.00 per share, plus any unpaid dividends prior
to and in preference to any distribution to the holders of Common Stock or
(ii) the consideration per share payable to holders of Common Stock assuming
conversion to Common Stock of all outstanding Convertible Preferred Stock,
plus any unpaid dividends prior to liquidation. Should the Company's legally
available assets be insufficient to satisfy the liquidation preferences, the
funds will be distributed pro rata among the holders of the Convertible
Preferred Stock.
REDEMPTION
The holders of the Convertible Preferred Stock have the option to redeem the
stock at the then liquidation value if there is a change in ownership of the
company.
REGISTRATION RIGHTS
The holders of a majority of Convertible Preferred Stock may demand
registration of all or a portion of their shares. Demand registrations are not
limited in number.
CONVERSION AND ANTIDILUTION PROTECTION
Each share of the Convertible Preferred Stock is convertible into the number
of Common Stock shares computed by multiplying the number of shares to be
converted by $4.00 and dividing the result by the conversion price then in
effect. The conversion price at June 30, 1998 is $4.00, and the basis of
conversion is subject to adjustment on a weighted average basis in the event
of dilution issuance. Each share of Convertible Preferred Stock converts into
the number of shares of Common Stock into which such shares are convertible at
the then effective conversion ratio upon the consent of two-thirds of the
Convertible Preferred Stock holders. Provided that the effective conversion
price is in excess of $8.00 per share, no dividends would be paid on
Convertible Preferred Stock.
At June 30, 1998, the Company reserved 30,000,000 shares of Common Stock for
the conversion of the Convertible Preferred Stock.
NOTE 7--EARNINGS PER SHARE:
Basic net income per share is computed by dividing net income available to
Common Stockholders by the weighted average number of common shares
outstanding during the period. Diluted net income per share is calculated
using the weighted average number of outstanding shares of Common Stock plus
dilutive Common Stock equivalents. For all periods presented, Common Stock
equivalents consist of Convertible Preferred Stock, unvested Common Stock
subject to repurchase and Common Stock options using the treasury stock method
based on the average stock price for the period.
F-13
<PAGE>
E-TEK DYNAMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table sets forth the computation of basic and diluted earnings
per share (in thousands, except per share data):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
--------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Numerator:
Net income........................................ $ 9,271 $ 15,148 $ 17,924
Convertible Preferred Stock accretion............. -- -- 9,021
-------- -------- --------
Net income available to Common Stockholders
(Basic).......................................... 9,271 15,148 8,903
Convertible Preferred Stock accretion............. -- -- 9,021
-------- -------- --------
Net income available to Common Stockholders and
assumed conversions (Diluted).................... $ 9,271 $ 15,148 $ 17,924
======== ======== ========
Denominator:
Denominator for basic earnings per share--weighted
average common shares............................ 50,000 50,000 22,970
Effect of dilutive securities
Common Stock options............................ -- -- 296
Unvested Common Stock subject to repurchase..... -- -- 4,104
Convertible Preferred Stock..................... -- -- 28,191
-------- -------- --------
Denominator for dilutive earnings per share--
adjusted weighted average common shares and
assumed conversions.............................. 50,000 50,000 55,561
======== ======== ========
Basic earnings per share............................ $ 0.19 $ 0.30 $ 0.39
======== ======== ========
Diluted earnings per share.......................... $ 0.19 $ 0.30 $ 0.32
======== ======== ========
</TABLE>
NOTE 8--RESTRICTED STOCK AND STOCK OPTIONS PLANS:
RESTRICTED STOCK
During fiscal 1998, under the Company's stock option plans, the Company
issued 7,211,000 shares of Common Stock to employees and officers of the
Company in exchange for promissory notes in an aggregate principal amount of
$18,215,000. These notes, which are secured by the shares of Common Stock, are
generally payable five years from the purchase date or upon termination from
the Company, whichever comes first. Because these notes receivable do not bear
interest, the $18,215,000 face value was discounted using a six percent
interest rate to $13,615,000 with the difference recorded as deferred
compensation cost. During fiscal 1998, the Company recognized $600,000 of
compensation expense and $600,000 of interest income related to this imputed
interest income. These shares sold in exchange for the promissory notes, are
subject to a right of repurchase by the Company, subject to vesting, which is
generally over a four year period from the grant date, until vesting is
complete. At June 30, 1998, there were 5,868,000 shares subject to repurchase.
In addition, under the Company's stock option plans, the Company issued
88,000 shares of Common Stock to employees of the Company for $210,000 in
cash. These shares sold are subject to a right of repurchase by the Company,
subject to vesting, which is generally over a four year period from the date
of grant, until vesting is complete. At June 30, 1998, 13,000 shares are
subject to repurchase.
F-14
<PAGE>
E-TEK DYNAMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1997 EQUITY INCENTIVE PLAN
In July 1997, the Company adopted the 1997 Equity Incentive Plan (the
"Equity Plan") which provides for granting of incentive stock options and non-
statutory stock options to employees, officers and consultants of the Company
for up to 10,556,000 shares of Common Stock.
Under the Equity Plan, incentive stock options are granted at a price that
is not less than 100% of the fair market value of the stock on the date of
grant, as determined by the Board of Directors. Non-statutory stock options
are granted at a price that is not to be less than 85% of the fair market
value of the stock on the date of grant, as determined by the Board of
Directors. The exercise price of any option granted to a 10% stockholder will
not be less than 110% of the fair market value of the stock on the date of
grant, as determined by the Board of Directors.
Options are exercisable immediately subject to repurchase options held by
the Company which lapse over a maximum period of 4 years at such times and
under such conditions as determined by the Board of Directors.
1997 EXECUTIVE EQUITY INCENTIVE PLAN
In October 1997, the Company adopted the 1997 Executive Equity Incentive
Plan (the "Executive Plan") which provides for granting of incentive stock
options and non-statutory stock options to officers or directors of the
Company for up to 4,444,000 shares of Common Stock.
Under the Executive Plan, incentive stock options are granted at a price
that is not less than 100% of the fair market value of the stock on the date
of grant, as determined by the Board of Directors. Non-statutory stock options
are granted at a price that is not to be less than 85% of the fair market
value of the stock on the date of grant, as determined by the Board of
Directors. The exercise price of any option granted to a 10% stockholder will
not be less than 110% of the fair market value of the stock on the date of
grant, as determined by the Board of Directors.
The following table summarizes activities under the plans:
<TABLE>
<CAPTION>
OPTIONS WEIGHTED
AVAILABLE OUTSTANDING AVERAGE
FOR GRANT SHARES EXERCISE PRICE
-------------- -------------- --------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C>
Shares authorized.............. 15,000 -- $ --
Granted........................ (10,525) 10,525 2.97
Exercised...................... -- (7,299) 2.52
Cancelled...................... 176 (176) 2.41
------- ------
Outstanding at June 30, 1998... 4,651 3,050 $4.05
======= ======
</TABLE>
Options are exercisable immediately subject to repurchase options held by
the Company which generally lapse over a period of 4 years at such times and
under such conditions as determined by the Board of Directors. At June 30,
1998, 3,050,000 options with a weighted average exercise price of $4.05 were
outstanding and exercisable, of which 581,000 options with weighted average
exercise price of $2.85 were vested.
During fiscal 1998, the Company granted options for the purchase of
10,525,000 shares of Common Stock to employees and officers at a weighted
average exercise price of $2.97 per share. Management calculated deferred
compensation of $1,043,000 related to these option grants. Such deferred
compensation will be amortized over the vesting period, which is generally 48
months. For the fiscal 1998, amortization expense was approximately $290,000.
F-15
<PAGE>
E-TEK DYNAMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Option groups outstanding at June 30, 1998 and related exercise price and
contractual life information are as follows:
<TABLE>
<CAPTION>
OPTIONS EXERCISABLE
OPTIONS OUTSTANDING AT JUNE 30, 1998 AT JUNE 30, 1998
----------------------------------------------- -----------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICE OUTSTANDING LIFE PRICE EXERCISABLE PRICE
-------------- --------------- ------------ ------------- -------------- --------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
$ 2.30-
2.30 1,049 9.11 $ 2.30 1,049 $ 2.30
3.25-
3.25 1,338 9.60 3.25 1,338 3.25
4.20-
6.00 173 9.78 5.38 173 5.38
8.00-
8.00 114 9.91 8.00 114 8.00
10.00-
10.00 376 9.99 10.00 376 10.00
------------ -----
$ 2.30-
10.00 3,050 9.50 $ 4.05 3,050 $ 4.05
============ =====
</TABLE>
FAIR VALUE DISCLOSURES
Had compensation cost for the Company's stock-based compensation plan been
determined based on the fair value at the grant dates for the awards under a
method prescribed by SFAS No. 123, the Company's net income and pro forma net
income per share would have been decreased to the pro forma amounts indicated
below (in thousands, except per share data):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
JUNE 30, 1998
-----------------
<S> <C>
Net income:
As reported........................................... $17,924
=======
Pro forma............................................. $16,681
=======
Net income available for Common Stockholders:
As reported........................................... $ 8,903
=======
Pro forma............................................. $ 7,660
=======
Net income per share:
As reported:
Basic............................................... $ 0.39
=======
Diluted............................................. $ 0.32
=======
Pro forma:
Basic............................................... $ 0.33
=======
Diluted............................................. $ 0.30
=======
</TABLE>
The Company calculated the fair value of each option grant on the date of
grant using the minimum value method with the following assumptions: dividend
yield at 0%; weighted average expected option term of five years; risk free
interest rate of 6% for the year ended June 30, 1998. The weighted average
fair value of options granted per share during fiscal 1998 was $0.75.
Because additional option grants are expected to be made each year, the
above pro forma disclosures are not representative of pro forma effects of
reported net income for future years.
F-16
<PAGE>
E-TEK DYNAMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9--EMPLOYEE BENEFIT PLAN:
The Company sponsors a 401(k) Savings Plan (the "Plan"). All employees are
eligible to participate in the Plan following certain minimum eligibility
requirements. Under the Plan, employees may elect to contribute up to 15% of
their pre-tax compensation to the Plan, subject to annual limitations.
Matching employer contributions are 25% of the employees' contributions but
limited to the first 10% of the employees' deferral. Employer contributions
are vested over five years after employees' two years of services and employee
contributions are 100% vested at all times. The Company's contribution to the
plan was $177,000, $211,000 and $313,000 for fiscal 1996, 1997 and 1998,
respectively.
NOTE 10--MAJOR CUSTOMERS AND CONCENTRATION OF RISKS:
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash equivalents,
investments and trade accounts receivable. The Company invests primarily in
money market accounts and marketable securities and places its investments
with high quality financial, government or corporate institutions. The Company
sell its products to original equipment manufacturers. The Company performs
ongoing credit evaluations of its customers' financial condition and maintains
an allowance for uncollectible accounts receivable based upon the expected
collectibility of all accounts receivable. At June 30, 1997, three customers
accounted for 39%, 13%, and 13% of accounts receivable. At June 30, 1998, two
customers accounted for 43% and 11% of accounts receivable.
During fiscal 1996, three customers accounted for 25%, 16% and 15% of total
revenues. During fiscal 1997, three customers accounted for 27%, 22% and 12%
of total revenues. During fiscal 1998, three customers accounted for 30%, 16%
and 14% of total revenues. The Company has no foreign operations. However,
export sales were approximately 37%, 42% and 53% of total net sales for fiscal
1996, 1997 and 1998, respectively.
Sales by geographic area are as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
--------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Europe......................................... $ 9,896 $ 27,107 $ 49,251
Asia/Pacific................................... 4,933 3,437 6,949
United States.................................. 25,553 42,532 50,724
</TABLE>
F-17
<PAGE>
E-TEK DYNAMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11--COMMITMENTS AND CONTINGENCIES:
LEASES
The Company has entered into a number of noncancelable lease agreements
involving machinery and equipment and automobiles. The principal portions of
the minimum rentals have been capitalized and the related assets and
obligations recorded using the interest rates implicit in the respective
leases.
Future minimum payments under all noncancelable capital leases are as
follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL
YEAR ENDING JUNE 30, LEASES
-------------------- -------
<S> <C>
1999............................................................... $1,568
2000............................................................... 1,508
2001............................................................... 1,508
2002............................................................... 546
2003............................................................... 417
------
Total minimum lease payments....................................... 5,547
Less: Amount representing interest................................. 750
------
Present value of capitalized lease obligations..................... 4,797
Less: Current portion.............................................. 1,240
------
Long-term portion of capitalized lease obligations................. $3,557
======
</TABLE>
At June 30, 1997 and June 30, 1998, the cost of machinery and equipment and
automobiles under capital leases, net of accumulated depreciation, was
$2,385,000 and $4,025,000, respectively.
Total rent expense on all operating leases was $528,000, $283,000 and
$472,000 for fiscal 1996, 1997 and 1998, respectively.
CONTINGENCIES
The Company is party to litigation matters and claims which are normal in
the course of its operations. While the results of such litigations and claims
cannot be predicted with certainty, the Company believes that the final
outcome of such matters will not have a materially adverse effect on the
Company's financial position and results of operations or cash flows.
NOTE 12-SUBSEQUENT EVENTS:
1998 STOCK OPTION PLAN
On August 14, 1998, the Company's Board of Directors adopted the 1998 Stock
Plan (the "1998 Plan") subject to stockholder approval. The 1998 Plan provides
for the grant of incentive stock options to employees (including officers and
employee directors) and for the grant of non-statutory stock options and stock
purchase rights to employees, directors and consultants. A total of (i)
3,000,000 shares of the Company's Common Stock (including shares which have
been reserved but unissued under the Company's 1997 Plan), (ii) any share
returned to the 1997 Plan as a result of termination of options or repurchase
of shares by the Company, (iii) plus annual increases equal to the lesser of
3,000,000 shares, or 4% of the outstanding shares, are currently reserved for
issuance pursuant to the 1998 Plan. To date, no shares have been issued under
the 1998 Plan.
F-18
<PAGE>
E-TEK DYNAMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
DIRECTORS' STOCK OPTION PLAN
On August 14, 1998, the Company's Board of Directors adopted the 1998
Director Option Plan (the "Director Plan") subject to stockholder approval. A
total of 250,000 shares of the Company's Common Stock, plus an annual increase
equal to the optioned stock underlying options granted in the immediately
preceding year, have been reserved for issuance under the Director Plan. To
date, no shares have been issued under the Director Plan.
EMPLOYEE STOCK PURCHASE PLAN
On August 14, 1998, the Company's Board of Directors adopted the 1998
Employee Stock Purchase Plan (the "1998 Purchase Plan") subject to stockholder
approval. A total of 750,000 shares of Common Stock has been reserved for
issuance under the 1998 Purchase Plan, plus annual increases equal to the
lesser of (i) 750,000 shares, (ii) 1% of the outstanding shares on such date.
To date, no shares have been issued under the 1998 Purchase Plan, or (iii)
such lesser amount as may be determined by the Board of Directors.
CONVERSION OF CONVERTIBLE PREFERRED STOCK
On August 14, 1998 holders of in excess of two-thirds of Convertible
Preferred Stock consented to the conversion of all outstanding shares of
Convertible Preferred Stock subject to the effectiveness of the Offering.
F-19
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of the Underwriters named below (the
"Underwriters"), and each of such Underwriters, for whom Goldman, Sachs & Co.,
Morgan Stanley & Co. Incorporated, Dain Rauscher Wessels, a division of Dain
Rauscher Incorporated ("Dain Rauscher Wessels"), and NationsBanc Montgomery
Securities LLC are acting as representatives, has severally agreed to purchase
from the Company, the respective number of shares of Common Stock set forth
opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
UNDERWRITER COMMON STOCK
----------- ------------
<S> <C>
Goldman, Sachs & Co..........................................
Morgan Stanley & Co. Incorporated............................
Dain Rauscher Wessels........................................
NationsBanc Montgomery Securities LLC........................
----
Total....................................................
====
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the shares offered
hereby, if any are taken.
The Underwriters propose to offer the shares of Common Stock in part
directly to the public at the public offering price set forth on the cover
page of this Prospectus, and in part to certain securities dealers at such
price less a concession of $ per share. The Underwriters may allow, and
such dealers may reallow, a concession not in excess of $ per share to
certain brokers and dealers. After the shares of Common Stock are released for
sale to the public, the offering price and other selling terms may from time
to time be varied by the representatives.
The Selling Stockholders have granted the Underwriters an option exercisable
for 30 days after the date of this Prospectus to purchase up to an aggregate
of additional shares of Common Stock solely to cover over-allotments, if
any. If the Underwriters exercise their over-allotment option, the
Underwriters have severally agreed, subject to certain conditions, to purchase
approximately the same percentage thereof that the number of shares to be
purchased by each of them, as shown in the foregoing table, bears to the
shares of Common Stock offered.
The Company, its optionholders and the stockholders of the Company have
agreed that, during the period beginning from the date of this Prospectus and
continuing to and including the date 180 days after the date of the
Prospectus, not to offer, sell, contract to sell or otherwise dispose of any
securities of the Company which are substantially similar to the shares of the
Common Stock including but not limited to any securities that are convertible
into, or exchangeable for, or that represent the right to receive Common
Stock, or securities which are substantially similar to the shares of Common
Stock, without the prior written consent of Goldman, Sachs & Co., except that
the Company may issue securities pursuant to employee stock plans and
currently outstanding options.
The representatives of the Underwriters have informed the Company that they
do not expect sales to accounts over which the Underwriters exercise
discretionary authority to exceed five percent of the total number of shares
of Common Stock offered by them.
Prior to the offering, there has been no public market for the shares. The
initial public offering price will be negotiated between the Company, the
Selling Stockholders and the representatives of the Underwriters. Among the
factors to be considered in determining the initial public offering price of
the Common Stock, in addition to prevailing market conditions, will be the
Company's historical performance, estimates of the business potential and
earnings prospects of the Company, an assessment of the Company's management
and the consideration of the above factors in relation to market valuation of
companies in related businesses.
U-1
<PAGE>
In connection with the offering, the Underwriters may purchase and sell the
Common Stock in the open market. These transactions may include over-allotment
and stabilizing transactions and purchases to cover syndicate short positions
created in connection with the offering. Stabilizing transactions consist of
certain bids or purchases for the purpose of preventing or retarding a decline
in the market price of the Common Stock; and syndicate share positions involve
the sale by the Underwriters of a greater number of shares of Common Stock
than they are required to purchase from the Company in the offering. The
Underwriters also may impose a penalty bid, whereby selling concessions
allowed to syndicate members or other broker-dealers in respect of the Common
Stock sold in the offering for their account may be reclaimed by the syndicate
if such securities are repurchased by the syndicate in stabilizing or covering
transactions. These activities may stabilize, maintain or otherwise affect the
market price of the Common Stock which may be higher than the price that might
otherwise prevail in the open market, and these activities, if commenced, may
be discontinued at any time. These transactions may be effected on the Nasdaq
National Market, in the over-the-counter market or otherwise.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act.
U-2
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFOR-
MATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 5
Use of Proceeds.......................................................... 18
Dividend Policy.......................................................... 18
Capitalization........................................................... 19
Dilution................................................................. 20
Selected Consolidated Financial Data..................................... 21
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 22
Business................................................................. 31
Management............................................................... 40
Certain Transactions..................................................... 52
Principal and Selling Stockholders....................................... 55
Description Of Capital Stock............................................. 57
Shares Eligible For Future Sale.......................................... 60
Additional Information................................................... 61
Legal Matters............................................................ 62
Experts.................................................................. 62
Index to Consolidated Financial Statements............................... F-1
Underwriting............................................................. U-1
</TABLE>
THROUGH AND INCLUDING , 1998 (THE 25TH DAY AFTER THE DATE OF THIS PRO-
SPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPEC-
TUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SHARES
E-TEK DYNAMICS, INC.
COMMON STOCK
(PAR VALUE $0.001 PER SHARE)
----------------
LOGO
----------------
GOLDMAN, SACHS & CO.
MORGAN STANLEY DEAN WITTER
DAIN RAUSCHER WESSELS
A DIVISION OF DAIN RAUSCHER INCORPORATED
NATIONSBANC MONTGOMERY
SECURITIES LLC
REPRESENTATIVES OF THE UNDERWRITERS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than the
underwriting discounts and commissions, payable by the Registrant in
connection with the sale of the Common Stock being registered. All amounts
shown are estimates except for the registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee............................................... $ *
NASD filing fee.................................................... *
Nasdaq National Market listing fee................................. *
Blue Sky qualification fees and expenses........................... *
Printing and engraving expenses.................................... *
Legal fees and expenses............................................ *
Accounting fees and expenses....................................... *
Transfer agent fees................................................ *
Miscellaneous fees and expenses.................................... *
-----
Total.......................................................... $
=====
</TABLE>
--------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by Section 145 of the Delaware General Corporation Law (the
"DGCL"), the Registrant's Certificate of Incorporation provides that each
person who is or was or who had agreed to become a director or officer of the
Registrant or who had agreed at the request of the Registrant's Board of
Directors or an officer of the Registrant to serve as an employee or agent of
the Registrant or as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall be
indemnified by the Registrant to the full extent permitted by the DGCL or any
other applicable laws. Such Certificate of Incorporation also provides that
the Registrant may enter into one or more agreements with any person which
provides for indemnification greater or different than that provided in such
Certificate, and that no amendment or repeal of such Certificate shall apply
to or have any effect on the right to indemnification permitted or authorized
thereunder for or with respect to claims asserted before or after such
amendment or repeal arising from acts or omissions occurring in whole or in
part before the effective date of such amendment or repeal.
The Registrant's Bylaws provide that the Registrant shall indemnify to the
full extent authorized by law any person made or threatened to be made a party
to an action or a proceeding, whether criminal, civil, administrative or
investigative, by reason of the fact that he, his testator or intestate was or
is a director, officer or employee of the Registrant or any predecessor of the
Registrant or serves or served any other enterprise as a director, officer or
employee at the request of the Registrant or any predecessor of the
Registrant.
The Registrant has entered into indemnification agreements with its
directors and certain of its officers.
The Registrant intends to purchase and maintain insurance on behalf of any
person who is a director or officer against any loss arising from any claim
asserted against him and incurred by him in any such capacity, subject to
certain exclusions.
See also the undertakings set out in response to Item 17 herein.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since July 1, 1995, the Registrant has sold and issued the following
securities which were not registered under the Security Act of 1933, as
amended (the "Securities Act"):
1. On July 23, 1997, the Registrant issued 30,000,000 shares of its Class
A Convertible Preferred Stock for an aggregate purchase price of
$120,000,000, or $4.00 per share, to a group of 8 investors.
2. On July 23, 1997, the Registrant issued 1,111,111 shares of its Common
Stock for an aggregate purchase price of $2,555,555.30, or $2.30 per share,
to an executive officer of the Registrant.
3. On July 23, 1997, the Registrant issued 1,111,110 shares of its Common
Stock for an aggregate purchase price of $2,555,553.00, or $2.30 per share,
to an employee of the Registrant.
4. From July 1, 1995 to June 30, 1998, the Registrant issued to
employees, officers, directors and consultants of the Registrant options to
purchase an aggregate of 10,525,641 shares of Common Stock of the
Registrant, at exercise prices ranging from $2.30 per share to $10.00 per
share, pursuant to the Registrant's 1997 Equity Incentive Plan and 1997
Executive Equity Incentive Plan.
5. From July 1, 1995 to June 30, 1998, the Registrant issued an aggregate
of 7,299,252 shares of Common Stock of the Registrant upon the exercise of
options at exercise prices ranging from $2.30 to $10.00 per share.
6. Since June 30, 1998, the Registrant has issued to employees, officers,
directors and consultants of the Registrant options to purchase
approximately 1.4 million shares of Common Stock of the Registrant, at an
exercise price ranging from $10.00 to $12.00 per share, pursuant to the
Registrant's 1997 Equity Incentive Plan and 1997 Executive Equity Incentive
Plan.
The issuances described in paragraphs 1-3 above were deemed to be exempt
from registration under the Securities Act in reliance on Section 4(2) of the
Securities Act as transactions by an issuer not involving a public offering.
In addition, the sale of securities described in Paragraph 5 above was deemed
to be exempt from the registration requirements of the Securities Act in
reliance on Rule 701 promulgated under Section 3(b) of the Securities Act as
transactions by an issuer pursuant to compensatory benefit plans and contracts
relating to compensation as provided under such Rule 701. The recipients of
securities in each such transaction represented their intention to acquire the
securities for investment only and not with a view to or for sale in
connection with any distribution thereof and appropriate legends were affixed
to the share certificates and other instruments issued in such transactions.
The granting of stock options described in paragraph 4 and 6 above did not
require registration under the Securities Act, or an exemption therefrom,
insofar as such grants did not involve a "sale" of securities as such term is
used in Section 2(3) of the Securities Act. All recipients either received
adequate information about the Registrant or had access, through employment or
other relationships, to information about the Registrant.
II-2
<PAGE>
ITEM 16. EXHIBITS
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Form of Certificate of Incorporation of the Registrant (to be filed
immediately after the closing of this offering).
3.2 Bylaws of the Registrant.
4.1 Specimen Stock Certificate of the Registrant.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1 Form of Indemnification Agreement for directors and officers of the
Company.
10.2 Employment Agreement, as amended, dated July 23, 1997, by and
between the Registrant and Jing Jong Pan.
10.3 Employment Agreement, dated October 1, 1997, by and between the
Registrant and Michael J. Fitzpatrick.
10.4 Employment Agreement, dated December 2, 1997, by and between the
Registrant and Sanjay Subhedar.
10.5 Employment Letter Agreement, dated May 26, 1998, by and between the
Registrant and Philip Anthony.
10.6 Employment Letter Agreement, dated July 21, 1998, by and between the
Registrant and Jim Northington.
10.7 Executive Agreement, dated June 27, 1997 and April 1, 1998, by and
between the Registrant and Ming Shih.
10.8 Executive Agreement, dated June 27, 1997 and April 1, 1998, by and
between the Registrant and Kung Shih.
10.9 Intentionally omitted.
10.10 1998 Stock Plan.
10.11 1998 Employee Stock Purchase Plan.
10.12 1998 Director Option Plan.
10.13 1997 Equity Incentive Plan.
10.14 1997 Executive Equity Incentive Plan.
10.15 Recapitalization Agreement, as amended, dated June 27, 1997, by and
between the Registrant, the Purchasers named therein, Theresa Stone
Pan, Jing Jong Pan and the Trusts named therein.
10.16 Shareholders Agreement, dated July 23, 1997, by and between the
Registrant and the Shareholders named therein.
10.17 Registration Agreement, as amended, dated July 23, 1997, by and
among the Registrant, the Investors named therein, Theresa Stone
Pan, Jing Jong Pan and the J.J. & Theresa Pan Revocable Trust.
10.18 Purchase and Sale Agreement for Real Property and Escrow
Instructions, dated August 28, 1996, by and between the Registrant
and TR Brell Cal Corp.
10.19 Purchase and Sale Agreement and Escrow Instructions, dated July 11,
1997, by and between the Registrant and Nexus Properties, Inc.
10.20 Standing Loan Agreement, dated November 8, 1996, by and between the
Registrant and Bank of America National Trust and Savings
Association.
10.21 Business Loan Agreement, as amended, dated September 30, 1997, by
and between the Registrant and Bank of America National Trust and
Savings Association.
10.22 Design and Construction Contract, as amended, dated March 30, 1998,
by and between the Registrant and Rudolph and Sletten, Inc.
10.23 Joint Venture Agreement, dated March 3, 1998, by and between the
Registrant and Walsin Lihwa Corporation.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.24 Distributorship Agreement, dated March 3, 1998, by and between the
Registrant and Walsin Lihwa Corporation.
10.25 Supply Agreement, dated March 3, 1998, by and between the Registrant
and Walsin Lihwa Corporation.
10.26 Mutual Confidentiality Agreement, dated September 2, 1997, by and
between the Registrant and Walsin Lihwa Corporation.
10.27 Technical Licensing Agreement on Fiberoptic Products, dated December
17, 1997, by and between the Registrant and Walsin Lihwa
Corporation.
11.1 Statement of Computation of Net Income per Share.
23.1 Consent of Independent Accountants.
23.2 Consent of Wilson Sonsini Goodrich & Rosati (See Exhibit 5.1).
24.1 Power of Attorney (See page II-5).
27.1 Financial Data Schedule.
99.1 Consent of Peter Y. Chung.
</TABLE>
- --------
* To be filed by amendment.
(B) FINANCIAL STATEMENT SCHEDULES
Schedules have been omitted because the information required to be set
forth therein is not applicable or is readily available in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered hereunder, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at the time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF SAN JOSE, STATE OF
CALIFORNIA, ON THE 18TH DAY OF AUGUST, 1998.
E-TEK DYNAMICS, INC.
/s/ Michael J. Fitzpatrick
By: _________________________________
MICHAEL J. FITZPATRICK
PRESIDENT, CHIEF EXECUTIVE OFFICER
AND DIRECTOR
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that each person whose signature appears
below constitutes and appoints Michael J. Fitzpatrick and Sanjay Subhedar, and
each of them, his or her true and lawful attorney-in-fact and agents, with
full power of substitution and resubstitution, from such person and in each
person's name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to the Registration
Statement, any Registration Statement relating to this Registration Statement
under Rule 462 and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, full power and
authority to do and perform each and every act and thing requisite and
necessary to be done as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON
THE DATE INDICATED.
SIGNATURES TITLE DATE
/s/ Michael J. Fitzpatrick President, Chief August 18, 1998
- ------------------------------------- Executive Officer
MICHAEL J. FITZPATRICK and Director
(Principal
Executive Officer)
/s/ Sanjay Subhedar Senior Vice August 18, 1998
- ------------------------------------- President,
SANJAY SUBHEDAR Operations, Chief
Financial Officer
and Secretary
(Principal
Financial Officer
and Principal
Accounting Officer)
/s/ Walter G. Kortschak Chairman of the August 18, 1998
- ------------------------------------- Board of Directors
WALTER G. KORTSCHAK
/s/ David W. Dorman Director August 18, 1998
- -------------------------------------
DAVID W. DORMAN
/s/ Joseph W. Goodman Director August 18, 1998
- -------------------------------------
JOSEPH W. GOODMAN
/s/ Donald J. Listwin Director August 18, 1998
- -------------------------------------
DONALD J. LISTWIN
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Form of Certificate of Incorporation of the Registrant (to be filed
immediately after the closing of this offering).
3.2 Bylaws of the Registrant.
4.1 Specimen Stock Certificate of the Registrant.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1 Form of Indemnification Agreement for directors and officers of the
Company.
10.2 Employment Agreement, as amended, dated July 23, 1997, by and
between the Registrant and Jing Jong Pan.
10.3 Employment Agreement, dated October 1, 1997, by and between the
Registrant and Michael J. Fitzpatrick.
10.4 Employment Agreement, dated December 2, 1997, by and between the
Registrant and Sanjay Subhedar.
10.5 Employment Letter Agreement, dated May 26, 1998, by and between the
Registrant and Philip Anthony.
10.6 Employment Letter Agreement, dated July 21, 1998, by and between the
Registrant and Jim Northington.
10.7 Executive Agreement, dated June 27, 1997 and April 1, 1998, by and
between the Registrant and Ming Shih.
10.8 Executive Agreement, dated June 27, 1997 and April 1, 1998, by and
between the Registrant and Kung Shih.
10.9 Intentionally omitted.
10.10 1998 Stock Plan.
10.11 1998 Employee Stock Purchase Plan.
10.12 1998 Director Option Plan.
10.13 1997 Equity Incentive Plan.
10.14 1997 Executive Equity Incentive Plan.
10.15 Recapitalization Agreement, as amended, dated June 27, 1997, by and
between the Registrant, the Purchasers named therein, Theresa Stone
Pan, Jing Jong Pan and the Trusts named therein.
10.16 Shareholders Agreement, dated July 23, 1997, by and between the
Registrant and the Shareholders named therein.
10.17 Registration Agreement, as amended, dated July 23, 1997, by and
among the Registrant, the Investors named therein, Theresa Stone
Pan, Jing Jong Pan and the J.J. & Theresa Pan Revocable Trust.
10.18 Purchase and Sale Agreement for Real Property and Escrow
Instructions, dated August 28, 1996, by and between the Registrant
and TR Brell Cal Corp.
10.19 Purchase and Sale Agreement and Escrow Instructions, dated July 11,
1997, by and between the Registrant and Nexus Properties, Inc.
10.20 Standing Loan Agreement, dated November 8, 1996, by and between the
Registrant and Bank of America National Trust and Savings
Association.
10.21 Business Loan Agreement, as amended, dated September 30, 1997, by
and between the Registrant and Bank of America National Trust and
Savings Association.
10.22 Design and Construction Contract, as amended, dated March 30, 1998,
by and between the Registrant and Rudolph and Sletten, Inc.
10.23 Joint Venture Agreement, dated March 3, 1998, by and between the
Registrant and Walsin Lihwa Corporation.
10.24 Distributorship Agreement, dated March 3, 1998, by and between the
Registrant and Walsin Lihwa Corporation.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.25 Supply Agreement, dated March 3, 1998, by and between the Registrant
and Walsin Lihwa Corporation.
10.26 Mutual Confidentiality Agreement, dated September 2, 1997, by and
between the Registrant and Walsin Lihwa Corporation.
10.27 Technical Licensing Agreement on Fiberoptic Products, dated December
17, 1997, by and between the Registrant and Walsin Lihwa
Corporation.
11.1 Statement of Computation of Net Income per Share.
23.1 Consent of Independent Accountants.
23.2 Consent of Wilson Sonsini Goodrich & Rosati (See Exhibit 5.1).
24.1 Power of Attorney (See page II-5).
27.1 Financial Data Schedule.
99.1 Consent of Peter Y. Chung.
</TABLE>
- --------
* To be filed by amendment.
<PAGE>
EXHIBIT 1.1
E-TEK DYNAMICS, INC.
COMMON STOCK
($.001 PAR VALUE)
_______________
UNDERWRITING AGREEMENT
----------------------
October __, 1998
Goldman, Sachs & Co.,
Morgan Stanley Dean Witter & Co.
NationsBanc Montgomery Securities, LLC
Dain Rauscher Wessels
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman, Sachs & Co.,
85 Broad Street,
New York, New York 10004
Ladies and Gentlemen:
E-Tek Dynamics, Inc., a Delaware corporation (the "Company"), proposes,
subject to the terms and conditions stated herein, to issue and sell to the
Underwriters named in Schedule I hereto (the "Underwriters") an aggregate of
___________ shares and, at the election of the Underwriters, up to _________
additional shares of Common Stock, $.001 value ("Stock") of the Company and the
stockholders of the Company named in Schedule II hereto (the "Selling
Stockholders") propose, subject to the terms and conditions stated herein, to
sell to the Underwriters an aggregate of __________ shares and, at the election
of the Underwriters, up to _____________ additional shares of Stock. The
aggregate of ____________ shares to be sold by the Company and the Selling
Stockholders is herein called the "Firm Shares" and the aggregate of
_______________ additional shares to be sold by the Company and the Selling
Stockholders is herein called the "Optional Shares". The Firm Shares and the
Optional Shares which the Underwriters elect to purchase pursuant to Section 2
hereof are herein collectively called the "Shares."
1. (a) The Company represents and warrants to, and agrees with, each of
the Underwriters that:
(i) A registration statement on Form S-1 (File No. 333-....) (the
"Initial Registration Statement") in respect of the Shares has been filed
with the Securities and Exchange Commission (the "Commission"); the Initial
Registration Statement and any post-effective amendment thereto, each in
the form heretofore delivered, and excluding exhibits thereto, to you for
each of the other Underwriters, have been declared effective by the
Commission in such form; other than a registration statement, if any,
increasing the size of the offering (a "Rule 462(b) Registration
Statement"), filed pursuant to Rule 462(b)
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<PAGE>
under the Securities Act of 1933, as amended (the "Act"), which became
effective upon filing, no other document with respect to the Initial
Registration Statement has heretofore been filed with the Commission; and
no stop order suspending the effectiveness of the Initial Registration
Statement, any post-effective amendment thereto or the Rule 462(b)
Registration Statement, if any, has been issued and no proceeding for that
purpose has been initiated or threatened by the Commission (any preliminary
prospectus included in the Initial Registration Statement or filed with the
Commission pursuant to Rule 424(a) of the rules and regulations of the
Commission under the Act, is hereinafter called a "Preliminary Prospectus";
the various parts of the Initial Registration Statement and the Rule 462(b)
Registration Statement, if any, including all exhibits thereto and
including the information contained in the form of final prospectus filed
with the Commission pursuant to Rule 424(b) under the Act in accordance
with Section 5(a) hereof and deemed by virtue of Rule 430A under the Act to
be part of the Initial Registration Statement at the time it was declared
effective, each as amended at the time such part of the registration
statement became effective, and such part of the Rule 462(b) Registration
Statement, if any, that became or hereafter becomes effective, are
hereinafter collectively called the "Registration Statement"; and such
final prospectus, in the form first filed pursuant to Rule 424(b) under the
Act, is hereinafter called the "Prospectus").
(ii) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary
Prospectus, at the time of filing thereof, conformed in all material
respects to the requirements of the Act and the rules and regulations of
the Commission thereunder, and did not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
however, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by an Underwriter through
Goldman, Sachs & Co. expressly for use therein or by a Selling Stockholder
expressly for use in the preparation of the answers therein to Items 7 and
11(l) of Form S-1;
(iii) The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus will conform, in all material respects to the requirements of
the Act and the rules and regulations of the Commission thereunder and do
not and will not, as of the applicable effective date as to the
Registration Statement and any amendment thereto and as of the applicable
filing date as to the Prospectus and any amendment or supplement thereto,
contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading; provided, however, that this representation and
warranty shall not apply to any statements or omissions made in reliance
upon and in conformity with information furnished in writing to the Company
by an Underwriter through Goldman, Sachs & Co. expressly for use therein or
by a Selling Stockholder expressly for use in the preparation of the
answers therein to Items 7 and 11(l) of Form S-1;
(iv) Neither the Company nor any of its subsidiaries has sustained
since the date of the latest audited financial statements included in the
Prospectus any material loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by insurance, or
from any labor dispute or court or governmental action, order or decree,
otherwise than as set forth or contemplated in the Prospectus; and, since
the respective dates as of which information is given in the Registration
Statement and the
2
<PAGE>
Prospectus, there has not been any change in the capital
stock or long-term debt of the Company or any of its subsidiaries or any
material adverse change, or any development involving a prospective
material adverse change, in or affecting the general affairs, management,
financial position, stockholders' equity or results of operations of the
Company and its subsidiaries, otherwise than as set forth or contemplated
in the Prospectus;
(v) The Company and its subsidiaries have good and marketable title
in fee simple to all real property and good and marketable title to all
personal property owned by them, in each case free and clear of all liens,
encumbrances and defects except such as are described in the Prospectus or
such as do not materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by the
Company and its subsidiaries; and any real property and buildings held
under lease by the Company and its subsidiaries are held by them under
valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made of
such property and buildings by the Company and its subsidiaries;
(vi) The operations of the Company are, and at all times have been,
in compliance with all federal, regional, state, county or local laws,
statutes, ordinances, decisional law, rules, regulations, codes, orders,
decrees, directives and judgments relating to public health or safety,
pollution, damage to or protection of the environment ("Environmental
Laws") then applicable to the Company's business or any real property owned
or leased by the Company. The Company has not received any notice that it,
or any of the real property owned or leased by it: (A) is in violation of
the requirements of any Environmental Laws; (B) is the subject of any suit,
claim, proceeding, demand, order, investigation or request or demand for
information arising under any Environment Laws; or (C) has actual or
potential liability under any Environmental Laws.
(vii) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Delaware,
with power and authority (corporate and other) to own its properties and
conduct its business as described in the Prospectus, and has been duly
qualified as a foreign corporation for the transaction of business and is
in good standing under the laws of each other jurisdiction in which it owns
or leases properties or conducts any business so as to require such
qualification, or is subject to no material liability or disability by
reason of the failure to be so qualified in any such jurisdiction; and each
subsidiary of the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of its
jurisdiction of incorporation;
(viii) The Company has an authorized capitalization as set forth in
the Prospectus, and all of the issued shares of capital stock of the
Company have been duly and validly authorized and issued, are fully paid
and non-assessable and conform to the description of the Stock contained in
the Prospectus; and all of the issued shares of capital stock of each
subsidiary of the Company have been duly and validly authorized and issued,
are fully paid and non-assessable and (except for directors' qualifying
shares) are owned directly or indirectly by the Company, free and clear of
all liens, encumbrances, equities or claims;
(ix) The unissued Shares to be issued and sold by the Company to the
Underwriters hereunder have been duly and validly authorized and, when
issued and
3
<PAGE>
delivered against payment therefor as provided herein, will be duly and val
idly issued and fully paid and non-assessable and will conform to the
description of the Stock contained in the Prospectus;
(x) The issue and sale of the Shares to be sold by the Company and
the compliance by the Company with all of the provisions of this Agreement
and the consummation of the transactions herein contemplated will not
conflict with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage, deed
of trust, loan agreement or other agreement or instrument to which the
Company or any of its subsidiaries is a party or by which the Company or
any of its subsidiaries is bound or to which any of the property or assets
of the Company or any of its subsidiaries is subject, nor will such action
result in any violation of the provisions of the Certificate of
Incorporation or By-laws of the Company or any statute or any order, rule
or regulation of any court or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries or any of their
properties; and no consent, approval, authorization, order, registration or
qualification of or with any such court or governmental agency or body is
required for the issue and sale of the Shares or the consummation by the
Company of the transactions contemplated by this Agreement, except the
registration under the Act of the Shares and such consents, approvals,
authorizations, registrations or qualifications as may be required under
state securities or Blue Sky laws in connection with the purchase and
distribution of the Shares by the Underwriters;
(xi) Neither the Company nor any of its subsidiaries is in
violation of its Certificate of Incorporation or By-laws or in default in
the performance or observance of any material obligation, agreement,
covenant or condition contained in any indenture, mortgage, deed of trust,
loan agreement, lease or other agreement or instrument to which it is a
party or by which it or any of its properties may be bound;
(xii) The statements set forth in the Prospectus under the caption
"Description of Capital Stock", insofar as they purport to constitute a
summary of the terms of the Stock, and under the caption "Underwriting",
insofar as they purport to describe the provisions of the laws and
documents referred to therein, are accurate, complete and fair;
(xiii) Other than as set forth in the Prospectus, there are no legal
or governmental proceedings pending to which the Company or any of its
subsidiaries is a party or of which any property of the Company or any of
its subsidiaries is the subject which, if determined adversely to the
Company or any of its subsidiaries, would individually or in the aggregate
have a material adverse effect on the current or future consolidated
financial position, stockholders' equity or results of operations of the
Company and its subsidiaries; and, to the best of the Company's knowledge,
no such proceedings are threatened or contemplated by governmental
authorities or threatened by others;
(xiv) The Company is not and, after giving effect to the offering
and sale of the Shares, will not be an "investment company" or an entity
"controlled" by an "investment company", as such terms are defined in the
Investment Company Act of 1940, as amended (the "Investment Company Act");
(xv) Neither the Company nor any of its affiliates does business
with the government of Cuba or with any person or affiliate located in Cuba
within the meaning of Section 517.075, Florida Statutes;
(xvi) PricewaterhouseCoopers, who have certified certain financial
statements of
4
<PAGE>
the Company and its subsidiaries, are independent public accountants as
required by the Act and the rules and regulations of the Commission
thereunder;
(xvii) The Company owns, or possesses adequate rights to use, all
material trademarks, service marks, trade names, trademark registrations,
service mark registrations, domain names and copyrights necessary for the
conduct of its business and has no reason to believe that the conduct of
its business will conflict with, and has not received any notice of any
claim of conflict with any such rights or others except as would not have a
material adverse effect on the business, financial condition, results of
operations or prospects of the Company or its subsidiaries; and, to the
best of the Company's knowledge after reasonable investigation, neither the
Company nor any of its subsidiaries have infringed or are infringing any
trademarks, services marks, trade names, trademark registrations, service
mark registrations, domain names or copyrights, which infringement could
reasonably be expected to have a material adverse effect on the business,
financial condition, results of operations or prospects of the Company or
its subsidiaries;
(xviii) The Company owns, or possesses adequate rights to use, all
material patents necessary for the conduct of its business; no valid Unites
States patent is, or to the knowledge of the Company would be, infringed by
the activities of the Company, except as would not have a material adverse
effect on the business, financial condition, results of operations or
prospects of the Company; there are no actions, suits or judicial
proceedings pending relating to patents or proprietary information to which
the Company is a party or of which any property of the Company is subject,
and, to the knowledge of the Company, no actions, suits or judicial
proceedings are threatened by governmental authorities or, except as set
forth in the Prospectus, others, in each case except as would not have a
material adverse effect on the business, financial condition, results of
operations or prospects of the Company; except as set forth or incorporated
by reference in the Prospectus or as would not have a material adverse
effect on the business, financial condition, results of operations or
prospects of the Company, the Company is not aware of any claim by others
that the Company is infringing or otherwise violating the patents or other
intellectual property of others and is not aware of any rights of third
parties to any of the Company's patent applications, licensed patents or
licenses which could affect materially the use thereof by the Company or
its subsidiaries;
(xix) The Company carries, or is covered by, insurance as is
customary for companies similarly situated and engaged in similar
businesses in similar industries;
(xx) There are no contracts or other documents which are required
to be described in the Prospectus or to be filed as exhibits to the Initial
Registration Statement by the Act which are not so filed;
(xxi) No labor disturbance by the employees of the Company exists
or, to the knowledge of the Company, is imminent which might be expected to
have a material adverse effect on the business, financial condition,
results of operations or prospects of the Company; and
(xxii) All of the software products developed, licensed and/or
marketed or distributed by the Company or any of its subsidiaries, and to
its knowledge, after due invesitgation all of the software products used by
the Company, are Year 2000 Compliant (as defined below). "Year 2000
Compliant" means, as applied to a software product, that: (A) such
software product will operate and correctly store, represent and process
(including sort) all dates (including single and multi-century formulas and
leap year calculations), such
5
<PAGE>
that errors will not occur when the date being used is in the Year 2000, or
in a year preceding or following the Year 2000; (ii) such software product
has been written and tested to support numeric and date transitions from
the twentieth century to the twenty-first century, and back (including
without limitation all calculations, aging, reporting, printing, displays,
reversals, disaster and vital records recoveries) without error, corruption
or impact to current and/or future operations; and (iii) such software
product will function without error or interruption related to any date
information, specifically including errors or interruptions from functions
which may involve date information from more than one century, in each case
except where the same could not reasonably be expected to have a Material
Adverse Effect on the
Company.
(b) Each of the Selling Stockholders severally represents and
warrants to, and agrees with, each of the Underwriters and the Company that:
(i) All consents, approvals, authorizations and orders necessary
for the execution and delivery by such Selling Stockholder of this
Agreement and the Power of Attorney and the Custody Agreement hereinafter
referred to, and for the sale and delivery of the Shares to be sold by such
Selling Stockholder hereunder, have been obtained; and such Selling
Stockholder has full right, power and authority to enter into this
Agreement, the Power-of-Attorney and the Custody Agreement and to sell,
assign, transfer and deliver the Shares to be sold by such Selling
Stockholder hereunder;
(ii) The sale of the Shares to be sold by such Selling Stockholder
hereunder and the compliance by such Selling Stockholder with all of the
provisions of this Agreement, the Power of Attorney and the Custody
Agreement and the consummation of the transactions herein and therein
contemplated will not conflict with or result in a breach or violation of
any of the terms or provisions of, or constitute a default under, any
statute, indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which such Selling Stockholder is a party or by
which such Selling Stockholder is bound or to which any of the property or
assets of such Selling Stockholder is subject, nor will such action result
in any violation of the provisions of the Certificate of Incorporation or
By-laws of such Selling Stockholder if such Selling Stockholder is a
corporation, the Partnership Agreement of such Selling Stockholder if such
Selling Stockholder is a partnership or any statute or any order, rule or
regulation of any court or governmental agency or body having jurisdiction
over such Selling Stockholder or the property of such Selling Stockholder;
(iii) Such Selling Stockholder has, and immediately prior to each
Time of Delivery (as defined in Section 4 hereof) such Selling Stockholder
will have, good and valid title to the Shares to be sold by such Selling
Stockholder hereunder, free and clear of all liens, encumbrances, equities
or claims; and, upon delivery of such Shares and payment therefor pursuant
hereto, good and valid title to such Shares, free and clear of all liens,
encumbrances, equities or claims, will pass to the several Underwriters;
(iv) During the period beginning from the date hereof and continuing
to and including the date 180 days after the date of the Prospectus, not to
offer, sell contract to sell or otherwise dispose of, except as provided
hereunder, any securities of the Company that are substantially similar to
the Shares, including but not limited to any securities that are
convertible into or exchangeable for, or that represent the right to
receive, Stock or any such substantially similar securities (other than
pursuant to employee stock option plans existing on, or upon the conversion
or exchange of convertible or exchangeable securities outstanding as of,
the date of this Agreement), without your prior written consent;
6
<PAGE>
(v) Such Selling Stockholder has not taken and will not take,
directly or indirectly, any action which is designed to or which has
constituted or which might reasonably be expected to cause or result in
stabilization or manipulation of the price of any security of the Company
to facilitate the sale or resale of the Shares;
(vi) To the extent that any statements or omissions made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto are made in reliance upon and in conformity
with written information furnished to the Company by such Selling
Stockholder expressly for use therein, such Preliminary Prospectus and the
Registration Statement did, and the Prospectus and any further amendments
or supplements to the Registration Statement and the Prospectus, when they
become effective or are filed with the Commission, as the case may be, will
conform in all material respects to the requirements of the Act and the
rules and regulations of the Commission thereunder and will not contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading;
(vii) In order to document the Underwriters' compliance with the
reporting and withholding provisions of the Tax Equity and Fiscal
Responsibility Act of 1982 with respect to the transactions herein
contemplated, such Selling Stockholder will deliver to you prior to or at
the First Time of Delivery (as hereinafter defined) a properly completed
and executed United States Treasury Department Form W-9 (or other
applicable form or statement specified by Treasury Department regulations
in lieu thereof);
(viii) Certificates in negotiable form representing all of the Shares
to be sold by such Selling Stockholder hereunder have been placed in
custody under a Custody Agreement, in the form heretofore furnished to you
(the "Custody Agreement"), duly executed and delivered by such Selling
Stockholder to ____________, as custodian (the "Custodian"), and such
Selling Stockholder has duly executed and delivered a Power of Attorney, in
the form heretofore furnished to you (the "Power of Attorney"), appointing
the persons indicated in Schedule II hereto, and each of them, as such
Selling Stockholder's attorneys-in-fact (the "Attorneys-in-Fact") with
authority to execute and deliver this Agreement on behalf of such Selling
Stockholder, to determine the purchase price to be paid by the Underwriters
to the Selling Stockholders as provided in Section 2 hereof, to authorize
the delivery of the Shares to be sold by such Selling Stockholder hereunder
and otherwise to act on behalf of such Selling Stockholder in connection
with the transactions contemplated by this Agreement and the Custody
Agreement; and
(ix) The Shares represented by the certificates held in custody for
such Selling Stockholder under the Custody Agreement are subject to the
interests of the Underwriters hereunder; the arrangements made by such
Selling Stockholder for such custody, and the appointment by such Selling
Stockholder of the Attorneys-in-Fact by the Power of Attorney, are to that
extent irrevocable; the obligations of the Selling Stockholders hereunder
shall not be terminated by operation of law, whether by the death or
incapacity of any individual Selling Stockholder or, in the case of an
estate or trust, by the death or incapacity of any executor or trustee or
the termination of such estate or trust, or in the case of a partnership or
corporation, by the dissolution of such partnership or corporation, or by
the occurrence of any other event; if any individual Selling Stockholder or
any such executor or trustee should die or become incapacitated, or if any
such estate or trust should be terminated, or if any such partnership or
corporation should be dissolved, or if any other such event should occur,
before the delivery of the Shares hereunder, certificates representing the
7
<PAGE>
Shares shall be delivered by or on behalf of the Selling Stockholders in
accordance with the terms and conditions of this Agreement and of the
Custody Agreements; and actions taken by the Attorneys-in-Fact pursuant to
the Powers of Attorney shall be as valid as if such death, incapacity,
termination, dissolution or other event had not occurred, regardless of
whether or not the Custodian, the Attorneys-in-Fact, or any of them, shall
have received notice of such death, incapacity, termination, dissolution or
other event.
2. Subject to the terms and conditions herein set forth, (a) the Company
and each of the Selling Stockholders agree, severally and not jointly, to sell
to each of the Underwriters, and each of the Underwriters agrees, severally and
not jointly, to purchase from the Company and each of the Selling Stockholders,
at a purchase price per share of $.............., the number of Firm Shares (to
be adjusted by you so as to eliminate fractional shares) determined by
multiplying the aggregate number of Shares to be sold by the Company and each of
the Selling Stockholders as set forth opposite their respective names in
Schedule II hereto by a fraction, the numerator of which is the aggregate number
of Firm Shares to be purchased by such Underwriter as set forth opposite the
name of such Underwriter in Schedule I hereto and the denominator of which is
the aggregate number of Firm Shares to be purchased by all of the Underwriters
from the Company and all of the Selling Stockholders hereunder and (b) in the
event and to the extent that the Underwriters shall exercise the election to
purchase Optional Shares as provided below, the Company and each of the Selling
Stockholders agree, severally and not jointly, to sell to each of the
Underwriters, and each of the Underwriters agrees, severally and not jointly, to
purchase from the Company and each of the Selling Stockholders, at the purchase
price per share set forth in clause (a) of this Section 2, that portion of the
number of Optional Shares as to which such election shall have been exercised
(to be adjusted by you so as to eliminate fractional shares) determined by
multiplying such number of Optional Shares by a fraction the numerator of which
is the maximum number of Optional Shares which such Underwriter is entitled to
purchase as set forth opposite the name of such Underwriter in Schedule I hereto
and the denominator of which is the maximum number of Optional Shares that all
of the Underwriters are entitled to purchase hereunder.
The Company and the Selling Stockholders, as and to the extent
indicated in Schedule II hereto, hereby grant, severally and not jointly, to the
Underwriters the right to purchase at their election up to ...................
Optional Shares, at the purchase price per share set forth in the paragraph
above, for the sole purpose of covering overallotments in the sale of the Firm
Shares. Any such election to purchase Optional Shares shall be made in
proportion to the maximum number of Optional Shares to be sold by the Company
and each Selling Stockholder as set forth in Schedule II hereto initially with
respect to the Optional Shares to be sold by the Company and then among the
Selling Stockholders in proportion to the maximum number of Optional Shares to
be sold by each Selling Stockholder as set forth in Schedule II hereto. Any such
election to purchase Optional Shares may be exercised only by written notice
from you to the Company and the Attorneys-in-Fact, given within a period of 30
calendar days after the date of this Agreement and setting forth the aggregate
number of Optional Shares to be purchased and the date on which such Optional
Shares are to be delivered, as determined by you but in no event earlier than
the First Time of Delivery (as defined in Section 4 hereof) or, unless you and
the Company and the Attorneys-in-Fact otherwise agree in writing, earlier than
two or later than ten business days after the date of such notice.
3. Upon the authorization by you of the release of the Firm Shares, the
several Underwriters propose to offer the Firm Shares for sale upon the terms
and conditions set forth in the Prospectus.
8
<PAGE>
4. (a) The Shares to be purchased by each Underwriter hereunder, in
definitive form, and in such authorized denominations and registered in such
names as Goldman, Sachs & Co. may request upon at least forty-eight hours' prior
notice to the Company and the Selling Stockholders shall be delivered by or on
behalf of the Company and the Selling Stockholders to Goldman, Sachs & Co.
through the facilities of the Depository Trust Company ("DTC"), for the account
of such Underwriter, against payment by or on behalf of such Underwriter of the
purchase price therefor by wire transfer of Federal (same-day) funds, payable to
the order of the Company and the Custodian, as their interests may appear, to
the account specified by the Company to Goldman, Sachs & Co. at least forty-
eight hours in advance. The Company will cause the certificates representing
the Shares to be made available for checking and packaging at least twenty-four
hours prior to the Time of Delivery (as defined below) with respect thereto at
the office of DTC or its designated custodian (the "Designated Office"). The
time and date of such delivery and payment shall be, with respect to the Firm
Shares, 9:30 a.m., New York time, on ............., 1998 or such other time and
date as Goldman, Sachs & Co., the Company and the Selling Stockholders may agree
upon in writing, and, with respect to the Optional Shares, 9:30 a.m., New York
time, on the date specified by Goldman, Sachs & Co. in the written notice given
by Goldman, Sachs & Co. of the Underwriters' election to purchase such Optional
Shares, or such other time and date as Goldman, Sachs & Co. and the Company may
agree upon in writing. Such time and date for delivery of the Firm Shares is
herein called the "First Time of Delivery", such time and date for delivery of
the Optional Shares, if not the First Time of Delivery, is herein called the
"Second Time of Delivery", and each such time and date for delivery is herein
called a "Time of Delivery."
(b) The documents to be delivered at each Time of Delivery by or on
behalf of the parties hereto pursuant to Section 7 hereof, including the cross
receipt for the Shares and any additional documents requested by the
Underwriters pursuant to Section 7(l) hereof, will be delivered at the offices
of Wilson Sonsini Goodrich & Rosati, 650 Page Mill Road, Palo Alto, CA 94304
(the "Closing Location"), and the Shares will be delivered at the Designated
Office, all at such Time of Delivery. A meeting will be held at the Closing
Location at 5:00 p.m., New York City time, on the New York Business Day next
preceding such Time of Delivery, at which meeting the final drafts of the
documents to be delivered pursuant to the preceding sentence will be available
for review by the parties hereto. For the purposes of this Section 4, "New York
Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in New York are generally
authorized or obligated by law or executive order to close.
5. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to file
such Prospectus pursuant to Rule 424(b) under the Act not later than the
Commission's close of business on the second business day following the
execution and delivery of this Agreement, or, if applicable, such earlier
time as may be required by Rule 430A(a)(3) under the Act; to make no
further amendment or any supplement to the Registration Statement or
Prospectus which shall be disapproved by you promptly after reasonable
notice thereof; to advise you, promptly after it receives notice thereof,
of the time when any amendment to the Registration Statement has been filed
or becomes effective or any supplement to the Prospectus or any amended
Prospectus has been filed and to furnish you with copies thereof; to advise
you, promptly after it receives notice thereof, of the issuance by the
Commission of any stop order or of any order preventing or suspending the
use of any Preliminary Prospectus or prospectus, of the suspension of the
qualification of the Shares for offering or sale in any jurisdiction, of
the initiation or threatening of any
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proceeding for any such purpose, or of any request by the Commission for
the amending or supplementing of the Registration Statement or Prospectus
or for additional information; and, in the event of the issuance of any
stop order or of any order preventing or suspending the use of any
Preliminary Prospectus or prospectus or suspending any such qualification,
promptly to use its best efforts to obtain the withdrawal of such order;
(b) Promptly from time to time to take such action as you may
reasonably request to qualify the Shares for offering and sale under the
securities laws of such jurisdictions as you may request and to comply with
such laws so as to permit the continuance of sales and dealings therein in
such jurisdictions for as long as may be necessary to complete the
distribution of the Shares, provided that in connection therewith the
Company shall not be required to qualify as a foreign corporation or to
file a general consent to service of process in any jurisdiction;
(c) Prior to 10:00 a.m., New York City time, on the New York Business
Day next succeeding the date of this Agreement and from time to time, to
furnish the Underwriters with copies of the Prospectus in New York City in
such quantities as you may reasonably request, and, if the delivery of a
prospectus is required at any time prior to the expiration of nine months
after the time of issue of the Prospectus in connection with the offering
or sale of the Shares and if at such time any events shall have occurred as
a result of which the Prospectus as then amended or supplemented would
include an untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made when such Prospectus
is delivered, not misleading, or, if for any other reason it shall be
necessary during such period to amend or supplement the Prospectus in order
to comply with the Act, to notify you and upon your request to prepare and
furnish without charge to each Underwriter and to any dealer in securities
as many copies as you may from time to time reasonably request of an
amended Prospectus or a supplement to the Prospectus which will correct
such statement or omission or effect such compliance, and in case any
Underwriter is required to deliver a prospectus in connection with sales of
any of the Shares at any time nine months or more after the time of issue
of the Prospectus, upon your request but at the expense of such
Underwriter, to prepare and deliver to such Underwriter as many copies as
you may request of an amended or supplemented Prospectus complying with
Section 10(a)(3) of the Act;
(d) To make generally available to its securityholders as soon as
practicable, but in any event not later than eighteen months after the
effective date of the Registration Statement (as defined in Rule 158(c)
under the Act), an earnings statement of the Company and its subsidiaries
(which need not be audited) complying with Section 11(a) of the Act and the
rules and regulations of the Commission thereunder (including, at the
option of the Company, Rule 158);
(e) During the period beginning from the date hereof and continuing to
and including the date 180 days after the date of the Prospectus, (i) not
to offer, sell, contract to sell or otherwise dispose of, except as
provided hereunder, any securities of the Company that are substantially
similar to the Shares, including but not limited to any securities that are
convertible into or exchangeable for, or that represent the right to
receive, Stock or any such substantially similar securities (other than
pursuant to employee stock option plans and employee stock purchase plans
existing on, or upon the conversion or exchange of convertible or
exchangeable securities outstanding as of, the date of this Agreement), and
(ii) not to release any securityholder of the Company from its obligations
under any
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agreement pursuant to which such securityholder has agreed not to offer,
sell, contract to sell or otherwise dispose of any securities of the
Company, in either of the above cases, without your prior written consent;
(f) To furnish to its stockholders as soon as practicable after the
end of each fiscal year an annual report (including a balance sheet and
statements of income, stockholders' equity and cash flows of the Company
and its consolidated subsidiaries certified by independent public
accountants) and, as soon as practicable after the end of each of the first
three quarters of each fiscal year (beginning with the fiscal quarter
ending after the effective date of the Registration Statement),
consolidated summary financial information of the Company and its
subsidiaries for such quarter in reasonable detail;
(g) During a period of five years from the effective date of the
Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) furnished to stockholders, and to
deliver to you (i) as soon as they are available, copies of any reports and
financial statements furnished to or filed with the Commission or any
national securities exchange on which any class of securities of the
Company is listed; and (ii) such additional information concerning the
business and financial condition of the Company as you may from time to
time reasonably request (such financial statements to be on a consolidated
basis to the extent the accounts of the Company and its subsidiaries are
consolidated in reports furnished to its stockholders generally or to the
Commission);
(h) To use the net proceeds received by it from the sale of the Shares
pursuant to this Agreement in the manner specified in the Prospectus under
the caption "Use of Proceeds";
(i) To use its best efforts to list for quotation the Shares on the
National Association of Securities Dealers Automated Quotations National
Market System ("NASDAQ");
(j) If the Company elects to rely upon Rule 462(b), the Company shall
file a Rule 462(b) Registration Statement with the Commission in compliance
with Rule 462(b) by 10:00 p.m. Washington, D.C. time, on the date of this
Agreement, and the Company shall at the time of filing either pay to the
Commission the filing fee for the Rule 462(b) Registration Statement or
give irrevocable instructions for the payment of such fee pursuant to Rule
111(b) under the Act; and
(k) To make such disclosure as may be required by Rule 463 under the
Act.
6. The Company and each of the Selling Stockholders covenant and agree
with one another and with the several Underwriters that (a) the Company will pay
or cause to be paid the following: (i) the fees, disbursements and expenses of
the Company's counsel and accountants in connection with the registration of the
Shares under the Act and all other expenses in connection with the preparation,
printing and filing of the Registration Statement, any Preliminary Prospectus
and the Prospectus and amendments and supplements thereto and the mailing and
delivering of copies thereof to the Underwriters and dealers; (ii) the cost of
printing or producing any Agreement among Underwriters, this Agreement, the Blue
Sky Memorandum, closing documents (including any compilations thereof) and any
other documents in connection with the offering, purchase, sale and delivery of
the Shares; (iii) all expenses in connection with the qualification of the
Shares for offering and sale under state securities laws as provided in Section
5(b) hereof, including the fees and disbursements of counsel for the
Underwriters in connection with such qualification and in connection with the
Blue Sky survey (iv) all fees and expenses in connection with listing the
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Shares on NASDAQ; (v) the filing fees incident to, and the fees and
disbursements of counsel for the Underwriters in connection with, securing any
required review by the National Association of Securities Dealers, Inc. of the
terms of the sale of the Shares; (vi) the cost of preparing stock certificates;
(vii) the cost and charges of any transfer agent or registrar; (viii) any fees
and expenses of counsel for the Selling Stockholders; and (ix) all other costs
and expenses incident to the performance of its obligations hereunder which are
not otherwise specifically provided for in this Section; and (b) such Selling
Stockholder will pay or cause to be paid all costs and expenses incident to the
performance of such Selling Stockholder's obligations hereunder which are not
otherwise specifically provided for in this Section, including (i) such Selling
Stockholder's pro rata share of the fees and expenses of the Attorneys-in-Fact
and the Custodian, if any, and (ii) all expenses and taxes incident to the sale
and delivery of the Shares to be sold by such Selling Stockholder to the
Underwriters hereunder. In connection with clause (b) of the preceding sentence,
Goldman, Sachs & Co. agrees to pay New York State stock transfer tax, and the
Selling Stockholder agrees to reimburse Goldman, Sachs & Co. for associated
carrying costs if such tax payment is not rebated on the day of payment and for
any portion of such tax payment not rebated. It is understood, however, that the
Company shall bear, and the Selling Stockholders shall not be required to pay or
to reimburse the Company for, the cost of any other matters not directly
relating to the sale and purchase of the Shares pursuant to this Agreement, and
that, except as provided in this Section, and Sections 8 and 11 hereof, the
Underwriters will pay all of their own costs and expenses, including the fees of
their counsel, stock transfer taxes on resale of any of the Shares by them, and
any advertising expenses connected with any offers they may make.
7. The obligations of the Underwriters hereunder, as to the Shares to be
delivered at each Time of Delivery, shall be subject, in their discretion, to
the condition that all representations and warranties and other statements of
the Company and of the Selling Stockholders herein are, at and as of such Time
of Delivery, true and correct, the condition that the Company and the Selling
Stockholders shall have performed all of its and their obligations hereunder
theretofore to be performed, and the following additional conditions:
(a) The Prospectus shall have been filed with the Commission pursuant
to Rule 424(b) within the applicable time period prescribed for such filing
by the rules and regulations under the Act and in accordance with Section
5(a) hereof; if the Company has elected to rely upon Rule 462(b), the Rule
462(b) Registration Statement shall have become effective by 10:00 p.m.,
Washington, D.C. time, on the date of this Agreement; no stop order
suspending the effectiveness of the Registration Statement or any part
thereof shall have been issued and no proceeding for that purpose shall
have been initiated or threatened by the Commission; and all requests for
additional information on the part of the Commission shall have been
complied with to your reasonable satisfaction;
(b) Venture Law Group, A Professional Corporation, counsel for the
Underwriters, shall have furnished to you such opinion or opinions (a draft
of such opinion or opinions is attached as Annex II(a) hereto), dated such
Time of Delivery, with respect to the matters covered in paragraphs (i),
(ii), (vii), (xi) and (xiii) of subsection (c) below as well as such other
related matters as you may reasonably request, and such counsel shall have
received such papers and information as they may reasonably request to
enable them to pass upon such matters;
(c) Wilson Sonsini Goodrich & Rosati, counsel for the Company, shall
have furnished to you their written opinion (a draft of such opinion is
attached as Annex II(b) hereto), dated such Time of Delivery, in form and
substance satisfactory to you, to the
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effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware, with power and authority (corporate and other) to own its
properties and conduct its business as described in the Prospectus;
(ii) The Company has an authorized capitalization as set forth
in the Prospectus, and all of the issued shares of capital stock of
the Company (including the Shares being delivered at such Time of
Delivery) have been duly and validly authorized and issued and are
fully paid and non-assessable; and the Shares conform to the
description of the Stock contained in the Prospectus;
(iii) The Company has been duly qualified as a foreign
corporation for the transaction of business and is in good standing
under the laws of each other jurisdiction in which it owns or leases
properties or conducts any business so as to require such
qualification, or is subject to no material liability or disability by
reason of failure to be so qualified in any such jurisdiction (such
counsel being entitled to rely in respect of the opinion in this
clause upon opinions of local counsel and in respect of matters of
fact upon certificates of officers of the Company, provided that such
counsel shall state that they believe that both you and they are
justified in relying upon such opinions and certificates);
(iv) Each subsidiary of the Company has been duly incorporated
and is validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation; and all of the issued
shares of capital stock of each such subsidiary have been duly and
validly authorized and issued, are fully paid and non-assessable, and
(except for directors' qualifying shares) are owned directly or
indirectly by the Company, free and clear of all liens, encumbrances,
equities or claims (such counsel being entitled to rely in respect of
the opinion in this clause upon opinions of local counsel and in
respect of matters of fact upon certificates of officers of the
Company or its subsidiaries, provided that such counsel shall state
that they believe that both you and they are justified in relying upon
such opinions and certificates);
(v) The Company and its subsidiaries have good and marketable
title in fee simple to all real property owned by them, in each case
free and clear of all liens, encumbrances and defects except such as
are described in the Prospectus or such as do not materially affect
the value of such property and do not interfere with the use made and
proposed to be made of such property by the Company and its
subsidiaries; and any real property and buildings held under lease by
the Company and its subsidiaries are held by them under valid,
subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be
made of such property and buildings by the Company and its
subsidiaries (in giving the opinion in this clause, such counsel may
state that no examination of record titles for the purpose of such
opinion has been made, and that they are relying upon a general review
of the titles of the Company and its subsidiaries, upon opinions of
local counsel and abstracts, reports and policies of title companies
rendered or issued at or subsequent to the time of acquisition of such
property by the Company or its subsidiaries, upon opinions of counsel
to the lessors of such property and, in respect of matters of fact,
upon
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certificates of officers of the Company or its subsidiaries, provided
that such counsel shall state that they believe that both you and they
are justified in relying upon such opinions, abstracts, reports,
policies and certificates);
(vi) To the best of such counsel's knowledge and other than as
set forth in the Prospectus, there are no legal or governmental
proceedings pending to which the Company or any of its subsidiaries is
a party or of which any property of the Company or any of its
subsidiaries is the subject which, if determined adversely to the
Company or any of its subsidiaries, would individually or in the
aggregate have a material adverse effect on the current or future
consolidated financial position, stockholders' equity or results of
operations of the Company and its subsidiaries; and, to the best of
such counsel's knowledge, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others;
(vii) This Agreement has been duly authorized, executed and
delivered by the Company;
(viii) The issue and sale of the Shares being delivered at such
Time of Delivery to be sold by the Company and the compliance by the
Company with all of the provisions of this Agreement and the
consummation of the transactions herein contemplated will not conflict
with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage,
deed of trust, loan agreement or other agreement or instrument known
to such counsel to which the Company or any of its subsidiaries is a
party or by which the Company or any of its subsidiaries is bound or
to which any of the property or assets of the Company or any of its
subsidiaries is subject, nor will such action result in any violation
of the provisions of the Certificate of Incorporation or By-laws of
the Company or any statute or any order, rule or regulation known to
such counsel of any court or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries or any of
their properties;
(ix) No consent, approval, authorization, order, registration
or qualification of or with any such court or governmental agency or
body is required for the issue and sale of the Shares or the
consummation by the Company of the transactions contemplated by this
Agreement, except the registration under the Act of the Shares, and
such consents, approvals, authorizations, registrations or
qualifications as may be required under state securities or Blue Sky
laws in connection with the purchase and distribution of the Shares by
the Underwriters;
(x) Neither the Company nor any of its subsidiaries is in
violation of its Certificate of Incorporation or By-laws or in default
in the performance or observance of any material obligation,
agreement, covenant or condition contained in any indenture, mortgage,
deed of trust, loan agreement, or lease or agreement or other
instrument to which it is a party or by which it or any of its
properties may be bound;
(xi) The statements set forth in the Prospectus under the
caption "Description of Capital Stock," insofar as they purport to
constitute a summary of the terms of the Stock, and under the caption
"Underwriting," insofar as they purport to describe the provisions of
the laws and documents referred to therein, are accurate, complete and
fair;
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(xii) The Company is not an "investment company" or an entity
"controlled" by an "investment company", as such terms are defined in
the Investment Company Act; and
(xiii) The Registration Statement and the Prospectus and any
further amendments and supplements thereto made by the Company prior
to such Time of Delivery (other than the financial statements and
related schedules therein, as to which such counsel need express no
opinion) comply as to form in all material respects with the
requirements of the Act and the rules and regulations thereunder;
although they do not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the
Registration Statement or the Prospectus, except for those referred to
in the opinion in subsection (xi) of this Section 7(c), they have no
reason to believe that, as of its effective date, the Registration
Statement or any further amendment thereto made by the Company prior
to such Time of Delivery (other than the financial statements and
related schedules therein, as to which such counsel need express no
opinion) contained an untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to
make the statements therein not misleading or that, as of its date,
the Prospectus or any further amendment or supplement thereto made by
the Company prior to such Time of Delivery (other than the financial
statements and related schedules therein, as to which such counsel
need express no opinion) contained an untrue statement of a material
fact or omitted to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading or that, as of such Time of Delivery, either
the Registration Statement or the Prospectus or any further amendment
or supplement thereto made by the Company prior to such Time of
Delivery (other than the financial statements and related schedules
therein, as to which such counsel need express no opinion) contains an
untrue statement of a material fact or omits to state a material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and they do
not know of any amendment to the Registration Statement required to be
filed or of any contracts or other documents of a character required
to be filed as an exhibit to the Registration Statement or required to
be described in the Registration Statement or the Prospectus which are
not filed or described as required.
(d) The respective counsel for each of the Selling Stockholders, as
indicated in Schedule II hereto, each shall have furnished to you their
written opinion with respect to each of the Selling Stockholders for whom
they are acting as counsel, dated such Time of Delivery, in form and
substance satisfactory to you, to the effect that:
(i) A Power-of-Attorney and a Custody Agreement have been duly
executed and delivered by such Selling Stockholder and constitute
valid and binding agreements of such Selling Stockholder enforceable
in accordance with their terms;
(ii) This Agreement has been duly executed and delivered by or on
behalf of such Selling Stockholder; and the sale of the Shares to be
sold by such Selling Stockholder hereunder and the compliance by such
Selling Stockholder with all of the provisions of this Agreement, the
Power-of-Attorney and the Custody Agreement and the consummation of
the transactions herein and therein
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contemplated will not conflict with or result in a breach or violation
of any terms or provisions of, or constitute a default under, any
statute, indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument known to such counsel to which such Selling
Stockholder is a party or by which such Selling Stockholder is bound
or to which any of the property or assets of such Selling Stockholder
is subject, nor will such action result in any violation of the
provisions of the Certificate of Incorporation or By-laws of such
Selling Stockholder if such Selling Stockholder is a corporation, the
Partnership Agreement of such Selling Stockholder if such Selling
Stockholder is a partnership or any order, rule or regulation known to
such counsel of any court or governmental agency or body having
jurisdiction over such Selling Stockholder or the property of such
Selling Stockholder;
(iii) No consent, approval, authorization or order of any court
or governmental agency or body is required for the consummation of the
transactions contemplated by this Agreement in connection with the
Shares to be sold by such Selling Stockholder hereunder, except [NAME
ANY SUCH CONSENT, APPROVAL, AUTHORIZATION OR ORDER] which [HAS] [HAVE]
been duly obtained and [IS] [ARE] in full force and effect, such as
have been obtained under the Act and such as may be required under
state securities or Blue Sky laws in connection with the purchase and
distribution of such Shares by the Underwriters;
(iv) Immediately prior to such Time of Delivery, such Selling
Stockholder had good and valid title to the Shares to be sold at such
Time of Delivery by such Selling Stockholder under this Agreement,
free and clear of all liens, encumbrances, equities or claims, and
full right, power and authority to sell, assign, transfer and deliver
the Shares to be sold by such Selling Stockholder hereunder; and
(v) Good and valid title to such Shares, free and clear of all
liens, encumbrances, equities or claims, has been transferred to each
of the several Underwriters who have purchased such Shares in good
faith and without notice of any such lien, encumbrance, equity or
claim or any other adverse claim within the meaning of the Uniform
Commercial Code.
In rendering the opinion in paragraph (iv), such counsel may rely upon a
certificate of such Selling Stockholder in respect of matters of fact as to
ownership of, and liens, encumbrances, equities or claims on, the Shares sold by
such Selling Stockholder, provided that such counsel shall state that they
believe that both you and they are justified in relying upon such certificate;
[MAY NEED EXPERTIZATION DEPENDING ON THE NATURE OF ANY PATENT CLAIMS,
IF ANY]
(e) On the date of the Prospectus at a time prior to the execution of
this Agreement, at 9:30 a.m., New York City time, on the effective date of
any post-effective amendment to the Registration Statement filed subsequent
to the date of this Agreement and also at each Time of Delivery,
Pricewaterhouse Coopers shall have furnished to you a letter or letters,
dated the respective dates of delivery thereof, in form and substance
satisfactory to you, to the effect set forth in Annex I hereto (the
executed copy of the letter delivered prior to the execution of this
Agreement is attached as Annex 1(a) hereto and a draft of the form of
letter to be delivered on the effective date of any post-effective
amendment to the Registration Statement and as of each Time of Delivery is
attached as Annex 1(b) hereto);
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(f)(i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements
included in the Prospectus any loss or interference with its business from
fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action, order
or decree, otherwise than as set forth or contemplated in the Prospectus,
and (ii) since the respective dates as of which information is given in the
Prospectus there shall not have been any change in the capital stock or
long-term debt of the Company or any of its subsidiaries or any change, or
any development involving a prospective change, in or affecting the general
affairs, management, financial position, stockholders' equity or results of
operations of the Company and its subsidiaries, otherwise than as set forth
or contemplated in the Prospectus, the effect of which, in any such case
described in Clause (i) or (ii), is in the judgment of the Representatives
so material and adverse as to make it impracticable or inadvisable to
proceed with the public offering or the delivery of the Shares being
delivered at such Time of Delivery on the terms and in the manner
contemplated in the Prospectus;
(g) On or after the date hereof (i) no downgrading shall have
occurred in the rating accorded the Company's debt securities or preferred
stock by any "nationally recognized statistical rating organization", as
that term is defined by the Commission for purposes of Rule 436(g)(2) under
the Act, and (ii) no such organization shall have publicly announced that
it has under surveillance or review, with possible negative implications,
its rating of any of the Company's debt securities or preferred stock;
(h) On or after the date hereof there shall not have occurred any
of the following: (i) a suspension or material limitation in trading in
securities generally on the New York Stock Exchange or on NASDAQ; (ii) a
suspension or material limitation in trading in the Company's securities on
NASDAQ; (iii) a general moratorium on commercial banking activities
declared by either Federal, New York or California State authorities; or
(iv) the outbreak or escalation of hostilities involving the United States
or the declaration by the United States of a national emergency or war, if
the effect of any such event specified in this Clause (iv) in the judgment
of the Representatives makes it impracticable or inadvisable to proceed
with the public offering or the delivery of the Shares being delivered at
such Time of Delivery on the terms and in the manner contemplated in the
Prospectus;
(i) The Shares at such Time of Delivery shall have been duly
listed, subject to notice of issuance, for quotation on NASDAQ;
(j) The Company shall have obtained and delivered to the
Underwriters executed copies of an agreement from each officer, director,
stockholder and optionholder of the Company, substantially to the effect
set forth in Subsection 1(b)(iv) hereof in form and substance satisfactory
to you;
(k) The Company shall have complied with the provisions of Section
5(c) hereof with respect to the furnishing of prospectuses on the New York
Business Day next succeeding the date of this Agreement; and
(l) The Company and the Selling Stockholders shall have furnished
or caused to be furnished to you at such Time of Delivery certificates of
officers of the Company and of the Selling Stockholders, respectively,
satisfactory to you as to the accuracy of the representations and
warranties of the Company and the Selling Stockholders, respectively,
herein at and as of such Time of Delivery, as to the performance by the
Company and the Selling Stockholders of all of their respective obligations
hereunder to be performed at or
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prior to such Time of Delivery, and as to such other matters as you may
reasonably request, and the Company shall have furnished or caused to be
furnished certificates as to the matters set forth in subsections (a) and
(f) of this Section.
8. (a) The Company and each of the Selling Stockholders, jointly and
severally, will indemnify and hold harmless each Underwriter against any losses,
claims, damages or liabilities, joint or several, to which such Underwriter may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, the Registration Statement or the
Prospectus, or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse each Underwriter for any legal or other expenses reasonably
incurred by such Underwriter in connection with investigating or defending any
such action or claim as such expenses are incurred; provided, however, that the
Company and the Selling Stockholders shall not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in any Preliminary Prospectus, the Registration Statement or the
Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through Goldman, Sachs & Co. expressly for use therein.
(b) Each Underwriter will indemnify and hold harmless the Company and
each Selling Stockholder against any losses, claims, damages or liabilities to
which the Company or such Selling Stockholder may become subject, under the Act
or otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon an untrue statement or
alleged untrue statement of a material fact contained in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in any Preliminary
Prospectus, the Registration Statement or the Prospectus or any such amendment
or supplement in reliance upon and in conformity with written information
furnished to the Company by such Underwriter through Goldman, Sachs & Co.
expressly for use therein; and will reimburse the Company and each Selling
Stockholder for any legal or other expenses reasonably incurred by the Company
or such Selling Stockholder in connection with investigating or defending any
such action or claim as such expenses are incurred.
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under such subsection. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party (who shall not,
except with the consent of the indemnified party, be counsel to the indemnifying
party), and, after notice from the indemnifying party to such indemnified party
of
18
<PAGE>
its election so to assume the defense thereof, the indemnifying party shall not
be liable to such indemnified party under such subsection for any legal expenses
of other counsel or any other expenses, in each case subsequently incurred by
such indemnified party, in connection with the defense thereof other than
reasonable costs of investigation. No indemnifying party shall, without the
written consent of the indemnified party, effect the settlement or compromise
of, or consent to the entry of any judgment with respect to, any pending or
threatened action or claim in respect of which indemnification or contribution
may be sought hereunder (whether or not the indemnified party is an actual or
potential party to such action or claim) unless such settlement, compromise or
judgment (i) includes an unconditional release of the indemnified party from all
liability arising out of such action or claim and (ii) does not include a
statement as to or an admission of fault, culpability or a failure to act, by or
on behalf of any indemnified party.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative benefits received by the Company and the Selling Stockholders on the
one hand and the Underwriters on the other from the offering of the Shares. If,
however, the allocation provided by the immediately preceding sentence is not
permitted by applicable law or if the indemnified party failed to give the
notice required under subsection (c) above, then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault of the Company and the Selling Stockholders on the one hand
and the Underwriters on the other in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities (or actions in
respect thereof), as well as any other relevant equitable considerations. The
relative benefits received by the Company and the Selling Stockholders on the
one hand and the Underwriters on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company and the Selling Stockholders bear to the total
underwriting discounts and commissions received by the Underwriters, in each
case as set forth in the table on the cover page of the Prospectus. The relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
or the Selling Stockholders on the one hand or the Underwriters on the other and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission. The Company, each of the
Selling Stockholders and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this subsection (d) were determined by
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to above in this subsection (d). The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to above
in this subsection (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
subsection (d), no Underwriter shall be required to contribute any amount in
excess of the amount by which the total price at which the Shares underwritten
by it and distributed to the public were offered to the public exceeds the
amount of any damages which such Underwriter has otherwise been required to pay
by reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation
19
<PAGE>
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) The obligations of the Company and the Selling Stockholders under
this Section 8 shall be in addition to any liability which the Company and the
respective Selling Stockholders may otherwise have and shall extend, upon the
same terms and conditions, to each person, if any, who controls any Underwriter
within the meaning of the Act; and the obligations of the Underwriters under
this Section 8 shall be in addition to any liability which the respective
Underwriters may otherwise have and shall extend, upon the same terms and
conditions, to each officer and director of the Company (including any person
who, with his or her consent, is named in the Registration Statement as about to
become a director of the Company) and to each person, if any, who controls the
Company or any Selling Stockholder within the meaning of the Act.
9. (a) If any Underwriter shall default in its obligation to purchase
the Shares which it has agreed to purchase hereunder at a Time of Delivery, you
may in your discretion arrange for you or another party or other parties to
purchase such Shares on the terms contained herein. If within thirty-six hours
after such default by any Underwriter you do not arrange for the purchase of
such Shares, then the Company and the Selling Stockholders shall be entitled to
a further period of thirty-six hours within which to procure another party or
other parties satisfactory to you to purchase such Shares on such terms. In the
event that, within the respective prescribed periods, you notify the Company and
the Selling Stockholders that you have so arranged for the purchase of such
Shares, or the Company and the Selling Stockholders notify you that they have so
arranged for the purchase of such Shares, you or the Company and the Selling
Stockholders shall have the right to postpone a Time of Delivery for a period of
not more than seven days, in order to effect whatever changes may thereby be
made necessary in the Registration Statement or the Prospectus, or in any other
documents or arrangements, and the Company agrees to file promptly any
amendments to the Registration Statement or the Prospectus which in your opinion
may thereby be made necessary. The term "Underwriter" as used in this Agreement
shall include any person substituted under this Section with like effect as if
such person had originally been a party to this Agreement with respect to such
Shares.
(b) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the Company
and the Selling Stockholders as provided in subsection (a) above, the aggregate
number of such Shares which remains unpurchased does not exceed one-eleventh of
the aggregate number of all the Shares to be purchased at such Time of Delivery,
then the Company and the Selling Stockholders shall have the right to require
each non-defaulting Underwriter to purchase the number of Shares which such
Underwriter agreed to purchase hereunder at such Time of Delivery and, in
addition, to require each non-defaulting Underwriter to purchase its pro rata
share (based on the number of Shares which such Underwriter agreed to purchase
hereunder) of the Shares of such defaulting Underwriter or Underwriters for
which such arrangements have not been made; but nothing herein shall relieve a
defaulting Underwriter from liability for its default.
(c) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the Company
and the Selling Stockholders as provided in subsection (a) above, the aggregate
number of such Shares which remains unpurchased exceeds one-eleventh of the
aggregate number of all of the Shares to be purchased at such Time of Delivery,
or if the Company and the Selling Stockholders shall not exercise the right
described in subsection (b) above to require non-defaulting Underwriters to
purchase Shares
20
<PAGE>
of a defaulting Underwriter or Underwriters, then this Agreement (or, with
respect to the Second Time of Delivery, the obligations of the Underwriters to
purchase and of the Company and the Selling Stockholders to sell the Optional
Shares) shall thereupon terminate, without liability on the part of any non-
defaulting Underwriter or the Company or the Selling Stockholders, except for
the expenses to be borne by the Company and the Selling Stockholders and the
Underwriters as provided in Section 6 hereof and the indemnity and contribution
agreements in Section 8 hereof; but nothing herein shall relieve a defaulting
Underwriter from liability for its default.
10. The respective indemnities, agreements, representations, warranties
and other statements of the Company, the Selling Stockholders and the several
Underwriters, as set forth in this Agreement or made by or on behalf of them,
respectively, pursuant to this Agreement, shall remain in full force and effect,
regardless of any investigation (or any statement as to the results thereof)
made by or on behalf of any Underwriter or any controlling person of any
Underwriter, or the Company, or any of the Selling Stockholders, or any officer
or director or controlling person of the Company, or any controlling person of
any Selling Stockholder, and shall survive delivery of and payment for the
Shares.
11. If this Agreement shall be terminated pursuant to Section 9 hereof,
neither the Company nor the Selling Stockholders shall then be under any
liability to any Underwriter except as provided in Sections 6 and 8 hereof; but,
if for any other reason any Shares are not delivered by or on behalf of the
Company and the Selling Stockholders as provided herein, the Company will
reimburse the Underwriters through you for all out-of-pocket expenses approved
in writing by you, including fees and disbursements of counsel, reasonably
incurred by the Underwriters in making preparations for the purchase, sale and
delivery of the Shares not so delivered, but the Company and the Selling
Stockholders shall then be under no further liability to any Underwriter in
respect of the Shares not so delivered except as provided in Sections 6 and 8
hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by Goldman, Sachs & Co. on behalf of you as the
representatives; and in all dealings with any Selling Stockholder hereunder, you
and the Company shall be entitled to act and rely upon any statement, request,
notice or agreement on behalf of such Selling Stockholder made or given by any
or all of the Attorneys-in-Fact for such Selling Stockholder.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to you as the representatives in care of Goldman, Sachs &
Co., 32 Old Slip, 9th Floor, New York, New York 10004, Attention: Registration
Department; if to any Selling Stockholder shall be delivered or sent by mail,
telex or facsimile transmission to counsel for such Selling Stockholder at its
address set forth in Schedule II hereto; and if to the Company shall be
delivered or sent by mail, telex or facsimile transmission to the address of the
Company set forth in the Registration Statement, Attention: Secretary; provided,
however, that any notice to an Underwriter pursuant to Section 8(c) hereof shall
be delivered or sent by mail, telex or facsimile transmission to such
Underwriter at its address set forth in its Underwriters' Questionnaire or telex
constituting such Questionnaire, which address will be supplied to the Company
or the Selling Stockholders by you on request. Any such statements, requests,
notices or agreements shall take effect upon receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the benefit
of, the Underwriters, the Company and the Selling Stockholders and, to the
extent provided in Sections 8 and 10 hereof, the officers and directors of the
Company and each person who controls the
21
<PAGE>
Company, any Selling Stockholder or any Underwriter, and their respective heirs,
executors, administrators, successors and assigns, and no other person shall
acquire or have any right under or by virtue of this Agreement. No purchaser of
any of the Shares from any Underwriter shall be deemed a successor or assign by
reason merely of such purchase.
14. Time shall be of the essence of this Agreement. As used herein, the
term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
15. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
16. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument .
If the foregoing is in accordance with your understanding, please sign and
return to us one for the Company and each of the Representatives plus one for
each counsel and the Custodian, if any counterparts hereof, and upon the
acceptance hereof by you, on behalf of each of the Underwriters, this letter and
such acceptance hereof shall constitute a binding agreement among each of the
Underwriters, the Company and each of the Selling Stockholders. It is understood
that your acceptance of this letter on behalf of each of the Underwriters is
pursuant to the authority set forth in a form of Agreement among Underwriters,
the form of which shall be submitted to the Company and the Selling Stockholders
for examination, upon request, but without warranty on your part as to the
authority of the signers thereof.
22
<PAGE>
Any person executing and delivering this Agreement as Attorney-in-Fact for
a Selling Stockholder represents by so doing that he has been duly appointed as
Attorney-in-Fact by such Selling Stockholder pursuant to a validly existing and
binding Power-of-Attorney which authorizes such Attorney-in-Fact to take such
action.
Very truly yours,
E-Tek Dynamics, Inc.
By:..................................
Name:
Title:
[NAMES OF SELLING STOCKHOLDERS]
By:..................................
Name:
Title:
As Attorney-in-Fact acting on behalf of
each of the Selling Stockholders named
in Schedule II to this Agreement.
Accepted as of the date hereof
at ...., ...............:
Goldman, Sachs & Co.
Morgan Stanley Dean Witter & Co.
NationsBanc Montgomery Securities,
LLC
Dain Rauscher Wessels
By:..............................
(Goldman, Sachs & Co.)
On behalf of each of the
Underwriters
23
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE I
NUMBER OF OPTIONAL
SHARES TO BE
TOTAL NUMBER OF PURCHASED IF
FIRM SHARES MAXIMUM OPTION
UNDERWRITER TO BE PURCHASED EXERCISED
----------- --------------- ---------
<S> <C> <C>
Goldman, Sachs & Co......................
Morgan Stanley Dean Witter & Co..........
NationsBanc Montgomery Securities, LLC...
Dain Rauscher Wessels....................
Total...............................
</TABLE>
24
<PAGE>
SCHEDULE II
<TABLE>
<CAPTION>
NUMBER OF OPTIONAL
SHARES TO BE
TOTAL NUMBER OF SOLD IF
FIRM SHARES MAXIMUM OPTION
TO BE SOLD EXERCISED
---------- ---------
<S> <C> <C>
The Company........................................
The Selling Stockholder(s):....................
[NAME OF SELLING STOCKHOLDER](A).........
[NAME OF SELLING STOCKHOLDER](B).........
[NAME OF SELLING STOCKHOLDER](C).........
[NAME OF SELLING STOCKHOLDER](D).........
[NAME OF SELLING STOCKHOLDER](E).........
TOTAL..........................................
</TABLE>
..........
(a) This Selling Stockholder is represented by [NAME AND ADDRESS OF COUNSEL]
and has appointed [NAMES OF ATTORNEYS-IN-FACT (NOT LESS THAN TWO)], and
each of them, as the Attorneys-in-Fact for such Selling Stockholder.
(b) This Selling Stockholder is represented by [NAME AND ADDRESS OF COUNSEL]
and has appointed [NAMES OF ATTORNEYS-IN-FACT (NOT LESS THAN TWO)], and
each of them, as the Attorneys-in-Fact for such Selling Stockholder.
(c) This Selling Stockholder is represented by [NAME AND ADDRESS OF COUNSEL]
and has appointed [NAMES OF ATTORNEYS-IN-FACT (NOT LESS THAN TWO)], and
each of them, as the Attorneys-in-Fact for such Selling Stockholder.
(d) This Selling Stockholder is represented by [NAME AND ADDRESS OF COUNSEL]
and has appointed [NAMES OF ATTORNEYS-IN-FACT (NOT LESS THAN TWO)], and
each of them, as the Attorneys-in-Fact for such Selling Stockholder.
(e) This Selling Stockholder is represented by [NAME AND ADDRESS OF COUNSEL]
and has appointed [NAMES OF ATTORNEYS-IN-FACT (NOT LESS THAN TWO)], and
each of them, as the Attorneys-in-Fact for such Selling Stockholder.
25
<PAGE>
ANNEX I
Pursuant to Section 7(e) of the Underwriting Agreement, the accountants
shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with respect
to the Company and its subsidiaries within the meaning of the Act and the
applicable published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any supplementary
financial information and schedules (and, if applicable, financial
forecasts and/or pro forma financial information) examined by them and
included in the Prospectus or the Registration Statement comply as to form
in all material respects with the applicable accounting requirements of the
Act and the related published rules and regulations thereunder; and, if
applicable, they have made a review in accordance with standards
established by the American Institute of Certified Public Accountants of
the unaudited consolidated interim financial statements, selected financial
data, pro forma financial information, financial forecasts and/or condensed
financial statements derived from audited financial statements of the
Company for the periods specified in such letter, as indicated in their
reports thereon, copies of which have been furnished to the representatives
of the Underwriters (the "Representatives");
(iii) They have made a review in accordance with standards established
by the American Institute of Certified Public Accountants of the unaudited
condensed consolidated statements of income, consolidated balance sheets
and consolidated statements of cash flows included in the Prospectus as
indicated in their reports thereon, copies of which have been furnished to
the Representatives, and on the basis of specified procedures including
inquiries of officials of the Company who have responsibility for financial
and accounting matters regarding whether the unaudited condensed
consolidated financial statements referred to in paragraph (vi)(A)(i) below
comply as to form in all material respects with the applicable accounting
requirements of the Act and the related published rules and regulations,
nothing came to their attention that caused them to believe that the
unaudited condensed consolidated financial statements do not comply as to
form in all material respects with the applicable accounting requirements
of the Act and the related published rules and regulations;
(iv) The unaudited selected financial information with respect to the
consolidated results of operations and financial position of the Company
for the five most recent fiscal years included in the Prospectus agrees
with the corresponding amounts (after restatements where applicable) in the
audited consolidated financial statements for such five fiscal years,
copies of which have been furnished to the Representatives;
(v) They have compared the information in the Prospectus under
selected captions with the disclosure requirements of Regulation S-K and on
the basis of limited procedures specified in such letter nothing came to
their attention as a result of the foregoing procedures that caused them to
believe that this information does not conform in all material respects
with the disclosure requirements of Items 301, 302, 402 and 503(d),
respectively, of Regulation S-K;
<PAGE>
(vi) On the basis of limited procedures, not constituting an
examination in accordance with generally accepted auditing standards,
consisting of a reading of the unaudited financial statements and other
information referred to below, a reading of the latest available interim
financial statements of the Company and its subsidiaries, inspection of the
minute books of the Company and its subsidiaries since the date of the
latest audited financial statements included in the Prospectus, inquiries
of officials of the Company and its subsidiaries responsible for financial
and accounting matters and such other inquiries and procedures as may be
specified in such letter, nothing came to their attention that caused them
to believe that:
(A) (i) the unaudited consolidated statements of income,
consolidated balance sheets and consolidated statements of cash flows
included in the Prospectus do not comply as to form in all material
respects with the applicable accounting requirements of the Act and
the related published rules and regulations, or (ii) any material
modifications should be made to the unaudited condensed consolidated
statements of income, consolidated balance sheets and consolidated
statements of cash flows included in the Prospectus for them to be in
conformity with generally accepted accounting principles;
(B) any other unaudited income statement data and balance sheet
items included in the Prospectus do not agree with the corresponding
items in the unaudited consolidated financial statements from which
such data and items were derived, and any such unaudited data and
items were not determined on a basis substantially consistent with the
basis for the corresponding amounts in the audited consolidated
financial statements included in the Prospectus;
(C) the unaudited financial statements which were not included
in the Prospectus but from which were derived any unaudited condensed
financial statements referred to in Clause (A) and any unaudited
income statement data and balance sheet items included in the
Prospectus and referred to in Clause (B) were not determined on a
basis substantially consistent with the basis for the audited
consolidated financial statements included in the Prospectus;
(D) any unaudited pro forma consolidated condensed financial
statements included in the Prospectus do not comply as to form in all
material respects with the applicable accounting requirements of the
Act and the published rules and regulations thereunder or the pro
forma adjustments have not been properly applied to the historical
amounts in the compilation of those statements;
(E) as of a specified date not more than five days prior to the
date of such letter, there have been any changes in the consolidated
capital stock (other than issuances of capital stock upon exercise of
options and stock appreciation rights, upon earn-outs of performance
shares and upon conversions of convertible securities, in each case
which were outstanding on the date of the latest financial statements
included in the Prospectus) or any increase in the consolidated long-
term debt of the Company and its subsidiaries, or any decreases in
consolidated net current assets or stockholders' equity or other items
specified by the Representatives, or any increases in any items
specified by the Representatives, in each case as compared with
amounts shown in the latest balance sheet included in the Prospectus,
except in each case for changes, increases or decreases which the
Prospectus discloses have occurred or may occur or which are described
in such letter; and
(F) for the period from the date of the latest financial
statements included in the Prospectus to the specified date referred
to in Clause (E) there were
2
<PAGE>
any decreases in consolidated net revenues or operating profit or the
total or per share amounts of consolidated net income or other items
specified by the Representatives, or any increases in any items
specified by the Representatives, in each case as compared with the
comparable period of the preceding year and with any other period of
corresponding length specified by the Representatives, except in each
case for decreases or increases which the Prospectus discloses have
occurred or may occur or which are described in such letter; and
(vii) In addition to the examination referred to in their report(s)
included in the Prospectus and the limited procedures, inspection of minute
books, inquiries and other procedures referred to in paragraphs (iii) and
(vi) above, they have carried out certain specified procedures, not
constituting an examination in accordance with generally accepted auditing
standards, with respect to certain amounts, percentages and financial
information specified by the Representatives, which are derived from the
general accounting records of the Company and its subsidiaries, which
appear in the Prospectus, or in Part II of, or in exhibits and schedules
to, the Registration Statement specified by the Representatives, and have
compared certain of such amounts, percentages and financial information
with the accounting records of the Company and its subsidiaries and have
found them to be in agreement.
3
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
E-TEK DYNAMICS, INC.
FIRST
The name of this corporation is "E-Tek Dynamics, Inc." (the "Corporation").
SECOND
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
Delaware.
THIRD
The address of the Corporation's registered office in the State of Delaware
is 1013 Centre Road, Wilmington, County of New Castle, Delaware 19805. The name
of its registered agent at such address is Corporation Service Company.
FOURTH
A. The total number of shares which the Corporation shall have authority
to issue is Three Hundred and Twenty Five Million (325,000,000) shares of
capital stock.
B. Of such authorized shares, Three Hundred Million (300,000,000) shares
shall be designated "Common Stock," par value $0.001 per share.
C. Of such authorized shares, Twenty Five Million (25,000,000) shares
shall be designated "Preferred Stock," par value $0.01 per share. The Preferred
Stock may be issued from time to time and in one or more series. The Board of
Directors of the Corporation is authorized to determine or alter the powers,
preferences and rights, and the qualifications, limitations and restrictions
granted to or imposed upon any wholly unissued series of Preferred Stock, and
within the limitations or restrictions stated in any resolution or resolutions
of the Board of Directors originally fixing the number of shares constituting
any series of Preferred Stock, to increase or decrease (but not below the number
of shares of any such series of Preferred Stock then outstanding) the number of
shares of any such series of Preferred Stock, and to fix the number of shares of
any series of Preferred Stock. In the event that the number of shares of any
series of Preferred Stock shall be so decreased, the shares constituting such
decrease shall resume the status which such shares had prior to the adoption of
the resolution originally fixing the number of shares of such series of
Preferred Stock.
<PAGE>
FIFTH
The Corporation is to have perpetual existence.
SIXTH
Elections of directors need not be by written ballot unless a stockholder
demands election by written ballot at the meeting and before voting begins.
SEVENTH
The number of directors which constitute the entire Board of Directors of
the Corporation shall be designated in the Bylaws of the Corporation.
EIGHTH
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, alter, amend or repeal
the Bylaws of the Corporation.
NINTH
To the fullest extent permitted by the Delaware General Corporation Law as
the same exists or as it may hereafter be amended, no director of the
Corporation shall be personally liable to the Corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director.
Neither any amendment nor repeal of this Article, nor the adoption of any
provision of this Restated Certificate of Incorporation inconsistent with this
Article, shall eliminate or reduce the effect of this Article in respect of any
matter occurring, or any cause of action, suit or claim that, but for this
Article, would accrue or arise, prior to such amendment, repeal or adoption of
an inconsistent provision.
TENTH
Section 1. At each annual meeting of stockholders, directors of the
Corporation shall be elected to hold office until the expiration of the term for
which they are elected, and until their successors have been duly elected and
qualified; except that if any such election shall be not so held, such election
shall take place at stockholders' meeting called and held in accordance with the
Delaware General Corporation Law. The directors of the Corporation shall be
divided into three classes as nearly equal in size as is practicable, hereby
designed Class I, Class II and Class III. The term of office of the initial
Class I directors shall expire at the next succeeding annual meeting of
stockholders, the term of office of the initial Class II directors shall expire
at the second succeeding annual meeting of stockholders and the term of office
of the initial Class III directors shall expire at the third succeeding annual
meeting of the stockholders. For the purposes hereof, the initial Class
-2-
<PAGE>
I, Class II and Class III directors shall be those directors so designated by
the incorporator. At each annual meeting after the first annual meeting of
stockholders, directors to replace those of a Class whose terms expire at such
annual meeting shall be elected to hold office until the third succeeding annual
meeting and until their respective successors shall have been duly elected and
qualified. If the number of directors is hereafter changed, any newly created
directorships or decrease in directorships shall be so apportioned among the
classes as to make all classes as nearly equal in number as practicable.
Section 2. The number of directors which constitute the whole Board
of Directors of the Corporation shall be designed in the Bylaws of the
Corporation.
Section 3. Vacancies occurring on the Board of Directors for any
reason may be filled by vote of a majority of the remaining members of the Board
of Directors, although less than a quorum, at any meeting of the Board of
Directors. A person so elected by the Board of Directors to fill a vacancy
shall hold office until the next succeeding annual meeting of stockholders of
the Corporation and until his or her successor shall have been duly elected and
qualified.
ELEVENTH
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside of the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.
TWELFTH
The stockholders of the Corporation may not take any action by written
consent in lieu of a meeting, and must take any actions at a duly called annual
or special meeting of stockholders.
THIRTEENTH
Notwithstanding any other provisions of this Restated Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of the
capital stock required by law or this Restated Certificate of Incorporation, the
affirmative vote of the holders of at least two-thirds (2/3) of the combined
voting power of all of the then-outstanding shares of the Corporation entitled
to vote shall be required to alter, amend or repeal Articles TENTH or TWELFTH
hereof, or this Article THIRTEENTH, or any provision thereof or hereof, unless
such amendment shall be approved by a majority of the directors of the
Corporation not affiliated or associated with any person or entity holding (or
which has announced an intention to obtain) twenty percent (20%) or more of the
voting power of the Corporation's outstanding capital stock.
-3-
<PAGE>
FOURTEENTH
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
IN WITNESS WHEREOF, the Corporation has caused this Amended and Restated
Certificate of Incorporation to be executed for and on behalf of the Corporation
and in its name by Michael J. Fitzpatrick, its President and Chief Executive
Officer, as attested by ________________________, its Secretary.
E-TEK DYNAMICS, INC.
________________________________________
Michael J. Fitzpatrick
President and Chief Executive Officer
ATTEST:
E-TEK DYNAMICS, INC.
___________________________________
Secretary
-4-
<PAGE>
EXHIBIT 3.2
BYLAWS
OF
E-TEK DYNAMICS, INC.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
ARTICLE I CORPORATE OFFICES.......................................... 1
-----------------
I.1 REGISTERED OFFICE.......................................... 1
-----------------
I.2 OTHER OFFICES.............................................. 1
-------------
ARTICLE II MEETINGS OF STOCKHOLDERS................................... 1
------------------------
II.1 PLACE OF MEETINGS.......................................... 1
-----------------
II.2 ANNUAL MEETING............................................. 1
--------------
II.3 SPECIAL MEETING............................................ 1
---------------
II.4 NOTICE OF STOCKHOLDERS' MEETINGS........................... 2
--------------------------------
II.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE............... 2
--------------------------------------------
II.6 QUORUM..................................................... 2
------
II.7 ADJOURNED MEETING; NOTICE.................................. 2
-------------------------
II.8 VOTING..................................................... 2
------
II.9 WAIVER OF NOTICE........................................... 3
----------------
II.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.... 3
-------------------------------------------------------
II.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS 4
-----------------------------------------------------------
II.12 PROXIES.................................................... 4
-------
II.13 LIST OF STOCKHOLDERS ENTITLED TO VOTE...................... 4
-------------------------------------
ARTICLE III DIRECTORS.................................................. 5
---------
III.1 POWERS..................................................... 5
------
III.2 NUMBER OF DIRECTORS........................................ 5
-------------------
III.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS.... 5
-------------------------------------------------------
III.4 RESIGNATION AND VACANCIES.................................. 5
-------------------------
III.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE................... 6
----------------------------------------
III.6 FIRST MEETINGS............................................. 6
--------------
III.7 REGULAR MEETINGS........................................... 7
----------------
III.8 SPECIAL MEETINGS; NOTICE................................... 7
------------------------
III.9 QUORUM..................................................... 7
------
III.10 WAIVER OF NOTICE........................................... 7
----------------
III.11 ADJOURNED MEETING; NOTICE.................................. 7
-------------------------
III.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING.......... 8
-------------------------------------------------
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
III.13 FEES AND COMPENSATION OF DIRECTORS............................ 8
----------------------------------
III.14 APPROVAL OF LOANS TO OFFICERS................................. 8
-----------------------------
ARTICLE IV COMMITTEES.................................................... 8
----------
IV.1 COMMITTEES OF DIRECTORS....................................... 8
-----------------------
IV.2 COMMITTEE MINUTES............................................. 9
-----------------
IV.3 MEETINGS AND ACTION OF COMMITTEES............................. 9
---------------------------------
ARTICLE V OFFICERS...................................................... 9
--------
V.1 OFFICERS...................................................... 10
--------
V.2 ELECTION OF OFFICERS.......................................... 10
--------------------
V.3 SUBORDINATE OFFICERS.......................................... 10
--------------------
V.4 REMOVAL AND RESIGNATION OF OFFICERS........................... 10
-----------------------------------
V.5 VACANCIES IN OFFICES.......................................... 10
--------------------
V.6 AUTHORITY AND DUTIES OF OFFICERS.............................. 10
--------------------------------
V.7 LIMITATIONS ON POWERS AND DUTIES OF OFFICERS.................. 10
--------------------------------------------
ARTICLE VI INDEMNITY..................................................... 11
---------
VI.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS..................... 11
-----------------------------------------
VI.2 INDEMNIFICATION OF OTHERS..................................... 11
-------------------------
VI.3 PREPAYMENT OF EXPENSES........................................ 11
----------------------
VI.4 CLAIMS........................................................ 11
------
VI.5 NON-EXCLUSIVITY OF RIGHTS..................................... 12
-------------------------
VI.6 OTHER INDEMNIFICATION......................................... 12
---------------------
VI.7 AMENDMENT OR REPEAL........................................... 12
-------------------
ARTICLE VII RECORDS AND REPORTS........................................... 12
-------------------
VII.1 MAINTENANCE AND INSPECTION OF RECORDS......................... 12
-------------------------------------
VII.2 INSPECTION BY DIRECTORS....................................... 13
-----------------------
VII.3 REPRESENTATION OF SHARES OF OTHER CORPORATIONS................ 13
----------------------------------------------
ARTICLE VIII GENERAL MATTERS............................................... 13
---------------
VIII.1 CHECKS........................................................ 13
------
VIII.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS.............. 13
------------------------------------------------
VIII.3 STOCK CERTIFICATES; PARTLY PAID SHARES........................ 14
--------------------------------------
VIII.4 SPECIAL DESIGNATION ON CERTIFICATES........................... 14
-----------------------------------
VIII.5 LOST CERTIFICATES............................................. 14
-----------------
VIII.6 CONSTRUCTION; DEFINITIONS..................................... 15
-------------------------
VIII.7 DIVIDENDS..................................................... 15
---------
VIII.8 FISCAL YEAR................................................... 15
-----------
VIII.9 SEAL.......................................................... 15
----
VIII.10 TRANSFER OF STOCK............................................. 15
-----------------
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
VIII.11 STOCK TRANSFER AGREEMENTS.................................... 16
-------------------------
VIII.12 REGISTERED STOCKHOLDERS...................................... 16
-----------------------
ARTICLE IX AMENDMENTS................................................... 16
----------
ARTICLE X DISSOLUTION.................................................. 16
-----------
ARTICLE XI CUSTODIAN.................................................... 17
---------
XI.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES.................. 17
-------------------------------------------
XI.2 DUTIES OF CUSTODIAN.......................................... 17
-------------------
</TABLE>
-iii-
<PAGE>
BYLAWS
OF
E-TEK DYNAMICS, INC.
ARTICLE I
CORPORATE OFFICES
-----------------
I.1 REGISTERED OFFICE
-----------------
The registered office of the corporation shall be in the City of
Wilmington, County of New Castle, State of Delaware. The name of the registered
agent of the corporation at such location is The Corporation Trust Company.
I.2 OTHER OFFICES
-------------
The board of directors may at any time establish other offices at any place
or places where the corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
II.1 PLACE OF MEETINGS
-----------------
Meetings of stockholders shall be held at any place, within or outside the
State of Delaware, designated by the board of directors. In the absence of any
such designation, stockholders' meetings shall be held at the registered office
of the corporation.
II.2 ANNUAL MEETING
--------------
The annual meeting of stockholders shall be held each year on a date and at
a time designated by the board of directors. At the meeting, directors shall be
elected and any other proper business may be transacted.
II.3 SPECIAL MEETING
---------------
Special meetings of stockholders for any purpose or purposes may be called
at any time by the board of directors, or by a committee of the board of
directors which has been duly designated by the board of directors and whose
powers and authority, as expressly provided in a resolution of the board of
directors, include the power to call such meetings,
<PAGE>
and such special meetings may not be called by any other person or persons.
II.4 NOTICE OF STOCKHOLDERS' MEETINGS
--------------------------------
All notices of meetings with stockholders shall be in writing and shall be
sent or otherwise given in accordance with Section 2.5 of these bylaws not less
than ten (10) nor more than sixty (60) days before the date of the meeting to
each stockholder entitled to vote at such meeting. The notice shall specify the
place, date, and hour of the meeting, and, in the case of a special meeting, the
purpose or purposes for which the meeting is called.
II.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
--------------------------------------------
Written notice of any meeting of stockholders, if mailed, is given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation. An
affidavit of the secretary or an assistant secretary or of the transfer agent of
the corporation that the notice has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein. If mailed, such notice
shall be deemed to be given when deposited in the mail, postage prepaid,
directed to the stockholder at his address as it appears on the records of the
corporation.
II.6 QUORUM
------
The holders of a majority of the stock issued and outstanding and entitled
to vote thereat, present in person or represented by proxy, shall constitute a
quorum at all meetings of the stockholders for the transaction of business
except as otherwise provided by statute or by the certificate of incorporation.
If, however, such quorum is not present or represented at any meeting of the
stockholders, then the stockholders entitled to vote thereat, present in person
or represented by proxy, shall have power to adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum is
present or represented. At such adjourned meeting at which a quorum is present
or represented, any business may be transacted that might have been transacted
at the meeting as originally noticed.
II.7 ADJOURNED MEETING; NOTICE
-------------------------
When a meeting is adjourned to another time or place, unless these bylaws
otherwise require, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the corporation may transact any business that
might have been transacted at the original meeting. If the adjournment is for
more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
II.8 VOTING
------
The stockholders entitled to vote at any meeting of stockholders shall be
determined in accordance with the provisions of Section 2.11 of these bylaws,
subject to the provisions of Sections 217
-2-
<PAGE>
and 218 of the General Corporation Law of Delaware (relating to voting rights of
fiduciaries, pledgors and joint owners of stock and to voting trusts and other
voting agreements).
Except as provided in the last paragraph of this Section 2.8, or as may be
otherwise provided in the certificate of incorporation, each stockholder shall
be entitled to one vote for each share of capital stock held by such
stockholder.
At a stockholders' meeting at which directors are to be elected, or at
elections held under special circumstances, a stockholder shall be entitled to
cumulate votes (i.e., cast for any candidate a number of votes greater than the
number of votes which such stockholder normally is entitled to cast). Each
holder of stock, or of any class or classes or of a series or series thereof,
who elects to cumulate votes shall be entitled to as many votes as equals the
number of votes which (absent this provision as to cumulative voting) he would
be entitled to cast for the election of directors with respect to his shares of
stock multiplied by the number of directors to be elected by him, and he may
cast all of such votes for a single director or may distribute them among the
number to be voted for, or for any two or more of them, as he may see fit.
II.9 WAIVER OF NOTICE
----------------
Whenever notice is required to be given under any provision of the General
Corporation Law of Delaware or of the certificate of incorporation or these
bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice unless so
required by the certificate of incorporation or these bylaws.
II.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
-------------------------------------------------------
Unless otherwise provided in the certificate of incorporation, any action
required by this chapter to be taken at any annual or special meeting of
stockholders of the corporation, or any action that may be taken at any annual
or special meeting of such stockholders, may be taken without a meeting, without
prior notice, and without a vote if a consent in writing, setting forth the
action so taken, is signed by the holders of outstanding stock having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted.
Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing. If the action which is consented to is such as
would have required the filing of a certificate under any section of the General
Corporation Law of Delaware if such action had been voted on by stockholders at
a meeting thereof, then the certificate filed under such section shall state, in
lieu of any statement required by such section concerning any vote of
stockholders, that written notice and written consent have been given as
provided in Section 228 of the General Corporation Law of Delaware.
-3-
<PAGE>
II.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS
-----------------------------------------------------------
In order that the corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
or entitled to express consent to corporate action in writing without a meeting,
or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the board of directors may fix, in advance, a record date, which shall
not be more than sixty (60) nor less than ten (10) days before the date of such
meeting, nor more than sixty (60) days prior to any other action.
If the board of directors does not so fix a record date:
(i) The record date for determining stockholders entitled to notice of
or to vote at a meeting of stockholders shall be at the close of business on the
day next preceding the day on which notice is given, or, if notice is waived, at
the close of business on the day next preceding the day on which the meeting is
held.
(ii) The record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting, when no prior action
by the board of directors is necessary, shall be the day on which the first
written consent is expressed.
(iii) The record date for determining stockholders for any other purpose
shall be at the close of business on the day on which the board of directors
adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the board of directors may fix a new record date for the
adjourned meeting.
II.12 PROXIES
-------
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for him by a written proxy, signed by
the stockholder and filed with the secretary of the corporation, but no such
proxy shall be voted or acted upon after three (3) years from its date, unless
the proxy provides for a longer period. A proxy shall be deemed signed if the
stockholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the stockholder or the
stockholder's attorney-in-fact. The revocability of a proxy that states on its
face that it is irrevocable shall be governed by the provisions of Section
212(c) of the General Corporation Law of Delaware.
II.13 LIST OF STOCKHOLDERS ENTITLED TO VOTE
-------------------------------------
The officer who has charge of the stock ledger of the corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination
-4-
<PAGE>
of any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten (10) days prior to the meeting,
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or, if not so specified, at the
place where the meeting is to be held. The list shall also be produced and kept
at the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
ARTICLE III
DIRECTORS
---------
III.1 POWERS
------
Subject to the provisions of the General Corporation Law of Delaware and
any limitations in the certificate of incorporation or these bylaws relating to
action required to be approved by the stockholders or by the outstanding shares,
the business and affairs of the corporation shall be managed and all corporate
powers shall be exercised by or under the direction of the board of directors.
III.2 NUMBER OF DIRECTORS
-------------------
The authorized number of directors shall be six (6). The number may be
changed by a duly adopted amendment to this bylaw adopted by resolution of the
board of directors in accordance with these bylaws. No reduction of the
authorized number of directors shall have the effect of removing any director
before that director's term of office expires.
III.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS
-------------------------------------------------------
Except as provided in Section 3.4 of these bylaws and unless otherwise
provided in the certificate of incorporation, directors shall be elected at each
annual meeting of stockholders to hold office until the next annual meeting.
Directors need not be stockholders unless so required by the certificate of
incorporation or these bylaws, wherein other qualifications for directors may be
prescribed. Each director, including a director elected to fill a vacancy,
shall hold office until his successor is elected and qualified or until his
earlier resignation or removal.
Elections of directors need not be by written ballot.
III.4 RESIGNATION AND VACANCIES
-------------------------
Any director may resign at any time upon written notice to the corporation.
When one or more directors so resigns and the resignation is effective at a
future date, a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each director so chosen shall hold office as provided in this
section in the filling of other vacancies.
Unless otherwise provided in the certificate of incorporation or these
bylaws:
-5-
<PAGE>
(i) Vacancies and newly created directorships resulting from any increase
in the authorized number of directors elected by all of the stockholders having
the right to vote as a single class may be filled by a majority of the directors
then in office, although less than a quorum, or by a sole remaining director.
(ii) Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the provisions of the
certificate of incorporation, vacancies and newly created directorships of such
class or classes or series may be filled by a majority of the directors elected
by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the certificate of incorporation or these bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the General Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created directorship,
the directors then in office constitute less than a majority of the whole board
(as constituted immediately prior to any such increase), then the Court of
Chancery may, upon application of any stockholder or stockholders holding at
least ten (10) percent of the total number of the shares at the time outstanding
having the right to vote for such directors, summarily order an election to be
held to fill any such vacancies or newly created directorships, or to replace
the directors chosen by the directors then in office as aforesaid, which
election shall be governed by the provisions of Section 211 of the General
Corporation Law of Delaware as far as applicable.
Any and all directors may be removed without cause if the removal is
approved by the affirmative vote of a majority of the outstanding shares of the
corporation entitled to vote. Such approval shall include the affirmative vote
of a majority of the outstanding shares of each class and series entitled to
vote as a class or series on the subject matter being voted upon and shall also
include the affirmative vote of such greater proportion (including all) of the
outstanding shares of any class or series if such greater proportion is required
by the corporation's certificate of incorporation or by applicable laws.
III.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
----------------------------------------
The board of directors of the corporation may hold meetings, both regular
and special, either within or outside the State of Delaware.
Unless otherwise restricted by the certificate of incorporation or these
bylaws, members of the board of directors, or any committee designated by the
board of directors, may participate in a meeting of the board of directors, or
any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
III.6 FIRST MEETINGS
--------------
-6-
<PAGE>
The first meeting of each newly elected board of directors shall be held at
such time and place as shall be fixed by the vote of the stockholders at the
annual meeting and no notice of such meeting shall be necessary to the newly
elected directors in order legally to constitute the meeting, provided a quorum
shall be present. In the event of the failure of the stockholders to fix the
time or place of such first meeting of the newly elected board of directors, or
in the event such meeting is not held at the time and place so fixed by the
stockholders, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
board of directors, or as shall be specified in a written waiver signed by all
of the directors.
III.7 REGULAR MEETINGS
----------------
Regular meetings of the board of directors may be held without notice at
such time and at such place as shall from time to time be determined by the
board.
III.8 SPECIAL MEETINGS; NOTICE
------------------------
Special meetings of the board of directors may be called by any director on
three (3) days' notice to each director, either personally or by mail, telegram,
telex or telephone.
III.9 QUORUM
------
At all meetings of the board of directors, a majority of the authorized
number of directors shall constitute a quorum for the transaction of business
and the act of a majority of the directors present at any meeting at which there
is a quorum shall be the act of the board of directors, except as may be
otherwise specifically provided by statute or by the certificate of
incorporation. If a quorum is not present at any meeting of the board of
directors, then the directors present thereat may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
is present.
III.10 WAIVER OF NOTICE
----------------
Whenever notice is required to be given under any provision of the General
Corporation Law of Delaware or of the certificate of incorporation or these
bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the directors, or members of a committee of directors, need be specified in
any written waiver of notice unless so required by the certificate of
incorporation or these bylaws.
III.11 ADJOURNED MEETING; NOTICE
-------------------------
-7-
<PAGE>
If a quorum is not present at any meeting of the board of directors, then
the directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum is present.
III.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
-------------------------------------------------
Unless otherwise restricted by the certificate of incorporation or these
bylaws, any action required or permitted to be taken at any meeting of the board
of directors, or of any committee thereof, may be taken without a meeting if all
members of the board or committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the board or committee.
III.13 FEES AND COMPENSATION OF DIRECTORS
----------------------------------
Unless otherwise restricted by the certificate of incorporation or these
bylaws, the board of directors shall have the authority to fix the compensation
of directors.
III.14 APPROVAL OF LOANS TO OFFICERS
-----------------------------
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiary, including any officer or employee who is a director of the
corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in such manner as the board of
directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing in this section contained shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
3.15 REMOVAL OF DIRECTORS
--------------------
Unless otherwise restricted by statute, by the certificate of incorporation
or by these bylaws, any director or the entire board of directors may be removed
with or without cause, by the holders of a majority of the shares then entitled
to vote at an election of directors.
ARTICLE IV
COMMITTEES
----------
IV.1 COMMITTEES OF DIRECTORS
-----------------------
The board of directors may, by resolution passed by a majority of the whole
board, designate one or more committees, with each committee to consist of one
or more of the directors of the corporation. The board may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. In the absence or
-8-
<PAGE>
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the board of
directors to act at the meeting in the place of any such absent or disqualified
member. Any such committee, to the extent provided in the resolution of the
board of directors or in the bylaws of the corporation, shall have and may
exercise all the powers and authority of the board of directors in the
management of the business and affairs of the corporation, and may authorize the
seal of the corporation to be affixed to all papers that may require it; but no
such committee shall have the power or authority to (i) amend the certificate of
incorporation (except that a committee may, to the extent authorized in the
resolution or resolutions providing for the issuance of shares of stock adopted
by the board of directors as provided in Section 151(a) of the General
Corporation Law of Delaware, fix any of the preferences or rights of such shares
relating to dividends, redemption, dissolution, any distribution of assets of
the corporation or the conversion into, or the exchange of such shares for,
shares of any other class or classes or any other series of the same or any
other class or classes of stock of the corporation), (ii) adopt an agreement of
merger or consolidation under Sections 251 or 252 of the General Corporation Law
of Delaware, (iii) recommend to the stockholders the sale, lease or exchange of
all or substantially all of the corporation's property and assets, (iv)
recommend to the stockholders a dissolution of the corporation or a revocation
of a dissolution, or (v) amend the bylaws of the corporation; and, unless the
board resolution establishing the committee, the bylaws or the certificate of
incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend, to authorize the issuance of stock, or to adopt
a certificate of ownership and merger pursuant to Section 253 of the General
Corporation Law of Delaware.
IV.2 COMMITTEE MINUTES
-----------------
Each committee shall keep regular minutes of its meetings and report the
same to the board of directors when required.
IV.3 MEETINGS AND ACTION OF COMMITTEES
---------------------------------
Meetings and actions of committees shall be governed by, and held and taken
in accordance with, the provisions of Article III of these bylaws, Section 3.5
(place of meetings and meetings by telephone), Section 3.7 (regular meetings),
Section 3.8 (special meetings and notice), Section 3.9 (quorum), Section 3.10
(waiver of notice), Section 3.11 (adjournment and notice of adjournment), and
Section 3.12 (action without a meeting), with such changes in the context of
those bylaws as are necessary to substitute the committee and its members for
the board of directors and its members; provided, however, that the time of
regular meetings of committees may also be called by resolution of the board of
directors and that notice of special meetings of committees shall also be given
to all alternate members, who shall have the right to attend all meetings of the
committee. The board of directors may adopt rules for the government of any
committee not inconsistent with the provisions of these bylaws.
ARTICLE V
OFFICERS
--------
-9-
<PAGE>
V.1 OFFICERS
--------
The officers of the corporation shall be a president, one or more vice
presidents, a secretary, and a treasurer. The corporation may also have, at the
discretion of the board of directors, a chairman of the board, one or more
assistant vice presidents, assistant secretaries, assistant treasurers, and any
such other officers as may be appointed in accordance with the provisions of
Section 5.3 of these bylaws. Any number of offices may be held by the same
person.
V.2 ELECTION OF OFFICERS
--------------------
The officers of the corporation, except such officers as may be appointed
in accordance with the provisions of Sections 5.3 or 5.5 of these bylaws, shall
be chosen by the board of directors, subject to the rights, if any, of an
officer under any contract of employment.
V.3 SUBORDINATE OFFICERS
--------------------
The board of directors may appoint, or empower the president to appoint,
such other officers and agents as the business of the corporation may require,
each of whom shall hold office for such period, have such authority, and perform
such duties as are provided in these bylaws or as the board of directors may
from time to time determine.
V.4 REMOVAL AND RESIGNATION OF OFFICERS
-----------------------------------
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the board of directors at any regular or
special meeting of the board or, except in the case of an officer chosen by the
board of directors, by any officer upon whom such power of removal may be
conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
V.5 VACANCIES IN OFFICES
--------------------
Any vacancy occurring in any office of the corporation shall be filled by
the board of directors.
V.6 AUTHORITY AND DUTIES OF OFFICERS
--------------------------------
The officers of the corporation shall have such powers and duties in the
management of the corporation as may be prescribed by the Board of Directors
and, to the extent not so provided, as generally pertain to their respective
offices, subject to the control of the Board of Directors. The Board of
Directors may require any officer, agent or employee to give security for the
faithful performance of his duties.
V.7 LIMITATIONS ON POWERS AND DUTIES OF OFFICERS
--------------------------------------------
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<PAGE>
No officer shall take any action, enter into any agreement, make any
representation or, by purposeful inaction, effect any of the actions or
decisions which the board of directors is prohibited or restricted from enacting
pursuant to these bylaws or the certificate of incorporation and their further
amendments.
ARTICLE VI
INDEMNITY
---------
VI.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
-----------------------------------------
The corporation shall, to the maximum extent and in the manner permitted by
the General Corporation Law of Delaware, indemnify each of its directors and
officers against expenses (including attorneys' fees), judgments, fines,
settlements, and other amounts actually and reasonably incurred in connection
with any proceeding, arising by reason of the fact that such person is or was an
agent of the corporation. For purposes of this Section 6.1, a "director" or
"officer" of the corporation includes any person (i) who is or was a director or
officer of the corporation, (ii) who is or was serving at the request of the
corporation as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise, or (iii) who was a director or officer of
the corporation which was a predecessor corporation of the corporation or of
another enterprise at the request of such predecessor corporation.
VI.2 INDEMNIFICATION OF OTHERS
-------------------------
The corporation shall have the power, to the extent and in the manner
permitted by the General Corporation Law of Delaware, to indemnify each of its
employees and agents (other than directors and officers) against expenses
(including attorneys' fees), judgments, fines, settlements, and other amounts
actually and reasonably incurred in connection with any proceeding, arising by
reason of the fact that such person is or was an agent of the corporation. For
purposes of this Section 6.2, an "employee" or "agent" of the corporation (other
than a director or officer) includes any person (i) who is or was an employee or
agent of the corporation, (ii) who is or was serving at the request of the
corporation as an employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, or (iii) who was an employee or agent of the
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
VI.3 PREPAYMENT OF EXPENSES
----------------------
The corporation shall pay the expenses incurred in defending any proceeding
in advance of its final disposition, provided, however, that the payment of
expenses incurred by a director or officer in advance of the final disposition
of the proceeding shall be made only upon receipt of an undertaking by the
director or officer to repay all amounts advanced if it should be ultimately
determined that the director or officer is not entitled to be indemnified under
this Article or otherwise.
VI.4 CLAIMS
------
If a claim for indemnification or payment of expenses under this Article is
not paid in full within sixty (60) days after a written claim therefor has been
received by the corporation the claimant may file
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<PAGE>
suit to recover the unpaid amount of such claim and, if successful in whole or
in part, shall be entitled to be paid the expense of prosecuting such claim. In
any such action the corporation shall have the burden of proving that the
claimant was not entitled to the requested indemnification or payment of
expenses under applicable law.
VI.5 NON-EXCLUSIVITY OF RIGHTS
-------------------------
The rights conferred on any person by this Article 6 shall not be exclusive
of any other rights which such person may have or hereafter acquire under any
statute, provision of the certificate of incorporation, these bylaws, agreement,
vote of stockholders or disinterested directors or otherwise.
VI.6 OTHER INDEMNIFICATION
---------------------
The corporation's obligation, if any, to indemnify any person who was or is
serving at its request as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, enterprise or non-profit entity
shall be reduced by any amount such person may collect as indemnification from
such other corporation, partnership, joint venture, trust, enterprise or non-
profit enterprise.
VI.7 AMENDMENT OR REPEAL
-------------------
Any repeal or modification of the foregoing provisions of this Article 6
shall not adversely affect any right or protection hereunder of any person in
respect of any act or omission occurring prior to the time of such repeal or
modification.
ARTICLE VII
RECORDS AND REPORTS
-------------------
VII.1 MAINTENANCE AND INSPECTION OF RECORDS
-------------------------------------
The corporation shall, either at its principal executive office or at such
place or places as designated by the board of directors, keep a record of its
stockholders listing their names and addresses and the number and class of
shares held by each shareholder, a copy of these bylaws as amended to date,
accounting books, and other records.
Any stockholder of record, in person or by attorney or other agent, shall,
upon written demand under oath stating the purpose thereof, have the right
during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
corporation at its registered office in Delaware or at its principal place of
business.
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<PAGE>
The officer who has charge of the stock ledger of the corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
VII.2 INSPECTION BY DIRECTORS
-----------------------
Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his position as a director. The Court of Chancery
is hereby vested with the exclusive jurisdiction to determine whether a director
is entitled to the inspection sought. The Court may summarily order the
corporation to permit the director to inspect any and all books and records, the
stock ledger, and the stock list and to make copies or extracts therefrom. The
Court may, in its discretion, prescribe any limitations or conditions with
reference to the inspection, or award such other and further relief as the Court
may deem just and proper.
VII.3 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
----------------------------------------------
The chairman of the board, the president, any vice president, the
treasurer, the secretary or assistant secretary of this corporation, or any
other person authorized by the board of directors or the president or a vice
president, is authorized to vote, represent, and exercise on behalf of this
corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of this corporation. The authority granted
herein may be exercised either by such person directly or by any other person
authorized to do so by proxy or power of attorney duly executed by such person
having the authority.
ARTICLE VIII
GENERAL MATTERS
---------------
VIII.1 CHECKS
------
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
VIII.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS
------------------------------------------------
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<PAGE>
The board of directors, except as otherwise provided in these bylaws, may
authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
VIII.3 STOCK CERTIFICATES; PARTLY PAID SHARES
--------------------------------------
The shares of the corporation shall be represented by certificates,
provided that the board of directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply
to shares represented by a certificate until such certificate is surrendered to
the corporation. Notwithstanding the adoption of such a resolution by the board
of directors, every holder of stock represented by certificates and upon request
every holder of uncertificated shares shall be entitled to have a certificate
signed by, or in the name of the corporation by the chairman or vice-chairman of
the board of directors, or the president or vice-president, and by the treasurer
or an assistant treasurer, or the secretary or an assistant secretary of such
corporation representing the number of shares registered in certificate form.
Any or all of the signatures on the certificate may be a facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate has ceased to be such officer, transfer agent
or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer, transfer agent or
registrar at the date of issue.
The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, upon the books and records of the corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the corporation shall
declare a dividend upon partly paid shares of the same class, but only upon the
basis of the percentage of the consideration actually paid thereon.
VIII.4 SPECIAL DESIGNATION ON CERTIFICATES
-----------------------------------
If the corporation is authorized to issue more than one class of stock or
more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the corporation shall issue to represent
such class or series of stock a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, the designations,
the preferences, and the relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
VIII.5 LOST CERTIFICATES
-----------------
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<PAGE>
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and cancelled at the same time. The corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the corporation a
bond sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate or uncertificated shares.
VIII.6 CONSTRUCTION; DEFINITIONS
-------------------------
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the Delaware General Corporation Law shall
govern the construction of these bylaws. Without limiting the generality of
this provision, the singular number includes the plural, the plural number
includes the singular, and the term "person" includes both the corporation and a
natural person.
VIII.7 DIVIDENDS
---------
The directors of the corporation, subject to any restrictions contained in
the certificate of incorporation, may declare and pay dividends upon the shares
of its capital stock pursuant to the General Corporation Law of Delaware.
Dividends may be paid in cash, in property, or in shares of the corporation's
capital stock.
The directors of the corporation may set apart out of any of the funds of
the corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such reserve. Such purposes shall include but not be
limited to equalizing dividends, repairing or maintaining any property of the
corporation, and meeting contingencies.
VIII.8 FISCAL YEAR
-----------
The fiscal year of the corporation shall be fixed by resolution of the
board of directors and may be changed by the board of directors.
VIII.9 SEAL
----
The seal of the corporation shall be such as from time to time may be
approved by the board of directors.
VIII.10 TRANSFER OF STOCK
-----------------
Upon surrender to the corporation or the transfer agent of the corporation
of a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignation or authority to transfer, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate, and record the transaction in its books.
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<PAGE>
VIII.11 STOCK TRANSFER AGREEMENTS
-------------------------
The corporation shall have power to enter into and perform any agreement
with any number of stockholders of any one or more classes of stock of the
corporation to restrict the transfer of shares of stock of the corporation of
any one or more classes owned by such stockholders in any manner not prohibited
by the General Corporation Law of Delaware.
VIII.12 REGISTERED STOCKHOLDERS
-----------------------
The corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive dividends and
to vote as such owner, shall be entitled to hold liable for calls and
assessments the person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of another person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE IX
AMENDMENTS
----------
The original or other bylaws of the corporation may be adopted, amended or
repealed by the stockholders entitled to vote; provided, however, that the
corporation may, in its certificate of incorporation, confer the power to adopt,
amend or repeal bylaws upon the directors. The fact that such power has been so
conferred upon the directors shall not divest the stockholders of the power, nor
limit their power to adopt, amend or repeal bylaws.
ARTICLE X
DISSOLUTION
-----------
If it should be deemed advisable in the judgment of the board of directors
of the corporation that the corporation should be dissolved, the board, after
the adoption of a resolution to that effect by a majority of the whole board at
any meeting called for that purpose, shall cause notice to be mailed to each
stockholder entitled to vote thereon of the adoption of the resolution and of a
meeting of stockholders to take action upon the resolution.
At the meeting a vote shall be taken for and against the proposed
dissolution. If a majority of the outstanding stock of the corporation entitled
to vote thereon votes for the proposed dissolution, then a certificate stating
that the dissolution has been authorized in accordance with the provisions of
Section 275 of the General Corporation Law of Delaware and setting forth the
names and residences of the directors and officers shall be executed,
acknowledged, and filed and shall become effective in accordance with Section
103 of the General Corporation Law of Delaware. Upon such certificate's becoming
effective in accordance with Section 103 of the General Corporation Law of
Delaware, the corporation shall be dissolved.
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<PAGE>
Whenever all the stockholders entitled to vote on a dissolution consent in
writing, either in person or by duly authorized attorney, to a dissolution, no
meeting of directors or stockholders shall be necessary. The consent shall be
filed and shall become effective in accordance with Section 103 of the General
Corporation Law of Delaware. Upon such consent's becoming effective in
accordance with Section 103 of the General Corporation Law of Delaware, the
corporation shall be dissolved. If the consent is signed by an attorney, then
the original power of attorney or a photocopy thereof shall be attached to and
filed with the consent. The consent filed with the Secretary of State shall
have attached to it the affidavit of the secretary or some other officer of the
corporation stating that the consent has been signed by or on behalf of all the
stockholders entitled to vote on a dissolution; in addition, there shall be
attached to the consent a certification by the secretary or some other officer
of the corporation setting forth the names and residences of the directors and
officers of the corporation.
ARTICLE XI
CUSTODIAN
---------
XI.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES
-------------------------------------------
The Court of Chancery, upon application of any stockholder, may appoint one
or more persons to be custodians and, if the corporation is insolvent, to be
receivers, of and for the corporation when:
(i) at any meeting held for the election of directors the
stockholders are so divided that they have failed to elect successors to
directors whose terms have expired or would have expired upon qualification of
their successors; or
(ii) the business of the corporation is suffering or is threatened
with irreparable injury because the directors are so divided respecting the
management of the affairs of the corporation that the required vote for action
by the board of directors cannot be obtained and the stockholders are unable to
terminate this division; or
(iii) the corporation has abandoned its business and has failed within
a reasonable time to take steps to dissolve, liquidate or distribute its assets.
XI.2 DUTIES OF CUSTODIAN
-------------------
The custodian shall have all the powers and title of a receiver appointed
under Section 291 of the General Corporation Law of Delaware, but the authority
of the custodian shall be to continue the business of the corporation and not to
liquidate its affairs and distribute its assets, except when the Court of
Chancery otherwise orders and except in cases arising under Sections 226(a)(3)
or 352(a)(2) of the General Corporation Law of Delaware.
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<PAGE>
CERTIFICATE OF ADOPTION OF BYLAWS
OF
E-TEK DYNAMICS, INC.
Adoption by Incorporator
------------------------
The undersigned person appointed in the Certificate of Incorporation to act
as the Incorporator of E-Tek Dynamics, Inc. hereby adopts the foregoing bylaws,
comprising seventeen (17) pages, as the Bylaws of the corporation.
Executed this ___ day of _____________________, 1998.
_______________________________
________________, Incorporator
Certificate by Secretary of Adoption by Incorporator
----------------------------------------------------
The undersigned hereby certifies that he is the duly elected, qualified,
and acting Secretary of E-Tek Dynamics, Inc. and that the foregoing Bylaws,
comprising seventeen (17) pages, were adopted as the Bylaws of the corporation
on ____________________, 1998, by the person appointed in the Certificate of
Incorporation to act as the Incorporator of the corporation.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and affixed
the corporate seal this ______ day of _________________, 1998.
_______________________________
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<PAGE>
EXHIBIT 4.1
-----------
Standard Form of Stock Certificate.
<PAGE>
EXHIBIT 10.1
E-TEK DYNAMICS, INC.
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is effective as of this _____
day of __________, 19___, by and between E-Tek Dynamics, Inc., a Delaware
corporation (the "Company" or "E-Tek"), and _________________________
("Indemnitee").
WHEREAS, the Company and Indemnitee recognize the increasing difficulty in
obtaining directors' and officers' liability insurance, the significant
increases in the cost of such insurance and the general reductions in the
coverage of such insurance;
WHEREAS, the Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting officers and directors
to expensive litigation risks at the same time as the availability and coverage
of liability insurance has been severely limited;
WHEREAS, Indemnitee does not regard the current protection available as
adequate under the present circumstances, and Indemnitee and other officers and
directors of the Company may not be willing to continue to serve as officers and
directors without additional protection; and
WHEREAS, the Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, to serve as officers and directors of
the Company and to indemnify its officers and directors so as to provide them
with the maximum protection permitted by law; and
[WHEREAS, in view of the considerations set forth above, the Company
desires that effective upon consummation of the Merger, Indemnitee shall be
indemnified by the Company as set forth herein.]
NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:
1. INDEMNIFICATION.
---------------
(a) Third Party Proceedings. The Company shall indemnify Indemnitee
if Indemnitee is or was a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Company) by reason of the fact that Indemnitee is or was a
director, officer, employee or agent of the Company, or any subsidiary of the
Company, by reason of any action or inaction on the part of Indemnitee while an
officer or director or by reason of the fact that Indemnitee is or was serving
at the request of the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement (if such settlement is
<PAGE>
approved in advance by the Company, which approval shall not be unreasonably
withheld) actually and reasonably incurred by Indemnitee in connection with such
action, suit or proceeding if Indemnitee acted in good faith and in a manner
Indemnitee reasonably believed to be in or not opposed to the best interests of
the Company, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe Indemnitee's conduct was unlawful. The termination
of any action, suit or proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that Indemnitee did not act in good faith and in a manner which
Indemnitee reasonably believed to be in or not opposed to the best interests of
the Company, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that Indemnitee's conduct was unlawful.
(b) Proceedings By or in the Right of the Company. The Company shall
indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made
a party to any threatened, pending or completed action or suit by or in the
right of the Company or any subsidiary of the Company to procure a judgment in
its favor by reason of the fact that Indemnitee is or was a director, officer,
employee or agent of the Company, or any subsidiary of the Company, by reason of
any action or inaction on the part of Indemnitee while an officer or director or
by reason of the fact that Indemnitee is or was serving at the request of the
Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees) and amounts paid in settlement actually and
reasonably incurred by Indemnitee in connection with the defense or settlement
of such action or suit if Indemnitee, acted in good faith and in a manner
Indemnitee reasonably believed to be in or not opposed to the best interests of
the Company, except that no indemnification shall be made in respect of any
claim, issue or matter as to which Indemnitee shall have been adjudged to be
liable to the Company unless and only to the extent that the Court of Chancery
of the State of Delaware or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, Indemnitee is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
of the State of Delaware or such other court shall deem proper.
(c) Mandatory Payment of Expenses. To the extent that Indemnitee has
been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Subsections (a) and (b) of this Section 1 or the
defense of any claim, issue or matter therein, Indemnitee shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
Indemnitee in connection therewith.
2. AGREEMENT TO SERVE. In consideration of the protection afforded by
------------------
this Agreement, if Indemnitee is a director of the Company he agrees to serve at
least for the balance of the current term as a director and not to resign
voluntarily during such period without the written consent of a majority of the
Board of Directors. If Indemnitee is an officer of the Company not serving
under an employment contract, he agrees to serve in such capacity at least for
the balance of the current fiscal year of the Company and not to resign
voluntarily during such period without the written consent of a majority of the
Board of Directors. Following the applicable period set forth above,
-2-
<PAGE>
Indemnitee agrees to continue to serve in such capacity at the will of the
Company (or under separate agreement, if such agreement exists) so long as he is
duly appointed or elected and qualified in accordance with the applicable
provisions of the by-laws of the Company or any subsidiary of the Company or
until such time as he tenders his resignation in writing. Nothing contained in
this Agreement is intended to create in Indemnitee any right to continued
employment.
3. EXPENSES; INDEMNIFICATION PROCEDURE.
-----------------------------------
(a) Advancement of Expenses. The Company shall advance all expenses
incurred by Indemnitee in connection with the investigation, defense, settlement
or appeal of any civil or criminal action, suit or proceeding referenced in
Section 1(a) or (b) hereof. Indemnitee hereby undertakes to repay such amounts
advanced only if, and to the extent that, it shall ultimately be determined that
the Indemnitee is not entitled to be indemnified by the Company as authorized
hereby. The advances to be made hereunder shall be paid by the Company to the
Indemnitee within twenty (20) days following delivery of a written request
therefor by Indemnitee to the Company.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a
condition precedent to Indemnitee's right to be indemnified under this
Agreement, give the Company notice in writing as soon as practicable of any
Claim made against Indemnitee for which indemnification will or could be sought
under this Agreement. Notice to the Company shall be directed to the Chief
Executive Officer of the Company at the address shown on the signature page of
this Agreement (or such other address as the Company shall designate in writing
to Indemnitee). In addition, Indemnitee shall give the Company such information
and cooperation as it may reasonably require and as shall be within Indemnitee's
power.
(c) Procedure. Any indemnification and advances provided for in
Section 1 and this Section 3 shall be made no later than forty-five (45) days
after receipt of the written request of Indemnitee. If a claim under this
Agreement, under any statute, or under any provision of the Company's
Certificate of Incorporation or By-laws providing for indemnification, is not
paid in full by the Company within forty-five (45) days after a written request
for payment thereof has first been received by the Company, Indemnitee may, but
need not, at any time thereafter bring an action against the Company to recover
the unpaid amount of the claim and, subject to Section 13 of this Agreement,
Indemnitee shall also be entitled to be paid for the expenses (including
attorneys' fees) of bringing such action. It shall be a defense to any such
action (other than an action brought to enforce a claim for expenses incurred in
connection with any action, suit or proceeding in advance of its final
disposition) that Indemnitee has not met the standards of conduct which make it
permissible under applicable law for the Company to indemnify Indemnitee for the
amount claimed, but the burden of proving such defense shall be on the Company
and Indemnitee shall be entitled to receive interim payments of expenses
pursuant to Subsection 3(a) unless and until such defense may be finally
adjudicated by court order or judgment from which no further right of appeal
exists. It is the parties' intention that if the Company contests Indemnitee's
right to indemnification, the question of Indemnitee's right to indemnification
shall be for the court to decide, and neither the failure of the Company
(including its Board of Directors or any committee or subgroup of the Board
-3-
<PAGE>
of Directors, independent legal counsel, or its stockholders) to have made a
determination that indemnification of Indemnitee is proper in the circumstances
because Indemnitee has met the applicable standard of conduct required by
applicable law, nor an actual determination by the Company (including its Board
of Directors or any committee or subgroup of the Board of Directors, independent
legal counsel, or its stockholders) that Indemnitee has not met such applicable
standard of conduct, shall create a presumption that Indemnitee has or has not
met the applicable standard of conduct.
(d) Notice to Insurers. If, at the time of the receipt by the
Company of a notice of a Claim pursuant to Section 2(b) hereof, the Company has
liability insurance in effect which may cover such Claim, the Company shall give
prompt notice of the commencement of such Claim to the insurers in accordance
with the procedures set forth in the respective policies. The Company shall
thereafter take all necessary or desirable action to cause such insurers to pay,
on behalf of the Indemnitee, all amounts payable as a result of such action,
suit, proceeding, inquiry or investigation in accordance with the terms of such
policies.
(e) Selection of Counsel. In the event the Company shall be
obligated hereunder to pay the Expenses of any Claim the Company, if
appropriate, shall be entitled to assume the defense of such Claim with counsel
approved by Indemnitee, upon the delivery to Indemnitee of written notice of its
election so to do. After delivery of such notice, approval of such counsel by
Indemnitee and the retention of such counsel by the Company, the Company will
not be liable to Indemnitee under this Agreement for any fees of counsel
subsequently incurred by Indemnitee with respect to the same Claim; provided
that, (i) Indemnitee shall have the right to employ Indemnitee's counsel in any
such Claim at Indemnitee's expense and (ii) if (A) the employment of counsel by
Indemnitee has been previously authorized by the Company, (B) Indemnitee shall
have reasonably concluded that there may be a conflict of interest between the
Company and Indemnitee in the conduct of any such defense, or (C) the Company
shall not continue to retain such counsel to defend such Claim, then the fees
and expenses of Indemnitee's counsel shall be at the expense of the Company.
4. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY.
-------------------------------------------------
(a) Scope. Notwithstanding any other provision of this Agreement,
the Company hereby agrees to indemnify the Indemnitee to the fullest extent
permitted by law, notwithstanding that such indemnification is not specifically
authorized by the other provisions of this Agreement, the Company's Certificate
of Incorporation, the Company's By-laws or by statute. In the event of any
change, after the date of this Agreement, in any applicable law, statute, or
rule which expands the right of a Delaware corporation to indemnify a member of
its board of directors or an officer, such changes shall be, ipso facto, within
---- -----
the purview of Indemnitee's rights and Company's obligations, under this
Agreement. In the event of any change in any applicable law, statute or rule
which narrows the right of a Delaware corporation to indemnify a member of its
board of directors or an officer, such changes, to the extent not otherwise
required by such law, statute or rule to be
-4-
<PAGE>
applied to this Agreement shall have no effect on this Agreement or the parties'
rights and obligations hereunder.
(b) Nonexclusivity. The indemnification provided by this Agreement
shall not be deemed exclusive of any rights to which Indemnitee may be entitled
under the Company's Certificate of Incorporation, its By-laws, any agreement,
any vote of stockholders or disinterested Directors, the General Corporation Law
of the State of Delaware, or otherwise, both as to action in Indemnitee's
official capacity and as to action in another capacity while holding such
office. The indemnification provided under this Agreement shall continue as to
Indemnitee for any action taken or not taken while serving in an indemnified
capacity even though he may have ceased to serve in an indemnified capacity at
the time of any action, suit or other covered proceeding.
5. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any
-----------------------
provision of this Agreement to indemnification by the Company for some or a
portion of Expenses incurred in connection with any Claim, but not, however, for
all of the total amount thereof, the Company shall nevertheless indemnify
Indemnitee for the portion of such Expenses to which Indemnitee is entitled.
6. MUTUAL ACKNOWLEDGMENT. Both the Company and Indemnitee acknowledge
---------------------
that in certain instances, Federal law or public policy may override applicable
state law and prohibit the Company from indemnifying its directors and officers
under this Agreement or otherwise. For example, the Company and Indemnitee
acknowledge that the Securities and Exchange Commission (the "SEC") has taken
the position that indemnification is not permissible for liabilities arising
under certain federal securities laws, and federal legislation prohibits
indemnification for certain ERISA violations. Indemnitee understands and
acknowledges that the Company has undertaken, and may be required in the future
to undertake, with the SEC to submit the question of indemnification to a court
in certain circumstances for a determination of the Company's right under public
policy to indemnify Indemnitee.
7. OFFICER AND DIRECTOR LIABILITY INSURANCE. The Company shall, from time
----------------------------------------
to time, make the good faith determination whether or not it is practicable for
the Company to obtain and maintain a policy or policies of insurance with
reputable insurance companies providing the officers and directors of the
Company with coverage for losses from wrongful acts, or to ensure the Company's
performance of its indemnification obligations under this Agreement. Among
other considerations, the Company will weigh the costs of obtaining such
insurance coverage against the protection afforded by such coverage. In all
policies of director and officer liability insurance, Indemnitee shall be named
as an insured in such a manner as to provide Indemnitee the same rights and
benefits as are accorded to the most favorably insured of the Company's
directors, if Indemnitee is a director; or of the Company's officers, if
Indemnitee is not a director of the Company but is an officer; or of the
Company's key employees, if Indemnitee is not an officer or director but is a
key employee. Notwithstanding the foregoing, the Company shall have no
obligation to obtain or maintain such insurance if the Company determines in
good faith that such insurance is not reasonably available, if the premium costs
for such insurance are disproportionate to the amount of coverage provided, if
the coverage provided by such insurance is limited by exclusions so as to
-5-
<PAGE>
provide an insufficient benefit, or if Indemnitee is covered by similar
insurance maintained by a parent or subsidiary of the Company.
8. SEVERABILITY. Nothing in this Agreement is intended to require or
------------
shall be construed as requiring the Company to do or fail to do any act in
violation of applicable law. The Company's inability, pursuant to court order,
to perform its obligations under this Agreement shall not constitute a breach of
this Agreement. The provisions of this Agreement shall be severable as provided
in this Section 8. If this Agreement or any portion hereof shall be invalidated
on any ground by any court of competent jurisdiction, then the Company shall
nevertheless indemnify Indemnitee to the full extent permitted by any applicable
portion of this Agreement that shall not have been invalidated, and the balance
of this Agreement not so invalidated shall be enforceable in accordance with its
terms.
9. EXCEPTIONS. Any other provision herein to the contrary
----------
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) Claims Initiated by Indemnitee. To indemnify or advance expenses
to Indemnitee with respect to proceedings or claims initiated or brought
voluntarily by Indemnitee and not by way of defense, except with respect to
proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other statute or law of otherwise as required under
Section 145 of the Delaware General Corporation Law, but such indemnification or
advancement of expenses may be provided by the Company in specific cases if the
Board of Directors finds it to be appropriate;
(b) Lack of Good Faith. To indemnify Indemnitee for any expenses
incurred by Indemnitee with respect to any proceeding instituted by Indemnitee
to enforce or interpret this Agreement, if a court of competent jurisdiction
determines that each of the material assertions made by Indemnitee in such
proceeding was not made in good faith or was frivolous;
(c) Insured Claims. To indemnify Indemnitee for expenses or
liabilities of any type whatsoever (including, but not limited to, judgments,
fines, ERISA excise taxes or penalties, and amounts paid in settlement) which
have been paid directly to Indemnitee by an insurance carrier under a policy of
officers' and directors' liability insurance maintained by the Company; or
(d) Claims under Section 16(b). To indemnify Indemnitee for expenses
or the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of 1934,
as amended, or any similar successor statute.
10. CONSTRUCTION OF CERTAIN PHRASES.
-------------------------------
(a) For purposes of this Agreement, references to the "Company" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued,
-6-
<PAGE>
would have had power and authority to indemnify its directors, officers, and
employees or agents, so that if Indemnitee is or was a director, officer,
employee or agent of such constituent corporation, or is or was serving at the
request of such constituent corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, Indemnitee shall stand in the same position under the provisions of
this Agreement with respect to the resulting or surviving corporation as
Indemnitee would have with respect to such constituent corporation if its
separate existence had continued.
(b) For purposes of this Agreement, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on Indemnitee with respect to an employee benefit plan;
and references to "serving at the request of the Company" shall include any
service as a director, officer, employee or agent of the Company which imposes
duties on, or involves services by, such director, officer, employee or agent
with respect to an employee benefit plan, its participants, or beneficiaries;
and if Indemnitee acted in good faith and in a manner Indemnitee reasonably
believed to be in the interest of the participants and beneficiaries of an
employee benefit plan, Indemnitee shall be deemed to have acted in a manner "not
opposed to the best interests of the Company" as referred to in this Agreement.
11. COUNTERPARTS. This Agreement may be executed in one or more
------------
counterparts, each of which shall constitute an original.
12. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
------------------------
the Company and its successors and assigns, and shall inure to the benefit
of Indemnitee and Indemnitee's estate, heirs, legal representatives and
assigns.
13. ATTORNEYS' FEES. In the event that any action is instituted by
---------------
Indemnitee under this Agreement to enforce or interpret any of the terms hereof,
Indemnitee shall be entitled to be paid all court costs and expenses, including
reasonable attorneys' fees, incurred by Indemnitee with respect to such action,
unless as a part of such action, a court of competent jurisdiction determines
that each of the material assertions made by Indemnitee as a basis for such
action were not made in good faith or were frivolous. In the event of an action
instituted by or in the name of the Company under this Agreement or to enforce
or interpret any of the terms of this Agreement, Indemnitee shall be entitled to
be paid all court costs and expenses, including attorneys' fees, incurred by
Indemnitee in defense of such action (including with respect to Indemnitee's
counterclaims and cross-claims made in such action), unless as a part of such
action the court determines that each of Indemnitee's material defenses to such
action were made in bad faith or were frivolous.
14. NOTICE. All notices, requests, demands and other communications under
------
this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipt is acknowledged by the party addressee, on the
date of such receipt, or (ii) if mailed by certified or registered mail with
postage prepaid, on the third business day after the date postmarked. Addresses
for notice to either party are as shown on the signature page of this Agreement,
or as subsequently modified by written notice.
-7-
<PAGE>
15. CONSENT TO JURISDICTION. The Company and the Indemnitee each hereby
-----------------------
irrevocably consent to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be brought only in the state courts of the State of Delaware.
16. CHOICE OF LAW. This Agreement shall be governed by and its provisions
-------------
construed in accordance with the laws of the State of Delaware, as applied to
contracts between Delaware residents entered into and to be performed entirely
within Delaware.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
E-TEK DYNAMICS, INC.
By:________________________________
Title:_____________________________
Address:___________________________
___________________________
AGREED TO AND ACCEPTED
INDEMNITEE:
(Signature)
(Name of Indemnitee)
(Address)
-8-
<PAGE>
EXHIBIT 10.2
EXECUTION COPY
E-TEK DYNAMICS, INC.
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT (this "Agreement"), dated as of July 23, 1997, is made by
---------
and between E-Tek Dynamics, Inc., a California corporation (the "Company"), and
-------
Jing Jong Pan ("Executive"). Capitalized terms used herein and not otherwise
---------
defined herein have the meanings given to such terms in paragraph 15 hereof.
WHEREAS, the Company desires to employ Executive in the capacity and on the
terms and conditions set forth herein, and Executive desires to accept such
employment in such capacity and on such terms and conditions;
WHEREAS, the Company and Executive desire to establish the relative rights
of the Company and Executive with respect to certain intellectual property
rights which Executive has created or developed or may create or develop as a
result of Executives employment with the Company; and
WHEREAS, the execution and delivery of this Agreement by the Company and
Executive are conditions to the purchase of certain newly-issued equity
securities of the Company by certain investors and the repurchase of certain
equity securities of the Company from Executive pursuant to the terms of a
Recapitalization Agreement, dated as of June 27, 1997, by and among the Company,
Executive and the other parties signatory thereto (as amended and modified from
time to time in accordance with its terms, the "Recapitalization Agreement").
--------------------------
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
1. Employment. The Company shall employ Executive, and Executive hereby
----------
accepts employment with the Company, upon the terms and conditions set forth in
this Agreement for the period beginning on the date hereof and ending as
provided in paragraph 4 below (the "Employment Period").
-----------------
2. Position and Duties.
-------------------
(a) During the Employment Period, Executive shall serve as an "E-Tek
Fellow" and shall have such duties, responsibilities and authority as set forth
herein and as shall be mutually agreed upon by Executive and the Company's Board
of Directors (the "Board") consistent with the terms and conditions set forth
-----
herein. During the Employment Period, Executive shall also serve as President
of the AOI Division (as defined in paragraph 7(a) below). For purposes of this
Agreement, the term "Company" shall include the AOI Division.
-------
(b) Executive shall report directly to the Board (and not directly or
indirectly to the Company's Chief Executive Officer) and shall devote such time
and attention to the business and affairs
<PAGE>
of the AOI Division as shall be consistent with Executives past practices prior
to the date hereof. In addition, Executive agrees that during the Employment
Period he shall continue to represent the interests of the Company at major
trade shows and conventions and engage in such public relations activities on
behalf of the Company as shall be consistent with Executive's past practices
prior to the date hereof.
(c) Executive shall have no management responsibilities or authority
with respect to the business, operations and affairs of the Company (other than
the AOI Division in accordance with the terms and conditions set forth herein).
3. Base Salary and Benefits.
------------------------
(a) During the Employment Period, Executive's base salary shall be
$200,000 per annum or such higher rate as the Board in its sole discretion may
designate from time to time (the "Base Salary"), which salary shall be payable
-----------
in regular installments in accordance with the Company's general payroll
practices and shall be subject to customary withholding.
(b) During the Employment Period, Executive shall be entitled to
participate in all of the Company's employee benefit plans and programs for
which senior executive employees of the Company and its Subsidiaries are
generally eligible (subject to the Company's right to amend, modify or terminate
any such plan or program in accordance with its terms and applicable law).
(c) The Company shall reimburse Executive for all reasonable expenses
incurred by him in the course of performing his dudes under this Agreement which
are consistent with the terms of this Agreement and the Company's policies in
effect from time to time with respect to travel, entertainment, and other
business expenses, subject to the Company's general policies with respect to
reporting and reasonable documentation of such expenses.
4. Termination.
-----------
(a) The Employment Period shall be for an initial term ending on the
third anniversary of the date hereof (the "Initial Term"), and shall be extended
------------
for successive one-year periods (each, an "Additional Term") unless either
---------------
party shall provide the other party with written notice at least 90 days prior
to the of the Initial Term or any applicable Additional Term to the effect that
this Agreement shall terminate as of the last day of such Initial Term or any
applicable Additional Term, as the case may be; provided that, notwithstanding
-------- ----
anything in this Agreement to the contrary, expressed or implied, or Section
2924 of the California Labor Code or any similar provision of applicable law,
the Employment Period shall terminate prior to the expiration of the Initial Tem
or any applicable Additional Term upon (i) Executive's resignation for any
reason (with such resignation being effective 14 days after notice thereof is
delivered by Executive to the Company), death or disability or (ii) termination
of Executive's employment by the Company with or without cause (with any such
termination without cause being effective 60 days after notice thereof is
delivered by the Company to Executive and any such termination with cause being
effective immediately after notice thereof is delivered by the Company to
Executive).
(b) Upon termination of the Employment Period, Executive shall be
entitled to receive his Base Salary through the date of termination and the
Company shall have no further liability
-2-
<PAGE>
whatsoever to Executive. Except as otherwise expressly required under Section
4980B of the Internal Revenue Code of 1986, as amended, all of Executive's
rights to fringe benefits hereunder shall cease upon termination of the
Employment Period.
5. Confidential Information; Nonsolicitation.
-----------------------------------------
(a) Executive acknowledges that by reason of his duties to and
association with the Company, he has had and will have access to and become
informed of Confidential Information which is a competitive asset of the Company
and/or its Subsidiaries. Executive agrees to keep in strict confidence and not,
directly or indirectly, make known, furnish, make available or use, any
Confidential Information, except for use in Executive's regular authorized
duties on behalf of the Company. Executive acknowledges that all documents and
other property including or reflecting Confidential Information furnished to
Executive by the Company or otherwise acquired or developed by the Company or
Executive or known by Executive shall at all times by the property of the
Company. Executive shall take all appropriate steps to safeguard Confidential
Information and protect it against disclosure, misuse, loss and theft.
(b) Executive agrees that during the Employment Period and for three
(3) years thereafter he shall not directly, or indirectly through another
Person, (i) 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, (ii) 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 Company and Executive so as to avoid any disputes
under this paragraph 5(b) that any such hiring within such 90-day period is in
violation of clause (i) above), or (iii) 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. In addition,
during the Employment Period and thereafter, Executive shall not in any way
interfere with the relationship between any such customer, supplier, licensee or
business relation and the Company or any of its Subsidiaries (including making
any negative statements or communications about the Company or any of its
Subsidiaries).
6. Company's Ownership of Intellectual Property.
--------------------------------------------
(a) Executive acknowledges that all Work Product is the exclusive
property of the Company, including all Work Product that may constitute AOI
Intellectual Property (as defined in paragraph 7(c) below). Executive hereby
assigns all right, title and interest in and to such Work Product to the
Company. Any copyrightable work prepared in whole or in part by Executive will
be deemed "a work made for hire" under Section 201(b) of the 1976 Copyright Act,
and the Company shall own all of the rights comprised in the copyright therein.
(b) The Company and Executive each acknowledge the applicability of
Section 2870 of the California Labor Code. Accordingly, the provisions of
paragraph 6(a) shall not apply to, and the term "Work Product" shall not
include, any invention that Executive developed entirely on his own time without
using the Company's equipment, supplies, facilities, or trade secret information
except for those
-3-
<PAGE>
inventions that either: (i) relate at the time of conception or reduction to
practice of the invention to the Company's or any Subsidiaries business, or to
the actual or demonstrably anticipated research or development of the Company or
any Subsidiary; or (ii) result from any work performed by Executive for the
Company or any Subsidiary. Set forth on the attached "Excluded Inventions
-------------------
Schedule" are the inventions Executive believes meet the criteria for exclusion
- --------
set forth above. Executive agrees to promptly advise the Company in writing of
any inventions developed after the date hereof which Executive believes meet the
criteria for exclusion set forth above.
(c) Executive shall promptly and fully disclose all Work Product to
the Company and shall cooperate and perform all actions reasonably requested by
the Company (whether during or after the Employment Period) to establish,
confirm and protect the Company's right, title and interest in such Work
Product. Without limiting the generality of the foregoing, Executive agrees to
assist the Company, at the Company's expense, in Every proper way to secure the
Company's rights in the Work Product in any and all countries, including the
execution of all applications and all other instruments and documents which the
Company shall deem necessary in order to apply for and obtain rights in such
Work Product and in order to assign and convey to the Company the sole and
exclusive right, title and interest in and to such Work Product. If the Company
is unable because of Executive's mental or physical incapacity or for any other
reason (including Executive's refusal to do so after request therefor is made by
the Company) to secure Executive's signature to apply for or to pursue any
application for any United States or foreign patents or copyright registrations
covering Work Product belonging to or assigned to the Company pursuant to
paragraph 6(a) above, then Executive hereby irrevocably designates and appoints
the Company and its duly authorized officers and agents as Executive's agent and
attorney-in-fact to act for and in Executive's behalf and stead to execute and
file any such applications and to do all other lawfully permitted acts to
further the prosecution and issuance of patents or copyright registrations
thereon with the same legal force and effect as if executed by Executive.
Executive agrees not to apply for or pursue any application for any United
States or foreign patents or copyright registrations covering any Work Product
other than pursuant to this paragraph in circumstances where such patents or
copyright registrations are or have been or are required to be assigned to the
Company.
(d) Executive hereby agrees that the Company may use Executive's name
and reputation in connection with the marketing and selling of the Company's
products and services and in connection with the offering for sale or sale of
its securities.
7. AOI Division.
------------
(a) During the Employment Period, the Company shall maintain the
existence of its Advanced Optronics division as a separate division with the
Company (the "AOI Division"). All of the Company's employees assigned as of the
------------
date hereof to the AOI Division and listed on the AOI Employees Schedule
------------------
attached hereto shall continue to be assigned to the AOI Division during the
Employment Period unless otherwise mutually agreed upon by the Company and
Executive. Executive shall have sole discretion over the duties and
responsibilities of such employees in a manner consistent with the terms of this
Agreement, subject to the Company's general labor and employment policies and
any written agreements with such employees. All salaries, bonuses and other
compensation relating to such employees shall be determined by Executive in
accordance with the Company's general guidelines
-4-
<PAGE>
relating to employee compensation and so long as the Operating Expenses of the
AOI Division are, and after payment of such compensation shall be, at or below
the level set forth in the Budget (as defined in paragraph 7(b) below). Such
employees shall also be entitled to participate in all of the Company's employee
benefit plans and programs for which similarly situated employees of the Company
are generally eligible (subject to the Company's right to amend, modify or
terminate any such plan or program in accordance with its terms and applicable
law) and shall be eligible to participate in the Company's 1997 Stock Option
Plan.
(b) During the Employment Period, Executive shall manage and operate
and shall serve as the President of the AIO Division. The AOI Division shall
engage in research and development activities on behalf of the Company,
principally in the fiber optics field. The AOI Division shall continue to have
unlimited use of all fixed assets used by the AOI Division as of the date hereof
and the use of such fixed assets shall be provided at no cost to Executive or
the AOI Division. During the Employment Period, the Company shall fund the AOI
Division's Operating Expenses during each fiscal year at a funding level of four
percent (4%) of annual gross revenue for the immediately preceding fiscal year
(the amount of such funding level, the "Budget"). Executive shall have the
------
authority and discretion to hire or cause to be hired additional employees for
the AOI Division or to purchase or cause to be purchased fixed and other assets
for use by the AOI Division so long as the Operating Expenses of the AOI
Division are, and after such hiring or purchase shall be, at or below the level
set forth in the Budget, subject in each case to the Company's general policies
and guidelines on the hiring of employees or the purchasing of assets.
(c) Executive acknowledges that all Intellectual Property Rights and
any other form of Confidential Information which were or are conceived, reduced
to practice, contributed to or developed or made by the AOI Division or any
employee thereof (whether alone or jointly with others) while employed (whether
before or after the date of this Agreement) by the Company (or its predecessors,
successors or assigns) and its Subsidiaries (the "AOI Intellectual Property")
-------------------------
belong to and are the exclusive property of the Company or such Subsidiary.
Executive shall use its best efforts to ensure that all AOI Intellectual
Property conceived, reduced to practice, contributed to or developed by
employees of the AOI Division at any time during the period of their employment
are properly assigned to the Company to the full extent allowed by applicable
law. Any copyrightable work prepared in whole or in part by such employees will
be deemed "a work made for hire" under Section 201(b) of the 1976 Copyright Act,
and the Company shall own all of the rights comprised in the copyright therein.
Executive shall not transfer, assign, convey or dispose of any Work Product or
AOI Intellectual Property.
8. Commercialization of AOI Intellectual Property.
----------------------------------------------
(a) The Company shall have no obligation to commercialize any AOI
Intellectual Property (with it being understood as provided in paragraph 7(c)
above that the Company shall own all right, title and interest in all of the AOI
Intellectual Property). In the event the Company determines not to
commercialize any AOI Intellectual Property (the "Non-Commercialized AOI
----------------------
Intellectual Property"), Executive may request that the Company enter into a
- ---------------------
mutually acceptable license agreement with Executive or an Affiliate of
Executive regarding such Non-Commercialized AOI Intellectual Property pursuant
to the provisions of paragraph 8(b) below.
-5-
<PAGE>
(b) Promptly after any request made by Executive pursuant to
paragraph 8(a) hereof, the Company and Executive shall negotiate in good faith
the terms and conditions of a license agreement with respect to the Non-
Commercialized AOI Intellectual Property which is the subject of such request.
Such license agreement shall contain terms and conditions mutually acceptable to
the parties, subject to the following: (i) such license agreement shall be
perpetual (subject to clauses (B) and (E) below), non-exclusive and royalty-free
during the Employment Period and (ii) such license agreement shall, in the
Company's discretion, contain provisions providing for (A) a royalty rate after
termination of the Employment Period; (B) the termination of such license
agreement in the event Executive breaches the provisions described in clause (F)
below; (C) field-of-use, geographic or other similar restrictions; (D)
prohibitions of assignments and sublicenses; (E) the termination of such license
agreement at any time that any Affiliate of Executive which is a licensee under
such license agreement is no longer controlled by Executive; and (F) the
prohibition of the use of any such Non-Commercialized AOI Intellectual Property
by Executive, any Affiliate of Executive or any of their respective assignees or
sublicensees in a manner which competes with the Company's or any of its
Subsidiaries' actual or anticipated business at any time (whether before or
after the termination of the Employment Period or before or after the term of
the noncompetition provisions set forth in Paragraph 8D of the Recapitalization
Agreement).
(c) Notwithstanding a determination by the Company not to
commercialize any AOI Intellectual Property, the Company may, in its sole
discretion, (i) at any time and for any purpose, license any Non-Commercialized
AOI Intellectual Property to Persons which are not Affiliates of Executive on
terms and conditions acceptable to the Company and (ii) at any time and for any
purpose, commercialize or otherwise use any previously Non-Commercialized AOI
Intellectual Property (whether or not the Company has entered into any license
agreement with Executive or any of Executive's Affiliates pursuant to paragraph
8(b) above).
9. Delivery of Materials Upon Termination of Employment. As requested by
----------------------------------------------------
the Company upon the termination of Executive's employment with the Company for
any reason, Executive shall promptly deliver to the Company all copies and
embodiments, in whatever form, of all Confidential Information, Work Product and
AOI Intellectual Property in Executive's possession or within his control
irrespective of the location or form of such material and, if requested by the
Company, shall provide the Company with written confirmation that all such
materials have been delivered to the Company.
10. Subsequent Inventions. Executive understands and agrees that all
---------------------
Intellectual Property Rights made, conceived, developed, reduced to practice or
learned by Executive, either alone or jointly with others, shall be disclosed to
the Company by Executive for two (2) years following the termination of the
Employment Period. Employee further agrees that all Intellectual Property rights
made, conceived, developed or reduced to practice within two (2) years following
such termination shall be presumed to have been conceived during Executive's
employment with the Company and with the use of the Company's Confidential
Information, but such presumption may be overcome by Executive by a showing that
such Intellectual Property Rights were conceived after the Employment Period and
without the use of any such Confidential Information. In the event Executive is
not able to rebut such presumption and prove that such Intellectual Property
Rights were conceived after the Employment Period and without the use of
Confidential Information, Executive agrees to assign all right, title and
interest in such Intellectual Property Rights to the Company.
-6-
<PAGE>
11. Lightwaves Name. Upon termination of the Employment Period, the
---------------
Company shall assign to Executive all of its right, title and interest in and to
the corporate name "Lightwaves 2020." Except for such assignment, the Company
shall not assign to Executive any other tangible or intangible assets (including
any AOI Intellectual Property, any Work Product or Confidential Information or
any trademark used or proposed to be used in connection with any of the
Company's products) and following the termination of the Employment Period
Executive shall have no rights thereto or ownership thereof.
12. Disclosure. Following the termination of the Employment Period,
----------
Executive shall communicate the restrictions contained in this Agreement to any
Person he intends to be employed by, provide consulting services to or otherwise
represent. Executive hereby consents the Company's communication of the
restrictions contained in this Agreement to any such Person.
13. Enforcement; Remedies.
---------------------
(a) If, at the time of enforcement of the covenants contained in
paragraph 5, 6, 7, 8, 9 and 10 (the "Protective Covenants"), a court shall hold
--------------------
that the duration or scope stated therein are unreasonable under circumstances
then existing, the parties hereto agree that the maximum duration or scope
reasonable under such circumstances shall be substituted for the stated duration
or scope and that the court shall be allowed to revise the restrictions
contained therein to cover the maximum period or scope permitted by law.
Executive has consulted legal counsel regarding the Protective Covenants and
based on such consultation has determined and hereby acknowledges that the
Protective Covenants are reasonable in terms of duration and scope and are
necessary to protect the goodwill of the Company's business and the Confidential
Information. Executive further agrees that the Protective Covenants were a
material inducement to certain investors of the Company to enter into the
Recapitalization Agreement and consummate the transactions contemplated thereby,
and such investors would not obtain the benefit of the bargain as set forth in
the Recapitalization Agreement and the other agreements contemplated thereby if
Executive breached or challenged the validity of any of the Protective
Covenants.
(b) If Executive breaches, or threatens to commit a breach of, any of
the Protective 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:
(i) the right and remedy to have the Protective Covenants
specifically enforced by any court of competent jurisdiction (without the need
to post a bond or other security), it being agreed that any breach or threatened
breach of the Protective Covenants would cause irreparable injury to the Company
and that money damages would not provide an adequate remedy to the Company; and
(ii) the right and remedy to require Executive to account for and
pay over to the Company any profits, monies, accruals, increments or other
benefits derived or received by Executive as the result of any transaction(s)
constituting a breach of the Protective Covenants.
(c) In the event of any breach or violation by Executive of any of
the Protective Covenants, the time period of such covenant with respect to
Executive (to the extent such covenant is
-7-
<PAGE>
limited in duration as provided in paragraph 5(b) above) shall be tolled until
such breach or violation is resolved.
14. Executive's Representations. Executive hereby represents and warrants
---------------------------
to the Company that (i) the execution, delivery and performance of this
Agreement by Executive do not and shall not conflict with, breach, violate or
cause a default under any contract, agreement, instrument, order, judgment or
decree to which Executive is a party or by which he is bound, (ii) Executive is
not a party to or bound by any employment agreement, noncompete agreement or
confidentiality agreement with any other person or entity, except pursuant to
the terms of the Recapitalization Agreement and (iii) upon the execution and
delivery of this Agreement by the Company, this Agreement shall be the valid and
binding obligation of Executive, enforceable in accordance with its terms.
Executive hereby acknowledges and represents that he has consulted with
independent legal counsel regarding his rights and obligations under this
Agreement and that he fully understands the terms and conditions contained
herein.
15. Definitions.
-----------
"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.
"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, Executive in connection with Executive's prior
relationship with the Company or during the Employment Period 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; (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
Executive can demonstrate: (a) is publicly known through no wrongful act or
breach of obligation of confidentiality; (b) was lawfully known to Executive
prior to the time Executive began rendering services to the Company and its
predecessors; or (c) was rightfully received by Executive from a third party
without a breach of any obligation of confidentiality by such third party.
"Intellectual Property Rights" means all inventions, innovations,
----------------------------
improvements, developments, methods, processes, designs, analyses, drawings,
reports and all similar or related information (whether or not patentable or
reduced to practice or comprising Confidential Information)
-8-
<PAGE>
and any copyrightable work, trade mark, trade secret or other intellectual
property rights (whether or not comprising Confidential Information).
"Operating Expenses" means (i) all expenses and costs directly related
------------------
to the AOI Division, including, without limitation, all employee salaries and
bonuses, material and equipment expenditures, supplies and parts expenditures,
capital expenditures, rent and related expenditures and travel expenses and (ii)
all general and administrative expenditures and overhead allocations relating to
the AOI Division.
"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.
"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 director or general partner of such limited
liability company, partnership, association or other business entity.
"Work Product" means all inventions, innovations, improvements,
------------
developments, methods, processes, designs, analyses, drawings, reports and all
similar or related information (whether or not patentable or reduced to practice
or comprising Confidential Information) and any copyrightable work, trade mark,
trade secret or other intellectual property rights (whether or not comprising
Confidential Information) and any other form of Confidential Information, any of
which relate to the Company's or any of its Subsidiaries' actual or anticipated
business, research and development or existing or future products or services
and which were or are conceived, reduced to practice, contributed to or
developed or made by Executive (whether alone or jointly with others) while
employed (both before and after the date hereof) by the Company (or is
predecessors, successors or assigns) and its Subsidiaries.
16. Survival. The provisions set forth in paragraphs 5 through 25 of this
--------
Agreement shall survive and continue in full force and effect in accordance with
their terms notwithstanding any termination of the Employment Period.
17. Notices. Any notice provided for in this Agreement shall be deemed to
-------
have been given when delivered personally to the recipient, sent to the
recipient by reputable express courier (charges prepaid), telecopied (with hard
copy to follow) or mailed to the recipient by certified or registered mail,
-9-
<PAGE>
return receipt requested and postage prepaid. Such notice will be sent to
Executive or to the Company at the address set forth below:
Notices To Executive:
--------------------
Notices to the Company:
----------------------
E-Tek Dynamics, Inc.
1885 Lundy Avenue, Suite 103
San Jose, California 95131
Attn: Chief Executive Officer
With a copy to:
Summit Partners, L.P.
499 Hamilton Avenue, Suite 200
Palo Alto, California 94301
Attn: Mr. Walter G. Kortschak
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement shall be deemed to have been given when so delivered
or mailed.
18. 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 is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein. The
Executive acknowledges and agrees that the covenants and agreements set forth in
this agreement were a material inducement to certain investors of the Company to
enter into the Recapitalization Agreement and consummate the transactions
contemplated thereby, and such investors would not obtain the benefit of their
bargain as set forth in the Recapitalization Agreement and the other agreements
contemplated thereby as specifically negotiated by the investors if Executive
breached or challenged any of the provisions of this Agreement. Therefore,
notwithstanding anything to the contrary expressed or implied in this paragraph
18 or elsewhere in this Agreement, the Executive unconditionally covenants and
agrees that Executive will not directly or indirectly challenge the validity,
legality or enforceability of any provision of this Agreement.
19. Complete Agreement. This Agreement and the Recapitalization Agreement
------------------
embody the complete agreement and understanding among the parties and supersede
and preempt any prior
-10-
<PAGE>
understandings, agreements or representations by or among the parties, written
or oral, which may have related to the subject matter hereof in any way.
20. No Strict Construction. The language used in this Agreement shall be
----------------------
deemed to be the language chosen by the parties hereto to express their mutual
intent, and no rule of strict construction shall be applied against any party.
The use of the word "including" herein shall mean "including without
limitation."
21. Counterparts. This Agreement may be executed in separate counterparts
------------
(including by means of telecopies signature pages), each of which is deemed to
be an original and all of which taken together constitute one and the same
agreement.
22. Successors and Assigns. This Agreement shall be binding upon and
----------------------
shall inure to the benefit of and be enforceable by Executive, the Company and
their respective heirs, successors and assigns, except that Executive may not
assign his rights or delegate his obligations hereunder without the prior
written consent of the Company.
23. Choice of Law. All issues and questions concerning the construction,
-------------
validity, enforcement and interpretation of this Agreement and any schedules
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.
24. Consent to Personal Jurisdiction. Executive hereby expressly consents
--------------------------------
to the nonexclusive personal jurisdiction and venue of the state and federal
courts located in the federal Northern District of California for any lawsuit
filed against Executive by the Company arising from or relating to this
Agreement.
25. Amendment and Waiver. The provisions of this Agreement may be amended
--------------------
or waived only with the prior written consent of the Company and Executive, and
no course of conduct or failure or delay in enforcing the provisions of this
Agreement shall affect the validity, binding effect or enforceability of this
Agreement.
-11-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement on the date first written above.
E-TEK DYNAMICS, INC.
By: [Signature]
______________________________
Its:_____________________________
/s/ Jing Jong Pan
_________________________________
Jing Jong Pan
[Signature Page to Employment Agreement]
-12-
<PAGE>
EXCLUDED INVENTIONS SCHEDULE
None
<PAGE>
AOI EMPLOYEES SCHEDULE
See Attached
<PAGE>
AMENDMENT TO EMPLOYMENT AGREEMENT
---------------------------------
THIS AMENDMENT TO EMPLOYMENT AGREEMENT ("Amendment") is made as of August
17, 1998, by and between E-Tek Dynamics, Inc., a California corporation
("Company"), and Jing Jong Pan.
WHEREAS, the parties entered into that certain July 23, 1997 Employment
Agreement ("Agreement"), and 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 June 27, 1997
Recapitalization Agreement between the parties and certain others.
1. The fourth sentence of Paragraph 7(b) of the Agreement is hereby amended
and restated in its entirety as follows:
"The Company shall fund the AOI Division's Operating Expenses during
the Company's 1999 fiscal year according to the terms set forth in Exhibit
A attached to the Amendment, and, for each succeeding fiscal year during
the Employment Period, in an amount to be determined by the Company's Board
(the amount of such funding level in any given fiscal year, the `Budget'.)"
2. This will confirm that the Company shall begin equipping the AOI
Division facilities with reasonable furniture and voicemail and e-mail
capabilities, comparable to what is generally available at the Company's main
facilities.
3. The parties agree that the AOI Division received all required funding
for its Operating Expenses during the Company's 1998 fiscal year in accordance
with the terms of the Agreement.
4. 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.
5. 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. /s/ Jing Jong Pan
------------------
Jing Jong Pan
By: /s/ Michael J. Fitzpatrick
---------------------------
Michael J. Fitzpatrick,
President and CEO
<PAGE>
EXHIBIT 10.3
E-TEK DYNAMICS, INC.
1855 LUNDY AVENUE
SAN JOSE, CA 95131
October 1, 1997
Mr. Michael J. Fitzpatrick
[Address]
Re: Employment with E-Tek Dynamics, Inc.
------------------------------------
Dear Michael:
E-Tek Dynamics, Inc. .(the "Company") is pleased to offer you a position as
President and Chief Executive Officer of the Company and a position on its Board
of Directors, on the terms set forth in this letter agreement, effective upon
your acceptance by execution of a counterpart copy of this letter where
indicated below.
1. Reporting Duties and Responsibilities: Employment at Will; Board
----------------------------------------------------------------
Matters. In this position you will report to the Board of Directors of the
- -------
Company. This offer is for a full time position, located at the offices of the
Company, except as reasonable travel to other locations may be necessary to
fulfill your responsibilities. Your employment with the Company is on an "at
will" basis, and either you or the Company may terminate your employment with
the Company at any time, for any or no reason. Upon your acceptance of this
offer to become the Company's Chief Executive Officer, the Board of Directors
will elect you to fill a position on the Company's Board of Directors, and while
you remain the Chief Executive Officer of the Company, the Board of Directors
will continue to nominate you for a position on the Board of Directors of the
Company. It is understood that you will be evaluating the composition of the
current Board of Directors and that, as CEO, you may be proposing additional
candidates to serve on the Board. You may serve as a director of other
corporations with the prior approval of the Board of Directors, which approval
will not be unreasonably withheld.
2. Severance Payments upon Termination. If the Company terminates your
-----------------------------------
employment (i) for any reason other than Cause; or (ii) following a Change of
Control (as defined below), or you resign for "Good Reason", the Company will
pay you an agreed upon severance in an amount equal to your then base salary and
bonus (assuming full payout) for the lesser of (i) twelve months; or (ii) the
number of months before you obtain a position with another firm. For purposes of
the preceding sentence, the bonus amount shall be paid monthly, calculated as
one-twelfth of your target annual bonus at the time of termination. In addition,
the vesting for all options and restricted stock held by you shall be
accelerated by twelve months as of such termination of employment. You would be
entitled to an office and a secretary and continuance of your benefits during
this period of time. Notwithstanding the foregoing, if the Company is acquired
in a Change of Control transaction and your employment is terminated by
<PAGE>
you or the Company, within six months of such Change of Control, the vesting for
all options and restricted stock held by you will be 100% accelerated as of such
termination of employment and the Company will pay you an agreed upon severance
in an amount equal to two times your then base salary and bonus (assuming full
payout) in one lump sum within 15 days of such termination.
"Cause" shall mean (i) gross negligence or willful misconduct in the
performance of duties to the Company after one written warning detailing the
concerns and offering you opportunities to cure; (ii) material and willful
violation of any federal or state law; (iii) commission of any act of fraud with
respect to the Company; (iv) commission of a felony or' a crime causing material
harm to the standing and reputation of the Company; or (v) intentional and
improper disclosure of the Company's confidential or proprietary information.
Resignation for "Good Reason" shall occur if you voluntarily resign from
employment because of (i) a material adverse change in your position with the
Company which materially reduces your responsibility, without Cause and without
your written consent; (ii) a material reduction in your compensation without
your written consent; or (iii) a relocation of your place of employment outside
of the seven (7) Bay Area counties, without your written consent.
In the event of a Change in Control, the Company agrees that it will use
its best efforts (including prior approval as stockholders by members of the
Board of Directors) to satisfy the shareholder approval requirements of Section
28OG such that payments made to you hereunder will not constitute a "parachute
payment" within the meaning of Section 280G. If, due to the benefits provided
under this letter agreement, you are subject to any excise tax due to
characterization of any amount payable hereunder as excess parachute payments
pursuant to Sections 28OG and 4999 of the Internal Revenue Code, the Company
will "gross-up" the amount payable to you such that the net amount realizable by
you is the same as if there were no such excise tax.
You agree that the payments set forth in this offer letter constitute all
payments that you shall be entitled to, and under any theory, in the event of
any termination of employment
For purposes of this agreement, a Change of Control shall be deemed to
occur upon: (i) the sale, lease, conveyance or other disposition of all or
substantially all of the Company's assets as an entirety or substantially as an
entirety to any person, entity or group of persons acting in concert; (ii) any
"person" (as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended) becoming the "beneficial ownee" (as defined in
Rule 13d-3 under said Act), directly or indirectly, of securities of the Company
representing 50% or more of the total voting power represented by the Company's
then outstanding voting securities; (iii) a merger or consolidation of the
Company with any other corporation, other than a merger or consolidation which
would result in the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) at least 50% of
the total voting power represented by the voting securities of the Company or
such surviving entity outstanding immediately after. such merger or
consolidation; (iv) a change in the composition of the Board of Directors of
the Company occurring within a two-year period, as a result of which fewer than
a
2
<PAGE>
majority of the directors are Incumbent Directors. "Incumbent Directors" shall
mean directors who either (A) are directors of the Company as of the date
hereof, or (B) are elected, or nominated for election, to the Board of Directors
of the Company with the affirmative votes of at least a majority of the
Incumbent Directors at the time of such election or nomination (but shall not
include an individual whose election or nomination is in connection with an
actual or threatened proxy contest relating to the election of directors to the
Company; or (v) the liquidation or winding up of the business of the Company.
3. Salary, Bonus, Benefits and Vacation. Your initial and minimum base
------------------------------------
salary will be $25,000 per month, subject to annual review in good faith by the
Company's Board of Directors, payable in accordance with the Company's customary
payroll practice as in effect from time to time. You will also be eligible to
earn a minimum annual target bonus in the amount of $300,00.0 (prorated for
FISCAL 1998) based on the achievement of certain strategic, business and
financial objectives that you and the Company's Board of Directors will mutually
determine in good faith. The objectives for your first year will be determined
promptly after your acceptance of this letter; objectives for future years will
be determined promptly after the beginning of each fiscal year of the Company.
You will also receive the Company's standard employee benefits package
(including directors' and officers' insurance and life insurance), and will be
subject to the Company's vacation policy, as such package and policy are in
effect from TIME to time.
4. Stock Options. Effective at the Company's next Board of Directors
-------------
meeting held after your acceptance of the offer contained in this letter, the
Board will grant you a stock option to purchase up to 2,260,000 shares of the
Company Common Stock pursuant to the Company's Stock Option Plan. All options
will have an exercise price equal to the then-current fair market value of the
Company Common Stock at that date, currently anticipated to be $2.3 0 per
share. The option will be immediately exercisable, subject to a mandatory
repurchase by the Company in the event that the fair market value of such
unvested shares is less than your original purchase price and to an optional
repurchase by the Company in any other case (in any case at your original
purchase price taking into account the cancellation of any indebtedness with
respect to such option exercise) on termination of employment that will lapse
over a four-year vesting schedule at the rate of 565,012 shares vesting at the
end of your first twelve months of service, with an additional 47,083 shares
vesting per month thereafter, at the close of each month during which you remain
employed with the Company.
In addition to the stock options referenced above, you will be granted
565,000 shares of time accelerated stock options at the same time and at the
same exercise price as the stock options referenced above that are immediately
exercisable, subject to a mandatory repurchase right at your original purchase
price on termination of employment that will lapse on a cliff basis FIVE years
after grant, subject to acceleration as follows: (a) 376,666 shares shall vest
immediately upon the achievement of certain revenue and pre-tax income
objectives to be mutually agreed upon in good faith relating to the Company's
performance in fiscal years 1998 and 1999 (188,333 shares each year), and (b)
188,334 shares shall vest immediately upon the closing of an initial public
offering ("IPO") at a minimum offering price of $1 0 per share by December 31,
1998. If the Company is acquired in a Change of Control transaction before your
3
<PAGE>
options or restricted stock are fully vested, then the provisions described in
paragraph 2 above will apply.
You will be permitted to pay for shares with a substantially recourse (not
less than 50%) promissory note with annual interest (at a rate of mid-term AFR
compounded annually) and with principal deferred for five years and payable in a
balloon payment on the FIFTH anniversary of the grant, subject to acceleration
30 days following termination of employment. Assuming that you continue to be
employed by the Company, the Company will forgive the accrued interest accrued
on each anniversary as an additional bonus. If you are terminated by the Company
other than for Cause or you resign for Good Reason, the Company shall forgive.
the interest accrued on the promissory note through the date 30 days following
such termination.
5. Confidential Information. As an employee of the Company, you will have
------------------------
access to certain Company confidential information and you may, during the
course of your employment, develop certain information or inventions that will
be the property of the Company. To protect the interest of the Company, you will
need to sign the Company's standard "Employee Inventions and Confidentiality
Agreement" as a condition of your employment. We wish to impress upon you that
we do not wish you to bring with you any confidential or proprietary material of
any former employer or to violate any other obligation to your former employers.
6. At-Will Employment. While we look forward to a long and profitable
------------------
relationship, should you decide to accept our offer, you will be an at-will
employee of the Company, which means the employment relationship can be
terminated by either of us for any reason at any time, with or without cause or
advance notice. Any statements or representations to the contrary (and, indeed,
any statements contradicting any provision in this letter) should be regarded by
you as ineffective. Further, your participation in any stock option or benefit .
program is not to be regarded as assuring you of continuing employment for any
particular period of time.
7. Authorization to Work. Because of Federal regulations adopted in the
---------------------
Immigration Reform and Control Act of 1986, you will need to present
documentation demonstrating that you have authorization to work in the United
States. If you have any questions about this requirement, which applies to U.S.
citizens and non-U.S. citizens alike, please contact our human resources
department.
8. Term of Offer. This offer will remain open until October 3, 1997. If
-------------
you decide to accept our offer, and I hope that you will, please sign the
enclosed copy of this letter in the space indicated and return it to me. Upon
your signature below, this will become our binding agreement with respect to the
subject matter of this letter, superseding in their entirety all other or prior
agreements by you with the Company as to the specific subjects of this letter,
and will be binding upon and inure to the benefit of our respective successors
and assigns, and your heirs, administrators and executors, will be governed by
California law, and may only be amended in a writing signed by you and the
Company.
9. Dispute Resolution. If a legal action or other proceeding is brought
------------------
for enforcement of this Agreement because of an alleged dispute, breach,
default, or
4
<PAGE>
misrepresentation in connection with any of the provisions of this Agreement,
the successful or prevailing party shall be entitled to recover reasonable
attorney's fees and costs incurred, both before and after judgement, in addition
to any other relief to which they may be entitled.
We are excited to have you join us and look forward to working with you.
Sincerely,
/s/ Walter G. Kortschak
Walter G. Kortschak, Chairman
for the Board of Directors
Acknowledged, Accepted and Agreed Date:
/s/ Michael J. Fitzpatrick 10/3/97
- ---------------------------------------- -----------------------------------
Michael J. Fitzpatrick
5
<PAGE>
EXHIBIT 10.4
E-Tek Dynamics, Inc.
1855 Lundy Avenue
San Jose, CA 95131
December 2, 1997
MR. Sanjay Subhedar
[Address]
Re: Employment with E-Tek Dynamics, Inc.
-----------------------------------
Dear Sanjay:
E-Tek Dynamics, Inc. (the "Company") is pleased to offer you a position as
Vice President and Chief Financial Officer of the Company, with responsibility
for the Company's finance, accounting, information technology, facilities,
legal, safety and security operations, on the terms set forth in this letter
agreement, effective upon your acceptance by execution of a counterpart copy of
this letter where indicated below. At the end of the Company's 1998 fiscal
year, the Board of Directors of the Company will evaluate your performance and
your ability to perform in conjunction with the management team of the Company
in order to determine whether it is appropriate for you to assume the role of
the Company's chief operating officer, with an appropriate increase in
compensation.
1. Reporting Duties and Responsibilities; Employment at Will. In this
---------------------------------------------------------
position you will report to the President and Chief Executive Officer of the
Company. This offer is for a full time position, located at the offices of the
Company, except as reasonable travel to other locations may be necessary to
fulfill your responsibilities. Your employment with the Company is on an "at
will" basis, and either you or the Company may terminate your employment with
the Company at any time, for any or no reason.
2. Severance Payments upon Termination. If the Company terminates your
------------------------------------
employment (i) for any reason other than Cause; or (ii) you resign for "Good
Reason," (A) the Company will pay you an agreed upon severance in an amount
equal to your then base salary for the lesser of (i) twelve months; or (ii) the
number of months before you obtain a position with another firm and (B) the
vesting for all options and restricted stock held by yon shall be accelerated by
twelve months as of such termination of employment. Upon a Change of Control
(as defined below), the vesting for all options and restricted stock held by you
shall be accelerated by twelve months as of such Change of Control but shall not
be further accelerated pursuant to the preceding sentence upon your termination
of employment.
"Cause" shall mean (i) gross negligence or willful misconduct in the
performance of duties to the Company after one written warning detailing the
concerns and offering you opportunities to cure; (ii) material and willful
violation of any federal or state law;
<PAGE>
Mr. Sanjay Subhedar
December 2,1997
Page 2
(iii) commission of any act of fraud with respect to the Company; (iv)
commission of a felony or a crime causing material harm to the standing and
reputation of the Company; or (v) intentional and improper disclosure of the
Company's confidential or proprietary information.
Resignation for "Good Reason" shall occur if you voluntarily resign from
employment because of (i) a material adverse change in your position with the
Company which materially reduces your responsibility, without Cause and without
your written consent; (ii) a material reduction in your compensation without
your written consent; or (iii) a relocation of your place of employment outside
of the seven (7) Bay Area counties, without your written consent.
You agree that the payments set forth in this offer letter constitute all
payments that you shall be entitled to, and under any theory, in the event of
any termination of employment.
For purposes of this agreement, a Change of Control shall be deemed to
occur upon: (i) the sale, lease, conveyance or other disposition of all or
substantially all of the Company's assets as an entirety or substantially as an
entirety to any person, entity or group of persons acting in concert; (ii) any
"person" (as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended) becoming the "beneficial owner" (as defined in
Rule 13d-3 under said Act), directly or indirectly, of securities of the Company
representing 50% or more of the total voting power represented by the Company's
then outstanding voting securities; (iii) a merger or consolidation of the
Company with any other corporation, other than a merger or consolidation which
would result in the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) at least 50% of
the total voting power represented by the voting securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation; (iv) a change in the composition of the Board of Directors of the
Company occurring within a two-year period, as a result of which fewer than a
majority of the directors are Incumbent Directors. "Incumbent Directors" shall
mean directors who either (A) are directors of the Company as of the date
hereof, or (B) are elected, or nominated for election, to the Board of Directors
of the Company with the affirmative votes of at least a majority of the
Incumbent Directors at the time of such election or nomination (but shall not
include an individual whose election or nomination is in connection with an
actual or threatened proxy contest relating to the election of directors to the
Company, or (v) the liquidation or winding up of the business of the Company.
3. Salary: Bonus; Benefits and Vacation. Your initial and minimum base
------------------------------------
salary will be $14,584 per month, subject to annual review in good faith by the
Company's President and Chief Executive Officer, payable in accordance with the
Company's customary payroll practice as in effect from time to time. You will
also be eligible to cam an annual target bonus in the amount of $100,000
(prorated for fiscal 1998) based on the achievement of certain strategic,
business and financial objectives dud you and the Company's President and Chief
Executive Officer will mutually determine in good faith. The objectives for
your first year will be determined promptly after your acceptance of this
letter, objectives for future years will be
<PAGE>
Mr. Sanjay Subhedar
December 2, 1997
Page 3
determined promptly after the beginning of each fiscal year of the Company. You
will also receive the Company's standard employee benefits package (including
directors' and officers, insurance and medical and life insurance), and will be
subject to the Company's vacation policy, as such package4ge and policy are in
effect from time to time.
4. Stock Option. The Board will grant you a stock option to purchase up
------------
to 1,200,000 shares of the Company Common Stock pursuant to the Company's Stock
Option Plan (approximately 2% of the Company's outstanding stock). The option
will have an exercise price equal to the then-current fair market value of the
Company Common Stock as of your commencement of employment, not to exceed $4.00
per share. The option will be immediately exercisable, subject to an optional
repurchase by the Company (at your original purchase price) on termination of
employment that will lapse over a four-year vesting schedule at the rate of
300,000 shares vesting at the end of your first twelve months of service and
25,000 shares vesting in each of the next succeeding 36 months, at the close of
each such month during which you remain employed with the Company.
5. Confidential Information. As an employee of the Company, you will have
------------------------
access to certain Company confidential information and you may, during the
course of your employment, develop certain information or inventions that will
be the property of the Company. To protect the interest of the Company, you will
need to sign the Company's standard "Employee Inventions and Confidentiality
Agreement" as a condition of your employment. We wish to impress upon you that
we do not wish you to bring with you any confidential or proprietary material of
any former employer or to violate any other obligation to your former employers.
6. At-Will Employment. While we look forward to a long and profitable
------------------
relationship, should you decide to accept our offer, you will be an at-will
employee of the Company, which means the employment relationship can be
terminated by either of us for any reason at any time, with or without cause or
advance notice. Any statements or representations to the contrary (and,
indeed, any statements contradicting any provision in this letter) should be
regarded by you as ineffective. Further, your participation in any stock option
or benefit program is not to be regarded as assuring you of continuing
employment for any particular period of time.
7. Authorization to Work. Because of Federal regulations adopted in the
---------------------
Immigration Reform and Control Act of 1986, you will need to present
documentation demonstrating that you have authorization to work in the United
States. If you have any questions about this requirement, which applies to
U.S. citizens and non-U.S. citizens alike, please contact our human resources
department.
8. Term of Offer. This offer will remain open until December 6, 1997.
-------------
If you decide to accept our offer, and I hope that you will, please sign the
enclosed copy of this letter in the space indicated and return it to me. Upon
your signature below, this will become our binding agreement with respect to the
subject matter of this letter, superseding in their entirety all other
<PAGE>
Mr. Sanjay Subhedar
December 2, 1997
Page 4
or prior written or oral agreements by you with the Company as to the specific
subjects of this letter, and will be binding upon and inure to the benefit of
our respective successors and assigns, and your heirs, administrators and
executors, will be governed by California law, and may only be amended in a
writing signed by you and the Company.
9. Dispute Resolution. If a legal action or other proceeding is brought
------------------
for enforcement of this Agreement because of an alleged dispute, breach,
default, or misrepresentation in connection with any of the provisions of this
Agreement, the successful or prevailing party shall be entitled to recover
reasonable attorney's fees and costs incurred, both before and after judgment in
addition to any other relief to which1dch they may be entitled.
We are very excited to have you join us at B-Tek and look forward to
working with you.
Sincerely,
/s/ Michael J. Fitzpatrick
Michael J. Fitzpatrick
President and Chief Executive Officer
Acknowledged, Accepted and Agreed Date:
/s/ Sanjay Subhedar 12/4/97
- ------------------------------ ---------------------------
Sanjay Subhedar
<PAGE>
EXHIBIT 10.5
D:\philip.doc
May 26, 1998
Mr. Philip J. Anthony
[Address]
Dear Phil,
E-Tek Dynamics (the "Company") is very pleased to offer you a position as
Vice President of Engineering with responsibility for the Company's research,
development and engineering, on the terms set forth in this letter agreement,
effective upon your acceptance by execution of a counterpart copy of this letter
where indicated below.
1. Reporting Duties and Responsibilities: Employment at Will. In this position
---------------------------------------------------------
you will report to the President and Chief Executive Officer of the
Company. This letter is for a full time position, located at the offices of
the Company, except as reasonable travel to other locations may be
necessary to fulfill your responsibilities. Your employment with the
Company is on an "at will" basis, and either you or the Company may
terminate your employment with the Company at any time, for any or no
reason.
2. Severance Payments upon Termination. If the Company terminates your
-----------------------------------
employment (i) for any reason other than Cause; or (ii) you resign for
"Good Reason", (A) the Company will pay you an agreed upon severance in an
amount equal to your then base salary for the lesser of (i) twelve months;
or (ii) the number of months before you obtain a position with another firm
and (B) the vesting for all options held by you shall be accelerated by
twelve months as of such termination of employment.
"Cause" shall mean (i) gross negligence or willful misconduct in the
performance of duties to the Company after one written warning detailing
the concerns and offering you opportunities to cure; (ii) material and
willful violation of any federal or state law; (iii) commission of any act
of fraud with respect to the Company; (iv) commission of a felony or a
crime causing material harm to the standing and reputation of the Company;
or (v) intentional and improper disclosure of the Company's confidential or
proprietary information.
Resignation for "Good Reason" shall occur if you voluntarily resign from
employment because of (i) a material adverse change in your position with
the Company which materially reduces your responsibility, without Cause and
without your written consent; (ii) a material reduction in your
compensation without your written consent; or (iii) a relocation of your
place of employment outside of the seven (7) Bay Area counties, without
your written consent.
<PAGE>
Philip J. Anthony
May 26, 1998
Page 2 of 4
- -----------
You agree that the payments set forth in this offer letter constitute all
payments that you shall be entitled to, and under any theory, in the event
of any termination of employment.
3. Salary; Bonus; Benefits and Vacation. Your initial and minimum base salary
------------------------------------
will be $13,333 per month, subject to annual review in good faith by the
Company's President and Chief Executive Officer, payable in accordance with
the Company's customary payroll practice as in effect from time to time.
You will also be eligible to earn an annual target bonus in the amount of
30% of your salary ($48,000) based on the achievement of certain
engineering, business and financial objectives that you and the Company's
President and Chief Executive Officer will mutually determine in good
faith. The objectives for your first year will be determined promptly after
your acceptance of this letter; objectives for future years will be
determined promptly after the beginning of each fiscal year of the Company.
You will also receive the Company's standard employee benefits package
(including directors' and officers' insurance and medical and life
insurance), and will be subject to the Company's vacation policy, as such
package and policy are in effect from time to time.
4. Relocation & Signing Bonus. You will receive a signing bonus of $50,000
--------------------------
payable within thirty (30) days of your first month of employment. This
bonus will be the full and entire compensation for temporary living
expenses, flights and any and all relocation expenses. Our offer, & this
bonus, is based on your permanent relocation to the San Jose area in
California within nine (9) months.
5. Stock Option. You will be granted a stock option, subject to Board
------------
approval, to purchase up to 250,000 shares of the Company Common Stock
pursuant to the Company's Stock Option Plan. The option will have an
exercise price equal to the then-current fair market value of the Company
Common Stock when approved by the Board. The option will be immediately
exercisable, subject to an optional repurchase by the Company (at your
original purchase price) on termination of employment that will lapse over
a four-year vesting schedule with a twelve (12) month cliff vesting at the
rate of 62,500 shares vesting at the end of your first twelve months of
service and 5,208 shares vesting in each of the next succeeding
<PAGE>
36 months, at the close of each such month during which you remain employed
with the Company.
Philip J. Anthony
May 26, 1998
Page 3 of 4
- -----------
6. Confidential Information. As an employee of the Company, you will have
------------------------
access to certain Company confidential information and you may, during the
course of your employment, develop certain information or inventions that
will be the property of the Company. To protect the interest of the
Company, you will need to sign the Company's standard "Employee Proprietary
and Inventions Agreement" as a condition of your employment. We wish to
impress upon you that we do not wish you to bring with you any confidential
or proprietary material of any former employer or to violate any other
obligation to your former employers.
7. At-Will Employment. While we look forward to a long and profitable
------------------
relationship, should you decide to accept our offer, you will be an at-will
employee of the Company, which means the employment relationship can be
terminated by either of us for any reason at any time, with or without
cause or advance notice. Any statements or representations to the contrary
(and, indeed, any statements contradicting any provision in this letter)
should be regarded by you as ineffective. Further, your participation in
any stock option or benefit program is not to be regarded as assuring you
of continuing employment for any particular period time.
8. Authorization to Work. Because of Federal regulations adopted in the
---------------------
Immigration Reform and Control Act of 1986, you will need to present
documentation demonstrating that you have authorization to work in the
United States. If you have any questions about this requirement, which
applies to U.S. citizens and non-U.S. citizens alike, please contact our
human resources department.
9. Term of Offer. This offer will remain open until June 5, 1998. If you
-------------
decide to accept our offer, and I hope that you will, please sign the
enclosed copy of this letter in the space indicated and return to me. Upon
your signature below, this will become our binding agreement with respect
to the subject matter of this letter, superseding in their entirety all
other or prior written or oral agreements by you with the Company as to the
specific subjects of this letter, and will be binding upon and inure to the
benefit of our respective successors and assigns, and your heirs,
<PAGE>
administrators and executors, will be governed by California law, and may
only be amended in a writing signed by you and the Company.
Philip J. Anthony
May 26, 1998
Page 4 of 4
- -----------
10. Dispute Resolution. If a legal action or other proceeding is brought for
------------------
enforcement of this Agreement because of an alleged dispute, breach,
default, or misrepresentation in connection with any of the provisions of
this Agreement, the successful or prevailing party shall be entitled to
recover reasonable attorney's fees and costs incurred, both before and
after judgment, in addition to any other relief to which they may be
entitled.
We are very excited to have you join us at E-Tek Dynamics and look forward
to working with you.
Sincerely,
E-TEK DYNAMICS
/s/ Michael J. Fitzpatrick
-------------------------------------
Michael J. Fitzpatrick
President and Chief Executive Officer
Acknowledged, Accepted and Agreed
/s/ Philip J. Anthony
______________________________
Philip J. Anthony
Date:
<PAGE>
EXHIBIT 10.6
D:\jim.doc
July 21, 1998
Mr. Jim Northington
[Address]
Dear Jim,
E-Tek Dynamics (the "Company") is very pleased to offer you a position as
Vice President of Manufacturing with responsibility for the Company's
Manufacturing operations, on the terms set forth in this letter agreement,
effective upon your acceptance by execution of a counterpart copy of this letter
where indicated below.
1. Reporting Duties and Responsibilities: Employment at Will. In this position
---------------------------------------------------------
you will report to Sanjay Subhedar, the Chief Financial Officer of the
Company. This letter is for a full time position, located at the offices of
the Company, except as reasonable travel to other locations may be
necessary to fulfill your responsibilities. Your employment with the
Company is on an "at will" basis, and either you or the Company may
terminate your employment with the Company at any time, for any or no
reason.
2. Salary; Bonus; Benefits and Vacation. Your initial and minimum base salary
------------------------------------
will be $13,333 per month, subject to annual review in good faith by the
Company's Chief Financial Officer, payable in accordance with the Company's
customary payroll practice as in effect from time to time. You will also
be eligible to earn an annual target bonus in the amount of 30% of your
salary ($48,000) based on the achievement of certain manufacturing,
business and financial objectives that you and the Company's Chief
Financial Officer will mutually determine in good faith. The objectives
for your first year will be determined promptly after your acceptance of
this letter; objectives for future years will be determined promptly after
the beginning of each fiscal year of the Company. You will also receive
the Company's standard employee benefits package, and will be subject to
the Company's vacation policy, as such package and policy are in effect
from time to time.
3. Stock Option. You will be granted a stock option, subject to Board
------------
approval, to purchase up to 200,000 shares of the Company Common Stock
pursuant to the Company's Stock Option Plan. The option will have an
exercise price equal to the then-current fair market value of the Company
Common Stock when approved by the Board. The option will be immediately
exercisable, subject to an optional repurchase by the Company (at your
original purchase price) on termination of employment that will lapse over
a four-year vesting schedule with a twelve (12) month cliff vesting at the
rate of 50,000 shares vesting at the end of your first twelve months of
service and 4,166 shares vesting in each of the next succeeding
<PAGE>
36 months, at the close of each such month during which you remain employed
with the Company.
Jim Northington
July 21, 1998
Page 2 of 3
- -----------
4. Confidential Information. As an employee of the Company, you will have
------------------------
access to certain Company confidential information and you may, during the
course of your employment, develop certain information or inventions that
will be the property of the Company. To protect the interest of the
Company, you will need to sign the Company's standard "Employee Proprietary
and Inventions Agreement" as a condition of your employment. We wish to
impress upon you that we do not wish you to bring with you any confidential
or proprietary material of any former employer or to violate any other
obligation to your former employers.
5. At-Will Employment. While we look forward to a long and profitable
------------------
relationship, should you decide to accept our offer, you will be an at-will
employee of the Company, which means the employment relationship can be
terminated by either of us for any reason at any time, with or without
cause or advance notice. Any statements or representations to the contrary
(and, indeed, any statements contradicting any provision in this letter)
should be regarded by you as ineffective. Further, your participation in
any stock option or benefit program is not to be regarded as assuring you
of continuing employment for any particular period time.
6. Authorization to Work. Because of Federal regulations adopted in the
---------------------
Immigration Reform and Control Act of 1986, you will need to present
documentation demonstrating that you have authorization to work in the
United States. If you have any questions about this requirement, which
applies to U.S. citizens and non-U.S. citizens alike, please contact our
human resources department.
7. Term of Offer. This offer will remain open until July 31st. If you decide
-------------
to accept our offer, and I hope that you will, please sign the enclosed
copy of this letter in the space indicated and return to me. Upon your
signature below, this will become our binding agreement with respect to the
subject matter of this letter, superseding in their entirety all other or
prior written or oral agreements by you with the Company as to the specific
subjects of this letter, and will be binding upon and inure to the benefit
of our respective successors and assigns, and your heirs, administrators
and executors, will be governed by California law, and may only be amended
in a writing signed by you and the Company.
<PAGE>
Jim Northington
July 21, 1998
Page 3 of 3
- -----------
8. Dispute Resolution. If a legal action or other proceeding is brought for
------------------
enforcement of this Agreement because of an alleged dispute, breach,
default, or misrepresentation in connection with any of the provisions of
this Agreement, the successful or prevailing party shall be entitled to
recover reasonable attorney's fees and costs incurred, both before and
after judgment, in addition to any other relief to which they may be
entitled.
We are very excited to have you join us at E-Tek Dynamics and look forward
to working with you.
Sincerely,
E-TEK DYNAMICS
/s/ Sanjay Subhedar
------------------------
Sanjay Subhedar
Chief Financial Officer
Acknowledged, Accepted and Agreed
/s/ Jim Northington
______________________________
Jim Northington
Date:
<PAGE>
EXHIBIT 10.7
EXECUTION COPY
E-TEK DYNAMICS, INC.
EXECUTIVE AGREEMENT
-------------------
THIS AGREEMENT (this "Agreement") is made as of June 27, 1997, by and
---------
between E-Tek Dynamics, Inc., a California corporation (the "Company"), and Ming
-------
Shih ("Executive"). Certain definitions are set forth in paragraph 12 of this
---------
Agreement.
WHEREAS, the Company and Executive desire to enter into this Agreement
pursuant to which Executive shall purchase, and the Company shall sell, 555,555
shares of the Company's Common Stock, no par value per share (the "Common
------
Stock"), on the Closing Date;
- -----
WHEREAS, the Company and Executive also desire to enter into this Agreement
to (i) confirm the obligations of Executive to refrain from disclosing certain
confidential information regarding the Company and (ii) establish the relative
rights of the Company and Executive with respect to certain intellectual
property rights which Executive has created or developed or may create or
develop as a result of Executive's employment with the Company; and
WHEREAS, the execution and delivery of this Agreement by the Company and
Executive is a condition to the purchase of shares of the Company's Class A
Convertible Preferred Stock by the Investors pursuant to a Recapitalization
Agreement, dated as of June 27, 1997, by and among the Investors, the Company
and the Founding Shareholders (as the same may be amended from time to time in
accordance with its terms, the "Recapitalization Agreement").
---------------- ---------
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties to this Agreement hereby agree as follows:
1. Purchase and Sale of Common Stock.
---------------------------------
(a) On the Closing Date, Executive shall purchase, and the Company
shall sell 555,555 shares of Common Stock at a price of $2.30 per share. On the
Closing Date, the Company shall deliver to Executive a copy of, and receipt for,
the certificate or certificates representing such shares of Common Stock, and
Executive shall deliver to the Company a promissory note in the form of Exhibit
-------
A attached hereto in an aggregate principal amount of $1,277,776.50 (the
- -
"Executive Note"). Executive's obligations under the Executive Note shall be
--------------
secured by a pledge of all of the shares of Executive Stock to the Company, and
in connection therewith, Executive shall enter into a pledge agreement in the
form of Exhibit B attached hereto (the "Pledge Agreement"). Upon the purchase of
--------- ----------------
the Executive Stock and subject to the terms of the Pledge Agreement, Executive
shall become a shareholder of the Company with respect to such Common Stock and
shall have all of the rights of a shareholder, including but not limited to, the
right to vote such Common Stock and the right to receive dividends and other
distributions paid with respect to Common Stock.
<PAGE>
(b) The Company shall hold each certificate representing Executive
Stock until such time as the Executive Stock represented by such certificate is
released from the pledge to the Company pursuant to the Pledge Agreement.
(c) Within 30 days after the date hereof, Executive shall make an
effective election with the Internal Revenue Service under Section 83(b) of the
Internal Revenue Code and the regulations promulgated thereunder in the form of
Exhibit C attached hereto.
- ---------
(d) In connection with the purchase and sale of the Executive Stock
hereunder, Executive represents and warrants to the Company that:
(i) The Executive Stock to be acquired by Executive pursuant
to this Agreement shall be acquired for Executive's own account and not with a
view to, or intention of, distribution thereof in violation of the Securities
Act, or any applicable state securities laws, and the Executive Stock shall not
be disposed of in contravention of the Securities Act or any applicable state
securities laws.
(ii) Executive is an executive employee of the Company, is
sophisticated in financial matters and is able to evaluate the risks and
benefits of the investment in the Executive Stock.
(iii) Executive is able to bear the economic risk of Executive's
investment in the Executive Stock for an indefinite period of time because the
Executive Stock has not been registered under the Securities Act and, therefore,
cannot be sold unless subsequently registered under the Securities Act or an
exemption from such registration is available.
(iv) Executive has had an opportunity to ask questions and
receive answers concerning the terms and conditions of the offering of Executive
Stock and has had full access to such other information concerning the Company
and its Subsidiaries as Executive has requested.
(v) This Agreement constitutes the legal, valid and binding
obligation of Executive, enforceable in accordance with its terms, and the
execution, delivery and performance of this Agreement by Executive does not and
shall not conflict with, violate or cause a breach of any agreement, contract or
instrument to which Executive is a party or any judgment, order or decree to
which Executive is subject.
(vi) Executive is not a party to or bound by any employment
agreement, noncompete agreement, confidentiality agreement or similar agreement
with any other person or entity other than any such agreement between Executive
and the Company listed on the Executive Contract Schedule attached hereto.
---------------------------
(e) As an inducement to the Company to issue the Executive Stock to
Executive, and as a condition thereto, Executive acknowledges and agrees that:
-2-
<PAGE>
(i) neither the issuance of the Executive Stock to Executive
nor any provision contained herein shall entitle Executive to remain in the
employment of the Company and its Subsidiaries or affect the right of the
Company or any of its Subsidiaries to terminate Executive's employment at any
time; and
(ii) Executive has consulted with (or has been given a
reasonable opportunity to consult with) independent legal counsel regarding
Executive's rights and obligations under this Agreement and Executive fully
understands the terms and conditions contained herein.
(f) As an inducement to Executive to purchase the Executive Stock,
the Company hereby agrees that for so long as Executive holds any Executive
Stock, the Company shall provide Executive with the financial statements and
other information provided to certain shareholders of the Company pursuant to
paragraph 10 of the Agreement.
2. Vesting of Executive Stock. The Executive Stock shall become vested in
--------------------------
accordance with the provisions of this paragraph 2. On the last day of each
calendar month after the date hereof, 1/36th of the Executive Stock shall become
vested, if and only if, Executive is and has been continuously employed by the
--------------
Company from the date hereof through the applicable vesting date; provided that
-------- ----
in the event Executive's employment with the Company is terminated by the
Company without Cause, all of the Executive Stock shall become immediately
vested. Shares of Executive Stock which have become vested are referred to
herein as "Vested Shares," and all other shares of Executive Stock are referred
-------------
to herein as "Unvested Shares."
---------------
3. Repurchase Option.
-----------------
(a) If Executive's employment with the Company shall terminate for
any reason (other than a termination by the Company without Cause) (the date on
which any such termination occurs being referred to as the "Termination Date"),
----------------
then the Company and the Other Shareholders shall have the option to repurchase
all or any part of the Unvested Shares held by Executive at the Original Cost
thereof (the "Repurchase Option").
-----------------
(b) The Company may elect to Purchase all or any portion of the
Unvested Shares by delivery of written notice (the "Repurchase Notice") to
-----------------
Executive within 90 days after the Termination Date. The Repurchase Notice shall
set forth the number of Unvested Shares to be acquired from Executive, the
aggregate consideration to be paid for such shares and the time and place for
the closing of the transaction.
(c) Notwithstanding anything set forth in this paragraph 3 to the
contrary, prior to the exercise by the Company of its right to purchase Unvested
Shares pursuant to paragraphs 3(a) and 3(b) above, one or more new or existing
employees of the Company may be designated by the Board of Directors of the
Company (individually a "Designated Employee" and collectively "Designated
------------------- ----------
Employees"), who shall have the right, but not the obligation, to acquire, in
- ---------
lieu of the Company, the Unvested Shares that the Company is entitled to
purchase pursuant to paragraphs 3(a)
-3-
<PAGE>
and 3(b) above, on the same terms and conditions as set forth in this paragraph
3 and paragraph 4 below which apply to the purchase of such Unvested Shares by
the Company. Concurrently with any such purchase of Unvested Shares by any such
Designated Employee who is not a party to the Shareholders Agreement, such
Designated Employee shall execute a counterpart of the Shareholders Agreement
whereupon such Designated Employee shall be deemed an "Existing Shareholder" and
a "Shareholder" thereunder and shall have the same rights and be bound by the
same obligations as the other Existing Shareholders thereunder.
(d) If for any reason the Company (or any Designated Employee) does
not elect to purchase all of the Unvested Shares pursuant to the Repurchase
Option, then the Other Shareholders shall be entitled to exercise the Company's
Repurchase Option in the manner set forth in paragraph 3(a) for all or any
portion of the Unvested Shares the Company has not elected to purchase (the
"Available Shares"). As soon as practicable after the Company has determined
----------------
that there shall be Available Shares, but in any event within 60 days after the
Termination Date, the Company shall deliver written notice (the "Option Notice")
-------------
to the Other Shareholders setting forth the number of Available Shares and the
price for each Available Share. Each Other Shareholder may elect to purchase
any number of Available Shares by delivering written notice (the "Election
--------
Notice") to the Company within 15 days after receipt of the Option Notice from
- ------
the Company. If more than one Other Shareholder elects to purchase any or all
Available Shares and such elections exceed the number of Available Shares, each
Other Shareholder shall be entitled to purchase the lesser of (i) the number of
Available Shares such Other Shareholder has elected to purchase as indicated in
the Election Notice or (ii) the number of Available Shares obtained by
multiplying the number of shares specified in the Option Notice by a fraction,
the numerator of which is the number of shares of Common Stock (on a fully-
diluted basis) held by such Other Shareholder and the denominator of which is
the aggregate number of shares of Common Stock (on a fully-diluted basis) held
by all electing Other Shareholders (such fraction, a "Pro Rata Share"). In the
--------------
event all Available Shares are not purchased by the Other Shareholders pursuant
to the immediately preceding sentence, the Available Shares remaining to be
purchased shall be allocated among the Other Shareholders who elect to purchase
more Available Shares (as indicated in their respective Election Notices) than
they are entitled to purchase pursuant to the immediately preceding sentence pro
rata among such Other Shareholders according to the respective Pro Rata Share of
such Other Shareholders or as such Other Shareholders shall otherwise agree in
writing. As soon as practicable, and in any event within five days after the
expiration of such 15-day period, the Company shall notify Executive as to the
number of Unvested Shares being purchased from Executive by the Other
Shareholders (the "Supplemental Repurchase Notice"). At the time the Company
------------------------------
delivers the Supplemental Repurchase Notice to Executive, the Other Shareholders
shall also receive written notice from the Company setting forth the number of
shares each such Person is entitled to purchase, the aggregate purchase price
and the time and place of the closing of the transaction.
(e) The closing of the purchase of Unvested Shares pursuant to this
paragraph 3 shall be held at the Company's executive offices prior to the
expiration of the 90-day period referred to in paragraph 3(b). At the closing,
the purchaser or purchasers shall pay the purchase price in the manner specified
in paragraph 4 and Executive shall deliver the certificate or certificates
representing such shares to the purchaser or purchasers or their nominees,
accompanied by duly
-4-
<PAGE>
executed stock powers. Any purchaser of Unvested Shares under this paragraph 3
shall be entitled to receive customary representations and warranties from
Executive regarding the sale of such shares (including representations and
warranties regarding good title to such shares, free and clear of any liens or
encumbrances) and to require all sellers' signatures to be guaranteed by a
national bank or reputable securities broker.
(f) Notwithstanding anything to the contrary contained in this
Agreement, all repurchases of Unvested Shares by the Company (other than any
repurchase by a Designated Employee) shall be subject to applicable restrictions
contained in the General Corporation Law of California and in any debt and
equity financing agreements of the Company and its Subsidiaries which may exist
from time to time. If any such restrictions prohibit the repurchase of Unvested
Shares hereunder which the Company is otherwise entitled to make, the time
periods provided in this paragraph 3 shall be suspended, and the Company may
make such repurchases as soon as it is permitted to do so under such
restrictions.
4. Purchase Price for Executive Stock. Subject to paragraph 3(f) above,
----------------------------------
if the Company elects to purchase all or any part of the Unvested Shares, the
Company shall pay for such shares: (i) first by offsetting amounts outstanding
under any indebtedness or obligations owed by Executive to the Company
(including the Executive Note) and (ii) second, by certified check or wire
transfer of funds to the extent such payment would not cause the Company to
violate the General Corporation Law of California and would not cause the
Company to breach any agreement to which it is a party relating to indebtedness
for borrowed money or any other material agreement. If any Other Shareholder
elects to purchase all or any portion of the Available Shares, such Person shall
pay for that portion of such Executive Stock by certified check or wire transfer
of funds.
5. Additional Restrictions on Transfer.
-----------------------------------
(a) No Unvested Shares may be Transferred at any time to any Person.
(b) All shares of Executive Stock are subject to the additional
restrictions on Transfer set forth in the Shareholders Agreement.
(c) In addition to any other legend required pursuant to the
Shareholders Agreement or otherwise, the certificates representing the Executive
Stock shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY
ISSUED ON JULY 23, 1997, HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER ANY
---
STATE SECURITIES LAWS AND MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND
APPLICABLE STATE SECURITIES LAWS OR AN EXEMPTION FROM
REGISTRATION THEREUNDER. THE SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE ALSO SUBJECT
-5-
<PAGE>
TO ADDITIONAL RESTRICTIONS ON TRANSFER, CERTAIN REPURCHASE
OPTIONS AND CERTAIN OTHER AGREEMENTS SET FORTH IN AN EXECUTIVE
AGREEMENT BETWEEN THE COMPANY AND THE ORIGINAL HOLDER HEREOF
DATED AS OF JUNE 27, 1997, A COPY OF WHICH MAY BE OBTAINED BY THE
HOLDER HEREOF AT THE COMPANY'S PRINCIPAL PLACE OF BUSINESS
WITHOUT CHARGE."
(d) Opinion of Counsel. Executive may not sell, transfer or dispose
------------------
of any Executive Stock (except pursuant to an effective registration statement
under the Securities Act) without first delivering to the Company an opinion of
counsel reasonably acceptable in form and substance to the Company that
registration under the Securities Act or any applicable state securities law is
not required in connection with such transfer.
6. Company's Ownership of Intellectual Property.
--------------------------------------------
(a) Executive acknowledges that all Work Product is the exclusive
property of the Company or such Subsidiary. Executive hereby assigns all right,
title and interest in and to such Work Product to the Company. Any copyrightable
work prepared in whole or in part by Executive will be deemed "a work made for
hire" under Section 201(b) of the 1976 Copyright Act, and the Company shall own
all of the rights comprised in the copyright therein.
(b) The Company and Executive each acknowledge the applicability of
Section 2870 of the California Labor Code. Accordingly, the provisions of
paragraph 6(a) above shall not apply to, and the term "Work Product" shall not
include, any invention that Executive developed entirely on his own time without
using the Company's equipment, supplies, facilities, or trade secret information
except for those inventions that either: (i) relate at the time of conception or
reduction to practice of the invention to the Company's or any Subsidiary's
business, or to the actual or demonstrably anticipated research or development
of the Company or any Subsidiary; or (ii) result from any work performed by
Executive for the Company or any Subsidiary. Set forth on the attached
"Excluded Inventions Schedule" are the inventions Executive believes meet the
----------------------------
criteria for exclusion set forth above. Executive agrees to promptly advise the
Company in writing of any inventions developed after the date hereof which
Executive believes meet the criteria for exclusion set forth above. Without the
consent of Executive, the Company shall not disclose or use any information
constituting a trade secret which relates to an invention Executive has proven
meets the criteria for exclusion set forth above and which is disclosed to the
Company pursuant to this Agreement.
(c) Executive shall promptly and fully disclose all Work Product to
the Company and shall cooperate and perform all actions reasonably requested by
the Company (whether during or after the Employment Period) to establish,
confirm and protect the Company's right, title and interest in such Work
Product. Without limiting the generality of the foregoing, Executive agrees to
assist the Company, at the Company's expense, in every proper way to secure the
Company's rights in the Work Product in any and all countries, including the
execution of all applications and all other instruments and documents which the
Company shall deem necessary in order to apply for and
-6-
<PAGE>
obtain rights in such Work Product and in order to assign and convey to the
Company the sole and exclusive right, title and interest in and to such Work
Product. If the Company is unable because of Executive's mental or physical
incapacity or for any other reason (including Executive's refusal to do so after
request therefor is made by the Company) to secure Executive's signature to
apply for or to pursue any application for any United States or foreign patents
or copyright registrations covering Work Product belonging to or assigned to the
Company pursuant to paragraph 6(a) above, then Executive hereby irrevocably
designates and appoints the Company and its duly authorized officers and agents
as Executive's agent and attorney-in-fact to act for and in Executive's behalf
and stead to execute and file any such applications and to do all other lawfully
permitted acts to further the prosecution and issuance of patents or copyright
registrations thereon with the same legal force and effect as if executed by
Executive. Executive agrees not to apply for or pursue any application for any
United States or foreign patents or copyright registrations covering any Work
Product other than pursuant to this paragraph in circumstances where such
patents or copyright registrations are or have been or are required to be
assigned to the Company.
7. Confidential Information; Nonsolicitation.
-----------------------------------------
(a) Executive acknowledges that by reason of Executive's duties to
and association with the Company, Executive has had and will have access to and
become informed of Confidential Information which is a competitive asset of the
Company and/or its Subsidiaries. Executive agrees to keep in strict confidence
and not, directly or indirectly, make known, furnish, make available or use any
Confidential Information, except for use in Executive's regular authorized
duties on behalf of the Company. Executive acknowledges that all documents and
other property including or reflecting Confidential Information furnished to
Executive by the Company or otherwise acquired or developed by the Company or
Executive or known by Executive shall at all times be the property of the
Company. Executive shall take all appropriate steps to safeguard Confidential
Information and protect it against disclosure, misuse, loss and theft.
(b) Executive agrees that prior to the Termination Date and for two
(2) years thereafter he shall not directly, or indirectly through another
Person, (i) 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, (ii) 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 Company and Executive so as to avoid any disputes
under this paragraph 7(b) that any such hiring within such 90-day period is in
violation of clause (i) above), or (iii) 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. In addition,
Executive agrees that prior to the Termination Date and thereafter he shall not
in any way interfere with the relationship between any such customer, supplier,
licensee or business relation and the Company or any of its Subsidiaries
(including making any negative statements or communications about the Company or
any of its Subsidiaries).
-7-
<PAGE>
8. Delivery of Materials Upon Termination of Employment. As requested by
----------------------------------------------------
the Company upon the termination of Executive's employment with the Company for
any reason, Executive shall promptly deliver to the Company all copies and
embodiments, in whatever form, of all Confidential Information and Work Product
and in Executive's possession or within his control irrespective of the location
or form of such material and, if requested by the Company, shall provide the
Company with written confirmation that all such materials have been delivered to
the Company.
9. Subsequent Inventions. Executive understands and agrees that all
---------------------
Intellectual Property Rights made, conceived, developed, reduced to practice or
learned by Executive, either alone or jointly with others, shall be disclosed to
the Company by Executive for two (2) years following the Termination of
Executive's employment with the Company. Executive further agrees that all
Intellectual Property Rights made, conceived, developed or reduced to practice
within two (2) years following such termination shall be presumed to have been
conceived during Executive's employment with the Company and with the use of the
Company's Confidential Information, but such presumption may be overcome by
Executive by a showing that such Intellectual Property Rights were conceived
after such employment and without the use of any such Confidential Information.
In the event Executive is not able to rebut such presumption and prove that such
Intellectual Property Rights were conceived after such employment and without
the use of Confidential Information, Executive agrees to assign all right, title
and interest in such Intellectual Property Rights to the Company.
10. Disclosure. Following the Termination Date, Executive shall
----------
communicate the restrictions contained in this Agreement to any prospective
transferee of Executive Stock and to any Person he intends to be employed by,
provide consulting services to or otherwise represent. Executive hereby consents
to the Company's communication of the restrictions contained in this Agreement
to any such Person.
11. Enforcement; Remedies.
---------------------
(a) If, at the time of enforcement of the covenants contained in
paragraphs 6, 7, 8 and 9 (the "Protective Covenants"), a court shall hold that
--------------------
the duration or scope stated therein is unreasonable under circumstances then
existing, the parties hereto agree that the maximum duration or scope reasonable
under such circumstances shall be substituted for the stated duration or scope
and that the court shall be allowed to revise the restrictions contained therein
to cover the maximum period or scope permitted by law. Executive agrees that the
Protective Covenants are reasonable in terms of duration and scope and are
necessary to protect the goodwill of the Company's business and the Confidential
Information. Executive further agrees that the Protective Covenants were a
material inducement to the Investors to enter into the Recapitalization
Agreement and consummate the transactions contemplated thereby, and the
Investors would not obtain the benefit of the bargain as set forth in the
Recapitalization Agreement and the other agreements contemplated thereby if
Executive breached or challenged the validity of any of the Protective
Covenants.
(b) If Executive breaches, or threatens to commit a breach of, any of
the Protective Covenants, the Company shall have the following rights and
remedies, each of which
-8-
<PAGE>
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:
(i) the right and remedy to have the Protective Covenants
specifically enforced by any court of competent jurisdiction (without the
need to post a bond or other security), it being agreed that any breach or
threatened breach of the Protective Covenants would cause irreparable
injury to the Company and that money damages would not provide an adequate
remedy to the Company; and
(ii) the right and remedy to require Executive to account for
and pay over to the Company any profits, monies, accruals, increments or
other benefits derived or received by Executive as the result of any
transactions constituting a breach of the Protective Covenants.
(c) In the event of any breach or violation by Executive of any of
the Protective Covenants, the time period of such covenant (if any) with respect
to Executive shall be tolled until such breach or violation is resolved.
12. Definitions.
-----------
"Cause" shall mean (i) Executive's theft or embezzlement, or attempted
-----
theft or embezzlement, of money or property of the Company or any of its
Subsidiaries, Executive's perpetration or attempted perpetration of fraud, or
Executive's participation in a fraud or attempted fraud, or any other act or
omission involving dishonesty with respect to the Company, any of its
Subsidiaries or any of their respective customers, suppliers or other business
relations or Executive's unauthorized appropriation of, or Executive's attempt
to misappropriate, any tangible or intangible assets or property of the Company
or any of its Subsidiaries (including any breach of Executive's duty of loyalty
to the Company and its Subsidiaries); (ii) Executive's commission of a felony or
any crime involving acts which tend to insult or offend community moral
standards or public decency or that involve moral turpitude, or any other
conduct by Executive tending to bring the Company or any of its Subsidiaries
into public disgrace or disrepute; (iii) Executive's repeated refusal to carry
out the reasonable lawful instructions of the Board of Directors of the Company;
or (iv) Executive's breach of this Agreement which is not cured within 10 days
after written notice thereof to Executive or which is incapable of being cured.
"Closing Date" means the date of the consummation of the transactions
------------
contemplated by the Recapitalization Agreement.
"Confidential Information" shall mean 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, Executive in connection with Executive's prior
relationship with the Company or during Executive's employment with the Company
and that relates to the business, products, services or research or development
of the Company or its
-9-
<PAGE>
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
Executive can demonstrate: (a) is publicly known through no wrongful act or
breach of obligation of confidentiality; (b) was lawfully known to Executive
prior to the time Executive began rendering services for the Company and its
predecessors or (c) was rightfully received by Executive from a third party
without a breach of any obligation of confidentiality by such third party.
"Executive Stock" means the Common Stock acquired by Executive
---------------
hereunder or hereafter acquired by Executive; provided that Executive Stock
-------- ----
shall continue to be Executive Stock in the hands of any holder other than
Executive (except for the Company and the Other Shareholders and except for
transferees in a Public Sale), and except as otherwise provided herein, each
such other holder of Executive Stock shall succeed to all rights and obligations
attributable to Executive as a holder of Executive Stock hereunder. Executive
Stock shall also include any securities issued with respect to Executive Stock
by way of a stock split, stock dividend or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization.
"Founding Shareholders" means those Persons identified with an
---------------------
asterisk on the Schedule of Existing Shareholders attached to the Shareholders
---------------------------------
Agreement and their Permitted Transferees (as defined in the Shareholders
Agreement).
"Initial Public Offering" means the initial offering by the Company of
-----------------------
its Common Stock to the public pursuant to an effective registration statement
under the Securities Act or any comparable statement under any similar federal
statute then in force.
"Intellectual Property Rights" means all inventions, innovations,
----------------------------
improvements, developments, methods, processes, designs, analyses, drawings,
reports and all similar or related information (whether or not patentable or
reduced to practice or comprising Confidential Information) and any
copyrightable work, trade mark, trade secret or other intellectual property
rights (whether or not comprising Confidential Information).
"Investors" means the persons listed on the Schedule of Investors
--------- ---------------------
attached to the Shareholders Agreement, as the same may be amended from time to
time, and their Permitted Transferees (as defined in the Agreement).
-10-
<PAGE>
"Original Cost" of each share of Common Stock purchased hereunder
-------------
shall be equal to $2.30 (as proportionately adjusted for all subsequent stock
splits, stock dividends and other recapitalizations).
"Other Shareholders" means the Investors and the Founding
------------------
Shareholders.
"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.
"Preferred Stock" means the Company's Class A Convertible Preferred
---------------
Stock, no par value per share.
"Public Sale" means any sale pursuant to a registered public offering
-----------
under the Securities Act or any sale to the public pursuant to Rule 144
promulgated under the Securities Act effected through a broker, dealer or market
maker
"Securities Act" means the Securities Act of 1933, as amended from
--------------
time to time.
"Shareholders Agreement" means that certain Shareholders Agreement,
----------------------
dated as of the Closing Date, by and among the Company, Executive and each of
the other persons named therein, as the same may be amended and modified from
time to time in accordance with its terms.
"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 director or member or general partner of such
limited liability company, partnership, association or other business entity.
"Transfer" means to sell, transfer, assign, pledge or otherwise
--------
dispose of (whether with or without consideration and whether voluntarily or
involuntarily or by operation of law).
"Work Product" means all Intellectual Property Rights and any other
------------
form of Confidential Information which relates to the Company's or any of its
Subsidiaries' actual or anticipated business, research and development or
existing or future products or services and which were or are conceived, reduced
to practice, contributed to or developed or made by Executive
-11-
<PAGE>
(whether alone or jointly with others) while employed (both before and after the
date hereof) by the Company (or its predecessors, successors or assigns) and its
Subsidiaries.
13. Notices. Any notice provided for in this Agreement must be in writing
-------
and must be either personally delivered, mailed by first class mail (postage
prepaid) or sent by reputable overnight courier service (charges prepaid) to the
recipient at the address indicated below:
The Company:
-----------
E-Tek Dynamics, Inc.
1885 Lundy Avenue, Suite 103
San Jose, California 95131
Attn: Chief Executive Officer
Phone: (408) 432-6300
Facsimile: (408) 432-8550
with a copy to:
--------------
(which shall not constitute notice to the Company)
Summit Partners, L.P.
499 Hamilton Avenue, Suite 200
Palo Alto, California 94301
Attn: Mr. Walter G. Kortschak
Phone: (415) 321-1166
Facsimile: (415) 321-1188
with a copy to:
--------------
(which shall not constitute notice to the Company)
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attn: Ted H. Zook, Esq.
Phone: (312) 861-2294
Facsimile: (312) 861-2200
To Executive:
------------
Ming Shih
[Address]
[Phone]
-12-
<PAGE>
The Investors:
-------------
To the Investors at the address set forth
in the Shareholders Agreement
with copies to:
--------------
(which shall not constitute notice to the Company)
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attn: Ted H. Zook, Esq.
Phone: (312) 861-2294
Facsimile: (312) 861-2200
The Founding Shareholders:
-------------------------
Theresa Stone Pan
Jing Jong Pan
[Address]
[Phone]
with a copy to:
--------------
(which shall not constitute notice to the Founding Shareholders)
Fenwick & West LLP
Two Palo Alto Square
Palo Alto, California 94306
Attn: Jacqueline A. Daunt, Esq.
Phone: (415) 858-7232
Facsimile: (415) 857-0361
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement shall be deemed to have been given when delivered
personally, three days after deposit in the U.S. mail and one day after deposit
with a reputable overnight courier service.
14. Transfers in Violation of Agreement. Any Transfer or attempted
-----------------------------------
Transfer of any Executive Stock in violation of any provision of this Agreement
shall be void, and the Company shall not record such Transfer in its books or
treat any purported transferee of such Executive Stock as the owner of such
stock for any purpose.
15. 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
-13-
<PAGE>
this Agreement is held to be invalid, illegal or unenforceable in any respect
under any applicable law or rule in any jurisdiction, such invalidity,
illegality or unenforceability shall not affect any other provision or any other
jurisdiction, but this Agreement shall be reformed, construed and enforced in
such jurisdiction as if such invalid, illegal or unenforceable provision had
never been contained herein.
16. Complete Agreement. This Agreement, those documents expressly
------------------
referred to herein and other documents of even date herewith embody the complete
agreement and understanding among the parties and supersede and preempt any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
17. Counterparts. This Agreement may be executed in multiple counterparts
------------
(including by means of telecopied signature pages), each of which shall be an
original and all of which taken together shall constitute one and the same
agreement.
18. Successors and Assigns. Except as otherwise provided herein, this
----------------------
Agreement shall bind and inure to the benefit of and be enforceable by
Executive, the Company, the Other Shareholders and their respective successors
and assigns (including subsequent holders of Executive Stock); provided that the
-------- ----
rights and obligations of Executive under this Agreement shall not be assignable
except in connection with a permitted transfer of Executive Stock hereunder.
The Investors shall be permitted to assign any and all of their rights pursuant
to this Agreement to any other holder of Preferred Stock or Common Stock of the
Company without obtaining the consent or approval of any other party hereto.
19. Choice of Law. All questions concerning the construction, validity,
-------------
enforcement and interpretation of this Agreement and the 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.
20. Consent to Personal Jurisdiction. Executive hereby expressly consents
--------------------------------
to the nonexclusive personal jurisdiction and venue of the state and federal
courts located in the federal Northern District of California for any lawsuit
filed against Executive by the Company arising from or relating to this
Agreement.
21. Amendment and Waiver. The provisions of this Agreement may be amended
--------------------
and waived only with the prior written consent of the Company, Executive and the
Other Shareholders holding a majority of the Common Stock on a fully diluted
basis held by all Other Shareholders.
22. Remedies. Without limiting the generality of the provisions set forth
--------
in paragraph 11 above relating to remedies upon a breach of any of the
Protective Covenants, each of the parties to this Agreement (including the Other
Shareholders) shall be entitled to enforce its rights under this Agreement
specifically, to recover damages and costs (including reasonable attorney's
fees) caused
-14-
<PAGE>
by any breach of any provision of this Agreement and to exercise all other
rights existing in its favor. The parties hereto agree and acknowledge that
money damages would not be an adequate remedy for any breach of the provisions
of this Agreement and that any party may in its sole discretion apply to any
court of law or equity of competent jurisdiction (without posting any bond or
deposit) for specific performance and/or other injunctive relief in order to
enforce or prevent any violations of the provisions of this Agreement.
23. Third Party Beneficiaries. Certain provisions of this Agreement are
-------------------------
entered into for the benefit of and shall be enforceable by the Other
Shareholders as provided herein as third party beneficiaries hereunder.
24. Business Days. If any time period for giving notice or taking action
-------------
hereunder expires on a day which is a Saturday, Sunday or legal holiday in the
state in which the Company's chief executive office is located, the time period
shall be automatically extended to the business day immediately following such
Saturday, Sunday or holiday.
25. Code Section 280G. Notwithstanding any provision of this Agreement to
-----------------
the contrary, if all or any portion of the payments or benefits received or
realized by Executive pursuant to this Agreement either alone or together with
other payments or benefits which Executive receives or realizes or is then
entitled to receive or realize from the Company or any of its affiliates would
constitute a "parachute payment" within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended (or any successor section) and the
regulations promulgated thereunder (the "Code") and/or any corresponding and
----
applicable state law provision, such payments or benefits provided to Executive
shall be reduced by reducing the amount of payments or benefits payable to
Executive pursuant to this Agreement to the extent necessary so that no portion
of such payments or benefits shall be subject to the excise tax imposed by
Section 4999 of the Code and any corresponding and/or applicable state law
provision; provided that such reduction shall only be made if, by reason of such
-------- ----
reduction, Executive's net after tax benefit shall exceed the net after tax
benefit if such reduction were not made. For purposes of this paragraph, "net
---
after tax benefit" shall mean the sum of (i) the total amount received or
- -----------------
realized by Executive pursuant to this Agreement that would constitute a
"parachute payment" within the meaning of Section 280G of the Code and any
corresponding and applicable state law provision, plus (ii) all other payments
or benefits which Executive receives or realizes or is then entitled to receive
or realize from the Company and any of its affiliates that would constitute a
"parachute payment" within the meaning of Section 280G of the Code and any
corresponding and applicable state law provision, less (iii) the amount of
federal or state income taxes payable with respect to the payments or benefits
described in (i) and (ii) above calculated at the maximum marginal individual
income tax rate for each year in which payments or benefits shall be realized by
Executive (based upon the rate in effect for such year as set forth in the Code
at the time of the first receipt or realization of the foregoing), less (iv) the
amount of excise taxes imposed with respect to the payments or benefits
described in (i) and (ii) above by Section 4999 of the Code and any
corresponding and applicable state law provision.
* * * * *
-15-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first written above.
E-TEK DYNAMICS, INC.
By: [Signature]
_____________________________________
Its:____________________________________
________________________________________
Ming Shih
[Signature Page to Executive Agreement]
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Executive Contracts Schedule
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None.
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Excluded Inventions Schedule
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None.
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EXHIBIT 10.8
EXECUTION COPY
E-TEK DYNAMICS, INC.
EXECUTIVE AGREEMENT
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THIS AGREEMENT (this "Agreement") is made as of June 27, 1997, by and
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between E-Tek Dynamics, Inc., a California corporation (the "Company"), and Kung
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Shih ("Executive"). Certain definitions are set forth in paragraph 12 of this
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Agreement.
WHEREAS, the Company and Executive desire to enter into this Agreement
pursuant to which Executive shall purchase, and the Company shall sell, 555,555
shares of the Company's Common Stock, no par value per share (the "Common
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Stock"), on the Closing Date;
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WHEREAS, the Company and Executive also desire to enter into this Agreement
to (i) confirm the obligations of Executive to refrain from disclosing certain
confidential information regarding the Company and (ii) establish the relative
rights of the Company and Executive with respect to certain intellectual
property rights which Executive has created or developed or may create or
develop as a result of Executive's employment with the Company; and
WHEREAS, the execution and delivery of this Agreement by the Company and
Executive is a condition to the purchase of shares of the Company's Class A
Convertible Preferred Stock by the Investors pursuant to a Recapitalization
Agreement, dated as of June 27, 1997, by and among the Investors, the Company
and the Founding Shareholders (as the same may be amended from time to time in
accordance with its terms, the "Recapitalization Agreement").
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties to this Agreement hereby agree as follows:
1. Purchase and Sale of Common Stock.
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(a) On the Closing Date, Executive shall purchase, and the Company
shall sell 555,555 shares of Common Stock at a price of $2.30 per share. On the
Closing Date, the Company shall deliver to Executive a copy of, and receipt for,
the certificate or certificates representing such shares of Common Stock, and
Executive shall deliver to the Company a promissory note in the form of Exhibit
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A attached hereto in an aggregate principal amount of $1,277,776.50 (the
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"Executive Note"). Executive's obligations under the Executive Note shall be
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secured by a pledge of all of the shares of Executive Stock to the Company, and
in connection therewith, Executive shall enter into a pledge agreement in the
form of Exhibit B attached hereto (the "Pledge Agreement"). Upon the purchase
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of the Executive Stock and subject to the terms of the Pledge Agreement,
Executive shall become a shareholder of the Company with respect to such Common
Stock and shall have all of the rights of a shareholder, including but not
limited to, the right to vote such Common Stock and the right to receive
dividends and other distributions paid with respect to Common Stock.
<PAGE>
(b) The Company shall hold each certificate representing Executive
Stock until such time as the Executive Stock represented by such certificate is
released from the pledge to the Company pursuant to the Pledge Agreement.
(c) Within 30 days after the date hereof, Executive shall make an
effective election with the Internal Revenue Service under Section 83(b) of the
Internal Revenue Code and the regulations promulgated thereunder in the form of
Exhibit C attached hereto.
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(d) In connection with the purchase and sale of the Executive Stock
hereunder. Executive represents and warrants to the Company that:
(i) The Executive Stock to be acquired by Executive pursuant
to this Agreement shall be acquired for Executive's own account and not
with a view to, or intention of, distribution thereof in violation of the
Securities Act, or any applicable state securities laws, and the Executive
Stock shall not be disposed of in contravention of the Securities Act or
any applicable state securities laws.
(ii) Executive is an executive employee of the Company, is
sophisticated in financial matters and is able to evaluate the risks and
benefits of the investment in the Executive Stock.
(iii) Executive is able to bear the economic risk of Executive's
investment in the Executive Stock for an indefinite period of time because
the Executive Stock has not been registered under the Securities Act and,
therefore, cannot be sold unless subsequently registered under the
Securities Act or an exemption from such registration is available.
(iv) Executive has had an opportunity to ask questions and
receive answers concerning the terms and conditions of the offering of
Executive Stock and has had full access to such other information
concerning the Company and its Subsidiaries as Executive has requested.
(v) This Agreement constitutes the legal, valid and binding
obligation of Executive, enforceable in accordance with its terms, and the
execution, delivery and performance of this Agreement by Executive does not
and shall not conflict with, violate or cause a breach of any agreement,
contract or instrument to which Executive is a party or any judgment, order
or decree to which Executive is subject.
(vi) Executive is not a party to or bound by any employment
agreement, noncompete agreement, confidentiality agreement or similar
agreement with any other person or entity other than any such agreement
between Executive and the Company listed on the Executive Contract Schedule
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attached hereto.
(e) As an inducement to the Company to issue the Executive Stock to
Executive, and as a condition thereto, Executive acknowledges and agrees that:
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(i) neither the issuance of the Executive Stock to Executive
nor any provision contained herein shall entitle Executive to remain in the
employment of the Company and its Subsidiaries or affect the right of the
Company or any of its Subsidiaries to terminate Executive's employment at
any time; and
(ii) Executive has consulted with (or has been given a
reasonable opportunity to consult with) independent legal counsel regarding
Executive's rights and obligations under this Agreement and Executive fully
understands the terms and conditions contained herein.
(f) As an inducement to Executive to purchase the Executive Stock,
the Company hereby agrees that for so long as Executive holds any Executive
Stock, the Company shall provide Executive with the financial statements and
other information provided to certain shareholders of the Company pursuant to
paragraph 10 of the Agreement.
2. Vesting of Executive Stock. The Executive Stock shall become vested in
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accordance with the provisions of this paragraph 2. On the last day of each
calendar month after the date hereof, 1/36th of the Executive Stock shall become
vested, if and only if, Executive is and has been continuously employed by the
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Company from the date hereof through the applicable vesting date; provided that
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in the event Executive's employment with the Company is terminated by the
Company without Cause, all of the Executive Stock shall become immediately
vested. Shares of Executive Stock which have become vested are referred to
herein as "Vested Shares," and all other shares of Executive Stock are referred
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to herein as "Unvested Shares."
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3. Repurchase Option.
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(a) If Executive's employment with the Company shall terminate for
any reason (other than a termination by the Company without Cause) (the date on
which any such termination occurs being referred to as the "Termination Date"),
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then the Company and the Other Shareholders shall have the option to repurchase
all or any part of the Unvested Shares held by Executive at the Original Cost
thereof (the "Repurchase Option").
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(b) The Company may elect to Purchase all or any portion of the
Unvested Shares by delivery of written notice (the "Repurchase Notice") to
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Executive within 90 days after the Termination Date. The Repurchase Notice
shall set forth the number of Unvested Shares to be acquired from Executive, the
aggregate consideration to be paid for such shares and the time and place for
the closing of the transaction.
(c) Notwithstanding anything set forth in this paragraph 3 to the
contrary, prior to the exercise by the Company of its right to purchase Unvested
Shares pursuant to paragraphs 3(a) and 3(b) above, one or more new or existing
employees of the Company may be designated by the Board of Directors of the
Company (individually a "Designated Employee" and collectively "Designated
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Employees"), who shall have the right, but not the obligation, to acquire, in
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lieu of the Company, the Unvested Shares that the Company is entitled to
purchase pursuant to paragraphs 3(a)
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<PAGE>
and 3(b) above, on the same terms and conditions as set forth in this paragraph
3 and paragraph 4 below which apply to the purchase of such Unvested Shares by
the Company. Concurrently with any such purchase of Unvested Shares by any such
Designated Employee who is not a party to the Shareholders Agreement, such
Designated Employee shall execute a counterpart of the Shareholders Agreement
whereupon such Designated Employee shall be deemed an "Existing Shareholder" and
a "Shareholder" thereunder and shall have the same rights and be bound by the
same obligations as the other Existing Shareholders thereunder.
(d) If for any reason the Company (or any Designated Employee) does
not elect to purchase all of the Unvested Shares pursuant to the Repurchase
Option, then the Other Shareholders shall be entitled to exercise the Company's
Repurchase Option in the manner set forth in paragraph 3(a) for all or any
portion of the Unvested Shares the Company has not elected to purchase (the
"Available Shares"). As soon as practicable after the Company has determined
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that there shall be Available Shares, but in any event within 60 days after the
Termination Date, the Company shall deliver written notice (the "Option Notice")
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to the Other Shareholders setting forth the number of Available Shares and the
price for each Available Share. Each Other Shareholder may elect to purchase
any number of Available Shares by delivering written notice (the "Election
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Notice") to the Company within 15 days after receipt of the Option Notice from
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the Company. If more than one Other Shareholder elects to purchase any or all
Available Shares and such elections exceed the number of Available Shares, each
Other Shareholder shall be entitled to purchase the lesser of (i) the number of
Available Shares such Other Shareholder has elected to purchase as indicated in
the Election Notice or (ii) the number of Available Shares obtained by
multiplying the number of shares specified in the Option Notice by a fraction,
the numerator of which is the number of shares of Common Stock (on a fully-
diluted basis) held by such Other Shareholder and the denominator of which is
the aggregate number of shares of Common Stock (on a fully-diluted basis) held
by all electing Other Shareholders (such fraction, a "Pro Rata Share"). In the
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event all Available Shares are not purchased by the Other Shareholders pursuant
to the immediately preceding sentence, the Available Shares remaining to be
purchased shall be allocated among the Other Shareholders who elect to purchase
more Available Shares (as indicated in their respective Election Notices) than
they are entitled to purchase pursuant to the immediately preceding sentence pro
rata among such Other Shareholders according to the respective Pro Rata Share of
such Other Shareholders or as such Other Shareholders shall otherwise agree in
writing. As soon as practicable, and in any event within five days after the
expiration of such 15-day period, the Company shall notify Executive as to the
number of Unvested Shares being purchased from Executive by the Other
Shareholders (the "Supplemental Repurchase Notice"). At the time the Company
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delivers the Supplemental Repurchase Notice to Executive, the Other Shareholders
shall also receive written notice from the Company setting forth the number of
shares each such Person is entitled to purchase, the aggregate purchase price
and the time and place of the closing of the transaction.
(e) The closing of the purchase of Unvested Shares pursuant to this
paragraph 3 shall be held at the Company's executive offices prior to the
expiration of the 90-day period referred to in paragraph 3(b). At the closing,
the purchaser or purchasers shall pay the purchase price in the manner specified
in paragraph 4 and Executive shall deliver the certificate or certificates
representing such shares to the purchaser or purchasers or their nominees,
accompanied by duly
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executed stock powers. Any purchaser of Unvested Shares under this paragraph 3
shall be entitled to receive customary representations and warranties from
Executive regarding the sale of such shares (including representations and
warranties regarding good title to such shares, free and clear of any liens or
encumbrances) and to require all sellers' signatures to be guaranteed by a
national bank or reputable securities broker.
(f) Notwithstanding anything to the contrary contained in this
Agreement, all repurchases of Unvested Shares by the Company (other than any
repurchase by a Designated Employee) shall be subject to applicable restrictions
contained in the General Corporation Law of California and in any debt and
equity financing agreements of the Company and its Subsidiaries which may exist
from time to time. If any such restrictions prohibit the repurchase of Unvested
Shares hereunder which the Company is otherwise entitled to make, the time
periods provided in this paragraph 3 shall be suspended, and the Company may
make such repurchases as soon as it is permitted to do so under such
restrictions.
4. Purchase Price for Executive Stock. Subject to paragraph 3(f) above,
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if the Company elects to purchase all or any part of the Unvested Shares, the
Company shall pay for such shares: (i) first by offsetting amounts outstanding
under any indebtedness or obligations owed by Executive to the Company
(including the Executive Note) and (ii) second, by certified check or wire
transfer of funds to the extent such payment would not cause the Company to
violate the General Corporation Law of California and would not cause the
Company to breach any agreement to which it is a party relating to indebtedness
for borrowed money or any other material agreement. If any Other Shareholder
elects to purchase all or any portion of the Available Shares, such Person shall
pay for that portion of such Executive Stock by certified check or wire transfer
of funds.
5. Additional Restrictions on Transfer.
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(a) No Unvested Shares may be Transferred at any time to any Person.
(b) All shares of Executive Stock are subject to the additional
restrictions on Transfer set forth in the Shareholders Agreement.
(c) In addition to any other legend required pursuant to the
Shareholders Agreement or otherwise, the certificates representing the Executive
Stock shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY
ISSUED ON JULY 23, 1997, HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER ANY STATE
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SECURITIES LAWS AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE
STATE SECURITIES LAWS OR AN EXEMPTION FROM REGISTRATION THEREUNDER.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT
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TO ADDITIONAL RESTRICTIONS ON TRANSFER, CERTAIN REPURCHASE OPTIONS
AND CERTAIN OTHER AGREEMENTS SET FORTH IN AN EXECUTIVE AGREEMENT
BETWEEN THE COMPANY AND THE ORIGINAL HOLDER HEREOF DATED AS OF JUNE
27, 1997, A COPY OF WHICH MAY BE OBTAINED BY THE HOLDER HEREOF AT
THE COMPANY'S PRINCIPAL PLACE OF BUSINESS WITHOUT CHARGE."
(d) Opinion of Counsel. Executive may not sell, transfer or dispose
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of any Executive Stock (except pursuant to an effective registration statement
under the Securities Act) without first delivering to the Company an opinion of
counsel reasonably acceptable in form and substance to the Company that
registration under the Securities Act or any applicable state securities law is
not required in connection with such transfer.
6. Company's Ownership of Intellectual Property.
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(a) Executive acknowledges that all Work Product is the exclusive
property of the Company or such Subsidiary. Executive hereby assigns all right,
title and interest in and to such Work Product to the Company. Any
copyrightable work prepared in whole or in part by Executive will be deemed "a
work made for hire" under Section 201(b) of the 1976 Copyright Act, and the
Company shall own all of the rights comprised in the copyright therein.
(b) The Company and Executive each acknowledge the applicability of
Section 2870 of the California Labor Code. Accordingly, the provisions of
paragraph 6(a) above shall not apply to, and the term "Work Product" shall not
include, any invention that Executive developed entirely on his own time without
using the Company's equipment, supplies, facilities, or trade secret information
except for those inventions that either: (i) relate at the time of conception
or reduction to practice of the invention to the Company's or any Subsidiary's
business, or to the actual or demonstrably anticipated research or development
of the Company or any Subsidiary; or (ii) result from any work performed by
Executive for the Company or any Subsidiary. Set forth on the attached
"Excluded Inventions Schedule" are the inventions Executive believes meet the
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criteria for exclusion set forth above. Executive agrees to promptly advise the
Company in writing of any inventions developed after the date hereof which
Executive believes meet the criteria for exclusion set forth above. Without the
consent of Executive, the Company shall not disclose or use any information
constituting a trade secret which relates to an invention Executive has proven
meets the criteria for exclusion set forth above and which is disclosed to the
Company pursuant to this Agreement.
(c) Executive shall promptly and fully disclose all Work Product to
the Company and shall cooperate and perform all actions reasonably requested by
the Company (whether during or after the Employment Period) to establish,
confirm and protect the Company's right, title and interest in such Work
Product. Without limiting the generality of the foregoing, Executive agrees to
assist the Company, at the Company's expense, in every proper way to secure the
Company's rights in the Work Product in any and all countries, including the
execution of all applications and all other instruments and documents which the
Company shall deem necessary in order to apply for and
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<PAGE>
obtain rights in such Work Product and in order to assign and convey to the
Company the sole and exclusive right, title and interest in and to such Work
Product. If the Company is unable because of Executive's mental or physical
incapacity or for any other reason (including Executive's refusal to do so after
request therefor is made by the Company) to secure Executive's signature to
apply for or to pursue any application for any United States or foreign patents
or copyright registrations covering Work Product belonging to or assigned to the
Company pursuant to paragraph 6(a) above, then Executive hereby irrevocably
designates and appoints the Company and its duly authorized officers and agents
as Executive's agent and attorney-in-fact to act for and in Executive's behalf
and stead to execute and file any such applications and to do all other lawfully
permitted acts to further the prosecution and issuance of patents or copyright
registrations thereon with the same legal force and effect as if executed by
Executive. Executive agrees not to apply for or pursue any application for any
United States or foreign patents or copyright registrations covering any Work
Product other than pursuant to this paragraph in circumstances where such
patents or copyright registrations are or have been or are required to be
assigned to the Company.
7. Confidential Information; Nonsolicitation.
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(a) Executive acknowledges that by reason of Executive's duties to
and association with the Company, Executive has had and will have access to and
become informed of Confidential Information which is a competitive asset of the
Company and/or its Subsidiaries. Executive agrees to keep in strict confidence
and not, directly or indirectly, make known, furnish, make available or use any
Confidential Information, except for use in Executive's regular authorized
duties on behalf of the Company. Executive acknowledges that all documents and
other property including or reflecting Confidential Information furnished to
Executive by the Company or otherwise acquired or developed by the Company or
Executive or known by Executive shall at all times be the property of the
Company. Executive shall take all appropriate steps to safeguard Confidential
Information and protect it against disclosure, misuse, loss and theft.
(b) Executive agrees that prior to the Termination Date and for two
(2) years thereafter he shall not directly, or indirectly through another
Person, (i) 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, (ii) 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 Company and Executive so as to avoid any disputes
under this paragraph 7(b) that any such hiring within such 90-day period is in
violation of clause (i) above), or (iii) 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. In addition,
Executive agrees that prior to the Termination Date and thereafter he shall not
in any way interfere with the relationship between any such customer, supplier,
licensee or business relation and the Company or any of its Subsidiaries
(including making any negative statements or communications about the Company or
any of its Subsidiaries).
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<PAGE>
8. Delivery of Materials Upon Termination of Employment. As requested by
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the Company upon the termination of Executive's employment with the Company for
any reason, Executive shall promptly deliver to the Company all copies and
embodiments, in whatever form, of all Confidential Information and Work Product
and in Executive's possession or within his control irrespective of the location
or form of such material and, if requested by the Company, shall provide the
Company with written confirmation that all such materials have been delivered to
the Company.
9. Subsequent Inventions. Executive understands and agrees that all
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Intellectual Property Rights made, conceived, developed, reduced to practice or
learned by Executive, either alone or jointly with others, shall be disclosed to
the Company by Executive for two (2) years following the Termination of
Executive's employment with the Company. Executive further agrees that all
Intellectual Property Rights made, conceived, developed or reduced to practice
within two (2) years following such termination shall be presumed to have been
conceived during Executive's employment with the Company and with the use of the
Company's Confidential Information, but such presumption may be overcome by
Executive by a showing that such Intellectual Property Rights were conceived
after such employment and without the use of any such Confidential Information.
In the event Executive is not able to rebut such presumption and prove that such
Intellectual Property Rights were conceived after such employment and without
the use of Confidential Information, Executive agrees to assign all right, title
and interest in such Intellectual Property Rights to the Company.
10. Disclosure. Following the Termination Date, Executive shall
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communicate the restrictions contained in this Agreement to any prospective
transferee of Executive Stock and to any Person he intends to be employed by,
provide consulting services to or otherwise represent. Executive hereby consents
to the Company's communication of the restrictions contained in this Agreement
to any such Person.
11. Enforcement; Remedies.
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(a) If, at the time of enforcement of the covenants contained in
paragraphs 6, 7, 8 and 9 (the "Protective Covenants"), a court shall hold that
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the duration or scope stated therein is unreasonable under circumstances then
existing, the parties hereto agree that the maximum duration or scope reasonable
under such circumstances shall be substituted for the stated duration or scope
and that the court shall be allowed to revise the restrictions contained therein
to cover the maximum period or scope permitted by law. Executive agrees that
the Protective Covenants are reasonable in terms of duration and scope and are
necessary to protect the goodwill of the Company's business and the Confidential
Information. Executive further agrees that the Protective Covenants were a
material inducement to the Investors to enter into the Recapitalization
Agreement and consummate the transactions contemplated thereby, and the
Investors would not obtain the benefit of the bargain as set forth in the
Recapitalization Agreement and the other agreements contemplated thereby if
Executive breached or challenged the validity of any of the Protective
Covenants.
(b) If Executive breaches, or threatens to commit a breach of, any of
the Protective Covenants, the Company shall have the following rights and
remedies, each of which
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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:
(i) the right and remedy to have the Protective Covenants
specifically enforced by any court of competent jurisdiction (without the
need to post a bond or other security), it being agreed that any breach or
threatened breach of the Protective Covenants would cause irreparable
injury to the Company and that money damages would not provide an adequate
remedy to the Company; and
(ii) the right and remedy to require Executive to account for
and pay over to the Company any profits, monies, accruals, increments or
other benefits derived or received by Executive as the result of any
transactions constituting a breach of the Protective Covenants.
(c) In the event of any breach or violation by Executive of any of
the Protective Covenants, the time period of such covenant (if any) with respect
to Executive shall be tolled until such breach or violation is resolved.
12. Definitions.
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"Cause" shall mean (i) Executive's theft or embezzlement, or attempted
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theft or embezzlement, of money or property of the Company or any of its
Subsidiaries, Executive's perpetration or attempted perpetration of fraud, or
Executive's participation in a fraud or attempted fraud, or any other act or
omission involving dishonesty with respect to the Company, any of its
Subsidiaries or any of their respective customers, suppliers or other business
relations or Executive's unauthorized appropriation of, or Executive's attempt
to misappropriate, any tangible or intangible assets or property of the Company
or any of its Subsidiaries (including any breach of Executive's duty of loyalty
to the Company and its Subsidiaries); (ii) Executive's commission of a felony or
any crime involving acts which tend to insult or offend community moral
standards or public decency or that involve moral turpitude, or any other
conduct by Executive tending to bring the Company or any of its Subsidiaries
into public disgrace or disrepute; (iii) Executive's repeated refusal to carry
out the reasonable lawful instructions of the Board of Directors of the Company;
or (iv) Executive's breach of this Agreement which is not cured within 10 days
after written notice thereof to Executive or which is incapable of being cured.
"Closing Date" means the date of the consummation of the transactions
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contemplated by the Recapitalization Agreement.
"Confidential Information" shall mean 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, Executive in connection with
Executive's prior relationship with the Company or during Executive's employment
with the Company and that relates to the business, products, services or
research or development of the Company or its
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<PAGE>
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
Executive can demonstrate: (a) is publicly known through no wrongful act or
breach of obligation of confidentiality; (b) was lawfully known to Executive
prior to the time Executive began rendering services for the Company and its
predecessors or (c) was rightfully received by Executive from a third party
without a breach of any obligation of confidentiality by such third party.
"Executive Stock" means the Common Stock acquired by Executive
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hereunder or hereafter acquired by Executive; provided that Executive Stock
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shall continue to be Executive Stock in the hands of any holder other than
Executive (except for the Company and the Other Shareholders and except for
transferees in a Public Sale), and except as otherwise provided herein, each
such other holder of Executive Stock shall succeed to all rights and obligations
attributable to Executive as a holder of Executive Stock hereunder. Executive
Stock shall also include any securities issued with respect to Executive Stock
by way of a stock split, stock dividend or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization.
"Founding Shareholders" means those Persons identified with an
---------------------
asterisk on the Schedule of Existing Shareholders attached to the Shareholders
---------------------------------
Agreement and their Permitted Transferees (as defined in the Shareholders
Agreement).
"Initial Public Offering" means the initial offering by the Company of
-----------------------
its Common Stock to the public pursuant to an effective registration statement
under the Securities Act or any comparable statement under any similar federal
statute then in force.
"Intellectual Property Rights" means all inventions, innovations,
----------------------------
improvements, developments, methods, processes, designs, analyses, drawings,
reports and all similar or related information (whether or not patentable or
reduced to practice or comprising Confidential Information) and any
copyrightable work, trade mark, trade secret or other intellectual property
rights (whether or not comprising Confidential Information).
"Investors" means the persons listed on the Schedule of Investors
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attached to the Shareholders Agreement, as the same may be amended from time to
time, and their Permitted Transferees (as defined in the Agreement).
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"Original Cost" of each share of Common Stock purchased hereunder
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shall be equal to $2.30 (as proportionately adjusted for all subsequent stock
splits, stock dividends and other recapitalizations).
"Other Shareholders" means the Investors and the Founding
------------------
Shareholders.
"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.
"Preferred Stock" means the Company's Class A Convertible Preferred
---------------
Stock, no par value per share.
"Public Sale" means any sale pursuant to a registered public offering
-----------
under the Securities Act or any sale to the public pursuant to Rule 144
promulgated under the Securities Act effected through a broker, dealer or market
maker
"Securities Act" means the Securities Act of 1933, as amended from
--------------
time to time.
"Shareholders Agreement" means that certain Shareholders Agreement,
----------------------
dated as of the Closing Date, by and among the Company, Executive and each of
the other persons named therein, as the same may be amended and modified from
time to time in accordance with its terms.
"Subsidiary" means, with respect to any Person, any corporation,
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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 director or member or general partner of such
limited liability company, partnership, association or other business entity.
"Transfer" means to sell, transfer, assign, pledge or otherwise
--------
dispose of (whether with or without consideration and whether voluntarily or
involuntarily or by operation of law).
"Work Product" means all Intellectual Property Rights and any other
------------
form of Confidential Information which relates to the Company's or any of its
Subsidiaries' actual or anticipated business, research and development or
existing or future products or services and which were or are conceived, reduced
to practice, contributed to or developed or made by Executive
-11-
<PAGE>
(whether alone or jointly with others) while employed (both before and after the
date hereof) by the Company (or its predecessors, successors or assigns) and its
Subsidiaries.
13. Notices. Any notice provided for in this Agreement must be in writing
-------
and must be either personally delivered, mailed by first class mail (postage
prepaid) or sent by reputable overnight courier service (charges prepaid) to the
recipient at the address indicated below:
The Company:
-----------
E-Tek Dynamics, Inc.
1885 Lundy Avenue, Suite 103
San Jose, California 95131
Attn: Chief Executive Officer
Phone: (408) 432-6300
Facsimile: (408) 432-8550
with a copy to:
--------------
(which shall not constitute notice to the Company)
Summit Partners, L.P.
499 Hamilton Avenue, Suite 200
Palo Alto, California 94301
Attn: Mr. Walter G. Kortschak
Phone: (415) 321-1166
Facsimile: (415) 321-1188
with a copy to:
--------------
(which shall not constitute notice to the Company)
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attn: Ted H. Zook, Esq.
Phone: (312) 861-2294
Facsimile: (312) 861-2200
To Executive:
------------
Kung Shih
[Address]
[Phone]
-12-
<PAGE>
The Investors:
-------------
To the Investors at the address set forth
in the Shareholders Agreement
with copies to:
--------------
(which shall not constitute notice to the Company)
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attn: Ted H. Zook, Esq.
Phone: (312) 861-2294
Facsimile: (312) 861-2200
The Founding Shareholders:
-------------------------
Theresa Stone Pan
Jing Jong Pan
[Address]
[Phone]
with a copy to:
--------------
(which shall not constitute notice to the Founding Shareholders)
Fenwick & West LLP
Two Palo Alto Square
Palo Alto, California 94306
Attn: Jacqueline A. Daunt, Esq.
Phone: (415) 858-7232
Facsimile: (415) 857-0361
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement shall be deemed to have been given when delivered
personally, three days after deposit in the U.S. mail and one day after deposit
with a reputable overnight courier service.
14. Transfers in Violation of Agreement. Any Transfer or attempted
-----------------------------------
Transfer of any Executive Stock in violation of any provision of this Agreement
shall be void, and the Company shall not record such Transfer in its books or
treat any purported transferee of such Executive Stock as the owner of such
stock for any purpose.
15. 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
-13-
<PAGE>
this Agreement is held to be invalid, illegal or unenforceable in any respect
under any applicable law or rule in any jurisdiction, such invalidity,
illegality or unenforceability shall not affect any other provision or any other
jurisdiction, but this Agreement shall be reformed, construed and enforced in
such jurisdiction as if such invalid, illegal or unenforceable provision had
never been contained herein.
16. Complete Agreement. This Agreement, those documents expressly
------------------
referred to herein and other documents of even date herewith embody the complete
agreement and understanding among the parties and supersede and preempt any
prior understanding agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
17. Counterparts. This Agreement may be executed in multiple counterparts
------------
(including by means of telecopied signature pages), each of which shall be an
original and all of which taken together shall constitute one and the same
agreement.
18. Successors and Assigns. Except as otherwise provided herein, this
----------------------
Agreement shall bind and inure to the benefit of and be enforceable by
Executive, the Company, the Other Shareholders and their respective successors
and assigns (including subsequent holders of Executive Stock); provided that the
-------- ----
rights and obligations of Executive under this Agreement shall not be assignable
except in connection with a permitted transfer of Executive Stock hereunder.
The Investors shall be permitted to assign any and all of their rights pursuant
to this Agreement to any other holder of Preferred Stock or Common Stock of the
Company without obtaining the consent or approval of any other party hereto.
19. Choice of Law. All questions concerning the construction, validity,
-------------
enforcement and interpretation of this Agreement and the 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.
20. Consent to Personal Jurisdiction. Executive hereby expressly consents
--------------------------------
to the nonexclusive personal jurisdiction and venue of the state and federal
courts located in the federal Northern District of California for any lawsuit
filed against Executive by the Company arising from or relating to this
Agreement.
21. Amendment and Waiver. The provisions of this Agreement may be amended
--------------------
and waived only with the prior written consent of the Company, Executive and the
Other Shareholders holding a majority of the Common Stock on a fully diluted
basis held by all Other Shareholders.
22. Remedies. Without limiting the generality of the provisions set forth
--------
in paragraph 11 above relating to remedies upon a breach of any of the
Protective Covenants, each of the parties to this Agreement (including the Other
Shareholders) shall be entitled to enforce its rights under this Agreement
specifically, to recover damages and costs (including reasonable attorney's
fees) caused
-14-
<PAGE>
by any breach of any provision of this Agreement and to exercise all other
rights existing in its favor. The parties hereto agree and acknowledge that
money damages would not be an adequate remedy for any breach of the provisions
of this Agreement and that any party may in its sole discretion apply to any
court of law or equity of competent jurisdiction (without posting any bond or
deposit) for specific performance and/or other injunctive relief in order to
enforce or prevent any violations of the provisions of this Agreement.
23. Third Party Beneficiaries. Certain provisions of this Agreement are
-------------------------
entered into for the benefit of and shall be enforceable by the Other
Shareholders as provided herein as third party beneficiaries hereunder.
24. Business Days. If any time period for giving notice or taking action
-------------
hereunder expires on a day which is a Saturday, Sunday or legal holiday in the
state in which the Company's chief executive office is located, the time period
shall be automatically extended to the business day immediately following such
Saturday, Sunday or holiday.
25. Code Section 280G. Notwithstanding any provision of this Agreement to
-----------------
the contrary, if all or any portion of the payments or benefits received or
realized by Executive pursuant to this Agreement either alone or together with
other payments or benefits which Executive receives or realizes or is then
entitled to receive or realize from the Company or any of its affiliates would
constitute a "parachute payment" within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended (or any successor section) and the
regulations promulgated thereunder (the "Code") and/or any corresponding and
----
applicable state law provision, such payments or benefits provided to Executive
shall be reduced by reducing the amount of payments or benefits payable to
Executive pursuant to this Agreement to the extent necessary so that no portion
of such payments or benefits shall be subject to the excise tax imposed by
Section 4999 of the Code and any corresponding and/or applicable state law
provision; provided that such reduction shall only be made if, by reason of such
-------- ----
reduction, Executive's net after tax benefit shall exceed the net after tax
benefit if such reduction were not made. For purposes of this paragraph, "net
---
after tax benefit" shall mean the sum of (i) the total amount received or
- -----------------
realized by Executive pursuant to this Agreement that would constitute a
"parachute payment" within the meaning of Section 280G of the Code and any
corresponding and applicable state law provision, plus (ii) all other payments
or benefits which Executive receives or realizes or is then entitled to receive
or realize from the Company and any of its affiliates that would constitute a
"parachute payment" within the meaning of Section 280G of the Code and any
corresponding and applicable state law provision, less (iii) the amount of
federal or state income taxes payable with respect to the payments or benefits
described in (i) and (ii) above calculated at the maximum margin individual
income tax rate for each year in which payments or benefits shall be realized by
Executive (based upon the rate in effect for such year as set forth in the Code
at the time of the first receipt or realization of the foregoing), less (iv) the
amount of excise taxes imposed with respect to the payments or benefits
described in (i) and (ii) above by Section 4999 of the Code and any
corresponding and applicable state law provision.
* * * * *
-15-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first written above.
E-TEK DYNAMICS, INC.
By: _________________________________
Its: ________________________________
_____________________________________
Kung Shih
[Signature Page to Executive Agreement]
<PAGE>
Executive Contracts Schedule
----------------------------
None.
<PAGE>
Excluded Inventions Schedule
----------------------------
None.
<PAGE>
EXHIBIT 10.10
E-TEK DYNAMICS, INC.
1998 STOCK PLAN
1. Purposes of the Plan. The purposes of this Stock Plan are:
--------------------
. to attract and retain the best available personnel for positions of
substantial responsibility,
. to provide additional incentive to Employees, Directors and
Consultants, and
. to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Stock Purchase Rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board or any of its Committees as shall be
-------------
administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the requirements relating to the
---------------
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options or Stock Purchase Rights are,
or will be, granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
-----
(d) "Code" means the Internal Revenue Code of 1986, as amended.
----
(e) "Committee" means a committee of Directors appointed by the Board
---------
in accordance with Section 4 of the Plan.
(f) "Common Stock" means the common stock of the Company.
------------
(g) "Company" means E-Tek Dynamics, Inc., a Delaware corporation.
-------
(h) "Consultant" means any person, including an advisor, engaged by the
----------
Company or a Parent or Subsidiary to render services to such entity.
<PAGE>
(i) "Director" means a member of the Board.
--------
(j) "Disability" means total and permanent disability as defined in
----------
Section 22(e)(3) of the Code.
(k) "Employee" means any person, including Officers and Directors,
--------
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, on the 181st day of such leave any Incentive Stock
Option held by the Optionee shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(m) "Fair Market Value" means, as of any date, the value of Common Stock
-----------------
determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(n) "Incentive Stock Option" means an Option intended to qualify as an
----------------------
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(o) "Nonstatutory Stock Option" means an Option not intended to qualify
-------------------------
as an Incentive Stock Option.
<PAGE>
(p) "Notice of Grant" means a written or electronic notice evidencing
---------------
certain terms and conditions of an individual Option or Stock Purchase Right
grant. The Notice of Grant is part of the Option Agreement.
(q) "Officer" means a person who is an officer of the Company within
-------
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(r) "Option" means a stock option granted pursuant to the Plan.
------
(s) "Option Agreement" means an agreement between the Company and an
----------------
Optionee evidencing the terms and conditions of an individual Option grant. The
Option Agreement is subject to the terms and conditions of the Plan.
(t) "Option Exchange Program" means a program whereby outstanding
-----------------------
Options are surrendered in exchange for Options with a lower exercise price.
(u) "Optioned Stock" means the Common Stock subject to an Option or
--------------
Stock Purchase Right.
(v) "Optionee" means the holder of an outstanding Option or Stock
--------
Purchase Right granted under the Plan.
(w) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(x) "Plan" means this 1998 Stock Plan.
----
(y) "Restricted Stock" means shares of Common Stock acquired pursuant
----------------
to a grant of Stock Purchase Rights under Section 11 of the Plan.
(z) "Restricted Stock Purchase Agreement" means a written agreement
-----------------------------------
between the Company and the Optionee evidencing the terms and restrictions
applying to stock purchased under a Stock Purchase Right. The Restricted Stock
Purchase Agreement is subject to the terms and conditions of the Plan and the
Notice of Grant.
(aa) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any successor
----------
to Rule 16b-3, as in effect when discretion is being exercised with respect to
the Plan.
(bb) "Section 16(b)" means Section 16(b) of the Exchange Act.
-------------
(cc) "Service Provider" means an Employee, Director or Consultant.
----------------
-3-
<PAGE>
(dd) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 13 of the Plan.
(ee) "Stock Purchase Right" means the right to purchase Common Stock
--------------------
pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.
(ff) "Subsidiary" means a "subsidiary corporation", whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 13 of
-------------------------
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is (a) 3,000,000 Shares, including the Shares which have been
reserved but unissued under the Company's 1997 Equity Incentive Plan, as amended
(the "1997 Plan") as of the date of stockholder approval of this Plan, (b) any
Shares returned to the 1997 Plan as a result of termination of options under the
1997 Plan, plus (c) an annual increase to be added on the date of each annual
meeting of the stockholders, beginning with the 1999 annual meeting of the
stockholders, equal to the lesser of (i) 3,000,000 Shares, (ii) four percent
(4%) of the outstanding Shares on such date or (iii) a lesser amount determined
by the Board. The Shares may be authorized, but unissued, or reacquired Common
Stock.
If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated); provided, however, that Shares that have actually been issued under
--------
the Plan, whether upon exercise of an Option or Right, shall not be returned to
the Plan and shall not become available for future distribution under the Plan,
except that if Shares of Restricted Stock are repurchased by the Company at
their original purchase price, such Shares shall become available for future
grant under the Plan.
4. Administration of the Plan.
--------------------------
(a) Procedure.
---------
(i) Multiple Administrative Bodies. The Plan may be administered
------------------------------
by different Committees with respect to different groups of Service Providers.
(ii) Section 162(m). To the extent that the Administrator
--------------
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
-4-
<PAGE>
(iii) Rule 16b-3. To the extent desirable to qualify transactions
----------
hereunder as exempt under Rule 16b-3, the transactions contemplated hereunder
shall be structured to satisfy the requirements for exemption under Rule 16b-3.
(iv) Other Administration. Other than as provided above, the Plan
--------------------
shall be administered by (A) the Board or (B) a Committee, which committee shall
be constituted to satisfy Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the Plan,
---------------------------
and in the case of a Committee, subject to the specific duties delegated by the
Board to such Committee, the Administrator shall have the authority, in its
discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options and Stock
Purchase Rights may be granted hereunder;
(iii) to determine the number of shares of Common Stock to be
covered by each Option and Stock Purchase Right granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any Option or Stock Purchase Right granted hereunder.
Such terms and conditions include, but are not limited to, the exercise price,
the time or times when Options or Stock Purchase Rights may be exercised (which
may be based on performance criteria), any vesting acceleration or waiver of
forfeiture restrictions, and any restriction or limitation regarding any Option
or Stock Purchase Right or the shares of Common Stock relating thereto, based in
each case on such factors as the Administrator, in its sole discretion, shall
determine;
(vi) to reduce the exercise price of any Option or Stock Purchase
Right to the then current Fair Market Value if the Fair Market Value of the
Common Stock covered by such Option or Stock Purchase Right shall have declined
since the date the Option or Stock Purchase Right was granted;
(vii) to institute an Option Exchange Program;
(viii) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan;
-5-
<PAGE>
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
(x) to modify or amend each Option or Stock Purchase Right
(subject to Section 15(c) of the Plan), including the discretionary authority to
extend the post-termination exercisability period of Options longer than is
otherwise provided for in the Plan;
(xi) to allow Optionees to satisfy withholding tax obligations by
electing to have the Company withhold from the Shares to be issued upon exercise
of an Option or Stock Purchase Right that number of Shares having a Fair Market
Value equal to the amount required to be withheld. The Fair Market Value of the
Shares to be withheld shall be determined on the date that the amount of tax to
be withheld is to be determined. All elections by an Optionee to have Shares
withheld for this purpose shall be made in such form and under such conditions
as the Administrator may deem necessary or advisable;
(xii) to authorize any person to execute on behalf of the Company
any instrument required to effect the grant of an Option or Stock Purchase Right
previously granted by the Administrator;
(xiii) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's decisions,
----------------------------------
determinations and interpretations shall be final and binding on all Optionees
and any other holders of Options or Stock Purchase Rights.
5. Eligibility. Nonstatutory Stock Options and Stock Purchase Rights may
-----------
be granted to Service Providers. Incentive Stock Options may be granted only to
Employees.
6. Limitations.
-----------
(a) Each Option shall be designated in the Option Agreement as either
an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
-6-
<PAGE>
(b) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon an Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall they interfere in
any way with the Optionee's right or the Company's right to terminate such
relationship at any time, with or without cause.
(c) The following limitations shall apply to grants of Options:
(i) No Service Provider shall be granted, in any fiscal year of
the Company, Options to purchase more than 1,000,000 Shares.
(ii) In connection with his or her initial service, a Service
Provider may be granted Options to purchase up to an additional 1,000,000
Shares which shall not count against the limit set forth in subsection (i)
above.
(iii) The foregoing limitations shall be adjusted proportionately
in connection with any change in the Company's capitalization as described in
Section 13.
(iv) If an Option is cancelled in the same fiscal year of the
Company in which it was granted (other than in connection with a transaction
described in Section 13), the canceled Option will be counted against the limits
set forth in subsections (i) and (ii) above. For this purpose, if the exercise
price of an Option is reduced, the transaction will be treated as a cancellation
of the Option and the grant of a new Option.
7. Term of Plan. Subject to Section 19 of the Plan, the Plan shall become
------------
effective upon its adoption by the Board. It shall continue in effect for a
term of ten (10) years unless terminated earlier under Section 15 of the Plan.
8. Term of Option. The term of each Option shall be stated in the Option
--------------
Agreement. In the case of an Incentive Stock Option, the term shall be ten (10)
years from the date of grant or such shorter term as may be provided in the
Option Agreement. Moreover, in the case of an Incentive Stock Option granted to
an Optionee who, at the time the Incentive Stock Option is granted, owns stock
representing more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or any Parent or Subsidiary, the term of the
Incentive Stock Option shall be five (5) years from the date of grant or such
shorter term as may be provided in the Option Agreement.
9. Option Exercise Price and Consideration.
---------------------------------------
(a) Exercise Price. The per share exercise price for the Shares to be
--------------
issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
-7-
<PAGE>
(A) granted to an Employee who, at the time the Incentive
Stock Option is granted, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee described
in paragraph (A) immediately above, the per Share exercise price shall be no
less than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted
with a per Share exercise price of less than 100% of the Fair Market Value per
Share on the date of grant pursuant to a merger or other corporate transaction.
(b) Waiting Period and Exercise Dates. At the time an Option is
---------------------------------
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions which must be satisfied before the
Option may be exercised.
(c) Form of Consideration. The Administrator shall determine the
---------------------
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares acquired upon
exercise of an option, have been owned by the Optionee for more than six months
on the date of surrender, and (B) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised;
(v) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan;
-8-
<PAGE>
(vi) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's participation
in any Company-sponsored deferred compensation program or arrangement;
(vii) any combination of the foregoing methods of payment; or
(viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.
10. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Stockholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement. Unless the Administrator provides otherwise,
vesting of Options granted hereunder shall be tolled during any unpaid leave of
absence. An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company receives:
(i) written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a stockholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 13 of the Plan.
Exercising an Option in any manner shall decrease the number of
Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.
(b) Termination of Relationship as a Service Provider. If an Optionee
-------------------------------------------------
ceases to be a Service Provider, other than upon the Optionee's death or
Disability, the Optionee may exercise his or her Option within such period of
time as is specified in the Option Agreement to the extent that the Option is
vested on the date of termination (but in no event later than the expiration of
the term of such Option as set forth in the Option Agreement). In the absence of
a specified time in the Option Agreement, the Option shall remain exercisable
for three (3) months following the Optionee's termination. If, on the date of
termination, the Optionee is not vested as to his or her entire Option,
-9-
<PAGE>
the Shares covered by the unvested portion of the Option shall revert to the
Plan. If, after termination, the Optionee does not exercise his or her Option
within the time specified by the Administrator, the Option shall terminate, and
the Shares covered by such Option shall revert to the Plan.
(c) Disability of Optionee. If an Optionee ceases to be a Service
----------------------
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within such period of time as is specified in the Option Agreement
to the extent the Option is vested on the date of termination (but in no event
later than the expiration of the term of such Option as set forth in the Option
Agreement). In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for twelve (12) months following the Optionee's
termination. If, on the date of termination, the Optionee is not vested as to
his or her entire Option, the Shares covered by the unvested portion of the
Option shall revert to the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(d) Death of Optionee. If an Optionee dies while a Service Provider,
-----------------
the Option may be exercised within such period of time as is specified in the
Option Agreement (but in no event later than the expiration of the term of such
Option as set forth in the Notice of Grant), by the Optionee's estate or by a
person who acquires the right to exercise the Option by bequest or inheritance,
but only to the extent that the Option is vested on the date of death. In the
absence of a specified time in the Option Agreement, the Option shall remain
exercisable for twelve (12) months following the Optionee's termination. If, at
the time of death, the Optionee is not vested as to his or her entire Option,
the Shares covered by the unvested portion of the Option shall immediately
revert to the Plan. The Option may be exercised by the executor or
administrator of the Optionee's estate or, if none, by the person(s) entitled to
exercise the Option under the Optionee's will or the laws of descent or
distribution. If the Option is not so exercised within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
(e) Buyout Provisions. The Administrator may at any time offer to buy
-----------------
out for a payment in cash or Shares an Option previously granted based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
11. Stock Purchase Rights.
---------------------
(a) Rights to Purchase. Stock Purchase Rights may be issued either
------------------
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing or electronically, by means of a Notice of Grant, of the
terms, conditions and restrictions related to the offer, including the number of
Shares that the offeree shall be entitled to purchase, the price to be paid, and
the time within which the offeree must accept
-10-
<PAGE>
such offer. The offer shall be accepted by execution of a Restricted Stock
Purchase Agreement in the form determined by the Administrator.
(b) Repurchase Option. Unless the Administrator determines otherwise,
-----------------
the Restricted Stock Purchase Agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's service with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at a rate determined by the
Administrator.
(c) Other Provisions. The Restricted Stock Purchase Agreement shall
----------------
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion.
(d) Rights as a Stockholder. Once the Stock Purchase Right is
-----------------------
exercised, the purchaser shall have the rights equivalent to those of a
stockholder, and shall be a stockholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 13
of the Plan.
12. Non-Transferability of Options and Stock Purchase Rights. Unless
--------------------------------------------------------
determined otherwise by the Administrator, an Option or Stock Purchase Right may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee. If the
Administrator makes an Option or Stock Purchase Right transferable, such Option
or Stock Purchase Right shall contain such additional terms and conditions as
the Administrator deems appropriate.
13. Adjustments Upon Changes in Capitalization, Dissolution, Merger or Asset
------------------------------------------------------------------------
Sale.
----
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
stockholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall
-11-
<PAGE>
not be deemed to have been "effected without receipt of consideration." Such
adjustment shall be made by the Board, whose determination in that respect shall
be final, binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an Option or Stock Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option or Stock Purchase Right shall lapse
as to all such Shares, provided the proposed dissolution or liquidation takes
place at the time and in the manner contemplated. To the extent it has not been
previously exercised, an Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company
--------------------
with or into another corporation, or the sale of substantially all of the assets
of the Company, each outstanding Option and Stock Purchase Right shall be
assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. In the event
that the successor corporation refuses to assume or substitute for the Option or
Stock Purchase Right, the Optionee shall fully vest in and have the right to
exercise the Option or Stock Purchase Right as to all of the Optioned Stock,
including Shares as to which it would not otherwise be vested or exercisable. If
an Option or Stock Purchase Right becomes fully vested and exercisable in lieu
of assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee in writing or electronically that the
Option or Stock Purchase Right shall be fully vested and exercisable for a
period of fifteen (15) days from the date of such notice, and the Option or
Stock Purchase Right shall terminate upon the expiration of such period. For the
purposes of this paragraph, the Option or Stock Purchase Right shall be
considered assumed if, following the merger or sale of assets, the option or
right confers the right to purchase or receive, for each Share of Optioned Stock
subject to the Option or Stock Purchase Right immediately prior to the merger or
sale of assets, the consideration (whether stock, cash, or other securities or
property) received in the merger or sale of assets by holders of Common Stock
for each Share held on the effective date of the transaction (and if holders
were offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding Shares); provided, however, that if
such consideration received in the merger or sale of assets is not solely common
stock of the successor corporation or its Parent, the Administrator may, with
the consent of the successor corporation, provide for the consideration to be
received upon the exercise of the Option or Stock Purchase Right, for each Share
of Optioned Stock subject to the Option or Stock Purchase Right, to be solely
-12-
<PAGE>
common stock of the successor corporation or its Parent equal in fair market
value to the per share consideration received by holders of Common Stock in the
merger or sale of assets.
14. Date of Grant. The date of grant of an Option or Stock Purchase Right
-------------
shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator. Notice of the determination shall
be provided to each Optionee within a reasonable time after the date of such
grant.
15. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend,
-------------------------
alter, suspend or terminate the Plan.
(b) Stockholder Approval. The Company shall obtain stockholder
--------------------
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.
(c) Effect of Amendment or Termination. No amendment, alteration,
----------------------------------
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to Options granted under the
Plan prior to the date of such termination.
16. Conditions Upon Issuance of Shares.
----------------------------------
(a) Legal Compliance. Shares shall not be issued pursuant to the
----------------
exercise of an Option or Stock Purchase Right unless the exercise of such Option
or Stock Purchase Right and the issuance and delivery of such Shares shall
comply with Applicable Laws and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
(b) Investment Representations. As a condition to the exercise of an
--------------------------
Option or Stock Purchase Right, the Company may require the person exercising
such Option or Stock Purchase Right to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required.
17. Inability to Obtain Authority. The inability of the Company to obtain
-----------------------------
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
-13-
<PAGE>
18. Reservation of Shares. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
19. Stockholder Approval. The Plan shall be subject to approval by the
--------------------
stockholders of the Company within twelve (12) months after the date the Plan is
adopted. Such stockholder approval shall be obtained in the manner and to the
degree required under Applicable Laws.
-14-
<PAGE>
E-TEK DYNAMICS, INC.
1998 STOCK PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Option Agreement.
NOTICE OF STOCK OPTION GRANT
----------------------------
[Optionee's Name and Address]
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Option Agreement, as
follows:
Grant Number _________________________
Date of Grant _________________________
Vesting Commencement Date _________________________
Exercise Price per Share $________________________
Total Number of Shares Granted _________________________
Total Exercise Price $________________________
Type of Option: ___ Incentive Stock Option
___ Nonstatutory Stock Option
Term/Expiration Date: _________________________
Vesting Schedule:
----------------
This Option may be exercised, in whole or in part, in accordance with the
following schedule:
[STANDARD TERMS, SUBJECT TO BOARD DISCRETION.]
25% OF THE SHARES SUBJECT TO THE OPTION SHALL VEST TWELVE MONTHS AFTER THE
VESTING COMMENCEMENT DATE, AND 1/48 OF THE SHARES SUBJECT TO THE OPTION SHALL
VEST EACH MONTH THEREAFTER, SUBJECT TO THE OPTIONEE CONTINUING TO BE A SERVICE
PROVIDER ON SUCH DATES.
<PAGE>
Termination Period:
------------------
This Option may be exercised for three months after Optionee ceases to be
a Service Provider. Upon the death or Disability of the Optionee, this Option
may be exercised for one year after Optionee ceases to be a Service Provider.
In no event shall this Option be exercised later than the Term/Expiration Date
as provided above.
AGREEMENT
---------
1 Grant of Option. The Plan Administrator of the Company hereby grants
---------------
to the Optionee named in the Notice of Grant attached as Part I of this
Agreement (the "Optionee") an option (the "Option") to purchase the number of
Shares, as set forth in the Notice of Grant, at the exercise price per share set
forth in the Notice of Grant (the "Exercise Price"), subject to the terms and
conditions of the Plan, which is incorporated herein by reference. Subject to
Section 15(c) of the Plan, in the event of a conflict between the terms and
conditions of the Plan and the terms and conditions of this Option Agreement,
the terms and conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option
("ISO"), this Option is intended to qualify as an Incentive Stock Option under
Section 422 of the Code. However, if this Option is intended to be an Incentive
Stock Option, to the extent that it exceeds the $100,000 rule of Code Section
422(d) it shall be treated as a Nonstatutory Stock Option ("NSO").
2 Exercise of Option.
------------------
(a) Right to Exercise. This Option is exercisable during its term in
-----------------
accordance with the Vesting Schedule set out in the Notice of Grant and the
applicable provisions of the Plan and this Option Agreement.
(b) Method of Exercise. This Option is exercisable by delivery of an
------------------
exercise notice, in the form attached as Exhibit A (the "Exercise Notice"),
which shall state the election to exercise the Option, the number of Shares in
respect of which the Option is being exercised (the "Exercised Shares"), and
such other representations and agreements as may be required by the Company
pursuant to the provisions of the Plan. The Exercise Notice shall be completed
by the Optionee and delivered to the Chief Financial Officer of the Company.
The Exercise Notice shall be accompanied by payment of the aggregate Exercise
Price as to all Exercised Shares. This Option shall be deemed to be exercised
upon receipt by the Company of such fully executed Exercise Notice accompanied
by such aggregate Exercise Price.
No Shares shall be issued pursuant to the exercise of this Option
unless such issuance and exercise complies with Applicable Laws. Assuming such
compliance, for income tax purposes the Exercised Shares shall be considered
transferred to the Optionee on the date the Option is exercised with respect to
such Exercised Shares.
-2-
<PAGE>
3 Method of Payment. Payment of the aggregate Exercise Price shall be
-----------------
by any of the following, or a combination thereof, at the election of the
Optionee:
(a) cash;
(b) check; or
(c) consideration received by the Company under a cashless exercise
program implemented by the Company in connection with the Plan.
4 Non-Transferability of Option. This Option may not be transferred in
-----------------------------
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by the Optionee. The
terms of the Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
5 Term of Option. This Option may be exercised only within the term set
--------------
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option Agreement.
6 Tax Consequences. Some of the federal tax consequences relating to
----------------
this Option, as of the date of this Option, are set forth below. THIS SUMMARY IS
NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE.
THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR
DISPOSING OF THE SHARES.
(a) Exercising the Option.
---------------------
(i) Nonstatutory Stock Option. The Optionee may incur regular
-------------------------
federal income tax liability upon exercise of a NSO. The Optionee will be
treated as having received compensation income (taxable at ordinary income tax
rates) equal to the excess, if any, of the Fair Market Value of the Exercised
Shares on the date of exercise over their aggregate Exercise Price. If the
Optionee is an Employee or a former Employee, the Company will be required to
withhold from his or her compensation or collect from Optionee and pay to the
applicable taxing authorities an amount in cash equal to a percentage of this
compensation income at the time of exercise, and may refuse to honor the
exercise and refuse to deliver Shares if such withholding amounts are not
delivered at the time of exercise.
(ii) Incentive Stock Option. If this Option qualifies as an ISO,
----------------------
the Optionee will have no regular federal income tax liability upon its
exercise, although the excess, if any, of the Fair Market Value of the Exercised
Shares on the date of exercise over their aggregate Exercise Price will be
treated as an adjustment to alternative minimum taxable income for federal tax
purposes and may subject the Optionee to alternative minimum tax in the year of
exercise. In the event that the
-3-
<PAGE>
Optionee ceases to be an Employee but remains a Service Provider, any Incentive
Stock Option of the Optionee that remains unexercised shall cease to qualify as
an Incentive Stock Option and will be treated for tax purposes as a Nonstatutory
Stock Option on the date three (3) months and one (1) day following such change
of status.
(b) Disposition of Shares.
---------------------
(i) NSO. If the Optionee holds NSO Shares for at least one
---
year, any gain realized on disposition of the Shares will be treated as long-
term capital gain for federal income tax purposes.
(ii) ISO. If the Optionee holds ISO Shares for at least one year
---
after exercise and two years after the grant date, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
income tax purposes. If the Optionee disposes of ISO Shares within one year
after exercise or two years after the grant date, any gain realized on such
disposition will be treated as compensation income (taxable at ordinary income
rates) to the extent of the excess, if any, of the lesser of (A) the difference
between the Fair Market Value of the Shares acquired on the date of exercise and
the aggregate Exercise Price, or (B) the difference between the sale price of
such Shares and the aggregate Exercise Price. Any additional gain will be taxed
as capital gain, short-term or long-term depending on the period that the ISO
Shares were held.
(c) Notice of Disqualifying Disposition of ISO Shares. If the
-------------------------------------------------
Optionee sells or otherwise disposes of any of the Shares acquired pursuant to
an ISO on or before the later of (i) two years after the grant date, or (ii) one
year after the exercise date, the Optionee shall immediately notify the Company
in writing of such disposition. The Optionee agrees that he or she may be
subject to income tax withholding by the Company on the compensation income
recognized from such early disposition of ISO Shares by payment in cash or out
of the current earnings paid to the Optionee.
7 Entire Agreement; Governing Law. The Plan is incorporated herein by
-------------------------------
reference. The Plan and this Option Agreement constitute the entire agreement
of the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee. This agreement is governed by the internal substantive laws, but not
the choice of law rules, of California.
8 NO GUARANTEE OF CONTINUED SERVICE. OPTIONEE ACKNOWLEDGES AND AGREES
---------------------------------
THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED
ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT
THROUGH THE ACT OF BEING HIRED, BEING GRANTED AN OPTION OR PURCHASING SHARES
HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE
TRANSACTIONS
-4-
<PAGE>
CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT
CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE
PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT
INTERFERE WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S
RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE.
By your signature and the signature of the Company's representative below,
you and the Company agree that this Option is granted under and governed by the
terms and conditions of the Plan and this Option Agreement. Optionee has
reviewed the Plan and this Option Agreement in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option
Agreement and fully understands all provisions of the Plan and Option Agreement.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Administrator upon any questions relating to the Plan
and Option Agreement. Optionee further agrees to notify the Company upon any
change in the residence address indicated below.
OPTIONEE: E-TEK DYNAMICS, INC.
_________________________________ _____________________________________
Signature By
_________________________________ _____________________________________
Print Name Title
_________________________________
Residence Address
_________________________________
-5-
<PAGE>
CONSENT OF SPOUSE
-----------------
The undersigned spouse of Optionee has read and hereby approves the terms
and conditions of the Plan and this Option Agreement. In consideration of the
Company's granting his or her spouse the right to purchase Shares as set forth
in the Plan and this Option Agreement, the undersigned hereby agrees to be
irrevocably bound by the terms and conditions of the Plan and this Option
Agreement and further agrees that any community property interest shall be
similarly bound. The undersigned hereby appoints the undersigned's spouse as
attorney-in-fact for the undersigned with respect to any amendment or exercise
of rights under the Plan or this Option Agreement.
_______________________________________
Spouse of Optionee
-6-
<PAGE>
EXHIBIT A
---------
1998 STOCK PLAN
EXERCISE NOTICE
E-Tek Dynamics, Inc.
1885 Lundy Avenue
San Jose, CA 95131
Attention: Chief Financial Officer
1 Exercise of Option. Effective as of today, ________________, _____,
------------------
the undersigned ("Purchaser") hereby elects to purchase ______________ shares
(the "Shares") of the Common Stock of E-Tek Dynamics, Inc. (the "Company") under
and pursuant to the 1998 Stock Plan (the "Plan") and the Stock Option Agreement
dated _____________, _____ (the "Option Agreement"). The purchase price for the
Shares shall be $_____________, as required by the Option Agreement.
2 Delivery of Payment. Purchaser herewith delivers to the Company the
-------------------
full purchase price for the Shares.
3 Representations of Purchaser. Purchaser acknowledges that Purchaser
----------------------------
has received, read and understood the Plan and the Option Agreement and agrees
to abide by and be bound by their terms and conditions.
4 Rights as Stockholder. Until the issuance (as evidenced by the
---------------------
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the Shares, no right to vote or receive dividends or
any other rights as a stockholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. The Shares so acquired shall
be issued to the Optionee as soon as practicable after exercise of the Option.
No adjustment will be made for a dividend or other right for which the record
date is prior to the date of issuance, except as provided in Section 13 of the
Plan.
5 Tax Consultation. Purchaser understands that Purchaser may suffer
----------------
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.
<PAGE>
6 Entire Agreement; Governing Law. The Plan and Option Agreement are
-------------------------------
incorporated herein by reference. This Agreement, the Plan and the Option
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and Purchaser with respect to the subject matter
hereof, and may not be modified adversely to the Purchaser's interest except by
means of a writing signed by the Company and Purchaser. This agreement is
governed by the internal substantive laws, but not the choice of law rules, of
California.
Submitted by: Accepted by:
PURCHASER: E-TEK DYNAMICS, INC.
__________________________________ _____________________________________
Signature By
__________________________________ _____________________________________
Print Name Its
Address: Address:
- ------- -------
__________________________________ 1885 Lundy Avenue
__________________________________ San Jose, CA 95131
_____________________________________
Date Received
-2-
<PAGE>
EXHIBIT 10.11
E-TEK DYNAMICS, INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 1998 Employee Stock Purchase
Plan of E-Tek Dynamics, Inc.
1. Purpose. The purpose of the Plan is to provide employees of the
-------
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the
intention of the Company to have the Plan qualify as an "Employee Stock Purchase
Plan" under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
-----------
(a) "Board" shall mean the Board of Directors of the Company.
-----
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(c) "Common Stock" shall mean the common stock of the Company.
------------
(d) "Company" shall mean E-Tek Dynamics, Inc. and any Designated
-------
Subsidiary of the Company.
(e) "Compensation" shall mean all base straight time gross earnings,
------------
commissions, including payments for overtime, shift premium, incentive
compensation, incentive payments and bonuses, but exclusive of any other
compensation.
(f) "Designated Subsidiary" shall mean any Subsidiary which has been
---------------------
designated by the Board from time to time in its sole discretion as eligible to
participate in the Plan.
(g) "Employee" shall mean any individual who is an Employee of the
--------
Company for tax purposes whose customary employment with the Company is at least
twenty (20) hours per week and more than five (5) months in any calendar year.
For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship shall be deemed to have terminated on the
91st day of such leave.
(h) "Enrollment Date" shall mean the first Trading Day of each
---------------
Offering Period.
(i) "Exercise Date" shall mean the last Trading Day of each Purchase
-------------
Period.
<PAGE>
(j) "Fair Market Value" shall mean, as of any date, the value of
-----------------
Common Stock determined as follows:
(1) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day on the date of such determination, as reported in
The Wall Street Journal or such other source as the Board deems reliable;
(2) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for the Common Stock on
the date of such determination, as reported in The Wall Street Journal or such
other source as the Board deems reliable;
(3) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board; or
(4) For purposes of the Enrollment Date of the first Offering
Period under the Plan, the Fair Market Value shall be the initial price to the
public as set forth in the final prospectus included within the registration
statement in Form S-1 filed with the Securities and Exchange Commission for the
initial public offering of the Company's Common Stock (the "Registration
Statement").
(k) "Offering Periods" shall mean the periods of approximately
----------------
twenty-four (24) months during which an option granted pursuant to the Plan may
be exercised, commencing on the first Trading Day on or after May 1 and November
1 of each year and terminating on the last Trading Day in the periods ending
twenty-four months later; provided, however, that the first Offering Period
under the Plan shall commence with the first Trading Day on or after the date on
which the Securities and Exchange Commission declares the Company's Registration
Statement effective and ending on the last Trading Day on or before October 31,
2000. The duration and timing of Offering Periods may be changed pursuant to
Section 4 of this Plan.
(l) "Plan" shall mean this 1998 Employee Stock Purchase Plan.
----
(m) "Purchase Period" shall mean the approximately six month period
---------------
commencing after one Exercise Date and ending with the next Exercise Date,
except that the first Purchase Period of any Offering Period shall commence on
the Enrollment Date and end with the next Exercise Date; provided, however, that
the first Purchase Period under the Plan shall commence with the first Trading
Day on or after the date on which the Securities and Exchange Commission
declares the Company's Registration Statement effective and shall end on the
last Trading Day on or before April 30, 1999.
-2-
<PAGE>
(n) "Purchase Price" shall mean 85% of the Fair Market Value of a
--------------
share of Common Stock on the Enrollment Date or on the Exercise Date, whichever
is lower; provided however, that the Purchase Price may be adjusted by the Board
pursuant to Section 20.
(o) "Reserves" shall mean the number of shares of Common Stock covered
--------
by each option under the Plan which have not yet been exercised and the number
of shares of Common Stock which have been authorized for issuance under the Plan
but not yet placed under option.
(p) "Subsidiary" shall mean a corporation, domestic or foreign, of
----------
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(q) "Trading Day" shall mean a day on which national stock exchanges
-----------
and the Nasdaq System are open for trading.
3. Eligibility.
-----------
(a) Any Employee who shall be employed by the Company on a given
Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) to the extent that his or her rights to purchase stock
under all employee stock purchase plans of the Company and its subsidiaries
accrues at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of
stock (determined at the fair market value of the shares at the time such option
is granted) for each calendar year in which such option is outstanding at any
time.
4. Offering Periods. The Plan shall be implemented by consecutive,
----------------
overlapping Offering Periods with a new Offering Period commencing on the first
Trading Day on or after May 1 and November 1 of each year, or on such other date
as the Board shall determine, and continuing thereafter until terminated in
accordance with Section 20 hereof; provided, however, that the first Offering
Period under the Plan shall commence with the first Trading Day on or after the
date on which the Securities and Exchange Commission declares the Company's
Registration Statement effective and ending on the last Trading Day on or before
October 31, 2000. The Board shall have the power to change the duration of
Offering Periods (including the commencement dates thereof) with respect to
future offerings without stockholder approval if such change is announced prior
to the scheduled beginning of the first Offering Period to be affected
thereafter.
-3-
<PAGE>
5. Participation.
-------------
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company's payroll office prior
to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the first
payroll following the Enrollment Date and shall end on the last payroll in the
Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
6. Payroll Deductions.
------------------
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount not exceeding ten percent (10%) of the
Compensation which he or she receives on each pay day during the Offering
Period.
(b) All payroll deductions made for a participant shall be credited
to his or her account under the Plan and shall be withheld in whole percentages
only. A participant may not make any additional payments into such account.
(c) A participant may discontinue his or her participation in the
Plan as provided in Section 10 hereof, or may increase or decrease the rate of
his or her payroll deductions during the Offering Period by completing or filing
with the Company a new subscription agreement authorizing a change in payroll
deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate shall
be effective with the first full payroll period following five (5) business days
after the Company's receipt of the new subscription agreement unless the Company
elects to process a given change in participation more quickly. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's
payroll deductions may be decreased to zero percent (0%) at any time during a
Purchase Period. Payroll deductions shall recommence at the rate provided in
such participant's subscription agreement at the beginning of the first Purchase
Period which is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or at
the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any,
-4-
<PAGE>
which arise upon the exercise of the option or the disposition of the Common
Stock. At any time, the Company may, but shall not be obligated to, withhold
from the participant's compensation the amount necessary for the Company to meet
applicable withholding obligations, including any withholding required to make
available to the Company any tax deductions or benefits attributable to sale or
early disposition of Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period, each
---------------
eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Purchase Period more than 5,000
shares of the Company's Common Stock (subject to any adjustment pursuant to
Section 19), and provided further that such purchase shall be subject to the
limitations set forth in Sections 3(b) and 12 hereof. The Board may, for future
Offering Periods, increase or decrease, in its absolute discretion, the maximum
number of shares of the Company's Common Stock an Employee may purchase during
each Purchase Period of such Offering Period. Exercise of the option shall occur
as provided in Section 8 hereof, unless the participant has withdrawn pursuant
to Section 10 hereof. The option shall expire on the last day of the Offering
Period.
8. Exercise of Option.
------------------
(a) Unless a participant withdraws from the Plan as provided in
Section 10 hereof, his or her option for the purchase of shares shall be
exercised automatically on the Exercise Date, and the maximum number of full
shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Purchase Period or Offering Period, subject to earlier withdrawal by the
participant as provided in Section 10 hereof. Any other monies left over in a
participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to
purchase shares hereunder is exercisable only by him or her.
(b) If the Board determines that, on a given Exercise Date, the number
of shares with respect to which options are to be exercised may exceed (i) the
number of shares of Common Stock that were available for sale under the Plan on
the Enrollment Date of the applicable Offering Period, or (ii) the number of
shares available for sale under the Plan on such Exercise Date, the Board may in
its sole discretion (x) provide that the Company shall make a pro rata
allocation of the shares of Common Stock available for purchase on such
Enrollment Date or Exercise Date, as applicable, in as uniform a manner as shall
be practicable and as it shall determine in its sole discretion to be equitable
among all participants exercising options to purchase Common Stock on such
Exercise Date, and continue all Offering Periods then in effect, or (y) provide
that the Company shall make a pro rata allocation of the shares available for
purchase on such Enrollment Date or Exercise Date, as applicable, in as uniform
a manner as shall be practicable and as it shall determine in its sole
-5-
<PAGE>
discretion to be equitable among all participants exercising options to purchase
Common Stock on such Exercise Date, and terminate any or all Offering Periods
then in effect pursuant to Section 20 hereof. The Company may make pro rata
allocation of the shares available on the Enrollment Date of any applicable
Offering Period pursuant to the preceding sentence, notwithstanding any
authorization of additional shares for issuance under the Plan by the Company's
stockholders subsequent to such Enrollment Date.
9. Delivery. As promptly as practicable after each Exercise Date on which
--------
a purchase of shares occurs, the Company shall arrange the delivery to each
participant, as appropriate, of a certificate representing the shares purchased
upon exercise of his or her option.
10. Withdrawal.
----------
(a) A participant may withdraw all but not less than all the payroll
deductions credited to his or her account and not yet used to exercise his or
her option under the Plan at any time by giving written notice to the Company in
the form of Exhibit B to this Plan. All of the participant's payroll deductions
credited to his or her account shall be paid to such participant promptly after
receipt of notice of withdrawal and such participant's option for the Offering
Period shall be automatically terminated, and no further payroll deductions for
the purchase of shares shall be made for such Offering Period. If a participant
withdraws from an Offering Period, payroll deductions shall not resume at the
beginning of the succeeding Offering Period unless the participant delivers to
the Company a new subscription agreement.
(b) A participant's withdrawal from an Offering Period shall not have
any effect upon his or her eligibility to participate in any similar plan which
may hereafter be adopted by the Company or in succeeding Offering Periods which
commence after the termination of the Offering Period from which the participant
withdraws.
11. Termination of Employment.
-------------------------
Upon a participant's ceasing to be an Employee, for any reason, he or
she shall be deemed to have elected to withdraw from the Plan and the payroll
deductions credited to such participant's account during the Offering Period but
not yet used to exercise the option shall be returned to such participant or, in
the case of his or her death, to the person or persons entitled thereto under
Section 15 hereof, and such participant's option shall be automatically
terminated. The preceding sentence notwithstanding, a participant who receives
payment in lieu of notice of termination of employment shall be treated as
continuing to be an Employee for the participant's
-6-
<PAGE>
customary number of hours per week of employment during the period in which the
participant is subject to such payment in lieu of notice.
12. Interest. No interest shall accrue on the payroll deductions of a
--------
participant in the Plan.
13. Stock.
-----
(a) Subject to adjustment upon changes in capitalization of the
Company as provided in Section 19 hereof, the maximum number of shares of the
Company's Common Stock which shall be made available for sale under the Plan
shall be Seven Hundred and Fifty Thousand (750,000) shares, plus an annual
increase to be added on the first day of the Company's fiscal year beginning in
1999 equal to the lesser of (i) Seven Hundred and Fifty Thousand (750,000)
SHARES, (ii) One Percent (1%) of the outstanding shares on such date, or (iii)
a lesser amount determined by the Board.
(b) The participant shall have no interest or voting right in shares
covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan shall be
registered in the name of the participant or in the name of the participant and
his or her spouse.
14. Administration. The Plan shall be administered by the Board or a
--------------
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision
and determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
15. Designation of Beneficiary.
--------------------------
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to an Exercise Date
on which the option is exercised but prior to delivery to such participant of
such shares and cash. In addition, a participant may file a written designation
of a beneficiary who is to receive any cash from the participant's account under
the Plan in the event of such participant's death prior to exercise of the
option. If a participant is married and the designated beneficiary is not the
spouse, spousal consent shall be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant and
in the absence of a beneficiary validly designated under the Plan who is living
at the time of such participant's death, the Company
-7-
<PAGE>
shall deliver such shares and/or cash to the executor or administrator of the
estate of the participant, or if no such executor or administrator has been
appointed (to the knowledge of the Company), the Company, in its discretion, may
deliver such shares and/or cash to the spouse or to any one or more dependents
or relatives of the participant, or if no spouse, dependent or relative is known
to the Company, then to such other person as the Company may designate.
16. Transferability. Neither payroll deductions credited to a
---------------
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
17. Use of Funds. All payroll deductions received or held by the Company
------------
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
18. Reports. Individual accounts shall be maintained for each participant
-------
in the Plan. Statements of account shall be given to participating Employees at
least annually, which statements shall set forth the amounts of payroll
deductions, the Purchase Price, the number of shares purchased and the remaining
cash balance, if any.
19. Adjustments Upon Changes in Capitalization, Dissolution, Liquidation,
---------------------------------------------------------------------
Merger or Asset Sale.
--------------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
stockholders of the Company, the Reserves, the maximum number of shares each
participant may purchase each Purchase Period (pursuant to Section 7), as well
as the price per share and the number of shares of Common Stock covered by each
option under the Plan which has not yet been exercised shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration". Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new
-8-
<PAGE>
Exercise Date (the "New Exercise Date"), and shall terminate immediately prior
to the consummation of such proposed dissolution or liquidation, unless provided
otherwise by the Board. The New Exercise Date shall be before the date of the
Company's proposed dissolution or liquidation. The Board shall notify each
participant in writing, at least ten (10) business days prior to the New
Exercise Date, that the Exercise Date for the participant's option has been
changed to the New Exercise Date and that the participant's option shall be
exercised automatically on the New Exercise Date, unless prior to such date the
participant has withdrawn from the Offering Period as provided in Section 10
hereof.
(c) Merger or Asset Sale. In the event of a proposed sale of all or
--------------------
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding option shall be assumed or an
equivalent option substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the option, any Purchase Periods
then in progress shall be shortened by setting a new Exercise Date (the "New
Exercise Date") and any Offering Periods then in progress shall end on the New
Exercise Date. The New Exercise Date shall be before the date of the Company's
proposed sale or merger. The Board shall notify each participant in writing, at
least ten (10) business days prior to the New Exercise Date, that the Exercise
Date for the participant's option has been changed to the New Exercise Date and
that the participant's option shall be exercised automatically on the New
Exercise Date, unless prior to such date the participant has withdrawn from the
Offering Period as provided in Section 10 hereof.
20. Amendment or Termination.
------------------------
(a) The Board of Directors of the Company may at any time and for any
reason terminate or amend the Plan. Except as provided in Section 19 hereof, no
such termination can affect options previously granted, provided that an
Offering Period may be terminated by the Board of Directors on any Exercise Date
if the Board determines that the termination of the Offering Period or the Plan
is in the best interests of the Company and its stockholders. Except as
provided in Section 19 and this Section 20 hereof, no amendment may make any
change in any option theretofore granted which adversely affects the rights of
any participant. To the extent necessary to comply with Section 423 of the Code
(or any successor rule or provision or any other applicable law, regulation or
stock exchange rule), the Company shall obtain stockholder approval in such a
manner and to such a degree as required.
(b) Without stockholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or
-9-
<PAGE>
accounting and crediting procedures to ensure that amounts applied toward the
purchase of Common Stock for each participant properly correspond with amounts
withheld from the participant's Compensation, and establish such other
limitations or procedures as the Board (or its committee) determines in its sole
discretion advisable which are consistent with the Plan.
(c) In the event the Board determines that the ongoing operation of
the Plan may result in unfavorable financial accounting consequences, the Board
may, in its discretion and, to the extent necessary or desirable, modify or
amend the Plan to reduce or eliminate such accounting consequence including, but
not limited to:
(1) altering the Purchase Price for any Offering Period including
an Offering Period underway at the time of the change in Purchase Price;
(2) shortening any Offering Period so that Offering Period ends
on a new Exercise Date, including an Offering Period underway at the time of the
Board action; and
(3) allocating shares.
Such modifications or amendments shall not require stockholder
approval or the consent of any Plan participants.
21. Notices. All notices or other communications by a participant to the
-------
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued with
----------------------------------
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require
the person exercising such option to represent and warrant at the time of any
such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
-10-
<PAGE>
23. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board of Directors or its approval by the
stockholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 20 hereof.
24. Automatic Transfer to Low Price Offering Period. To the extent
-----------------------------------------------
permitted by any applicable laws, regulations, or stock exchange rules if the
Fair Market Value of the Common Stock on any Exercise Date in an Offering Period
is lower than the Fair Market Value of the Common Stock on the Enrollment Date
of such Offering Period, then all participants in such Offering Period shall be
automatically withdrawn from such Offering Period immediately after the exercise
of their option on such Exercise Date and automatically re-enrolled in the
immediately following Offering Period as of the first day thereof.
-11-
<PAGE>
EXHIBIT A
---------
E-TEK DYNAMICS, INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date: ___________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. _____________________________________________________ hereby elects to
participate in the E-Tek Dynamics, Inc. 1998 Employee Stock Purchase Plan
(the "Employee Stock Purchase Plan") and subscribes to purchase shares of
the Company's Common Stock in accordance with this Subscription Agreement
and the Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount of
of my Compensation on each payday (not to exceed ten percent (10%)) during
the Offering Period in accordance with the Employee Stock Purchase Plan.
(Please note that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise my
option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is in
all respects subject to the terms of the Plan. I understand that my
ability to exercise the option under this Subscription Agreement is subject
to stockholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse only):
__________________________________________________________________________.
6. I understand that if I dispose of any shares received by me pursuant to the
Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares) or one year after the
Exercise Date, I will be treated for federal income tax purposes as having
received ordinary income at the time of such disposition in an amount equal
to the
<PAGE>
excess of the fair market value of the shares at the time such shares were
purchased by me over the price which I paid for the shares. I hereby agree
--------------
to notify the Company in writing within 30 days after the date of any
---------------------------------------------------------------------
disposition of my shares and I will make adequate provision for Federal,
------------------------------------------------------------------------
state or other tax withholding obligations, if any, which arise upon the
------------------------------------------------------------------------
disposition of the Common Stock. The Company may, but will not be obligated
-------------------------------
to, withhold from my compensation the amount necessary to meet any
applicable withholding obligation including any withholding necessary to
make available to the Company any tax deductions or benefits attributable
to sale or early disposition of Common Stock by me. If I dispose of such
shares at any time after the expiration of the 2-year and 1-year holding
periods, I understand that I will be treated for federal income tax
purposes as having received income only at the time of such disposition,
and that such income will be taxed as ordinary income only to the extent of
an amount equal to the lesser of (1) the excess of the fair market value of
the shares at the time of such disposition over the purchase price which I
paid for the shares, or (2) 15% of the fair market value of the shares on
the first day of the Offering Period. The remainder of the gain, if any,
recognized on such disposition will be taxed as capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon
my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print)______________________________________________
(First) (Middle) (Last)
_____________________________________ _____________________________________
Relationship
_____________________________________
(Address)
-2-
<PAGE>
Employee's Social
Security Number: ____________________________________
Employee's Address: ____________________________________
____________________________________
____________________________________
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:_________________________ ________________________________________
Signature of Employee
________________________________________
Spouse's Signature (If beneficiary other
than spouse)
-3-
<PAGE>
EXHIBIT B
---------
E-TEK DYNAMICS, INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the E-Tek Dynamics,
Inc. 1998 Employee Stock Purchase Plan which began on ____________, 19____ (the
"Enrollment Date") hereby notifies the Company that he or she hereby withdraws
from the Offering Period. He or she hereby directs the Company to pay to the
undersigned as promptly as practicable all the payroll deductions credited to
his or her account with respect to such Offering Period. The undersigned
understands and agrees that his or her option for such Offering Period will be
automatically terminated. The undersigned understands further that no further
payroll deductions will be made for the purchase of shares in the current
Offering Period and the undersigned shall be eligible to participate in
succeeding Offering Periods only by delivering to the Company a new Subscription
Agreement.
Name and Address of Participant:
________________________________
________________________________
________________________________
Signature:
________________________________
Date:___________________________
<PAGE>
EXHIBIT 10.2
E-TEK DYNAMICS, INC.
1998 DIRECTOR OPTION PLAN
1. Purposes of the Plan. The purposes of this 1998 Director Option Plan
--------------------
are to attract and retain the best available personnel for service as Outside
Directors (as defined herein) of the Company, to provide additional incentive to
the Outside Directors of the Company to serve as Directors, and to encourage
their continued service on the Board.
All options granted hereunder shall be nonstatutory stock options.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Board" means the Board of Directors of the Company.
-----
(b) "Code" means the Internal Revenue Code of 1986, as amended.
----
(c) "Common Stock" means the common stock of the Company.
------------
(d) "Company" means E-Tek Dynamics, Inc., a Delaware corporation.
-------
(e) "Director" means a member of the Board.
--------
(f) "Employee" means any person, including officers and Directors,
--------
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a Director's fee by the Company shall not be sufficient in and of itself to
constitute "employment" by the Company.
(g) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(h) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the date of determination, as reported in The
Wall Street Journal or such other source as the Board deems reliable; or
<PAGE>
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board.
(i) "Inside Director" means a Director who is an Employee.
---------------
(j) "Option" means a stock option granted pursuant to the Plan.
------
(k) "Optioned Stock" means the Common Stock subject to an Option.
--------------
(l) "Optionee" means a Director who holds an Option.
--------
(m) "Outside Director" means a Director who is (i) not an Employee
----------------
and (ii) not a partner nor a member of any venture capital firm which owns
securities of the Company having more than five percent (5%) of the total voting
power of the Company.
(n) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(o) "Plan" means this 1998 Director Option Plan.
----
(p) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 10 of the Plan.
(q) "Subsidiary" means a "subsidiary corporation," whether now or
----------
hereafter existing, as defined in Section 424(f) of the Internal Revenue Code of
1986.
3. Stock Subject to the Plan. Subject to the provisions of Section 10 of
-------------------------
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 250,000 Shares, plus an annual increase to be added on the
date of each annual meeting of the stockholders equal to (i) the Optioned Stock
underlying Options granted in the immediately preceding year, or (ii) a lesser
amount determined by the Board (collectively, the "Pool"). The Shares may be
authorized, but unissued, or reacquired Common Stock.
If an Option expires or becomes unexercisable without having been
exercised in full, the unpurchased Shares which were subject thereto shall
become available for future grant or sale under the Plan (unless the Plan has
terminated). Shares that have actually been issued under the Plan shall not be
returned to the Plan and shall not become available for future distribution
under the Plan.
4. Administration and Grants of Options under the Plan.
---------------------------------------------------
(a) Procedure for Grants. All grants of Options to Outside Directors
--------------------
under this Plan shall be automatic and nondiscretionary and shall be made
strictly in accordance with the following provisions:
-2-
<PAGE>
(i) No person shall have any discretion to select which Outside
Directors shall be granted Options or to determine the number of Shares to be
covered by Options granted to Outside Directors.
(ii) Each Outside Director shall be automatically granted an
Option to purchase 40,000 Shares (the "First Option") on the date which such
person first becomes an Outside Director, whether through election by the
stockholders of the Company or appointment by the Board to fill a vacancy;
provided, however, that a Director who is an Outside Director on the date of
adoption of this Plan shall not receive a First Option; provided, further, that
an Inside Director who ceases to be an Inside Director but who remains a
Director shall not receive a First Option.
(iii) Each Outside Director shall be automatically granted an
Option to purchase 10,000 Shares (a "Subsequent Option") each year on the date
two days after the Company's financial results for the preceding fiscal year are
announced to the public, provided he or she is then an Outside Director and, if
as of such date, he or she shall have served on the Board for at least the
preceding six (6) months.
(iv) Notwithstanding the provisions of subsections (ii) and
(iii) hereof, any exercise of an Option granted before the Company has obtained
stockholder approval of the Plan in accordance with Section 16 hereof shall be
conditioned upon obtaining such stockholder approval of the Plan in accordance
with Section 16 hereof.
(v) The terms of any Option granted hereunder shall be as
follows:
(A) the term of the Option shall be ten (10) years.
(B) the Option shall be exercisable only while the Outside
Director remains a Director of the Company, except as set forth in Sections 8
and 10 hereof.
(C) the exercise price per Share shall be 100% of the Fair
Market Value per Share on the date of grant of the Option.
(D) subject to Section 10 hereof, the Option shall become
exercisable as to 25% of the Shares subject to the Option on the first
anniversary of its date of grant, and 1/48th of the Shares subject to the Option
shall vest each month thereafter, provided that the Optionee continues to serve
as a Director on such dates.
(vi) In the event that any Option granted under the Plan would
cause the number of Shares subject to outstanding Options plus the number of
Shares previously purchased under Options to exceed the Pool, then the remaining
Shares available for Option grant shall be granted under Options to the Outside
Directors on a pro rata basis. No further grants shall be made until such time,
if any, as additional Shares become available for grant under the Plan through
action
-3-
<PAGE>
of the Board or the stockholders to increase the number of Shares which may be
issued under the Plan or through cancellation or expiration of Options
previously granted hereunder.
5. Eligibility. Options may be granted only to Outside Directors. All
-----------
Options shall be automatically granted in accordance with the terms set forth in
Section 4 hereof.
The Plan shall not confer upon any Optionee any right with respect to
continuation of service as a Director or nomination to serve as a Director, nor
shall it interfere in any way with any rights which the Director or the Company
may have to terminate the Director's relationship with the Company at any time.
6. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board or its approval by the stockholders of the
Company as described in Section 16 of the Plan. It shall continue in effect for
a term of ten (10) years unless sooner terminated under Section 11 of the Plan.
7. Form of Consideration. The consideration to be paid for the Shares to
---------------------
be issued upon exercise of an Option, including the method of payment, shall
consist of (i) cash, (ii) check, (iii) other shares which (x) in the case of
Shares acquired upon exercise of an Option, have been owned by the Optionee for
more than six (6) months on the date of surrender, and (y) have a Fair Market
Value on the date of surrender equal to the aggregate exercise price of the
Shares as to which said Option shall be exercised, (iv) consideration received
by the Company under a cashless exercise program implemented by the Company in
connection with the Plan, or (v) any combination of the foregoing methods of
payment.
8. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Stockholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times as are set forth in Section
4 hereof; provided, however, that no Options shall be exercisable until
stockholder approval of the Plan in accordance with Section 16 hereof has been
obtained.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may consist of any consideration and method of payment
allowable under Section 7 of the Plan. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no right
to vote or receive dividends or any other rights as a stockholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
A share certificate for the number of Shares so acquired shall be issued to the
Optionee as
-4-
<PAGE>
soon as practicable after exercise of the Option. No adjustment shall be made
for a dividend or other right for which the record date is prior to the date the
stock certificate is issued, except as provided in Section 10 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Continuous Status as a Director. Subject to
----------------------------------------------
Section 10 hereof, in the event an Optionee's status as a Director terminates
(other than upon the Optionee's death or total and permanent disability (as
defined in Section 22(e)(3) of the Code)), the Optionee may exercise his or her
Option, but only within three (3) months following the date of such termination,
and only to the extent that the Optionee was entitled to exercise it on the date
of such termination (but in no event later than the expiration of its ten (10)
year term). To the extent that the Optionee was not entitled to exercise an
Option on the date of such termination, and to the extent that the Optionee does
not exercise such Option (to the extent otherwise so entitled) within the time
specified herein, the Option shall terminate.
(c) Disability of Optionee. In the event Optionee's status as a
----------------------
Director terminates as a result of total and permanent disability (as defined in
Section 22(e)(3) of the Code), the Optionee may exercise his or her Option, but
only within twelve (12) months following the date of such termination, and only
to the extent that the Optionee was entitled to exercise it on the date of such
termination (but in no event later than the expiration of its ten (10) year
term). To the extent that the Optionee was not entitled to exercise an Option
on the date of termination, or if he or she does not exercise such Option (to
the extent otherwise so entitled) within the time specified herein, the Option
shall terminate.
(d) Death of Optionee. In the event of an Optionee's death, the
-----------------
Optionee's estate or a person who acquired the right to exercise the Option by
bequest or inheritance may exercise the Option, but only within twelve (12)
months following the date of death, and only to the extent that the Optionee was
entitled to exercise it on the date of death (but in no event later than the
expiration of its ten (10) year term). To the extent that the Optionee was not
entitled to exercise an Option on the date of death, and to the extent that the
Optionee's estate or a person who acquired the right to exercise such Option
does not exercise such Option (to the extent otherwise so entitled) within the
time specified herein, the Option shall terminate.
9. Non-Transferability of Options. The Option may not be sold, pledged,
------------------------------
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
10. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
------------------------------------------------------------------
Asset Sale.
----------
-5-
<PAGE>
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
stockholders of the Company, the number of Shares covered by each outstanding
Option, the number of Shares which have been authorized for issuance under the
Plan but as to which no Options have yet been granted or which have been
returned to the Plan upon cancellation or expiration of an Option, as well as
the price per Share covered by each such outstanding Option, and the number of
Shares issuable pursuant to the automatic grant provisions of Section 4 hereof
shall be proportionately adjusted for any increase or decrease in the number of
issued Shares resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued Shares effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of Shares
subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, to the extent that an Option has not
been previously exercised, it shall terminate immediately prior to the
consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company
--------------------
with or into another corporation or the sale of substantially all of the assets
of the Company, outstanding Options shall become fully vested and exercisable,
including as to Shares for which it would not otherwise be exercisable. In such
event the Board shall notify the Optionee that the Option shall be fully
exercisable for a period of thirty (30) days from the date of such notice, and
upon the expiration of such period the Option shall terminate.
-6-
<PAGE>
11. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend,
-------------------------
alter, suspend, or discontinue the Plan, but no amendment, alteration,
suspension, or discontinuation shall be made which would impair the rights of
any Optionee under any grant theretofore made, without his or her consent. In
addition, to the extent necessary and desirable to comply with any applicable
law, regulation or stock exchange rule, the Company shall obtain stockholder
approval of any Plan amendment in such a manner and to such a degree as
required.
(b) Effect of Amendment or Termination. Any such amendment or
----------------------------------
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated.
12. Time of Granting Options. The date of grant of an Option shall, for
------------------------
all purposes, be the date determined in accordance with Section 4 hereof.
13. Conditions Upon Issuance of Shares. Shares shall not be issued
----------------------------------
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, state securities laws, and the requirements of any stock exchange
upon which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares, if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
Inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained.
-7-
<PAGE>
14. Reservation of Shares. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
15. Option Agreement. Options shall be evidenced by written option
----------------
agreements in such form as the Board shall approve.
16. Stockholder Approval. The Plan shall be subject to approval by the
--------------------
stockholders of the Company within twelve (12) months after the date the Plan is
adopted. Such stockholder approval shall be obtained in the degree and manner
required under applicable state and federal law and any stock exchange rules.
-8-
<PAGE>
EXHIBIT 10.13
E-TEK DYNAMICS, INC
1997 EQUITY INCENTIVE PLAN
AS ADOPTED JUNE 27, 1997
1. PURPOSE. The purpose of this Plan is to provide incentives to attract,
-------
retain and motivate eligible persons whose present and potential contributions
are important to the success of the Company, its Parent and Subsidiaries, by
offering them an opportunity to participate in the Company's future performance
through awards of Options and Restricted Stock. Capitalized terms not defined in
the text are defined in Section 22. This Plan is intended to be a written
compensatory benefit plan within the meaning of Rule 701 promulgated under the
Securities Act.
2. SHARES SUBJECT TO THE PLAN.
--------------------------
2.1 Number of Shares Available. Subject to Sections 2.2 and 17, the
--------------------------
total number of Shares reserved and available for grant and issuance pursuant to
this Plan will be 5,555,555 Shares (post 493.72476 for one stock-split to be
effectuated by the filing of Amended and Restated Articles of Incorporation of
the Company in connection with that certain Recapitalization Agreement (the
"RECAPITALIZATION AGREEMENT") made as of June 27, 1997 by and among the Company
and the other signatories thereto) (less any Shares sold by the Company to its
employees in connection with the transactions contemplated by the
Recapitalization Agreement) or such lesser number of Shares as permitted under
Section 260.140.45 of Title 10 of the California Code of Regulations. Subject to
Sections 2.2 and 17, Shares will again be available for grant and issuance in
connection with future Awards under this Plan that: (a) are subject to issuance
upon exercise of an Option but cease to be subject to such Option for any reason
other than exercise of such Option or (b) are subject to an Award that otherwise
terminates without Shares being issued. At all times the Company will reserve
and keep available a sufficient number of Shares as will be required to satisfy
the requirements of all Awards granted under this Plan.
2.2 Adjustment of Shares. In the event that the number of outstanding
--------------------
shares of the Company's Common Stock is changed by a stock dividend,
recapitalization, stock split, reverse stock split, subdivision, combination,
reclassification or similar change in the capital structure of the Company
without consideration, then (a) the number of Shares reserved for issuance under
this Plan, (b) the Exercise Prices of and number of Shares subject to
outstanding Options, and (c) the Purchase Prices of and number of Shares subject
to other outstanding Awards will be proportionately adjusted, subject to any
required action by the Board or the shareholders of the Company and compliance
with applicable securities laws; provided, however, that fractions of a Share
-------- -------
will not be issued but will either be paid in cash at Fair Market Value of such
fraction of a Share or will be rounded down to the nearest whole Share, as
determined by the Committee.
3. ELIGIBILITY. ISOs (as defined in Section 5 below) may be granted only
-----------
to employees (including officers and directors who are also employees) of the
Company or of a Parent or Subsidiary of the Company. All other Awards may be
granted to employees, officers, directors and consultants of the Company or any
Parent or Subsidiary of the Company; provided such consultants render bona fide
--------
services not in connection with the offer and of securities in a capital-raising
transaction. A person may be granted more than one Award under this Plan.
4. ADMINISTRATION.
--------------
4.1 Committee Authority. This Plan will be administered by the
-------------------
Committee or the Board acting as the Committee. Subject to the general purposes,
terms and conditions of this Plan, and to the direction of the Board, the
Committee will have full power to implement and carry out this Plan. Without
limitation, the Committee will have the authority to:
(a) construe and interpret this Plan, any Award Agreement and any
other agreement or document executed pursuant to this Plan;
<PAGE>
(b) prescribe, amend and rescind rules and regulations relating to
this Plan;
(c) select persons to receive Awards;
(d) determine the form and terms of Awards;
(e) determine the number of Shares or other consideration subject to
Awards;
(f) determine whether Awards will be granted singly, in combination
with, in tandem with, in replacement of, or as alternatives to,
other Awards under this Plan or awards under any other incentive
or compensation plan of the Company or any Parent or Subsidiary
of the Company;
(g) grant waivers of Plan or Award conditions;
(h) determine the vesting, exercisability and payment of Awards;
(i) correct any defect, supply any omission, or reconcile any
inconsistency in this Plan, any Award, any Award Agreement, any
Exercise Agreement or any Restricted Stock Purchase Agreement;
(j) determine whether an Award has been earned; and
(k) make all other determinations necessary or advisable for the
administration of this Plan.
4.2 Committee Discretion. Any determination made by the Committee
--------------------
with respect to any Award will be made in its sole discretion at the time of
grant of the Award or, unless in contravention of any express term of this Plan
or Award, and subject to Section 5.9, at any later time, and such determination
will be final and binding on the Company and on all persons having an interest
in any Award under this Plan. The Committee may delegate to one or more officers
of the Company the authority to grant an Award under this Plan.
5. OPTIONS. The Committee may grant Options to eligible persons and will
-------
determine whether such Options will be Incentive Stock Options within the
meaning of the Code ("ISOS") or Nonqualified Stock Options ("NQSOS"), the number
of Shares subject to the Option, the Exercise Price of the Option, the period
during which the Option may be exercised, and all other terms and conditions of
the Option, subject to the following:
5.1 Form of Option Grant. Each Option granted under this Plan will be
--------------------
evidenced by an Award Agreement which will expressly identify the Option as an
ISO or an NQSO ("STOCK OPTION AGREEMENT"), and will be in such form and contain
such provisions (which need not be the same for each Participant) as the
Committee may from time to time approve, and which will comply with and be
subject to the terms and conditions of this Plan.
5.2 Date of Grant. The date of grant of an Option will be the date on
-------------
which the Committee makes the determination to grant such Option, unless
otherwise specified by the Committee. The Stock Option Agreement and a copy of
this Plan will be delivered to the Participant within a reasonable time after
the granting of the Option.
5.3 Exercise Period. Options may be exercisable immediately (subject
---------------
to repurchase pursuant to Section 11 of this Plan) or may be exercisable within
the times or upon the events determined by the Committee as set forth in the
Stock Option Agreement governing such Option; provided, however, that no Option
-------- -------
will be exercisable after the expiration of ten (10) years from the date the
Option is granted; and provided further that no ISO granted to a person who
-------- -------
directly or by attribution owns more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or of any Parent or
Subsidiary of the Company ("TEN PERCENT SHAREHOLDER") will be exercisable after
the expiration of five (5) years from the date the ISO is granted. The Committee
also may provide for Options to become exercisable at one time or from time to
time, periodically or otherwise, in such number of Shares or percentage of
Shares as the Committee determines. Subject to
2
<PAGE>
earlier termination of the Option as provided herein, each Participant who is
not an officer, director or consultant of the Company or of a Parent or
Subsidiary of the Company shall have the right to exercise an Option granted
hereunder at the rate of at least twenty percent (20%) per year over five (5)
years from the date such Option is granted.
5.4 Exercise Price. The Exercise Price of an Option will be
--------------
determined by the Committee when the Option is granted and may not be less than
85% of the Fair Market Value of the Shares on the date of grant; provided that
(i) the Exercise Price of an ISO will not be less than 100% of the Fair Market
Value of the Shares on the date of grant and (ii) the Exercise Price of any
Option granted to a Ten Percent Shareholder will not be less than 110% of the
Fair Market Value of the Shares on the date of grant. Payment for the Shares
purchased must be made in accordance with Section 7 of this Plan.
5.5 Method of Exercise. Options may be exercised only by delivery to
------------------
the Company of a written stock option exercise agreement (the "EXERCISE
AGREEMENT") in a form approved by the Committee (which need not be the same for
each Participant), stating the number of Shares being purchased, the
restrictions imposed on the Shares purchased under such Exercise Agreement, if
any, and such representations and agreements regarding Participant's investment
intent and access to information and other matters, if any, as may be required
or desirable by the Company to comply with applicable securities laws, together
with payment in full of the Exercise Price, and any applicable taxes, for the
number of Shares being purchased.
5.6 Termination. Subject to earlier termination pursuant to Sections
-----------
17 and 18 and notwithstanding the exercise periods set forth in the Stock Option
Agreement, exercise of an Option will always be subject to the following:
(a) If the Participant is Terminated for any reason except
death, Disability or for Cause, then the Participant may
exercise such Participant's Options only to the extent that
such Options are exercisable upon the Termination Date no
later than three (3) months after the Termination Date (or
within such shorter time period, not less than thirty (30)
days, or within such longer time period, not exceeding five
(5) years, after the Termination Date as may be determined
by the Committee, with any exercise beyond three (3) months
after the Termination Date deemed to be an NQSO) but in any
event, no later than the expiration date of the Options.
(b) If the Participant is Terminated because of Participant's
death or Disability (or the Participant dies within three
(3) months after a Termination other than because of
Participant's Disability or Cause), then Participant's
Options may be exercised only to the extent that such
Options are exercisable by Participant on the Termination
Date and must be exercised by Participant (or Participant's
legal representative or authorized assignee) no later than
twelve (12) months after the Termination Date (or within
such shorter time period, not less than six (6) months, or
within such longer time period, not exceeding five (5)
years, after the Termination Date as may be determined by
the Committee, with any exercise beyond (a) three (3) months
after the Termination Date when the Termination is for any
reason other than the Participant's death or disability,
within the meaning of Section 22(e)(3) of the Code, or (b)
twelve (12) months after the Termination Date when the
Termination is for Participant's disability, within the
meaning of Section 22(e)(3) of the Code, deemed to be an
NQSO) but in any event no later than the expiration date of
the Options.
(c) If the Participant is terminated for Cause, then
Participant's Options shall expire on such Participant's
Termination Date, or at such later time and on such
conditions as are determined by the Committee.
3
<PAGE>
5.7 Limitations on Exercise. The Committee may specify a reasonable
-----------------------
minimum number of Shares that may be purchased on any exercise of an Option,
provided that such minimum number will not prevent Participant from exercising
the Option for the full number of Shares for which it is then exercisable.
5.8 Limitations on ISOs. The aggregate Fair Market Value (determined
-------------------
as of the date of grant) of Shares with respect to which ISOs are exercisable
for the first time by a Participant during any calendar year (under this Plan or
under any other incentive stock option plan of the Company or any Parent or
Subsidiary of the Company) will not exceed $100,000. If the Fair Market Value of
Shares on the date of grant with respect to which ISOs are exercisable for the
first time by a Participant during any calendar year exceeds $100,000, then the
Options for the first $100,000 worth of Shares to become exercisable in such
calendar year will be ISOs and the Options for the amount in excess of $100,000
that become exercisable in that calendar year will be NQSOs. In the event that
the Code or the regulations promulgated thereunder are amended after the
Effective Date (as defined in Section 18 below) to provide for a different limit
on the Fair Market Value of Shares permitted to be subject to ISOs, then such
different limit will be automatically incorporated herein and will apply to any
Options granted after the effective date of such amendment.
5.9 Modification, Extension or Renewal. The Committee may modify,
----------------------------------
extend or renew outstanding Options and authorize the grant of new Options in
substitution therefor, provided that any such action may not, without the
written consent of a Participant, impair any of such Participant's rights under
any Option previously granted. Any outstanding ISO that is modified, extended,
renewed or otherwise altered will be treated in accordance with Section 424(h)
of the Code. The Committee may reduce the Exercise Price of outstanding Options
without the consent of Participants affected by a written notice to them;
provided, however, that the Exercise Price may not be reduced below the minimum
Exercise Price that would be permitted under Section 5.4 of this Plan for
Options granted on the date the action is taken to reduce the Exercise Price.
5.10 No Disqualification. Notwithstanding any other provision in this
-------------------
Plan, no term of this Plan relating to ISOs will be interpreted, amended or
altered, nor will any discretion or authority granted under this Plan be
exercised, so as to disqualify this Plan under Section 422 of the Code or,
without the consent of the Participant affected, to disqualify any ISO under
Section 422 of the Code.
6. RESTRICTED STOCK. A Restricted Stock Award is an offer by the Company
----------------
to sell to an eligible person Shares that are subject to restrictions. The
Committee will determine to whom an offer will be made, the number of Shares the
person may purchase, the Purchase Price, the restrictions to which the Shares
will be subject, and all other terms and conditions of the Restricted Stock
Award, subject to the following:
6.1 Form of Restricted Stock Award. All purchases under a Restricted
------------------------------
Stock Award made pursuant to this Plan will be evidenced by an Award Agreement
("RESTRICTED STOCK PURCHASE AGREEMENT") that will be in such form (which need
not be the same for each Participant) as the Committee will from time to time
approve, and will comply with and be subject to the terms and conditions of this
Plan. The Restricted Stock Award will be accepted by the Participant's execution
and delivery of the Restricted Stock Purchase Agreement and full payment for the
Shares to the Company within thirty (30) days from the date the Restricted Stock
Purchase Agreement is delivered to the person. If such person does not execute
and deliver the Restricted Stock Purchase Agreement along with full payment for
the Shares to the Company within thirty (30) days, then the offer will
terminate, unless otherwise determined by the Committee.
6.2 Purchase Price. The Purchase Price of Shares sold pursuant to a
--------------
Restricted Stock Award will be determined by the Committee and will be at least
85% of the Fair Market Value of the Shares on the date the Restricted Stock
Award is granted or at the time the purchase is consummated, except in the case
of a sale to a Ten Percent Shareholder, in which case the Purchase Price will be
100% of the Fair Market Value on the date the Restricted Stock Award is granted
or at the time the purchase is consummated. Payment of the Purchase Price must
be made in accordance with Section 7 of this Plan.
6.3 Restrictions. Restricted Stock Awards may be subject to the
------------
restrictions set forth in Section 11 of this Plan or such other restrictions not
inconsistent with Section 25102(o) of the California Corporations Code.
4
<PAGE>
7. PAYMENT FOR SHARE PURCHASES.
---------------------------
7.1 Payment. Payment for Shares purchased pursuant to this Plan may
-------
be made in cash (by check) or, where expressly approved for the Participant by
the Committee and where permitted by law;
(a) by cancellation of indebtedness of the Company to the
Participant;
(b) by surrender of shares that either: (1) have been owned by
Participant for more than six (6) months and have been paid for
within the meaning of SEC Rule 144 (and, if such shares were
purchased from the Company by use of a promissory note, such note
has been fully paid with respect to such shares); or (2) were
obtained by Participant in the public market;
(c) by tender of a full or half recourse promissory note having such
terms as may be approved by the Committee and bearing interest at
a rate sufficient to avoid imputation of income under Sections
483 and 1274 of the Code; provided, however, that Participants
who are not employees or directors of the Company will not be
entitled to purchase Shares with a promissory note unless the
note is adequately secured by collateral other than the Shares.
(d) by waiver of compensation due or accrued to the Participant for
services rendered;
(e) with respect only to purchases upon exercise of an Option, and
provided that a public market for the Company's stock exists:
(1) through a "same day sale" commitment from the Participant
and a broker-dealer that is a member of the National
Association of Securities Dealers (an "NASD DEALER") whereby
the Participant irrevocably elects to exercise the Option
and to sell a portion of the Shares so purchased to pay for
the Exercise Price, and whereby the NASD Dealer irrevocably
commits upon receipt of such Shares to forward the Exercise
Price directly to the Company; or
(2) through a "margin" commitment from the Participant and an
NASD Dealer whereby the Participant irrevocably elects to
exercise the Option and to pledge the Shares so purchased to
the NASD Dealer in a margin account as security for a loan
from the NASD Dealer in the amount of the Exercise Price,
and whereby the NASD Dealer irrevocably commits upon receipt
of such Shares to forward the Exercise Price directly to the
Company; or
(f) by any combination of the foregoing.
7.2 Loan Guarantees. The Committee may help the Participant pay for
---------------
Shares purchased under this Plan by authorizing a guarantee by the Company of a
third-party loan to the Participant.
8. WITHHOLDING TAXES.
-----------------
8.1 Withholding Generally. Whenever Shares are to be issued in
---------------------
satisfaction of Awards granted under this Plan, the Company may require the
Participant to remit to the Company an amount sufficient to satisfy federal,
state and local withholding tax requirements prior to the delivery of any
certificate or certificates for such Shares. Whenever, under this Plan, payments
in satisfaction of Awards are to be made in cash, such payment will be net of an
amount sufficient to satisfy federal, state, and local withholding tax
requirements.
8.2 Stock Withholding. When, under applicable tax laws, a Participant
-----------------
incurs tax liability in connection with the exercise or vesting of any Award
that is subject to tax withholding and the Participant is obligated to pay the
Company the amount required to be withheld, the Committee may in its sole
discretion allow the Participant to satisfy the minimum withholding tax
obligation by electing to have the Company withhold from the
5
<PAGE>
Shares to be issued that number of Shares having a Fair Market Value equal to
the minimum amount required to be withheld, determined on the date that the
amount of tax to be withheld is to be determined. All elections by a Participant
to have Shares withheld for this purpose will be made in accordance with the
requirements established by the Committee for such elections and be in writing
in a form acceptable to the Committee.
9. PRIVILEGES OF STOCK OWNERSHIP.
-----------------------------
9.1 Voting and Dividends. No Participant will have any of the rights
--------------------
of a shareholder with respect to any Shares until the Shares are issued to the
Participant. After Shares are issued to the Participant, the Participant will be
a shareholder and have all the rights of a shareholder with respect to such
Shares, including the right to vote and receive all dividends or other
distributions made or paid with respect to such Shares; provided, that if such
Shares are Restricted Stock, then any new, additional or different securities
the Participant may become entitled to receive with respect to such Shares by
virtue of a stock dividend, stock split or any other change in the corporate or
capital structure of the Company will be subject to the same restrictions as the
Restricted Stock; provided, further, that the Participant will have no right to
retain such stock dividends or stock distributions with respect to Unvested
Shares that are repurchased pursuant to Section 11. The Company will comply with
Section 260.140.1 of Title 10 of the California Code of Regulations with respect
to the voting rights of Common Stock.
9.2 Financial Statements. The Company will provide financial
--------------------
statements to each Participant prior to such Participant's purchase of Shares
under this Plan, and to each Participant annually during the period such
Participant has Awards outstanding, or as otherwise required or permitted under
Section 260.140.46 of Title 10 of the California Code of Regulations.
Notwithstanding the foregoing, the Company will not be required to provide such
financial statements to Participants whose services in connection with the
Company assure them access to equivalent information.
10. TRANSFERABILITY. Awards granted under this Plan, and any interest
---------------
therein, will not be transferable or assignable by Participant, and may not be
made subject to execution, attachment or similar process, otherwise than by will
or by the laws of descent and distribution. During the lifetime of the
Participant an Award will be exercisable only by the Participant, and any
elections with respect to an Award, may be made only by the Participant.
11. RESTRICTIONS ON SHARES.
----------------------
11.1 Right of First Refusal. At the discretion of the Committee, the
----------------------
Company may reserve to itself and/or its assignee(s) in the Award Agreement a
right of first refusal to purchase all Shares that a Participant (or a
subsequent transferee) may propose to transfer to a third party, unless
otherwise not permitted by Section 25102(o) of the California Corporations Code,
provided, that such right of first refusal terminates upon the Company's initial
- --------
public offering of Common Stock pursuant an effective registration statement
filed under the Securities Act.
11.2 Right of Repurchase. At the discretion of the Committee, the
-------------------
Company may reserve to itself and/or its assignee(s) in the Award Agreement a
right to repurchase Unvested Shares held by a Participant for cash and/or
cancellation of purchase money indebtedness following such Participant's
Termination at any time within the later of ninety (90) days after the
Participant's Termination Date and the date the Participant purchases Shares
under the Plan at the Participant's Exercise Price or Purchase Price, as the
case may be, provided, that unless the Participant is an officer, director or
--------
consultant of the Company or of a Parent or Subsidiary of the Company, such
right of repurchase lapses at the rate of at least twenty percent (20%) per year
over five (5) years from: (A) the date of grant of the Option or (B) in the case
of Restricted Stock, the date the Participant purchases the Shares.
12. CERTIFICATES. All certificates for Shares or other securities
------------
delivered under this Plan will be subject to such stock transfer orders, legends
and other restrictions as the Committee may deem necessary or advisable,
including restrictions under any applicable federal, state or foreign securities
law, or any rules, regulations and other requirements of the SEC or any stock
exchange or automated quotation system upon which the Shares may be listed or
quoted.
6
<PAGE>
13. ESCROW: PLEDGE OF SHARES. To enforce any restrictions on a
------------------------
Participant's Shares, the Committee may require the Participant to deposit all
certificates representing Shares, together with stock powers or other
instruments of transfer approved by the Committee, appropriately endorsed in
blank, with the Company or an agent designated by the Company to hold in escrow
until such restrictions have lapsed or terminated, and the Committee may cause a
legend or legends referencing such restrictions to be placed on the
certificates. Any Participant who is permitted to execute a promissory note as
partial or full consideration for the purchase of Shares under this Plan will be
required to pledge and deposit with the Company all or part of the Shares so
purchased as collateral to secure the payment of Participant's obligation to the
Company under the promissory note; provided, however, that the Committee may
-------- -------
require or accept other or additional forms of collateral to secure the payment
of such obligation and, in any event, the Company will have full recourse
against the Participant under the promissory note notwithstanding any pledge of
the Participant's Shares or other collateral. In connection with any pledge of
the Shares, Participant will be required to execute and deliver a written pledge
agreement in such form as the Committee will from time to time approve. The
Shares purchased with the promissory note may be released from the pledge on a
pro rata basis as the promissory note is paid.
14. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any time or from
-----------------------------
time to time, authorize the Company, with the consent of the respective
Participants, to issue new Awards in exchange for the surrender and cancellation
of any or all outstanding Awards. The Committee may at any time buy from a
Participant an Award previously granted with payment in cash, shares of Common
Stock of the Company (including restricted stock) or other consideration, based
on such terms and conditions as the Committee and the Participant may agree.
15. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. This Plan is intended
----------------------------------------------
to comply with Section 25102(o) of the California Corporations Code. Any
provision of this Plan which is inconsistent with Section 25102(o) shall,
without further act or amendment by the Company or the Board, be reformed to
comply with the requirements of Section 25102(o). An Award will not be effective
unless such Award is in compliance with all applicable federal and state
securities laws, rules and regulations of any governmental body, and the
requirements of any stock exchange or automated quotation system upon which the
Shares may then be listed or quoted, as they are in effect on the date of grant
of the Award and also on the date of exercise or other issuance. Notwithstanding
any other provision in this Plan, the Company will have no obligation to issue
or deliver certificates for Shares under this Plan prior to (a) obtaining any
approvals from governmental agencies that the Company determines are necessary
or advisable, and/or (b) compliance with any exemption, completion of any
registration or other qualification of such Shares under any state or federal
law or ruling of any governmental body that the Company determines to be
necessary or advisable. The Company will be under no obligation to register the
Shares with the SEC or to effect compliance with the exemption, registration,
qualification or listing requirements of any state securities laws, stock
exchange or automated quotation system, and the Company will have no liability
for any inability or failure to do so.
16. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Award granted
-----------------------
under this Plan will confer or be deemed to confer on any Participant any right
to continue in the employ of, or to continue any other relationship with, the
Company or any Parent or Subsidiary of the Company or limit in any way the right
of the Company or any Parent or Subsidiary of the Company to terminate
Participant's employment or other relationship at any time, with or without
Cause.
17. CORPORATE TRANSACTIONS.
----------------------
17.1 Assumption or Replacement of Awards by Successor. In the event of
------------------------------------------------
(a) a dissolution or liquidation of the Company, (b) a merger or consolidation
in which the Company is not the surviving corporation (other than a merger or
----- ----
consolidation with a wholly-owned subsidiary, a reincorporation of the Company
in a different jurisdiction, or other transaction in which there is no
substantial change in the shareholders of the Company or their relative stock
holdings and the Awards granted under this Plan are assumed, converted or
replaced by the successor corporation, which assumption, conversion or
replacement will be binding on all Participants), (c) a merger in which the
Company is the surviving corporation but after which the shareholders of the
Company immediately prior to such merger (other than any shareholder which
merges with the Company in such merger, or which owns or controls another
corporation which merges, with the Company in such merger) cease to own their
7
<PAGE>
shares or other equity interests in the Company, or (d) the sale of all or
substantially all of the assets of the Company, any or all outstanding Awards
may be assumed, converted or replaced by the successor corporation (if any),
which assumption, conversion or replacement will be binding on all Participants.
In the alternative, the successor corporation may substitute equivalent Awards
or provide substantially similar consideration to Participants as was provided
to shareholders (after taking into account the existing provisions of the
Awards). The successor corporation may also issue, in place of outstanding
Shares of the Company held by the Participant, substantially similar shares or
other property subject to repurchase restrictions and other provisions no less
favorable to the Participant than those which applied to such outstanding Shares
immediately prior to such transaction described in this Subsection 17.1. In the
event such successor corporation (if any) refuses to assume or substitute
Awards, as provided above, pursuant to a transaction described in this
Subsection 17.1, then notwithstanding any other provision in this Plan to the
contrary, such Awards will expire on such transaction at such time and on such
conditions as the Board will determine.
17.2 Other Treatment of Awards. Subject to any greater rights granted
-------------------------
to Participants under the foregoing provisions of this Section 17, in the event
of the occurrence of any transaction described in Section 17.1, any outstanding
Awards will be treated as provided in the applicable agreement or plan of
merger, consolidation, dissolution, liquidation or sale of assets.
17.3 Assumption of Awards by the Company. The Company, from time to
-----------------------------------
time, also may substitute or assume outstanding awards granted by another
company, whether in connection with an acquisition of such other company or
otherwise, by either (a) granting an Award under this Plan in substitution of
such other company's award or (b) assuming such award as if it had been granted
under this Plan if the terms of such assumed award could be applied to an Award
granted under this Plan. Such substitution or assumption will be permissible if
the holder of the substituted or assumed award would have been eligible to be
granted an Award under this Plan if the other company had applied the rules of
this Plan to such grant. In the event the Company assumes an award granted by
another company, the terms and conditions of such award will remain unchanged
(except that the exercise price and the number and nature of shares issuable
------
upon exercise of any such option will be adjusted appropriately pursuant to
Section 424(a) of the Code). In the event the Company elects to grant a new
Option rather than assuming an existing option, such new Option may be granted
with a similarly adjusted Exercise Price.
18. ADOPTION AND SHAREHOLDER APPROVAL. This Plan will become effective on
---------------------------------
the date that it is adopted by the Board (the "EFFECTIVE DATE"). This Plan will
be approved by the shareholders of the Company (excluding Shares issued pursuant
to this Plan), consistent with applicable laws, within twelve (12) months before
or after the Effective Date. Upon the Effective Date, the Board may grant Awards
pursuant to this Plan; provided, however, that no Option may be exercised prior
-------- -------
to shareholder approval of this Plan. In the event that initial shareholder
approval is not obtained within twelve (12) months before or after the date this
Plan is adopted by the Board, all Awards granted hereunder will be canceled, any
Shares issued pursuant to any Award will be canceled and any purchase of Shares
hereunder will be rescinded.
19. TERM OF PLAN/GOVERNING LAW. Unless earlier terminated as provided
--------------------------
herein, this Plan will terminate ten (10) years from the Effective Date or, if
earlier, the date of shareholder approval. This Plan and all agreements
hereunder shall be governed by and construed in accordance with the laws of the
State of California.
20. AMENDMENT OR TERMINATION OF PLAN. Subject to Section 5.9, the Board
--------------------------------
may at any time terminate or amend this Plan in any respect, including without
limitation amendment of any form of Award Agreement or instrument to be executed
pursuant to this Plan; provided, however, that the Board will not, without the
-------- -------
approval of the shareholders of the Company, amend this Plan in any manner that
requires such shareholder approval pursuant to Section 25102(o) of the
California Corporations Code or the Code or the regulations promulgated
thereunder as such provisions apply to ISO plans.
21. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of this Plan by the
--------------------------
Board, the submission of this Plan to the shareholders of the Company for
approval, nor any provision of this Plan will be construed as creating any
limitations on the power of the Board to adopt such additional compensation
arrangements as it may deem desirable, including, without limitation, the
granting of stock options and other equity awards
8
<PAGE>
otherwise than under this Plan, and such arrangements may be either generally
applicable or applicable only in specific cases.
22. DEFINITIONS. As used in this Plan, the following terms will have the
-----------
following meanings:
"AWARD" means any award under this Plan, including any Option or
Restricted Stock Award.
"AWARD AGREEMENT" means, with respect to each Award, the signed
written agreement between the Company and the Participant setting forth the
terms and conditions of the Award.
"BOARD" means the Board of Directors of the Company.
"CAUSE" means Termination because of (i) any willful material
violation by the Participant of any law or regulation applicable to the business
of the Company or a Parent or Subsidiary of the Company, the Participant's
conviction for, or guilty plea to, a felony or a crime involving moral
turpitude, any willful perpetration by the Participant of a common law fraud,
(ii) the Participant's commission of an act of personal dishonesty which
involves personal profit in connection with the Company or any other entity
having a business relationship with the Company, (iii) any material breach by
the Participant of any provision of any agreement or understanding between the
Company or any Parent or Subsidiary of the Company and the Participant regarding
the terms of the Participant's service as an employee, director or consultant to
the Company or a Parent or Subsidiary of the Company, including without
limitation, the willful and continued failure or refusal of the Participant to
perform the material duties required of such Participant as an employee,
director or consultant of the Company or a Parent or Subsidiary of the Company,
other than as a result of having a Disability, or a breach of any applicable
invention assignment and confidentiality agreement or similar agreement between
the Company and the Participant, (iv) Participant's disregard of the policies of
the Company or any Parent or Subsidiary of the Company so as to cause loss,
damage or injury to the property, reputation or employees of the Company or a
Parent or Subsidiary of the Company, or (v) any other misconduct by the
Participant which is materially injurious to the financial condition or business
reputation of, or is otherwise materially injurious to, the Company or a Parent
or Subsidiary of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means the committee appointed by the Board to administer
this Plan, or if no committee is appointed, the Board.
"COMPANY" means E-Tek Dynamics, Inc., or any successor corporation.
"DISABILITY" means a disability, whether temporary or permanent,
partial or total, as determined by the Committee.
"EXERCISE PRICE" means the price at which a holder of an Option may
purchase the Shares issuable upon exercise of the Option.
"FAIR MARKET VALUE" means, as of any date, the value of a share of the
Company's Common Stock determined as follows:
(a) if such Common Stock is then quoted on the Nasdaq National
Market, its closing price on the Nasdaq National Market on the
date of determination as reported in The Wall Street Journal;
-----------------------
(b) if such Common Stock is publicly traded and is then listed on a
national securities exchange, its closing price on the date of
determination on the principal national securities exchange on
which the Common Stock is listed or admitted to trading as
reported in The Wall Street Journal;
-----------------------
9
<PAGE>
(c) if such Common Stock is publicly traded but is not quoted on the
Nasdaq National Market nor listed or admitted to trading on a
national securities exchange, the average of the closing bid and
asked prices on the date of determination as reported by The Wall
--------
Street Journal (or, if not so reported, as otherwise reported by
--------------
any newspaper or other source as the Board may determine); or
(d) if none of the foregoing is applicable, by the Committee in good
faith.
"OPTION" means an award of an option to purchase Shares pursuant to
Section 5.
"PARENT" means any corporation (other than the Company) in an unbroken
chain of corporations ending with the Company if each of such corporations other
than the Company owns stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations in such chain.
"PARTICIPANT" means a person who receives an Award under this Plan.
"PLAN" means this E-Tek Dynamics, Inc. 1997 Equity Incentive Plan, as
amended from time to time.
"PURCHASE PRICE" the price at which a Participant may purchase
Restricted Stock.
"RESTRICTED STOCK" means Shares purchased pursuant to a Restricted
Stock Award.
"RESTRICTED STOCK AWARD" means an award of Shares pursuant to Section
6.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHARES" means shares of the Company's Common Stock reserved for
issuance under this Plan, as adjusted pursuant to Sections 2 and 17, and any
successor security.
"SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
"TERMINATION" or "TERMINATED" means, for purposes of this Plan with
respect to a Participant, that the Participant has for any reason ceased to
provide services as an employee, officer, director or consultant to the Company
or a Parent or Subsidiary of the Company. A Participant will not be deemed to
have ceased to provide services in the case of (i) sick leave, (ii) military
leave, or (iii) any other leave of absence approved by the Committee, provided
that such leave is for a period of not more than ninety (90) days unless
reinstatement (or, in the case of an employee with an ISO, reemployment) upon
the expiration of such leave is guaranteed by contract or statute, or unless
provided otherwise pursuant to formal policy adopted from time to time by the
Company and issued and promulgated in writing. In the case of any participant on
(i) sick leave, (ii) military leave or (iii) on an approved leave of absence,
the Committee may make such provisions respecting suspension of vesting of the
Award while on leave from the Company or a Parent or Subsidiary of the Company
as it may deem appropriate, except that in no event may an Option be exercised
after the expiration of the term set forth in the Stock Option Agreement. The
Committee will have sole discretion to determine whether a Participant has
ceased to provide services and the effective date on which the Participant
ceased to provide services (the "TERMINATION DATE").
"UNVESTED SHARES" means "Unvested Shares" as defined in the Award
Agreement.
"VESTED SHARES" means "Vested Shares" as defined in the Award
Agreement.
10
<PAGE>
E-TEK DYNAMICS, INC.
1997 EQUITY INCENTIVE PLAN
RESTRICTED STOCK PURCHASE AGREEMENT
This Restricted Stock Purchase Agreement ("AGREEMENT") is made and entered
into as of ______________, 1997 (the "EFFECTIVE DATE") by and between E-Tek
Dynamics, Inc., a California corporation (the "COMPANY"), and the purchaser
named below (the "PURCHASER"). Capitalized terms not defined herein shall have
the meanings ascribed to them in the Company's 1997 Equity Incentive Plan (the
"PLAN").
PURCHASER:
SOCIAL SECURITY NUMBER:
ADDRESS:
TOTAL NUMBER OF SHARES:
PURCHASE PRICE PER SHARE:
TOTAL PURCHASE PRICE:
1. PURCHASE OF SHARES.
------------------
1.1 PURCHASE OF SHARES. On the Effective Date and subject to the
------------------
terms and conditions of this Agreement and the Plan, Purchaser hereby purchases
from the Company, and the Company hereby sells to Purchaser, the Total Number of
Shares set forth above of the Company's Common Stock at the Purchase Price Per
Share as set forth above (the "PURCHASE PRICE PER SHARE") for a Total Purchase
Price as set forth above (the "PURCHASE PRICE"). As used in this Agreement, the
term "SHARES" refers to the Shares purchased under this Agreement and includes
all securities received (a) in replacement of the Shares, (b) as a result of
stock dividends or stock splits in respect of the Shares, and (c) in replacement
of the Shares in a merger, recapitalization, reorganization or similar corporate
transaction.
1.2 TITLE TO SHARES. The exact spelling of the name(s) under which
---------------
Purchaser will take title to the Shares is:
__________________________________________________
__________________________________________________
Purchaser desires to take title to the Shares as follows:
[ ] Individual, as separate property
[ ] Husband and wife, as community property
[ ] Joint Tenants
[ ] Alone or with spouse as trustee(s) of the following trust (including
date):
__________________________________________________
__________________________________________________
[ ] Other; please specify: ___________________________________________
____________________________________________________________
<PAGE>
1.3 PAYMENT. Purchaser hereby delivers payment of the Purchase Price
-------
as follows (check and complete as appropriate):
[ ] in cash (by check) in the amount of $_____________, receipt of which
is acknowledged by the Company;
[ ] by tender of a Secured Half Recourse Promissory Note in the principal
amount of $_____________, having such terms as may be approved by the
Committee and bearing interest at a rate sufficient to avoid
imputation of income under Sections 483 and 1274 of the Code and
secured by a Pledge Agreement herewith; provided, however, that
Participants who are not employees or directors of the Company shall
not be entitled to purchase Shares with a promissory note unless the
note is adequately secured by collateral other than the Shares.
2. DELIVERY.
--------
2.1 DELIVERIES BY PURCHASER. Purchaser hereby delivers to the Company
-----------------------
(i) this Agreement, (ii) two (2) copies of a blank Stock Power and Assignment
Separate from Stock Certificate in the form of Exhibit 1 attached hereto (the
---------
"STOCK POWERS"), both executed by Purchaser (and Purchaser's spouse, if any),
and (iii) the Purchase Price by delivery of a check and/or a Secured Half
Recourse Promissory Note in the form of Exhibit 3 and (iv) a Stock Pledge
---------
Agreement in the form of Exhibit 4, executed by Purchaser (the "PLEDGE
---------
AGREEMENT").
2.2 DELIVERIES BY THE COMPANY. Upon its receipt of the Purchase Price
-------------------------
and all the documents to be executed and delivered by Purchaser to the Company
under Section 2.1, the Company will issue a duly executed stock certificate
evidencing the Shares in the name of Purchaser, to be placed in escrow as
provided in Section 11 until expiration or termination of the Company's
Repurchase Option and Right of First Refusal described in Sections 8 and 9;
provided, however, that the Shares will be retained in escrow so long as they
- -------- -------
are subject to the Pledge Agreement, if applicable.
3. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser represents and
-------------------------------------------
warrants to the Company that:
3.1 AGREES TO TERMS OF THE PLAN AND THIS AGREEMENT. Purchaser has
----------------------------------------------
received a copy of the Plan and this Agreement, has read and understands the
terms of the Plan and this Agreement, and agrees to be bound by their terms and
conditions. Purchaser acknowledges that there may be adverse tax consequences
upon purchase and disposition of the Shares, and that Purchaser should consult a
tax adviser prior to such purchase or disposition.
3.2 PURCHASE FOR OWN ACCOUNT FOR INVESTMENT. Purchaser is purchasing
---------------------------------------
the Shares for Purchaser's own account for investment purposes only and not with
a view to, or for sale in connection with, a distribution of the Shares within
the meaning of the Securities Act. Purchaser has no present intention of selling
or otherwise disposing of all or any portion of the Shares and no one other than
Purchaser has any beneficial ownership of any of the Shares.
3.3 ACCESS TO INFORMATION. Purchaser has had access to all
---------------------
information regarding the Company and its present and prospective business,
assets, liabilities and financial condition that Purchaser reasonably considers
important in making the decision to purchase the Shares, and Purchaser has had
ample opportunity to ask questions of the Company's representatives concerning
such matters and this investment.
3.4 UNDERSTANDING OF RISKS. Purchaser is fully aware of: (i) the
----------------------
highly speculative nature of the investment in the Shares; (ii) the financial
hazards involved; (iii) the lack of liquidity of the Shares and the restrictions
on transferability of the Shares (e.g., that Purchaser may not be able to sell
---
or dispose of the Shares or use them as collateral for loans); (iv) the
qualifications and backgrounds of the management of the Company; and (v) the tax
consequences of investment in the Shares Purchaser is capable of evaluating the
merits and risks of this
-2-
<PAGE>
investment, has the ability to protect Purchaser's own interests in this
transaction and is financially capable of bearing a total loss of this
investment.
3.5 NO GENERAL SOLICITATION. At no time was Purchaser presented with
-----------------------
or solicited by any publicly issued or circulated newspaper, mail, radio,
television or other form of general advertising or solicitation in connection
with the offer, sale and purchase of the Shares.
4. COMPLIANCE WITH SECURITIES LAWS.
-------------------------------
4.1 COMPLIANCE WITH FEDERAL SECURITIES LAWS. Purchaser understands
---------------------------------------
and acknowledges that the Shares have not been registered with the SEC under the
Securities Act and that, notwithstanding any other provision of this Agreement
to the contrary, the exercise of any rights to purchase any Shares is expressly
conditioned upon compliance with the Securities Act and all applicable state
securities laws. Purchaser agrees to cooperate with the Company to ensure
compliance with such laws. The Shares are being issued under the Securities Act
pursuant to the exemption provided by SEC Rule 701.
4.2 COMPLIANCE WITH CALIFORNIA SECURITIES LAWS. THE PLAN AND THIS
------------------------------------------
AGREEMENT ARE INTENDED TO COMPLY WITH SECTION 25102(o) OF THE CALIFORNIA
CORPORATIONS CODE. ANY PROVISION OF THIS AGREEMENT WHICH IS INCONSISTENT WITH
SECTION 25102(o) SHALL, WITHOUT FURTHER ACT OR AMENDMENT BY THE COMPANY OR THE
BOARD, BE REFORMED TO COMPLY WITH THE REQUIREMENTS OF SECTION 25102(o). THE SALE
OF THE SECURITIES THAT ARE THE SUBJECT OF THIS AGREEMENT, IF NOT YET QUALIFIED
WITH THE CALIFORNIA COMMISSIONER OF CORPORATIONS AND NOT EXEMPT FROM SUCH
QUALIFICATION, IS SUBJECT TO SUCH QUALIFICATION, AND THE ISSUANCE OF SUCH
SECURITIES, AND THE RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO
SUCH QUALIFICATION IS UNLAWFUL UNLESS THE SALE IS EXEMPT. THE RIGHTS OF THE
PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION
BEING OBTAINED OR AN EXEMPTION BEING AVAILABLE.
5. RESTRICTED SECURITIES.
---------------------
5.1 NO TRANSFERS UNLESS REGISTERED OR EXEMPT. Purchaser understands
----------------------------------------
that Purchaser may not transfer any Shares unless such Shares are registered
under the Securities Act and qualified under applicable state securities laws or
unless, in the opinion of counsel to the Company, exemptions from such
registration and qualification requirements are available. Purchaser understands
that only the Company may file a registration statement with the SEC and that
the Company is under no obligation to do so with respect to the Shares.
Purchaser has also been advised that exemptions from registration and
qualification may not be available or may not permit Purchaser to transfer all
or any of the Shares in the amounts or at the times proposed by Purchaser.
5.2 SEC RULE 144. In addition, Purchaser has been advised that SEC
------------
Rule 144 promulgated under the Securities Act, which permits certain limited
sales of unregistered securities, is not presently available with respect to the
Shares and, in any event, requires that the Shares be held for a minimum of one
(1) year, and in certain cases two (2) years, after they have been purchased and
---
paid for (within the meaning of Rule 144), before they may be resold under Rule
- --------
144. Purchaser understands that Shares paid for with a promissory note may not
be deemed to be fully "paid for" within the meaning of Rule 144 unless certain
conditions are met and that, accordingly, the Rule 144 holding period of such
Shares may not begin to run until such Shares are fully paid for within the
meaning of Rule 144. Purchaser understands that Rule 144 may indefinitely
restrict transfer of the Shares so long as Purchaser remains an "affiliate" of
the Company or if "current public information" about the Company (as defined in
Rule 144) is not publicly available.
5.3 SEC RULE 701. The Shares are issued pursuant to SEC Rule 701
------------
promulgated under the Securities Act and may become freely tradeable by non-
affiliates (under limited conditions regarding the method of sale) ninety (90)
days after the first sale of Common Stock of the Company to the general public
pursuant
-3-
<PAGE>
to a registration statement filed with and declared effective by the SEC,
subject to the lengthier market standoff agreement contained in Section 7 of
this Agreement or any other agreement entered into by Purchaser. Affiliates must
comply with the provisions (other than the holding period requirements) of Rule
144.
6. RESTRICTIONS ON TRANSFERS.
-------------------------
6.1 DISPOSITION OF SHARES. Purchaser hereby agrees that Purchaser
---------------------
will make no disposition of the Shares (other than a permitted transfer under
Section 9.6) unless and until:
(a) Purchaser has notified the Company of the proposed
disposition and provided a written summary of the terms and conditions of the
proposed disposition;
(b) Purchaser has complied with all requirements of this
Agreement applicable to the disposition of the Shares;
(c) Purchaser has provided the Company with written assurances,
in form and substance satisfactory to counsel for the Company, that (i) the
proposed disposition does not require registration of the Shares under the
Securities Act, or (ii) all appropriate action necessary for compliance with the
registration requirements of the Securities Act or of any exemption from
registration available under the Securities Act (including Rule 144) has been
taken; and
(d) Purchaser has provided the Company with written assurances,
in form and substance satisfactory to the Company, that the proposed disposition
will not result in the contravention of any transfer restrictions applicable to
the Shares pursuant to the provisions of the Commissioner Rules identified in
Section 4.2.
6.2 RESTRICTION ON TRANSFER. Purchaser shall not transfer, assign,
-----------------------
grant a lien or security interest in, pledge, hypothecate, encumber or otherwise
dispose of any of the Shares which are subject to the Company's Repurchase
Option or the Company's Right of First Refusal, except as permitted by this
Agreement.
6.3 TRANSFEREE OBLIGATIONS. Each person (other than the Company) to
----------------------
whom the Shares are transferred by means of one of the permitted transfers
specified in this Agreement must, as a condition precedent to the validity of
such transfer, acknowledge in writing to the Company that such person is bound
by the provisions of this Agreement and that the transferred Shares are subject
to (i) the Company's Right of First Refusal granted hereunder and (ii) the
market stand-off provisions of Section 7, to the same extent such shares would
be so subject if retained by the Purchaser.
7. MARKET STANDOFF AGREEMENT. Purchaser agrees in connection with any
-------------------------
registration of the Company's securities that, upon the request of the Company
or the underwriters managing any registered public offering of the Company's
securities. Purchaser will not sell or otherwise dispose of any Shares without
the prior written consent of the Company or such managing underwriters, as the
case may be, for a period of time (not to exceed 180 days) after the effective
date of such registration requested by such managing underwriters and subject to
all restrictions as the Company or the managing underwriters may specify.
8. COMPANY'S REPURCHASE OPTION FOR UNVESTED SHARES. The Company, or its
-----------------------------------------------
assignee, shall have the option to repurchase the Purchaser's Unvested Shares
(as defined in Section 8.2 below) on the terms and conditions set forth in this
Section (the "REPURCHASE OPTION") if Purchaser is Terminated (as defined in the
Plan) for any reason, or no reason, including without limitation Purchaser's
death, Disability (as defined in the Plan), voluntary registration or
termination by the Company with or without Cause.
8.1 TERMINATION AND TERMINATION DATE. In case of any dispute as to
--------------------------------
whether Purchaser is Terminated, the Committee shall have sole discretion to
determine whether Purchaser has been Terminated and the effective date of such
Termination (the "TERMINATION DATE").
-4-
<PAGE>
8.2 UNVESTED AND VESTED SHARES. Shares that are vested pursuant to
--------------------------
the schedule set forth in this Section 8.2 are "VESTED SHARES." Shares that are
not vested pursuant to the schedule set forth in this Section 8.2 are "UNVESTED
SHARES." Unvested Shares may not be sold or otherwise transferred by Purchaser
without the Company's prior written consent. On the Effective Date all of the
Shares will be Unvested Shares. Provided that Purchaser continues to provide
services to the Company or to any parent or Subsidiary of the Company at all
times from the Effective Date until September 1, 1997, (the "FIRST VESTING
DATE"), then on the First Vesting Date one forty-eighth (1/48) of the Shares
will become Vested Shares; and thereafter, for so long (and only for so long) as
Purchaser continuously provides services to the Company or to any parent or
Subsidiary of the Company at all times after the First Vesting Date, an
additional one forty-eighth (1/48) of the Shares will become Vested Shares at
the end of each full succeeding month elapsed after the First Vesting Date until
the Shares are vested with respect to one hundred percent (100%) of the Shares;
provided that, to the extent Purchaser is not an officer, director or consultant
of the Company or of a Parent or Subsidiary of the Company, the Shares will vest
at least as rapidly as the rate of twenty percent (20%) for each of five (5)
full years following the Effective Date. If application of the vesting
percentage causes a fractional share, such share shall be rounded down to the
nearest whole share. No Shares will become Vested Shares after the Termination
Date. The number of Shares that are Vested Shares or Unvested Shares will be
proportionally adjusted for any stock split or similar change in the capital
structure of the Company as set forth in Section 2.2 of the Plan.
8.3 EXERCISE OF REPURCHASE OPTION. At any time within ninety (90)
-----------------------------
days after the Termination Date, the Company, or its assignee(s), may elect to
repurchase the Purchaser's Unvested Shares by giving Purchaser written notice of
exercise of the Repurchase Option.
8.4 CALCULATION OF REPURCHASE PRICE. The Company or its assignee(s)
-------------------------------
shall have the option to repurchase from Purchaser (or from Purchaser's personal
representative as the case may be) the Purchaser's Unvested Shares at the
Purchaser's original Purchase Price Per Share (as adjusted to reflect any stock
split or similar change in the capital structure of the Company as set forth in
Section 2.2 of the Plan).
8.5 PAYMENT OF REPURCHASE PRICE. The repurchase price shall be
---------------------------
payable, at the option of the Company or its assignee(s), by check or by
cancellation of all or a portion of any outstanding indebtedness of Purchaser to
the Company, or such assignee, or by any combination thereof. The repurchase
price shall be paid without interest within sixty (60) days after exercise of
the Repurchase Option.
8.6 RIGHT OF TERMINATION UNAFFECTED. Nothing in this Agreement shall
-------------------------------
be construed to limit or otherwise affect in any manner whatsoever the right or
power of the Company (or any Parent or Subsidiary of the Company) to terminate
Purchaser's employment or other relationship with the Company (or any Parent or
Subsidiary of the Company) at any time for any reason or no reason, with or
without Cause.
9. COMPANY'S RIGHT OF FIRST REFUSAL. Unvested Shares may not be sold or
--------------------------------
otherwise transferred by Purchaser without the Company's prior written consent.
Before any Vested Shares held by Purchaser or any transferee of such Vested
Shares (either being sometimes referred to herein as the "HOLDER") may be sold
or otherwise transferred (including without limitation a transfer by gift or
operation of law), the Company and/or its assignee(s) shall have an assignable
right of first refusal to purchase the Vested Shares to be sold or transferred
(the "OFFERED SHARES") on the terms and conditions set forth in this Section
(the "RIGHT OF FIRST REFUSAL").
9.1 NOTICE OF PROPOSED TRANSFER. The Holder of the Shares shall
---------------------------
deliver to the Company a written notice (the "NOTICE") stating: (i) the Holder's
bona fide intention to sell or otherwise transfer the Offered Shares; (ii) the
name of each proposed bona fide purchaser or other transferee ("PROPOSED
TRANSFEREE"); (iii) the number of Offered Shares to be transferred to each
Proposed Transferee; (iv) the bona fide cash price or other consideration for
which the Holder proposes to transfer the Offered Shares (the "OFFERED PRICE");
and (v) that the Holder will offer to sell the Offered Shares to the Company
and/or its assignee(s) at the Offered Price as provided in this Section.
9.2 EXERCISE OF RIGHT OF FIRST REFUSAL. At any time within thirty
----------------------------------
(30) days after the date of the Notice, the Company and/or its assignee(s) may,
by giving written notice to the Holder, elect to purchase
-5-
<PAGE>
the Offered Shares proposed to be transferred to any one or more of the Proposed
Transferees named in the Notice, at the purchase price determined in accordance
with Section 9.3 below.
9.3 PURCHASE PRICE. The purchase price for the Offered Shares
--------------
purchased under this Section will be equal to the Offered Price. If the Offered
Price includes consideration other than cash, then the cash equivalent value of
the non-cash consideration shall conclusively be deemed to be the value of such
non-cash consideration as determined in good faith by the Company's Board of
Directors.
9.4 PAYMENT. Payment of the purchase price for the Offered Shares
-------
will be payable, at the option of the Company and/or its assignee(s) (as
applicable), by check or by cancellation of all or a portion of any outstanding
indebtedness of the Holder to the Company (or to such assignee, in the case of a
purchase of Offered Shares by such assignee) or by any combination thereof. The
purchase price will be paid without interest within sixty (60) days after the
Company's receipt of the Notice, or, at the option of the Company and/or its
assignee(s), in the manner and at the time(s) set forth in the Notice.
9.5 HOLDER'S RIGHT TO TRANSFER. If all of the Offered Shares proposed
--------------------------
in the Notice to be transferred to a given Proposed Transferee are not purchased
by the Company and/or its assignee(s) as provided in this Section, then the
Holder may sell or otherwise transfer such Offered Shares to that Proposed
Transferee at the Offered Price or at a higher price, provided that such sale or
--------
other transfer is consummated within one hundred twenty (120) days after the
date of the Notice, and provided further, that (i) any such sale or other
-------- -------
transfer is effected in compliance with all applicable securities laws and (ii)
the Proposed Transferee agrees in writing that the provisions of this Section
will continue to apply to the Offered Shares in the hands of such Proposed
Transferee. If the Offered Shares described in the Notice are not transferred to
the Proposed Transferee within such one hundred twenty (120) day period, then a
new Notice must be given to the Company, and the Company will again be offered
the Right of First Refusal before any Shares held by the Holder may be sold or
otherwise transferred.
9.6 EXEMPT TRANSFERS. Notwithstanding anything to the contrary in
----------------
this Section, the following transfers of Vested Shares will be exempt from the
Right of First Refusal: (i) the transfer of any or all of the Vested Shares
during Purchaser's lifetime by gift or on Purchaser's death by will or intestacy
to Purchaser's "immediate family" (as defined below) or to a trust for the
benefit of Purchaser or Purchaser's immediate family, provided that each
transferee or other recipient agrees in a writing satisfactory to the Company
that the provisions of this Section will continue to apply to the transferred
Vested Shares in the hands of such transferee or other recipient; (ii) any
transfer of Vested Shares made pursuant to a statutory merger or statutory
consolidation of the Company with or into another corporation or corporations
(except that the Right of First Refusal will continue to apply thereafter to
such Vested Shares, in which case the surviving corporation of such merger or
consolidation shall succeed to the rights of the Company under this Section
unless the agreement of merger or consolidation expressly otherwise provides);
or (iii) any transfer of Vested Shares pursuant to the winding up and
dissolution of the Company. As used herein, the term "IMMEDIATE FAMILY" will
mean Purchaser's spouse, the lineal descendant or antecedent, father, mother,
brother or sister, child, adopted child, grandchild or adopted grandchild of
Purchaser or Purchaser's spouse, or the spouse of any child, adopted child,
grandchild or adopted grandchild of Purchaser or Purchaser's spouse.
9.7 TERMINATION OF RIGHT OF FIRST REFUSAL. The Right of First Refusal
-------------------------------------
will terminate as to all Shares on the effective date of the first sale of
Common Stock of the Company to the general public pursuant to a registration
statement filed with and declared effective by the SEC under the Securities Act
(other than a registration statement relating solely to the issuance of Common
Stock pursuant to a business combination or an employee incentive or benefit
plan).
10. RIGHTS AS SHAREHOLDER. Subject to the terms and conditions of this
---------------------
Agreement, Purchaser will have all of the rights of a shareholder of the Company
with respect to the Shares from and after the date that the Shares are issued to
Purchaser until such time as Purchaser disposes of the Shares or the Company
and/or its assignee(s) exercise(s) the Repurchase Option or Right of First
Refusal. Upon an exercise of the Repurchase Option or the Right of First
Refusal, Purchaser will have no further rights as a holder of the Shares so
purchased upon such exercise, except the right to receive payment for the Shares
so purchased in accordance with the provisions of this
-6-
<PAGE>
Agreement, and Purchaser will promptly surrender the stock certificate(s)
evidencing the Shares so purchased to the Company for transfer or cancellation.
11. ESCROW. As security for Purchaser's faithful performance of this
------
Agreement, Purchaser agrees, immediately upon receipt of the stock
certificate(s) evidencing the Shares, to deliver such certificate(s), together
with the Stock Powers executed by Purchaser and by Purchaser's spouse, if any
(with the date and number of Shares left blank), to the Secretary of the Company
or other designee of the Company ("ESCROW HOLDER"), who is hereby appointed to
hold such certificate(s) and Stock Powers in escrow and to take all such actions
and to effectuate all such transfers and/or release of such Shares as are in
accordance with the terms of this Agreement. Purchaser and the Company agree
that Escrow Holder will not be liable to any party to this Agreement (or to any
other party) for any actions or omissions unless Escrow Holder is grossly
negligent or intentionally fraudulent in carrying out the duties of Escrow
Holder under this Agreement. Escrow Holder may rely upon any letter, notice or
other document executed by any signature purported to be genuine and may rely on
the advice of counsel and obey any order of any court with respect to the
transactions contemplated by this Agreement. The Shares will be released from
escrow upon termination of both the Repurchase Option and the Right of First
Refusal; provided, however, that the Shares will be retained in escrow so long
-------- -------
as they are subject to the Pledge Agreement.
12. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS.
--------------------------------------------
12.1 LEGENDS. Purchaser understands and agrees that the Company will
-------
place the legends set forth below or similar legends on any stock certificate(s)
evidencing the Shares, together with any other legends that may be required by
state or federal securities laws, the Company's Articles of Incorporation or
Bylaws, any other agreement between Purchaser and the Company or any agreement
between Purchaser and any third party:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER THE
SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR
RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND APPLICABLE STATE
SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS
SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF
THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE
SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE
SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR
RESALE IS IN COMPLIANCE WITH THE SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAWS.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON PUBLIC RESALE AND TRANSFER, RIGHT OF REPURCHASE AND RIGHT
OF FIRST REFUSAL OPTIONS HELD BY THE ISSUER AND/OR ITS ASSIGNEE(S) AS SET
FORTH IN A RESTRICTED STOCK PURCHASE AGREEMENT (THE "AGREEMENT") BETWEEN
THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE
OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH PUBLIC SALE AND
TRANSFER RESTRICTIONS AND THE RIGHT OF REPURCHASE AND RIGHT OF FIRST
REFUSAL ARE BINDING ON TRANSFEREES OF THESE SHARES.
THE SHARES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO AN IRREVOCABLE
PROXY UNDER SUBDIVISION (e) OF SECTION 705 OF THE CALIFORNIA CORPORATIONS
CODE AS PROVIDED IN THE AGREEMENT.
12.2 STOP-TRANSFER INSTRUCTIONS. Purchaser agrees that, to ensure
--------------------------
compliance with the restrictions imposed by this Agreement, the Company may
issue appropriate "stop-transfer" instructions to its transfer agent, if any,
and if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
-7-
<PAGE>
12.3 REFUSAL TO TRANSFER. The Company will not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares, or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares have been so transferred.
13. SALE OF THE COMPANY.
-------------------
13.1 APPOINTMENT OF PROXY. Purchaser hereby appoints Summit/E-Tek
--------------------
Holdings, L.L.C. ("HOLDINGS") as his or her true and lawful proxy and attorney-
in-fact, with full power of substitution, to vote the Shares and other voting
securities of the Company for the approval and consummation of an Approved Sale
and all such other matters as expressly provided for in this Section 13. The
proxy and power granted by Purchaser pursuant to this Section 13.1 are (or, in
the case of any subsequent proxies, will be) coupled with an interest and are
(or, in the case of any subsequent proxies, will be) granted in accordance with
the provisions of Section 705 of the California Corporations Code and shall each
be valid (and irrevocable) until the consummation of an Approved Sale. The proxy
and power granted by Purchaser pursuant to this Section 13.1 (and any subsequent
proxies and powers granted by Purchaser as contemplated below) may, at the
request of Holdings, be embodied in one or more separate instruments containing
terms consistent with the terms set forth in this Section 13.1, and in such case
Purchaser agrees to promptly execute and deliver each such separate instrument
or instruments. Purchaser acknowledges that the proxy granted hereby is
irrevocable in accordance with the provisions of Section 705(e) of the
California Corporations Code until the consummation of an Approved Sale and is
given to secure Purchaser's obligation to vote the Shares and other voting
securities of the Company held by Purchaser for the approval and consummation of
an Approved Sale.
13.2 APPROVED SALE. For the purposes of this Section 13, an "APPROVED
-------------
SALE" shall mean any sale of all or substantially all (or any agreement to sell
all or substantially all) of the Company's assets determined on a consolidated
basis or any sale or exchange of all or substantially all (or any agreement to
sell or exchange substantially all) of the Company's outstanding capital stock
(whether by merger, sale, recapitalization, consolidation, reorganization,
combination or otherwise) to any Person or Persons which is approved by the
Board and the holders of a majority of the Shares then held by the Investors;
provided that no such transaction or contemplated transaction shall constitute
an Approved Sale hereunder unless: (i) upon the consummation of the Approved
Sale, all of the holders of Common Stock and Preferred Stock (on an as converted
to Common Stock basis) shall receive the same form and amount of consideration
per share of Common Stock, or if any holders of Common Stock or Preferred Stock
are given an option as to the form and amount of consideration to be received,
all holders shall be given the same option: and (ii) all holders of Shares
representing then currently exercisable rights to acquire shares of Common Stock
(including all holders of Preferred Stock) shall be given an opportunity to
either (A) exercise such rights (including conversion rights in the case of the
holders of Preferred Stock) prior to the consummation of the Approved Sale and
participate in such sale as holders of Common Stock or (B) upon the consummation
of the Approved Sale, receive in exchange for such rights consideration equal to
the amount determined by multiplying (1) the same amount of consideration per
share of Common Stock received by the holders of Common Stock in connection with
the Approved Sale less the exercise price (if any) per share of Common Stock of
such rights to acquire Common Stock by (2) the number of shares of Common Stock
represented by such then currently exercisable rights, and in the case if both
clause (A) and clause (B) above, such holders of rights to acquire shares of
Common Stock shall also receive upon the exercise exchange of such rights such
additional consideration, if any, as may be payable in connection with such
exercise or exchange (including, with respect to the Preferred Stock, all
accrued and unpaid dividends thereon payable pursuant to the terms of the
Articles of Incorporation). The following definitions shall apply for the
purposes of this Section 13.2 only:
(i) "PERSON" shall mean 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;
(ii) "SHARES" shall mean (a) any Common Stock purchased or
otherwise acquired by any Shareholder, (b) any Common Stock issued or issuable
directly or indirectly upon the conversion, exercise or exchange of any
securities purchased or otherwise acquired by any Shareholder which are
convertible
-8-
<PAGE>
into or exercisable or exchangeable for Common Stock (including the Preferred
Stock and any stock options granted by the Company) and (c) any capital stock or
other equity securities issued or issuable directly or indirectly with respect
to the securities referred to in clauses (a) or (b) above 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 securities constituting Shares hereunder, such securities shall cease
to be Shares when they have been (x) effectively registered under the Securities
Act and disposed of in accordance with the registration statement covering them
or (y) sold 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;
other than in this Section 13.2 and as expressly noted in Section 13.3, the term
"SHARES" shall have the meaning ascribed to it in Section 1.1;
(iii) "INVESTORS" shall mean the Persons who purchased shares
of the Company's Preferred Stock pursuant to that certain Recapitalization
Agreement dated as of June 27, 1997;
(iv) "SHAREHOLDERS" shall collectively mean the Persons who
owned shares of the Company's Common Stock or Preferred Stock immediately after
the July 23, 1997 recapitalization of the Company;
(v) "PREFERRED STOCK" shall mean the Company's Class A
Convertible Preferred Stock; and
(vi) "ARTICLES OF INCORPORATION" shall mean the Company's
Amended and Restated Articles of Incorporation as in effect from time to time.
13.3 SALE OF STOCK. If the Approved Sale is structured as a sale of
-------------
stock, Purchaser shall agree to sell the Shares on the terms and conditions
approved by the Board and the holders of a majority of the Shares (as such term
is defined in Section 13.2) held by the Investors (as such term is defined in
Section 13.2).
13.4 TRANSFER OF SHARES. Prior to any transfer of Shares (as defined
------------------
in Section 1.1), other than in connection with an Approved Sale, the holder
thereof shall cause the prospective transferee to agree in writing to be bound
by the provisions of this Section 13.
13.5 TERMINATION. The provisions of this Section 13 shall terminate
-----------
upon the consummation of an offering by the by the Company of its Common Stock
to the public pursuant to an effective registration statement under the
Securities Act or any comparable statement under any similar federal statute
then in force.
14. TAX CONSEQUENCES. PURCHASER UNDERSTANDS THAT PURCHASER MAY SUFFER
----------------
ADVERSE TAX CONSEQUENCES AS A RESULT OF PURCHASER'S PURCHASE OR DISPOSITION OF
THE SHARES. PURCHASER REPRESENTS THAT PURCHASER HAS CONSULTED WITH ANY TAX
ADVISER PURCHASER DEEMS ADVISABLE IN CONNECTION WITH THE PURCHASE OR DISPOSITION
OF THE SHARES AND THAT PURCHASER IS NOT RELYING ON THE COMPANY FOR ANY TAX
ADVICE. Purchaser hereby acknowledges that Purchaser has been informed that,
unless an election is filed by the Purchaser with the Internal Revenue Service
(and, if necessary, the proper state taxing authorities) within 30 days of the
--------------
purchase of the Shares, electing pursuant to Section 83(b) of the Internal
Revenue Code (and similar state tax provision, if applicable) to be taxed
currently on any difference between the Purchase Price of the Shares and their
Fair Market Value on the date of purchase, there will be a recognition of
taxable income to the Purchaser, measured by the excess, if any, of the Fair
Market Value of the Vested Shares, at the time they cease to be Unvested Shares,
over the Purchase Price for such Shares. Purchaser represents that Purchaser has
consulted any tax advisers Purchaser deems advisable in connection with
Purchaser's purchase of the Shares and the filing of the election under Section
83(b) and similar tax provisions. A form of Election under Section 83(b) is
attached hereto as Exhibit 2 for reference. PURCHASER HEREBY ASSUMES ALL
---------
RESPONSIBILITY FOR FILING SUCH ELECTION AND PAYING ANY TAXES RESULTING FROM SUCH
ELECTION OR FROM FAILURE TO FILE THE ELECTION AND PAYING TAXES RESULTING FROM
THE LAPSE OF THE REPURCHASE RESTRICTIONS ON THE UNVESTED SHARES.
-9-
<PAGE>
15. COMPLIANCE WITH LAWS AND REGULATIONS. The issuance and transfer of the
------------------------------------
Shares will be subject to and conditioned upon compliance by the Company and
Purchaser with all applicable state and federal laws and regulations and with
all applicable requirements of any stock exchange or automated quotation system
on which the Company's Common Stock may be listed or quoted at the time of such
issuance or transfer.
16. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights under
----------------------
this Agreement, including its rights to repurchase Shares under the Repurchase
Option and the Right of First Refusal. This Agreement shall be binding upon and
inure to the benefit of the successors and assigns of the Company. Subject to
the restrictions on transfer herein set forth, this Agreement will be binding
upon Purchaser and Purchaser's heirs, executors, administrators, legal
representatives, successors and assigns.
17. GOVERNING LAW; SEVERABILITY. This Agreement shall be governed by and
---------------------------
construed in accordance with the internal laws of the State of California as
such laws are applied to agreements between California residents entered into
and to be performed entirely within California, excluding that body of laws
pertaining to conflict of laws. If any provision of this Agreement is determined
by a court of law to be illegal or unenforceable, then such provision will be
enforced to the maximum extent possible and the other provisions will remain
fully effective and enforceable.
18. NOTICES. Any notice required to be given or delivered to the Company
-------
shall be in writing and addressed to the Corporate Secretary of the Company at
its principal corporate offices. Any notice required to be given or delivered to
Purchaser shall be in writing and addressed to Purchaser at the address
indicated above or to such other address as Purchaser may designate in writing
from time to time to the Company. All notices shall be deemed effectively given
upon personal delivery, three (3) days after deposit in the United States mail
by certified or registered mail (return receipt requested), one (1) business day
after its deposit with any return receipt express courier (prepaid), or one (1)
business day after transmission by rapifax or telecopier.
19. FURTHER INSTRUMENTS. The parties agree to execute such further
-------------------
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Agreement.
20. HEADINGS. The captions and headings of this Agreement are included for
--------
case of reference only and will be disregarded in interpreting or construing
this Agreement. All references herein to Sections will refer to Sections of this
Agreement.
21. ENTIRE AGREEMENT. The Plan and this Agreement, together with all its
----------------
Exhibits, constitute the entire agreement and understanding of the parties with
respect to the subject matter of this Agreement, and supersede all prior
understandings and agreements, whether oral or written, between the parties
hereto with respect to the specific subject matter hereof.
22. COUNTERPARTS. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK].
-10-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by
its duly authorized representative and Purchaser has executed this Agreement in
triplicate as of the Effective Date.
E-TEK DYNAMICS, INC. PURCHASER
By:________________________ _________________________
(Signature)
___________________________ _________________________
(Please print name) (Please print name)
___________________________
(Please print title)
[SIGNATURE PAGE TO E-TEK DYNAMICS, INC. RESTRICTED STOCK PURCHASE AGREEMENT]
- 11 -
<PAGE>
E-TEK DYNAMICS, INC.
1997 EQUITY INCENTIVE PLAN
RESTRICTED STOCK PURCHASE AGREEMENT
This Restricted Stock Purchase Agreement ("AGREEMENT") is made and entered
into as of __________ 1997 (the "EFFECTIVE DATE") by and between E-Tek Dynamics,
Inc., a California corporation (the "COMPANY"), and the purchaser named below
(the "PURCHASER"). Capitalized terms not defined herein shall have the meanings
ascribed to them in the Company's 1997 Equity Incentive Plan (the "PLAN").
PURCHASER:
SOCIAL SECURITY NUMBER:
ADDRESS:
TOTAL NUMBER OF SHARES:
PURCHASE PRICE PER SHARE:
TOTAL PURCHASE PRICE:
1. PURCHASE OF SHARES.
------------------
1.1 PURCHASE OF SHARES. On the Effective Date and subject to the
------------------
terms and conditions of this Agreement and the Plan, Purchaser hereby purchases
from the Company, and the Company hereby sells to Purchaser, the Total Number of
Shares set forth above of the Company's Common Stock at the Purchase Price Per
Share as set forth above (the "PURCHASE PRICE PER SHARE") for a Total Purchase
Price as set forth above (the "PURCHASE PRICE"). As used in this Agreement, the
term "SHARES" refers to the Shares purchased under this Agreement and includes
all securities received (a) in replacement of the Shares, (b) as a result of
stock dividends or stock splits in respect of the Shares, and (c) in replacement
of the Shares in a merger, recapitalization, reorganization or similar corporate
transaction.
1.2 TITLE TO SHARES. The exact spelling of the name(s) under
---------------
which Purchaser will take title to the Shares is:
__________________________________________________________________
__________________________________________________________________
Purchaser desires to take title to the Shares as follows:
[ ] Individual, as separate property
[ ] Husband and wife, as community property
[ ] Joint Tenants
[ ] Alone or with spouse as trustee(s) of the following trust
(including date):
_____________________________________________________________
_____________________________________________________________
[ ] Other; please specify: _______________________________________
_____________________________________________________________
<PAGE>
1.3 PAYMENT. Purchaser hereby delivers payment of the Purchase
-------
Price as follows (check and complete as appropriate):
[ ] in cash (by check) in the amount of $____________, receipt of
which is acknowledged by the Company;
[ ] by tender of a Secured Half Recourse Promissory Note in the
principal amount of $__________, having such terms as may be
approved by the Committee and bearing interest at a rate
sufficient to avoid imputation of income under Sections 483 and
1274 of the Code and secured by a Pledge Agreement herewith;
provided, however, that Participants who are not employees or
directors of the Company shall not be entitled to purchase Shares
with a promissory note unless the note is adequately secured by
collateral other than the Shares.
2. DELIVERY.
--------
2.1 DELIVERIES BY PURCHASER. Purchaser hereby delivers to the
-----------------------
Company (i) this Agreement, (ii) two (2) copies of a blank Stock Power and
Assignment Separate from Stock Certificate in the form of Exhibit 1 attached
---------
hereto (the "STOCK POWERS"), both executed by Purchaser (and Purchaser's spouse,
if any), and (iii) the Purchase Price by delivery of a check and/or a Secured
Half Recourse Promissory Note in the form of Exhibit 3 and (iv) a Stock Pledge
---------
Agreement in the form of Exhibit 4, executed by Purchaser (the "PLEDGE
---------
AGREEMENT").
2.2 DELIVERIES BY THE COMPANY. Upon its receipt of the Purchase
-------------------------
Price and all the documents to be executed and delivered by Purchaser to the
Company under Section 2.1, the Company will issue a duly executed stock
certificate evidencing the Shares in the name of Purchaser, to be placed in
escrow as provided in Section 11 until expiration or termination of the
Company's Repurchase Option and Right of First Refusal described in Sections 8
and 9; provided, however, that the Shares will be retained in escrow so long
-------- -------
as they are subject to the Pledge Agreement, if applicable.
3. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser represents
-------------------------------------------
and warrants to the Company that:
3.1 AGREES TO TERMS OF THE PLAN AND THIS AGREEMENT. Purchaser
----------------------------------------------
has received a copy of the Plan and this Agreement, has read and understands the
terms of the Plan and this Agreement, and agrees to be bound by their terms and
conditions. Purchaser acknowledges that there may be adverse tax consequences
upon purchase and disposition of the Shares, and that Purchaser should consult a
tax adviser prior to such purchase or disposition.
3.2 PURCHASE FOR OWN ACCOUNT FOR INVESTMENT. Purchaser is
---------------------------------------
purchasing the Shares for Purchaser's own account for investment purposes only
and not with a view to, or for sale in connection with, a distribution of the
Shares within the meaning of the Securities Act. Purchaser has no present
intention of selling or otherwise disposing of all or any portion of the Shares
and no one other than Purchaser has any beneficial ownership of any of the
Shares.
3.3 ACCESS TO INFORMATION. Purchaser has had access to all
---------------------
information regarding the Company and its present and prospective business,
assets, liabilities and financial condition that Purchaser reasonably considers
important in making the decision to purchase the Shares, and Purchaser has had
ample opportunity to ask questions of the Company's representatives concerning
such matters and this investment.
3.4 UNDERSTANDING OF RISKS. Purchaser is fully aware of: (i) the
----------------------
highly speculative nature of the investment in the Shares; (ii) the financial
hazards involved; (iii) the lack of liquidity of the Shares and the restrictions
on transferability of the Shares (e.g., that Purchaser may not be able to sell
----
or dispose of the Shares or use them as collateral for loans); (iv) the
qualifications and backgrounds of the management of the Company; and (v) the tax
consequences of investment in the Shares. Purchaser is capable of evaluating the
merits and risks of this
- 2 -
<PAGE>
investment, has the ability to protect Purchaser's own interests in this
transaction and is financially capable of bearing a total loss of this
investment.
3.5 NO GENERAL SOLICITATION. At no time was Purchaser presented
-----------------------
with or solicited by any publicly issued or circulated newspaper, mail, radio,
television or other form of general advertising or solicitation in connection
with the offer, sale and purchase of the Shares.
4. COMPLIANCE WITH SECURITIES LAWS.
-------------------------------
4.1 COMPLIANCE WITH FEDERAL SECURITIES LAWS. Purchaser
---------------------------------------
understands and acknowledges that the Shares have not been registered with the
SEC under the Securities Act and that, notwithstanding any other provision of
this Agreement to the contrary, the exercise of any rights to purchase any
Shares is expressly conditioned upon compliance with the Securities Act and all
applicable state securities laws. Purchaser agrees to cooperate with the Company
to ensure compliance with such laws. The Shares are being issued under the
Securities Act pursuant to the exemption provided by SEC Rule 701.
4.2 COMPLIANCE WITH CALIFORNIA SECURITIES LAWS. THE PLAN AND
------------------------------------------
THIS AGREEMENT ARE INTENDED TO COMPLY WITH SECTION 25102(o) OF THE CALIFORNIA
CORPORATIONS CODE. ANY PROVISION OF THIS AGREEMENT WHICH IS INCONSISTENT WITH
SECTION 25102(o) SHALL, WITHOUT FURTHER ACT OR AMENDMENT BY THE COMPANY OR THE
BOARD, BE REFORMED TO COMPLY WITH THE REQUIREMENTS OF SECTION 25102(o). THE SALE
OF THE SECURITIES THAT ARE THE SUBJECT OF THIS AGREEMENT, IF NOT YET QUALIFIED
WITH THE CALIFORNIA COMMISSIONER OF CORPORATIONS AND NOT EXEMPT FROM SUCH
QUALIFICATION, IS SUBJECT TO SUCH QUALIFICATION, AND THE ISSUANCE OF SUCH
SECURITIES, AND THE RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO
SUCH QUALIFICATION IS UNLAWFUL UNLESS THE SALE IS EXEMPT. THE RIGHTS OF THE
PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION
BEING OBTAINED OR AN EXEMPTION BEING AVAILABLE.
5. RESTRICTED SECURITIES.
---------------------
5.1 NO TRANSFERS UNLESS REGISTERED OR EXEMPT. Purchaser
----------------------------------------
understands that Purchaser may not transfer any Shares unless such Shares are
registered under the Securities Act and qualified under applicable state
securities laws or unless, in the opinion of counsel to the Company, exemptions
from such registration and qualification requirements are available. Purchaser
understands that only the Company may file a registration statement with the SEC
and that the Company is under no obligation to do so with respect to the Shares.
Purchaser has also been advised that exemptions from registration and
qualification may not be available or may not permit Purchaser to transfer all
or any of the Shares in the amounts or at the times proposed by Purchaser.
5.2 SEC RULE 144. In addition, Purchaser has been advised that
------------
SEC Rule 144 promulgated under the Securities Act, which permits certain limited
sales of unregistered securities, is not presently available with respect to the
Shares and, in any event, requires that the Shares be held for a minimum of one
(1) year, and in certain cases two (2) years, after they have been purchased and
---
paid for (within the meaning of Rule 144), before they may be resold under Rule
- --------
144. Purchaser understands that Shares paid for with a promissory note may not
be deemed to be fully "paid for" within the meaning of Rule 144 unless certain
conditions are met and that, accordingly, the Rule 144 holding period of such
Shares may not begin to run until such Shares are fully paid for within the
meaning of Rule 144. Purchaser understands that Rule 144 may indefinitely
restrict transfer of the Shares so long as Purchaser remains an "affiliate" of
the Company or if "current public information" about the Company (as defined in
Rule 144) is not publicly available.
5.3 SEC RULE 701. The Shares are issued pursuant to SEC Rule 701
------------
promulgated under the Securities Act and may become freely tradeable by non-
affiliates (under limited conditions regarding the method of sale) ninety (90)
days after the first sale of Common Stock of the Company to the general public
pursuant
- 3 -
<PAGE>
to a registration statement filed with and declared effective by the SEC,
subject to the lengthier market standoff agreement contained in Section 7 of
this Agreement or any other agreement entered into by Purchaser. Affiliates must
comply with the provisions (other than the holding period requirements) of Rule
144.
6. RESTRICTIONS ON TRANSFERS.
-------------------------
6.1 DISPOSITION OF SHARES. Purchaser hereby agrees that
---------------------
Purchaser will make no disposition of the Shares (other than a permitted
transfer under Section 9.6) unless and until:
(a) Purchaser has notified the Company of the proposed
disposition and provided a written summary of the terms and conditions of the
proposed disposition;
(b) Purchaser has complied with all requirements of this
Agreement applicable to the disposition of the Shares;
(c) Purchaser has provided the Company with written assurances,
in form and substance satisfactory to counsel for the Company, that (i) the
proposed disposition does not require registration of the Shares under the
Securities Act, or (ii) all appropriate action necessary for compliance with the
registration requirements of the Securities Act or of any exemption from
registration available under the Securities Act (including Rule 144) has been
taken; and
(d) Purchaser has provided the Company with written assurances,
in form and substance satisfactory to the Company, that the proposed disposition
will not result in the contravention of any transfer restrictions applicable to
the Shares pursuant to the provisions of the Commissioner Rules identified in
Section 4.2.
6.2 RESTRICTION ON TRANSFER. Purchaser shall not transfer,
-----------------------
assign, grant a lien or security interest in, pledge, hypothecate, encumber or
otherwise dispose of any of the Shares which are subject to the Company's
Repurchase Option or the Company's Right of First Refusal, except as permitted
by this Agreement.
6.3 TRANSFEREE OBLIGATIONS. Each person (other than the Company)
----------------------
to whom the Shares are transferred by means of one of the permitted transfers
specified in this Agreement must, as a condition precedent to the validity of
such transfer, acknowledge in writing to the Company that such person is bound
by the provisions of this Agreement and that the transferred Shares are subject
to (i) the Company's Right of First Refusal granted hereunder and (ii) the
market stand-off provisions of Section 7, to the same extent such shares would
be so subject if retained by the Purchaser.
7. MARKET STANDOFF AGREEMENT. Purchaser agrees in connection with
-------------------------
any registration of the Company's securities that, upon the request of the
Company or the underwriters managing any registered public offering of the
Company's securities, Purchaser will not sell or otherwise dispose of any Shares
without the prior written consent of the Company or such managing underwriters,
as the case may be, for a period of time (not to exceed 180 days) after the
effective date of such registration requested by such managing underwriters and
subject to all restrictions as the Company or the managing underwriters may
specify.
8. COMPANY'S REPURCHASE OPTION FOR UNVESTED SHARES. The Company, or
-----------------------------------------------
its assignee, shall have the option to repurchase the Purchaser's Unvested
Shares (as defined in Section 8.2 below) on the terms and conditions set forth
in this Section (the "REPURCHASE OPTION") if Purchaser is Terminated (as defined
in the Plan) for any reason, or no reason, including without limitation
Purchaser's death, Disability (as defined in the Plan), voluntary resignation or
termination by the Company with or without Cause.
8.1 TERMINATION AND TERMINATION DATE. In case of any dispute as
--------------------------------
to whether Purchaser is Terminated, the Committee shall have sole discretion to
determine whether Purchaser has been Terminated and the effective date of such
Termination (the "TERMINATION DATE").
- 4 -
<PAGE>
8.2 UNVESTED AND VESTED SHARES. Shares that are vested pursuant
--------------------------
to the schedule set forth in this Section 8.2 are "VESTED SHARES. Shares that
are not vested pursuant to the schedule set forth in this Section 8.2 are
"UNVESTED SHARES." Unvested Shares may not be sold or otherwise transferred by
Purchaser without the Company's prior written consent. On the Effective Date
thirty-five forty-eighths (35/48) of the Shares will be Unvested Shares and
thirteen forty-eighths (13/48) of the Shares will be Vested Shares. Provided
that Purchaser continues to provide services to the Company or to any parent or
Subsidiary of the Company at all times from the Effective Date until September
1, 1997 (the "SECOND VESTING DATE"), then on the Second Vesting Date an
additional one forty-eighth (1/48) of the Shares will become Vested Shares; and
thereafter, for so long (and only for so long) as Purchaser continuously
provides services to the Company or to any parent or Subsidiary of the Company
at all times after the Second Vesting Date, an additional one forty-eighth
(1/48) of the Shares will become Vested Shares at the end of each full
succeeding month elapsed after the Second Vesting Date until the Shares are
vested with respect to one hundred percent (100%) of the Shares; provided that,
to the extent Purchaser is not an officer, director or consultant of the Company
or of a Parent or Subsidiary of the Company, the Shares will vest at least as
rapidly as the rate of twenty percent (20%) for each of five (5) full years
following the Effective Date. If application of the vesting percentage causes a
fractional share, such share shall be rounded down to the nearest whole share.
No Shares will become Vested Shares after the Termination Date. The number of
Shares that are Vested Shares or Unvested Shares will be proportionally adjusted
for any stock split or similar change in the capital structure of the Company as
set forth in Section 2.2 of the Plan.
8.3 EXERCISE OF REPURCHASE OPTION. At any time within ninety
-----------------------------
(90) days after the Termination Date, the Company, or its assignee(s), may elect
to repurchase the Purchaser's Unvested Shares by giving Purchaser written notice
of exercise of the Repurchase Option.
8.4 CALCULATION OF REPURCHASE PRICE. The Company or its
-------------------------------
assignee(s) shall have the option to repurchase from Purchaser (or from
Purchaser's personal representative as the case may be) the Purchaser's Unvested
Shares at the Purchaser's original Purchase Price Per Share (as adjusted to
reflect any stock split or similar change in the capital structure of the
Company as set forth in Section 2.2 of the Plan).
8.5 PAYMENT OF REPURCHASE PRICE. The repurchase price shall be
---------------------------
payable, at the option of the Company or its assignee(s), by check or by
cancellation of all or a portion of any outstanding indebtedness of Purchaser to
the Company, or such assignee, or by any combination thereof. The repurchase
price shall be paid without interest within sixty (60) days after exercise of
the Repurchase Option.
8.6 RIGHT OF TERMINATION UNAFFECTED. Nothing in this Agreement
-------------------------------
shall be construed to limit or otherwise affect in any manner whatsoever the
right or power of the Company (or any Parent or Subsidiary of the Company) to
terminate Purchaser's employment or other relationship with the Company (or any
Parent or Subsidiary of the Company) at any time for any reason or no reason,
with or without Cause.
9. COMPANY'S RIGHT OF FIRST REFUSAL. Unvested Shares may not be sold
--------------------------------
or otherwise transferred by Purchaser without the Company's prior written
consent. Before any Vested Shares held by Purchaser or any transferee of such
Vested Shares (either being sometimes referred to herein as the "HOLDER") may be
sold or otherwise transferred (including without limitation a transfer by gift
or operation of law), the Company and/or its assignee(s) shall have an
assignable right of first refusal to purchase the Vested Shares to be sold or
transferred (the "OFFERED SHARES") on the terms and conditions set forth in this
Section (the "RIGHT OF FIRST REFUSAL").
9.1 NOTICE OF PROPOSED TRANSFER. The Holder of the Shares shall
---------------------------
deliver to the Company a written notice (the "NOTICE") stating: (i) the Holder's
bona fide intention to sell or otherwise transfer the Offered Shares; (ii) the
name of each proposed bona fide purchaser or other transferee ("PROPOSED
TRANSFEREE"); (iii) the number of Offered Shares to be transferred to each
Proposed Transferee; (iv) the bona fide cash price or other consideration for
which the Holder proposes to transfer the Offered Shares (the "OFFERED PRICE");
and (v) that the Holder will offer to sell the Offered Shares to the Company
and/or its assignee(s) at the Offered Price as provided in this Section.
9.2 EXERCISE OF RIGHT OF FIRST REFUSAL. At any time within
----------------------------------
thirty (30) days after the date of the Notice, the Company and/or its
assignee(s) may, by giving written notice to the Holder, elect to purchase
- 5 -
<PAGE>
the Offered Shares proposed to be transferred to any one or more of the Proposed
Transferees named in the Notice, at the purchase price determined in accordance
with Section 9.3 below.
9.3 PURCHASE PRICE. The purchase price for the Offered Shares
--------------
purchased under this Section will be equal to the Offered Price. If the Offered
Price includes consideration other than cash, then the cash equivalent value of
the non-cash consideration shall conclusively be deemed to be the value of such
non-cash consideration as determined in good faith by the Company's Board of
Directors.
9.4 PAYMENT. Payment of the purchase price for the Offered
-------
Shares will be payable, at the option of the Company and/or its assignee(s) (as
applicable), by check or by cancellation of all or a portion of any outstanding
indebtedness of the Holder to the Company (or to such assignee, in the case of a
purchase of Offered Shares by such assignee) or by any combination thereof. The
purchase price will be paid without interest within sixty (60) days after the
Company's receipt of the Notice, or, at the option of the Company and/or its
assignee(s), in the manner and at the time(s) set forth in the Notice.
9.5 HOLDER'S RIGHT TO TRANSFER. If all of the Offered Shares
--------------------------
proposed in the Notice to be transferred to a given Proposed Transferee are not
purchased by the Company and/or its assignee(s) as provided in this Section,
then the Holder may sell or otherwise transfer such Offered Shares to that
Proposed Transferee at the Offered Price or at a higher price, provided that
--------
such sale or other transfer is consummated within one hundred twenty (120) days
after the date of the Notice, and provided further, that (i) any such sale or
-------- -------
other transfer is effected in compliance with all applicable securities laws and
(ii) the Proposed Transferee agrees in writing that the provisions of this
Section will continue to apply to the Offered Shares in the hands of such
Proposed. Transferee. If the Offered Shares described in the Notice are not
transferred to the Proposed Transferee within such one hundred twenty (120) day
period, then a new Notice must be given to the Company, and the Company will
again be offered the Right of First Refusal before any Shares held by the Holder
may be sold or otherwise transferred.
9.6 EXEMPT TRANSFERS. Notwithstanding anything to the contrary
----------------
in this Section, the following transfers of Vested Shares will be exempt from
the Right of First Refusal: (i) the transfer of any or all of the Vested Shares
during Purchaser's lifetime by gift or on Purchaser's death by will or intestacy
to Purchaser's "immediate family" (as defined below) or to a trust for the
benefit of Purchaser or Purchaser's immediate family, provided that each
transferee or other recipient agrees in a writing satisfactory to the Company
that the provisions of this Section will continue to apply to the transferred
Vested Shares in the hands of such transferee or other recipient; (ii) any
transfer of Vested Shares made pursuant to a statutory merger or statutory
consolidation of the Company with or into another corporation or corporations
(except that the Right of First Refusal will continue to apply thereafter to
such Vested Shares, in which case the surviving corporation of such merger or
consolidation shall succeed to the rights of the Company under this Section
unless the agreement of merger or consolidation expressly otherwise provides);
or (iii) any transfer of Vested Shares pursuant to the winding up and
dissolution of the Company. As used herein, the term "IMMEDIATE FAMILY" will
mean Purchaser's spouse, the lineal descendant or antecedent, father, mother,
brother or sister, child, adopted child, grandchild or adopted grandchild of
Purchaser or Purchaser's spouse, or the spouse of any child, adopted child,
grandchild or adopted grandchild of Purchaser or Purchaser's spouse.
9.7 TERMINATION OF RIGHT OF FIRST REFUSAL. The Right of First
-------------------------------------
Refusal will terminate as to all Shares on the effective date of the first sale
of Common Stock of the Company to the general public pursuant to a registration
statement filed with and declared effective by the SEC under the Securities Act
(other than a registration statement relating solely to the issuance of Common
Stock pursuant to a business combination or an employee incentive or benefit
plan).
10. RIGHTS AS SHAREHOLDER. Subject to the terms and conditions of
---------------------
this Agreement, Purchaser will have all of the rights of a shareholder of the
Company with respect to the Shares from and after the date that the Shares are
issued to Purchaser until such time as Purchaser disposes of the Shares or the
Company and/or its assignee(s) exercise(s) the Repurchase Option or Right of
First Refusal. Upon an exercise of the Repurchase Option or the Right of First
Refusal, Purchaser will have no further rights as a holder of the Shares so
purchased upon such exercise, except the right to receive payment for the Shares
so purchased in accordance with the provisions of this
- 6 -
<PAGE>
Agreement, and Purchaser will promptly surrender the stock certificate(s)
evidencing the Shares so purchased to the Company for transfer or cancellation.
11. ESCROW. As security for Purchaser's faithful performance of this
------
Agreement, Purchaser agrees, immediately upon receipt of the stock
certificate(s) evidencing the Shares, to deliver such certificate(s), together
with the Stock Powers executed by Purchaser and by Purchaser's spouse, if any
(with the date and number of Shares left blank), to the Secretary of the Company
or other designee of the Company ("ESCROW HOLDER"), who is hereby appointed to
hold such certificate(s) and Stock Powers in escrow and to take all such actions
and to effectuate all such transfers and/or releases of such Shares as are in
accordance with the terms of this Agreement. Purchaser and the Company agree
that Escrow Holder will not be liable to any party to this Agreement (or to any
other party) for any actions or omissions unless Escrow Holder is grossly
negligent or intentionally fraudulent in carrying out the duties of Escrow
Holder under this Agreement. Escrow Holder may rely upon any letter, notice or
other document executed by any signature purported to be genuine and may rely on
the advice of counsel and obey any order of any court with respect to the
transactions contemplated by this Agreement. The Shares will be released from
escrow upon termination of both the Repurchase Option and the Right of First
Refusal; provided, however, that the Shares will be retained in escrow so long
-------- -------
as they are subject to the Pledge Agreement.
12. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS.
--------------------------------------------
12.1 LEGENDS. Purchaser understands and agrees that the Company
-------
will place the legends set forth below or similar legends on any stock
certificate(s) evidencing the Shares, together with any other legends that may
be required by state or federal securities laws, the Company's Articles of
Incorporation or Bylaws, any other agreement between Purchaser and the Company
or any agreement between Purchaser and any third party:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER
THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED
OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND APPLICABLE
STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR
THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF
TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL
IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT
ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE SECURITIES
ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON PUBLIC RESALE AND TRANSFER, RIGHT OF REPURCHASE AND
RIGHT OF FIRST REFUSAL OPTIONS HELD BY THE ISSUER AND/OR ITS
ASSIGNEE(S) AS SET FORTH IN A RESTRICTED STOCK PURCHASE AGREEMENT (THE
"AGREEMENT") BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE
SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE
ISSUER. SUCH PUBLIC SALE AND TRANSFER RESTRICTIONS AND THE RIGHT OF
REPURCHASE AND RIGHT OF FIRST REFUSAL ARE BINDING ON TRANSFEREES OF
THESE SHARES.
THE SHARES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO AN IRREVOCABLE
PROXY UNDER SUBDIVISION (e) OF SECTION 705 OF THE CALIFORNIA
CORPORATIONS CODE AS PROVIDED IN THE AGREEMENT.
12.2 STOP-TRANSFER INSTRUCTIONS. Purchaser agrees that, to ensure
--------------------------
compliance with the restrictions imposed by this Agreement, the Company may
issue appropriate "stop-transfer" instructions to its transfer agent, if any,
and if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
- 7 -
<PAGE>
12.3 REFUSAL TO TRANSFER. The Company will not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares, or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares have been so transferred.
13. SALE OF THE COMPANY.
-------------------
13.1 APPOINTMENT OF PROXY. Purchaser hereby appoints Summit/E-Tek
--------------------
Holdings, L.L.C. ("HOLDINGS") as his or her true and lawful proxy and attorney-
in-fact, with full power of substitution, to vote the Shares and other voting
securities of the Company for the approval and consummation of an Approved Sale
and all such other matters as expressly provided for in this Section 13. The
proxy and power granted by Purchaser pursuant to this Section 13.1 are (or, in
the case of any subsequent proxies, will be) coupled with an interest and are
(or, in the case of any subsequent proxies, will be) granted in accordance with
the provisions of Section 705 of the California Corporations Code and shall each
be valid (and irrevocable) until the consummation of an Approved Sale. The proxy
and power granted by Purchaser pursuant to this Section 13.1 (and any subsequent
proxies and powers granted by Purchaser as contemplated below) may, at the
request of Holdings, be embodied in one or more separate instruments containing
terms consistent with the terms set forth in this Section 13.1, and in such case
Purchaser agrees to promptly execute and deliver each such separate instrument
or instruments. Purchaser acknowledges that the proxy granted hereby is
irrevocable in accordance with the provisions of Section 705(e) of the
California Corporations Code until the consummation of an Approved Sale and is
given to secure Purchaser's obligation to vote the Shares and other voting
securities of the Company held by Purchaser for the approval and consummation of
an Approved Sale.
13.2 APPROVED SALE. For the purposes of this Section 13, an
-------------
"APPROVED SALE" shall mean any sale of all or substantially all (or any
agreement to sell all or substantially all) of the Company's assets determined
on a consolidated basis or any sale or exchange of all or substantially all (or
any agreement to sell or exchange substantially all) of the Company's
outstanding capital stock (whether by merger, sale, recapitalization,
consolidation, reorganization, combination or otherwise) to any Person or
Persons which is approved by the Board and the holders of a majority of the
Shares then held by the Investors; provided that no such transaction or
contemplated transaction shall constitute an Approved Sale hereunder unless: (i)
upon the consummation of the Approved Sale, all of the holders of Common Stock
and Preferred Stock (on an as converted to Common Stock basis) shall receive the
same form and amount of consideration per share of Common Stock, or if any
holders of Common Stock or Preferred Stock are given an option as to the form
and amount of consideration to be received, all holders shall be given the same
option; and (ii) all holders of Shares representing then currently exercisable
rights to acquire shares of Common Stock (including all holders of Preferred
Stock) shall be given an opportunity to either (A) exercise such rights
(including conversion rights in the case of the holders of Preferred Stock)
prior to the consummation of the Approved Sale and participate in such sale as
holders of Common Stock or (B) upon the consummation of the Approved Sale,
receive in exchange for such rights consideration equal to the amount determined
by multiplying (1) the same amount of consideration per share of Common Stock
received by the holders of Common Stock in connection with the Approved Sale
less the exercise price (if any) per share of Common Stock of such rights to
acquire Common Stock by (2) the number of shares of Common Stock represented by
such then currently exercisable rights, and in the case if both clause (A) and
clause (B) above, such holders of rights to acquire shares of Common Stock shall
also receive upon the exercise or exchange of such rights such additional
consideration, if any, as may be payable in connection with such exercise or
exchange (including, with respect to the Preferred Stock, all accrued and unpaid
dividends thereon payable pursuant to the terms of the Articles of
Incorporation). The following definitions shall apply for the purposes of this
Section 13.2 only:
(i) "PERSON" shall mean 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;
(ii) "SHARES" shall mean (a) any Common Stock purchased or
otherwise acquired by any Shareholder, (b) any Common Stock issued or issuable
directly or indirectly upon the conversion, exercise or exchange of any
securities purchased or otherwise acquired by any Shareholder which are
convertible
- 8 -
<PAGE>
into or exercisable or exchangeable for Common Stock (including the Preferred
Stock and any stock options granted by the Company) and (c) any capital stock or
other equity securities issued or issuable directly or indirectly with respect
to the securities referred to in clauses (a) or (b) above 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 securities constituting Shares hereunder, such securities shall cease
to be Shares when they have been (x) effectively registered under the Securities
Act and disposed of in accordance with the registration statement covering them
or (y) sold 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;
other than in this Section 13.2 and as expressly noted in Section 13.3, the term
"SHARES" shall have the meaning ascribed to it in Section 1.1;
(iii) "INVESTORS" shall mean the Persons who purchased shares
of the Company's Preferred Stock pursuant to that certain Recapitalization
Agreement dated as of June 27, 1997;
(iv) "SHAREHOLDERS" shall collectively mean the Persons who
owned shares of the Company's Common Stock or Preferred Stock immediately after
the July 23, 1997 recapitalization of the Company;
(v) "PREFERRED STOCK" shall mean the Company's Class A
Convertible Preferred Stock; and
(vi) "ARTICLES OF INCORPORATION" shall mean the Company's
Amended and Restated Articles of Incorporation as in effect from time to time.
13.3 SALE OF STOCK. If the Approved Sale is structured as a sale
-------------
of stock, Purchaser shall agree to sell the Shares on the terms and conditions
approved by the Board and the holders of a majority of the Shares (as such term
is defined in Section 13.2) held by the Investors (as such term is defined in
Section 13.2).
13.4 TRANSFER OF SHARES. Prior to any transfer of Shares (as
------------------
defined in Section 1.1), other than in connection with an Approved Sale, the
holder thereof shall cause the prospective transferee to agree in writing to be
bound by the provisions of this Section 13.
13.5 TERMINATION. The provisions of this Section 13 shall
-----------
terminate upon the consummation of an offering by the by the Company of its
Common Stock to the public pursuant to an effective registration statement under
the Securities Act or any comparable statement under any similar federal statute
then in force.
14. TAX CONSEQUENCES. PURCHASER UNDERSTANDS THAT PURCHASER MAY SUFFER
----------------
ADVERSE TAX CONSEQUENCES AS A RESULT OF PURCHASER'S PURCHASE OR DISPOSITION OF
THE SHARES. PURCHASER REPRESENTS THAT PURCHASER HAS CONSULTED WITH ANY TAX
ADVISER PURCHASER DEEMS ADVISABLE IN CONNECTION WITH THE PURCHASE OR DISPOSITION
OF THE SHARES AND THAT PURCHASER IS NOT RELYING ON THE COMPANY FOR ANY TAX
ADVICE. Purchaser hereby acknowledges that Purchaser has been informed that,
unless an election is filed by the Purchaser with the Internal Revenue Service
(and, if necessary, the proper state taxing authorities) within 30 days of the
--------------
purchase of the Shares, electing pursuant to Section 83(b) of the Internal
Revenue Code (and similar state tax provisions, if applicable) to be taxed
currently on any difference between the Purchase Price of the Shares and their
Fair Market Value on the date of purchase, there will be a recognition of
taxable income to the Purchaser, measured by the excess, if any, of the Fair
Market Value of the Vested Shares, at the time they cease to be Unvested Shares,
over the Purchase Price for such Shares. Purchaser represents that Purchaser has
consulted any tax advisers Purchaser deems advisable in connection with
Purchaser's purchase of the Shares and the filing of the election under Section
83(b) and similar tax provisions. A form of Election under Section 83(b) is
attached hereto as Exhibit 2 for reference. PURCHASER HEREBY ASSUMES ALL
---------
RESPONSIBILITY FOR FILING SUCH ELECTION AND PAYING ANY TAXES RESULTING FROM SUCH
ELECTION OR FROM FAILURE TO FILE THE ELECTION AND PAYING TAXES RESULTING FROM
THE LAPSE OF THE REPURCHASE RESTRICTIONS ON THE UNVESTED SHARES.
- 9 -
<PAGE>
15. COMPLIANCE WITH LAWS AND REGULATIONS. The issuance and transfer
------------------------------------
of the Shares will be subject to and conditioned upon compliance by the Company
and Purchaser with all applicable state and federal laws and regulations and
with all applicable requirements of any stock exchange or automated quotation
system on which the Company's Common Stock may be listed or quoted at the time
of such issuance or transfer.
16. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights
----------------------
under this Agreement, including its rights to repurchase Shares under the
Repurchase Option and the Right of First Refusal. This Agreement shall be
binding upon and inure to the benefit of the successors and assigns of the
Company. Subject to the restrictions on transfer herein set forth, this
Agreement will be binding upon Purchaser and Purchaser's heirs, executors,
administrators, legal representatives, successors and assigns.
17. GOVERNING LAW: SEVERABILITY. This Agreement shall be governed by
---------------------------
and construed in accordance with the internal laws of the State of California as
such laws are applied to agreements between California residents entered into
and to be performed entirely within California, excluding that body of laws
pertaining to conflict of laws. If any provision of this Agreement is determined
by a court of law to be illegal or unenforceable, then such provision will be
enforced to the maximum extent possible and the other provisions will remain
fully effective and enforceable.
18. NOTICES. Any notice required to be given or delivered to the
-------
Company shall be in writing and addressed to the Corporate Secretary of the
Company at its principal corporate offices. Any notice required to be given or
delivered to Purchaser shall be in writing and addressed to Purchaser at the
address indicated above or to such other address as Purchaser may designate in
writing from time to time to the Company. All notices shall be deemed
effectively given upon personal delivery, three (3) days after deposit in the
United States mail by certified or registered mail (return receipt requested),
one (1) business day after its deposit with any return receipt express courier
(prepaid), or one (1) business day after transmission by rapifax or telecopier.
19. FURTHER INSTRUMENTS. The parties agree to execute such further
-------------------
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Agreement.
20. HEADINGS. The captions and headings of this Agreement are
--------
included for ease of reference only and will be disregarded in interpreting or
construing this Agreement.
21. ENTIRE AGREEMENT. The Plan and this Agreement, together with all
----------------
its Exhibits, constitute the entire agreement and understanding of the parties
with respect to the subject matter of this Agreement, and supersede all prior
understandings and agreements, whether oral or written, between the parties
hereto with respect to the specific subject matter hereof.
22. COUNTERPARTS. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
- 10 -
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by
its duly authorized representative and Purchaser has executed this Agreement in
triplicate as of the Effective Date.
E-TEK DYNAMICS, INC. PURCHASER
By:__________________________ _______________________________
(Signature)
_____________________________ _______________________________
Please print name) (Please print name)
_____________________________
Please print title)
[SIGNATURE PAGE TO E-TEK DYNAMICS, INC. RESTRICTED STOCK PURCHASE AGREEMENT]
- 11 -
<PAGE>
E-TEK DYNAMICS, INC.
1997 EQUITY INCENTIVE PLAN
STOCK OPTION EXERCISE AGREEMENT
This Exercise Agreement is made and entered into as of ____________, 19____
(the "EFFECTIVE DATE") by and between E-Tek Dynamics, Inc., a California
corporation (the "COMPANY"), and the purchaser named below (the "PURCHASER").
Capitalized terms not defined herein shall have the meanings ascribed to them in
the Company's 1997 Equity Incentive Plan (the "PLAN").
PURCHASER: _____________________________________________
SOCIAL SECURITY NUMBER: _____________________________________________
ADDRESS: _____________________________________________
_____________________________________________
TOTAL NUMBER OF SHARES: _____________________________________________
EXERCISE PRICE PER SHARE: _____________________________________________
TOTAL EXERCISE PRICE: _____________________________________________
OPTION NO. ____ DATE OF GRANT: _____________________________________________
TYPE OF OPTION: [ ] INCENTIVE STOCK OPTION
[ ] NONQUALIFIED STOCK OPTION
1. EXERCISE OF OPTION.
------------------
1.1 EXERCISE. Pursuant to exercise of that certain option
--------
("OPTION") granted to Purchaser under the Plan and subject to the terms and
conditions of this Exercise Agreement, Purchaser hereby purchases from the
Company, and the Company hereby sells to Purchaser, the Total Number of Shares
set forth above ("SHARES") of the Company's Common Stock at the Exercise Price
Per Share set forth above ("EXERCISE PRICE"). As used in this Exercise
Agreement, the term "SHARES" refers to the Shares purchased under this Exercise
Agreement and includes all securities received (a) in replacement of the Shares,
(b) as a result of stock dividends or stock splits with respect to the Shares,
and (c) all securities received in replacement of the Shares in a merger,
recapitalization, reorganization or similar corporate transaction.
<PAGE>
1.2 Title To Shares. The exact spelling of the name(s)
---------------
under which Purchaser will take title to the Shares is:
___________________________________________________________________________
___________________________________________________________________________
Purchaser desires to take title to the Shares as follows:
[ ] Individual, as separate property
[ ] Husband and wife, as community property
[ ] Joint Tenants
[ ] Alone or with spouse as trustee(s) of the
following trust (including date):
_______________________________________________________
_______________________________________________________
[ ] Other; please specify: _________________________________
_______________________________________________________
1.3 Payment. Purchaser hereby delivers payment of the
-------
Exercise Price in the manner permitted in the Stock Option Agreement as
follows (check and complete as appropriate):
[ ] in cash (or check) in the amount of $____________, receipt
of which is acknowledged by the Company;
2. DELIVERY.
--------
2.1 Deliveries by Purchase. Purchaser hereby delivers to
----------------------
the Company (i) this Exercise Agreement, (ii) two (2) copies of a blank Stock
Power and Assignment Separate from Stock Certificate in the form of Exhibit 1
attached hereto (the "STOCK POWERS"), both executed by Purchaser (and
Purchaser's spouse, if any), and (iii) the Exercise Price by delivery of a
check.
2.2 Deliveries by the Company. Upon its receipt of the
-------------------------
Exercise Price and all the documents to be executed and delivered by Purchaser
to the Company under Section 2.1, the Company will issue a duly executed stock
certificate evidencing the Shares in the name of Purchaser, to be placed in
escrow as provided in Section 10 until expiration or termination of the
Company's Right of First Refusal described in Section 8.
3. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser represents
-------------------------------------------
and warrants to the Company that:
3.1 Agrees to Terms of the Plan. Purchaser has received a
---------------------------
copy of the Plan and the Stock Option Agreement, has read and understands the
terms of the Plan, the Stock Option Agreement and this Exercise Agreement, and
agrees to be bound by their terms and conditions. Purchaser acknowledges that
there may be adverse tax consequences upon exercise of the Option or disposition
of the Shares, and that Purchaser should consult a tax adviser prior to such
exercise or disposition.
3.2 Purchase for Own Account for Investment. Purchaser is
---------------------------------------
purchasing the Shares for Purchaser's own account for investment purposes only
and not with a view to, or for sale in connection with, a distribution of the
Shares within the meaning of the Securities Act. Purchaser has no present
intention of selling or otherwise disposing of all or any portion of the Shares
and no one other than Purchaser has any beneficial ownership of any of the
Shares.
3.3 Access to Information. Purchaser has had access to all
---------------------
information regarding the Company and its present and prospective business,
assets, liabilities and financial condition that Purchaser
-2-
<PAGE>
reasonably considers important in making the decision to purchase the Shares,
and Purchaser has had ample opportunity to ask questions of the Company's
representatives concerning such matters and this investment.
3.4 Understanding of Risks. Purchaser is fully aware of:
----------------------
(i) the highly speculative nature of the investment in the Shares; (ii) the
financial hazards involved; (iii) the lack of liquidity of the Shares and the
restrictions on transferability of the Shares (e.g., that Purchaser may not be
able to sell or dispose of the Shares or use them as collateral for loans); (iv)
the qualifications and backgrounds of the management of the Company; and (v) the
tax consequences of investment in the Shares. Purchaser is capable of evaluating
the merits and risks of this investment, has the ability to protect Purchaser's
own interests in this transaction and is financially capable of bearing a total
loss of this investment.
3.5 No General Solicitation. At no time was Purchaser
-----------------------
presented with or solicited by any publicly issued or circulated newspaper,
mail, radio, television or other form of general advertising or solicitation in
connection with the offer, sale and purchase of the Shares.
4. COMPLIANCE WITH SECURITIES LAWS.
-------------------------------
4.1 Compliance with Federal Securities Laws. Purchaser
---------------------------------------
understands and acknowledges that the Shares have not been registered with the
SEC under the Securities Act and that, notwithstanding any other provision of
the Stock Option Agreement to the contrary, the exercise of any rights to
purchase any Shares is expressly conditioned upon compliance with the Securities
Act and all applicable state securities laws. Purchaser agrees to cooperate with
the Company to ensure compliance with such laws. The Shares are being issued
under the Securities Act pursuant to the exemption provided by SEC Rule 701.
4.2 Compliance with California Securities Laws. THE PLAN,
------------------------------------------
THE STOCK OPTION AGREEMENT, AND THIS EXERCISE AGREEMENT ARE INTENDED TO COMPLY
WITH SECTION 25102(o) OF THE CALIFORNIA CORPORATIONS CODE. ANY PROVISION OF THIS
EXERCISE AGREEMENT WHICH IS INCONSISTENT WITH SECTION 25102(o) SHALL, WITHOUT
FURTHER ACT OR AMENDMENT BY THE COMPANY OR THE BOARD, BE REFORMED TO COMPLY WITH
THE REQUIREMENTS OF SECTION 25102(o). THE SALE OF THE SECURITIES THAT ARE THE
SUBJECT OF THIS EXERCISE AGREEMENT, IF NOT YET QUALIFIED WITH THE CALIFORNIA
COMMISSIONER OF CORPORATIONS AND NOT EXEMPT FROM SUCH QUALIFICATION, IS SUBJECT
TO SUCH QUALIFICATION, AND THE ISSUANCE OF SUCH SECURITIES, AND THE RECEIPT OF
ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL
UNLESS THE SALE IS EXEMPT. THE RIGHTS OF THE PARTIES TO THIS EXERCISE AGREEMENT
ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED OR AN EXEMPTION
BEING AVAILABLE.
5. RESTRICTED SECURITIES.
---------------------
5.1 No Transfer Unless Registered or Exempt. Purchaser
---------------------------------------
understands that Purchaser may not transfer any Shares unless such Shares are
registered under the Securities Act or qualified under applicable state
securities laws or unless, in the opinion of counsel to the Company, exemptions
from such registration and qualification requirements are available. Purchaser
understands that only the Company may file a registration statement with the SEC
and that the Company is under no obligation to do so with respect to the Shares.
Purchaser has also been advised that exemptions from registration and
qualification may not be available or may not permit Purchaser to transfer all
or any of the Shares in the amounts or at the times proposed by Purchaser.
5.2 SEC Rule 144. In addition, Purchaser has been advised
------------
that SEC Rule 144 promulgated under the Securities Act, which permits certain
limited sales of unregistered securities, is not presently available with
respect to the Shares and, in any event, requires that the Shares be held for a
minimum of one (1) year, and in certain cases two (2) years, after they have
been purchased and paid for (within the meaning of Rule 144). Purchaser
------------
understands that Shares paid for with a Note may not be deemed to be fully "paid
for" within the meaning of Rule 144 unless certain conditions are met and that,
accordingly, the Rule 144 holding period of such Shares may
-3-
<PAGE>
not begin to run until such Shares are fully paid for within the meaning of Rule
144. Purchaser understands that Rule 144 may indefinitely restrict transfer of
the Shares so long as Purchaser remains an "affiliate" of the Company or if
"current public information" about the Company (as defined in Rule 144) is not
publicly available.
5.3 SEC Rule 701. The Shares are issued pursuant to SEC
------------
Rule 701 promulgated under the Securities Act and may become freely tradeable by
non-affiliates (under limited conditions regarding the method of sale) ninety
(90) days after the first sale of Common Stock of the Company of the general
public pursuant to a registration statement filed with and declared effective by
the SEC, subject to the lengthier market standoff agreement contained in Section
7 of this Exercise Agreement or any other agreement entered into by Purchaser.
Affiliates must comply with the provisions (other than the holding period
requirements) of Rule 144.
6. RESTRICTIONS ON TRANSFERS.
-------------------------
6.1 Disposition of Shares. Purchaser hereby agrees that
---------------------
Purchaser shall make no disposition of the Shares (other than as permitted by
this Exercise Agreement) unless and until:
(a) Purchaser shall have notified the Company of the
proposed disposition and provided a written summary of the terms and conditions
of the proposed disposition;
(b) Purchaser shall have complied with all
requirements of this Exercise Agreement applicable to the disposition of the
Shares;
(c) Purchaser shall have provided the Company with
written assurances, in form and substance satisfactory to counsel for the
Company, that (i) the proposed disposition does not require registration of the
Shares under the Securities Act or (ii) all appropriate action necessary for
compliance with the registration requirements of the Securities Act or of any
exemption from registration available under the Securities Act (including Rule
144) has been taken; and
(d) Purchaser shall have provided the Company with
written assurances, in form and substance satisfactory to the Company, that the
proposed disposition will not result in the contravention of any transfer
restrictions applicable to the Shares pursuant to the provisions of the
Commissioner Rules identified in Section 4.2.
6.2 Restriction on Transfer. Purchaser shall not transfer,
-----------------------
assign, grant a lien or security interest in, pledge, hypothecate, encumber or
otherwise dispose of any of the Shares which are subject to the Company's Right
of First Refusal, except as permitted by this Exercise Agreement.
6.3 Transferee Obligations. Each person (other than the
----------------------
Company) to whom the Shares are transferred by means of one of the permitted
transfers specified in this Exercise Agreement must, as a condition precedent to
the validity of such transfer, acknowledge in writing to the Company that such
person is bound by the provisions of this Exercise Agreement and that the
transferred Shares are subject to (i) the Company's Right of First Refusal
granted hereunder and (ii) the market stand-off provisions of Section 7, to the
same extent such Shares would be so subject if retained by the Purchaser.
7. MARKET STANDOFF AGREEMENT. Purchaser agrees in connection
-------------------------
with any registration of the Company's securities that, upon the request of the
Company or the underwriters managing any public offering of the Company's
securities, Purchaser will not sell or otherwise dispose of any Shares without
the prior written consent of the Company or such underwriters, as the case may
be, for such period of time (not to exceed 180 days) after the effective date of
such registration requested by such managing underwriters and subject to all
restrictions as the Company or the underwriters may specify.
8. COMPANY'S RIGHT OF FIRST REFUSAL. Before any Vested Shares
--------------------------------
held by Purchaser or any transferee of such Vested Shares (either being
sometimes referred to herein as the "HOLDER") may be sold or otherwise
transferred (including without limitation a transfer by gift or operation of
law), the Company and/or its
-4-
<PAGE>
assignee(s) shall have an assignable right of first refusal to purchase the
Vested Shares to be sold or transferred (the "OFFERED SHARES") on the terms and
conditions set forth in this Section (THE "RIGHT OF FIRST REFUSAL").
8.1 Notice of Proposed Transfer. The Holder of the Offered
---------------------------
Shares shall deliver to the Company a written notice (THE "NOTICE") stating: (i)
the Holder's bona fide intention to sell or otherwise transfer the Offered
Shares; (ii) the name of each proposed bona fide purchaser or other transferee
("PROPOSED TRANSFEREE"); (iii) the number of Offered Shares to be transferred to
each Proposed Transferee; (iv) the bona fide cash price or other consideration
for which the Holder proposes to transfer the Offered Shares (THE "OFFERED
PRICE"); and (v) that the Holder will offer to sell the Offered Shares to the
Company and/or its assignee(s) at the Offered Price as provided in this Section.
8.2 Exercise of Right of First Refusal. At any time within
----------------------------------
thirty (30) days after the date of the Notice, the Company and/or its
assignee(s) may, by giving written notice to the Holder, elect to purchase the
Offered Shares proposed to be transferred to any one or more of the Proposed
Transferees named in the Notice, at the purchase price determined as specified
below.
8.3 Purchase Price. The purchase price for the Offered
--------------
Shares purchased under this Section will be the Offered Price. If the Offered
Price includes consideration other than cash, then the cash equivalent value of
the non-cash consideration shall conclusively be deemed to be the value of such
non-cash consideration as determined in good faith by the Company's Board of
Directors.
8.4 Payment. Payment of the purchase price for Offered
-------
Shares will be payable, at the option of the Company and/or its assignee(s) (as
applicable), by check or by cancellation of all or a portion of any outstanding
indebtedness of the Holder to the Company (or to such assignee, in the case of a
purchase of Offered Shares by such assignee) or by any combination thereof. The
purchase price will be paid without interest within sixty (60) days after the
Company's receipt of the Notice, or, at the option of the Company and/or its
assignee(s), in the manner and at the time(s) set forth in the Notice.
8.5 Holder's Right to Transfer. If all of the Offered
--------------------------
Shares proposed in the Notice to be transferred to a given Proposed Transferee
are not purchased by the Company and/or its assignee(s) as provided in this
Section, then the Holder may sell or otherwise transfer such Offered Shares to
that Proposed Transferee at the Offered Price or at a higher price, provided
--------
that such sale or other transfer is consummated within 120 days after the date
of the Notice, and provided further, that (i) any such sale or other transfer is
-------- -------
effected in compliance with all applicable securities laws and (ii) the Proposed
Transferee agrees in writing that the provisions of this Section will continue
to apply to the Offered Shares in the hands of such Proposed Transferee. If the
Offered Shares described in the Notice are not transferred to the Proposed
Transferee within such 120 day period, then a new Notice must be given to the
Company, and the Company will again be offered the Right of First Refusal before
any Shares held by the Holder may be sold or otherwise transferred.
8.6 Exempt Transfers. Notwithstanding anything to the
----------------
contrary in this Section, the following transfers of Vested Shares will be
exempt from the Right of First Refusal: (i) the transfer of any or all of the
Vested Shares during Purchaser's lifetime by gift or on Purchaser's death by
will or intestacy to Purchaser's "immediate family" (as defined below) or to a
trust for the benefit of Purchaser or Purchaser's immediate family, provided
that each transferee or other recipient agrees in a writing satisfactory to the
Company that the provisions of this Section will continue to apply to the
transferred Vested Shares in the hands of such transferee or other recipient;
(ii) any transfer of Vested Shares made pursuant to a statutory merger or
statutory consolidation of the Company with or into another corporation or
corporations (except that the Right of First Refusal will continue to apply
thereafter to such Vested Shares, in which case the surviving corporation of
such merger or consolidation shall succeed to the rights of the Company under
this Section unless the agreement of merger or consolidation expressly otherwise
provides); or (iii) any transfer of Vested Shares pursuant to the winding up and
dissolution of the Company. As used herein, the term "immediate family" will
----------------
mean Purchaser's spouse, the lineal descendant or antecedent, father, mother,
brother or sister, adopted child or grandchild of the Purchaser or the
Purchaser's spouse, or the spouse of any child, adopted child, grandchild or
adopted grandchild of Purchaser or the Purchaser's spouse.
-5-
<PAGE>
8.7 Termination of Right of First Refusal. The Company's
-------------------------------------
Right of First Refusal will terminate when the Company's securities become
publicly traded.
9. RIGHTS AS SHAREHOLDER. Subject to the terms and conditions
---------------------
of this Exercise Agreement, Purchaser will have all of the rights of a
shareholder of the Company with respect to the Shares from and after the date
that Shares are issued to Purchaser until such time as Purchaser disposes of the
Shares or the Company and/or its assignee(s) exercise(s) the Right of First
Refusal. Upon an exercise of the Right of First Refusal, Purchaser will have no
further rights as a holder of the Shares so purchased upon such exercise, except
the right to receive payment for the Shares so purchased in accordance with the
provisions of this Exercise Agreement, and Purchaser will promptly surrender the
stock certificate(s) evidencing the Shares so purchased to the Company for
transfer or cancellation.
10. ESCROW. As security for Purchaser's faithful performance of
------
this Exercise Agreement, Purchaser agrees, immediately upon receipt of the stock
certificate(s) evidencing the Shares, to deliver such certificate(s), together
with the Stock Powers executed by Purchaser and by Purchaser's spouse, if any
(with the date and number of Shares left blank), to the Secretary of the Company
or other designee of the Company ("ESCROW HOLDER"), who is hereby appointed to
hold such certificate(s) and Stock Powers in escrow and to take all such actions
and to effectuate all such transfers and/or releases of such Shares as are in
accordance with the terms of this Exercise Agreement. Purchaser and the Company
agree that Escrow Holder will not be liable to any party to this Exercise
Agreement (or to any other party) for any actions or omissions unless Escrow
Holder is grossly negligent or intentionally fraudulent in carrying out the
duties of Escrow Holder under this Exercise Agreement. Escrow Holder may rely
upon any letter, notice or other document executed by any signature purported to
be genuine and may rely on the advice of counsel and obey any order of any court
with respect to the transactions contemplated by this Exercise Agreement. The
Shares will be released from escrow upon termination of the Right of First
Refusal.
11. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS.
--------------------------------------------
11.1 Legends. Purchaser understands and agrees that the
-------
Company will place the legends set forth below or similar legends on any stock
certificate(s) evidencing the Shares, together with any other legends that may
be required by state or federal securities laws, the Company's Articles of
Incorporation or Bylaws, any other agreement between Purchaser and the Company
or any agreement between Purchaser and any third party:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR
UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE
SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT
BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES
ACT AND APPLICABLE STATE SECURITIES LAWS, PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE
THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS
INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE
SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND
SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY
PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE SECURITIES
ACT AND ANY APPLICABLE STATE SECURITIES LAWS. THE SHARES
REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON PUBLIC RESALE AND TRANSFER AND A RIGHT OF FIRST
REFUSAL OPTION HELD BY THE ISSUER AND/OR ITS ASSIGNEE(S) AS SET
FORTH IN A STOCK OPTION EXERCISE AGREEMENT (THE "AGREEMENT")
---------
BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A
COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE
ISSUER. SUCH PUBLIC SALE AND TRANSFER RESTRICTIONS AND THE RIGHT
OF FIRST REFUSAL ARE BINDING ON TRANSFEREES OF THESE SHARES.
-6-
<PAGE>
THE SHARES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO AN
IRREVOCABLE PROXY UNDER SUBDIVISION (e) OF SECTION 705 OF THE
CALIFORNIA CORPORATIONS CODE AS PROVIDED IN THE AGREEMENT.
11.2 Stop-Transfer Instructions. Purchaser agrees that, to
--------------------------
ensure compliance with the restrictions imposed by this Exercise Agreement, the
Company may issue appropriate "stop-transfer" instructions to its transfer
agent, if any, and if the Company transfers its own securities, it may make
appropriate notations to the same effect in its own records.
11.3 Refusal to Transfer. The Company will not be required
-------------------
(i) to transfer on its books any Shares that have been sold or otherwise
transferred in violation of any of the provisions of this Exercise Agreement or
(ii) to treat as owner of such Shares, or to accord the right to vote or pay
dividends to any purchaser or other transferee to whom such Shares have been so
transferred.
12. SALE OF THE COMPANY.
-------------------
12.1 Appointment of Proxy. Purchaser hereby appoints
--------------------
Summit/E-Tek Holdings, L.L.C. ("HOLDINGS") as his or her true and lawful proxy
and attorney-in-fact, with full power of substitution, to vote the Shares and
other voting securities of the Company for the approval and consummation of an
Approved Sale and all such other matters as expressly provided for in this
Section 12. The proxy and power granted by Purchaser pursuant to this Section
12.1 are (or, in the case of any subsequent proxies, will be) coupled with an
interest and are (or, in the case of any subsequent proxies, will be) granted in
accordance with the provisions of Section 705 of the California Corporations
Code and shall each be valid (and irrevocable) until the consummation of an
Approved Sale. The proxy and power granted by Purchaser pursuant to this Section
12.1 (and any subsequent proxies and powers granted by Purchaser as contemplated
below) may, at the request of Holdings, be embodied in one or more separate
instruments containing terms consistent with the terms set forth in this Section
12.1, and in such case Purchaser agrees to promptly execute and deliver each
such separate instrument or instruments. Purchaser acknowledges that the proxy
granted hereby is irrevocable in accordance with the provisions of Section
705(e) of the California Corporations Code until the consummation of an Approved
Sale and is given to secure Purchaser's obligation to vote the Shares and other
voting securities of the Company held by Purchaser for the approval and
consummation of an Approved Sale.
12.2 Approved Sale. For the purposes of this Section 12, an
-------------
"APPROVED SALE" shall mean any sale of all or substantially all (or any
agreement to sell all or substantially all) of the Company's assets determined
on a consolidated basis or any sale or exchange of all or substantially all (or
any agreement to sell or exchange substantially all) of the Company's
outstanding capital stock (whether by merger, sale, recapitalization,
consolidation, reorganization, combination or otherwise) to any Person or
Persons which is approved by the Board and the holders of a majority of the
Shares then held by the Investors; provided that no such transaction or
contemplated transaction shall constitute an Approved Sale hereunder unless: (i)
upon the consummation of the Approved Sale, all of the holders of Common Stock
and Preferred Stock (on an as converted to Common Stock basis) shall receive the
same form and amount of consideration per share of Common Stock, or if any
holders of Common Stock or Preferred Stock are given an option as to the form
and amount of consideration to be received, all holders shall be given the same
option; and (ii) all holders of Shares representing then currently exercisable
rights to acquire shares of Common Stock (including all holders of Preferred
Stock) shall be given an opportunity to either (A) exercise such rights
(including conversion rights in the case of the holders of Preferred Stock)
prior to the consummation of the Approved Sale and participate in such sale as
holders of Common Stock or (B) upon the consummation of the Approved Sale,
receive in exchange for such rights consideration equal to the amount determined
by multiplying (1) the same amount of consideration per share of Common Stock
received by the holders of Common Stock in connection with the Approved Sale
less the exercise price (if any) per share of Common Stock of such rights to
acquire Common Stock by (2) the number of shares of Common Stock represented by
such then currently exercisable rights, and in the case if both clause (A) and
clause (B) above, such holders of rights to acquire shares of Common Stock shall
also receive upon the exercise or exchange of such rights such additional
consideration, if any, as may be payable in connection with such exercise or
exchange (including, with
-7-
<PAGE>
respect to the Preferred Stock, all accrued and unpaid dividends thereon payable
pursuant to the terms of the Articles of Incorporation). The following
definitions shall apply for the purposes of this Section 12.2 only:
(i) "PERSON" shall mean 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;
(ii) "SHARES" shall mean (a) any Common Stock
purchased or otherwise acquired by any Shareholder, (b) any Common Stock issued
or issuable directly or indirectly upon the conversion, exercise or exchange of
any securities purchased or otherwise acquired by any Shareholder which are
convertible into or exercisable or exchangeable for Common Stock (including the
Preferred Stock and any stock options granted by the Company) and (c) any
capital stock or other equity securities issued or issuable directly or
indirectly with respect to the securities referred to in clauses (a) or (b)
above 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 securities constituting Shares hereunder,
such securities shall cease to be Shares when they have been (x) effectively
registered under the Securities Act and disposed of in accordance with the
registration statement covering them or (y) sold 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; other than in this Section 12.2 and as
expressly noted in Section 12.3, the term "SHARES" shall have the meaning
ascribed to it in Section 1.1;
(iii) "INVESTORS" shall mean the Persons who purchased
shares of the Company's Preferred Stock pursuant to that certain
Recapitalization Agreement dated as of June 27, 1997;
(iv) "SHAREHOLDERS" shall collectively mean the
Persons who owned shares of the Company's Common Stock or Preferred Stock
immediately after the July 23, 1997 recapitalization of the Company;
(v) "PREFERRED STOCK" shall mean the Company's Class
A Convertible Preferred Stock; and
(vi) "ARTICLES OF INCORPORATION" shall mean the
Company's Amended and Restated Articles of Incorporation as in effect from time
to time.
12.3 Sale of Stock. If the Approved Sale is structured as a
-------------
sale of stock, Purchaser shall agree to sell the Shares on the terms and
conditions approved by the Board and the holders of a majority of the Shares (as
such term is defined in Section 12.2) held by the Investors (as such term is
defined in Section 12.2).
12.4 Transfer of Shares. Prior to any transfer of Shares (as
------------------
defined in Section 1.1), other than in connection with an Approved Sale, the
holder thereof shall cause the prospective transferee to agree in writing to be
bound by the provisions of this Section 12.
12.5 Termination. The provisions of this Section 12 shall
-----------
terminate upon the consummation of an offering by the Company of its Common
Stock to the public pursuant to an effective registration statement under the
Securities Act or any comparable statement under any similar federal statute
then in force.
13. TAX CONSEQUENCES. PURCHASER UNDERSTANDS THAT PURCHASER MAY
----------------
SUFFER ADVERSE TAX CONSEQUENCES AS A RESULT OF PURCHASER'S PURCHASE OR
DISPOSITION OF THE SHARES. PURCHASER REPRESENTS THAT PURCHASER HAS CONSULTED
WITH ANY TAX ADVISER PURCHASER DEEMS ADVISABLE IN CONNECTION WITH THE PURCHASE
OR DISPOSITION OF THE SHARES AND THAT PURCHASER IS NOT RELYING ON THE COMPANY
FOR ANY TAX ADVICE. Set forth below is a brief summary as of the date the Plan
was adopted by the Board of some of the federal and California tax consequences
of exercise of the Option and disposition of the Shares. THIS SUMMARY IS
NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT
-8-
<PAGE>
TO CHANGE. PURCHASER SHOULD CONSULT A TAX ADVISER BEFORE EXECUTING THIS OPTION
OR DISPOSING OF THE SHARES.
13.1 Exercise of Incentive Stock Option. If the Option
----------------------------------
qualifies as an incentive stock option, there will be no regular federal income
tax liability or California income tax liability upon the exercise of the
Option, although the excess, if any, of the Fair Market Value of the Shares on
the date of exercise over the Exercise Price will be treated as a tax preference
item for federal income tax purposes and may subject Purchaser to the
alternative minimum tax in the year of exercise.
13.2 Exercise of Nonqualified Stock Option. If the Option
-------------------------------------
does not qualify as an incentive stock option, there may be a regular federal
income tax liability and a California income tax liability upon the exercise of
the Option. Purchaser will be treated as having received compensation income
(taxable at ordinary income tax rates) equal to the excess, if any, of the Fair
Market Value of the Shares on the date of exercise over the Exercise Price. If
Purchaser is or was an employee of the Company, the Company will be required to
withhold from Purchaser's compensation or collect from Purchaser and pay to the
applicable taxing authorities an amount equal to a percentage of this
compensation income at the time of exercise.
13.3 Disposition of Shares. If the Shares are held for more
---------------------
than twelve (12) months after the date of the acquisition of the Shares pursuant
to the exercise of the Option for Vested Shares and, in the case of an ISO, are
disposed of more than two years after the Date of Grant, any gain realized on
disposition of the Shares will be treated as long term capital gain for federal
and California income tax purposes. If Shares purchased under an ISO are
disposed of within the applicable one year or two year period, any gain realized
on such disposition will be treated as compensation income (taxable at ordinary
income rates) to the extent of the excess, if any, of the Fair Market Value of
the Shares on the date of exercise over the Exercise Price. The Company may be
required to withhold from Purchaser's compensation or collect from Purchaser and
pay to the applicable taxing authorities an amount equal to a percentage of this
compensation income at the time of exercise.
14. COMPLIANCE WITH LAWS AND REGULATIONS. The issuance and
------------------------------------
transfer of the Shares will be subject to and conditioned upon compliance by the
Company and Purchaser with all applicable state and federal laws and regulations
and with all applicable requirements of any stock exchange or automated
quotation system on which the Company's Common Stock may be listed or quoted at
the time of such issuance or transfer.
15. SUCCESSORS AND ASSIGNS. The Company may assign any of its
----------------------
rights under this Exercise Agreement, including its right to repurchase Shares
under the Right of First Refusal. This Exercise Agreement shall be binding upon
and inure to the benefit of the successors and assigns of the Company. Subject
to the restrictions on transfer herein set forth, this Exercise Agreement will
be binding upon Purchaser and Purchaser's heirs, executors, administrators,
legal representatives, successors and assigns.
16. GOVERNING LAW: SEVERABILITY. This Exercise Agreement shall
---------------------------
be governed by and construed in accordance with the internal laws of the State
of California as such laws are applied to agreements between California
residents entered into and to be performed entirely within California. If any
provision of this Exercise Agreement is determined by a court of law to be
illegal or unenforceable, then such provision will be enforced to the maximum
extent possible and the other provisions will remain fully effective and
enforceable.
17. NOTICES. Any notice required to be given or delivered to the
-------
Company shall be in writing and addressed to the Corporate Secretary of the
Company at its principal corporate offices. Any notice required to be given or
delivered to Purchaser shall be in writing and addressed to Purchaser at the
address indicated above or to such other address as Purchaser may designate in
writing from time to time to the Company. All notices shall be deemed
effectively given upon personal delivery, three (3) days after deposit in the
United States mail by certified or registered mail (return receipt requested),
one (1) business day after its deposit with any return receipt express courier
(prepaid), or one (1) business day after transmission by rapifax or telecopier.
-9-
<PAGE>
18. FURTHER INSTRUMENTS. The parties agree to execute such
-------------------
further instruments and to take such further action as may be reasonably
necessary to carry out the purposes and intent of this Exercise Agreement.
19. HEADINGS. The captions and headings of this Exercise
--------
Agreement are included for ease of reference only and will be disregarded in
interpreting or construing this Exercise Agreement. All references herein to
Sections will refer to Sections of this Exercise Agreement.
20. ENTIRE AGREEMENT. The Plan, the Stock Option Agreement and
----------------
this Exercise Agreement, together with all its Exhibits, constitute the entire
agreement and understanding of the parties with respect to the subject matter of
this Exercise Agreement, and supersede all prior understandings and agreements,
whether oral or written, between the parties hereto with respect to the specific
subject matter hereof.
IN WITNESS WHEREOF, the Company has caused this Exercise
Agreement to be executed in triplicate by its duly authorized representative and
Purchaser has executed this Exercise Agreement in triplicate as of Effective
Date.
E-TEK DYNAMICS, INC. PURCHASER
By:________________________________ ______________________________________
(Signature)
___________________________________ ______________________________________
(Please print Name) (Please print name)
___________________________________
(Please print title)
[SIGNATURE PAGE TO E-TEK DYNAMICS, INC. STOCK OPTION EXERCISE AGREEMENT]
-10-
<PAGE>
E-TEK DYNAMICS, INC.
1997 EQUITY INCENTIVE PLAN
STOCK OPTION AGREEMENT
This Stock Option Agreement ("AGREEMENT") is made and entered
into as of the date of grant set forth below (the "DATE OF GRANT") by and
between E-Tek Dynamics, Inc., a California corporation (the "COMPANY"), and the
participant named below ("PARTICIPANT"). Capitalized terms not defined herein
shall have the meanings ascribed to them in the Company's 1997 Equity Incentive
Plan (the "PLAN").
PARTICIPANT: ______________________________
SOCIAL SECURITY NUMBER: ______________________________
ADDRESS: ______________________________
______________________________
TOTAL OPTION SHARES: ______________________________
EXERCISE PRICE PER SHARE:
DATE OF GRANT:
EXPIRATION DATE:
TYPE OF STOCK OPTION
(CHECK ONE): [ ] INCENTIVE STOCK OPTION
[ ] NONQUALIFIED STOCK OPTION
1. GRANT OF OPTION. The Company hereby grants to Participant an
---------------
option (this "OPTION") to purchase the total number of shares of Common Stock of
the Company set forth above as Total Option Shares (the "SHARES") at the
Exercise Price Per Share set forth above (the "EXERCISE PRICE"), subject to all
of the terms and conditions of this Agreement and the Plan. If designated as an
Incentive Stock Option above, the Option is intended to qualify as an "incentive
stock option" ("ISO") within the meaning of Section 422 of the Internal Revenue
Code of 1986, as amended (the "CODE").
2. EXERCISE PERIOD.
---------------
2.1 Exercise Period of Option. This Option shall become
-------------------------
exercisable as it vests. For so long (and only for so long) as Participant
continuously provides services to the Company, any Subsidiary or Parent of the
Company at all times after the Date of Grant, one forty-eighth (1/48) of the
Shares will become Vested Shares at the end of each full month elapsed after the
Date of Grant. If application of the vesting percentage causes a fractional
share, such share shall be rounded down to the nearest whole share. This Option
shall not be exercisable with respect to Unvested Shares.
2.2 Vesting of Options. Shares that are vested pursuant to
------------------
the schedule set forth in Section 2.1 are "VESTED SHARES." Shares that are not
vested pursuant to the schedule set forth in Section 2.1 are "UNVESTED SHARES."
<PAGE>
2.3 Expiration. The Option shall expire on the Expiration
----------
Date set forth above or earlier as provided in Section 3 below.
3. TERMINATION.
-----------
3.1 Termination for Any Reason Except Death, Disability or
------------------------------------------------------
Cause. If Participant is Terminated for any reason, except death, Disability or
- -----
for Cause, the Option, to the extent (and only to the extent) that it would have
been exercisable by Participant on the Termination Date, may be exercised by
Participant no later than three (3) months after the Termination Date, but in
any event no later than the Expiration Date.
3.2 Termination Because of Death or Disability. If
------------------------------------------
Participant is Terminated because of death or Disability of Participant (or
Participant dies within three (3) months of Termination other than because of
Participant's Disability or for Cause), the Option, to the extent that it is
exercisable by Participant on the Termination Date, may be exercised by
Participant (or Participant's legal representative) no later than twelve (12)
months after the Termination Date, but in any event no later than the Expiration
Date. Any exercise beyond three (3) months after the Termination Date when the
Termination is for any reason other than the Participant's death or disability,
within the meaning of Section 22(e)(3) of the Code, is deemed to be an NQSO.
3.3 Termination for Cause. If Participant is terminated for
---------------------
Cause, then the Option will expire on Participant's Termination Date, or at such
later time and on such conditions as are determined by the Committee.
3.4 No Obligation to Employ. Nothing in the Plan or this
-----------------------
Agreement shall confer on Participant any right to continue in the employ of, or
other relationship with, the Company or any Parent or Subsidiary of the Company,
or limit in any way the right of the Company or any Parent or Subsidiary of the
Company to terminate Participant's employment or other relationship at any time,
with or without Cause.
4. MANNER OF EXERCISE.
------------------
4.1 Stock Option Exercise Agreement. To exercise this
-------------------------------
Option, Participant (or in the case of exercise after Participant's death or
incapacity, Participant's executor, administrator, heir or legatee, as the case
may be) must deliver to the Company an executed stock option exercise agreement
in the form attached hereto as Exhibit A, or in such other form as may be
---------
approved by the Company from time to time (the "EXERCISE AGREEMENT"), which
shall set forth, inter alia, Participant's election to exercise the Option, the
----- ----
number of Vested Shares being purchased, any restrictions imposed on the Shares
and any representations, warranties and agreements regarding Participant's
investment intent and access to information as may be required by the Company to
comply with applicable securities laws. If someone other than Participant
exercises the Option, then such person must submit documentation reasonably
acceptable to the Company that such person has the right to exercise the Option.
4.2 Limitations on Exercise. The Option may not be
-----------------------
exercised unless such exercise is in compliance with all applicable federal and
state securities laws, as they are in effect on the date of exercise. The Option
may not be exercised as to fewer than one hundred (100) Shares unless it is
exercised as to all Shares as to which the Option is then exercisable.
4.3 Payment. The Exercise Agreement shall be accompanied by
-------
full payment of the Exercise Price for the shares being purchased in cash (by
check), or where permitted by law:
(a) provided that a public market for the Company's stock
exists. (1) through a "same day sale" commitment from
Participant and a broker-dealer that is a member of the
National Association of Securities Dealers (an "NASD
DEALER") whereby Participant irrevocably elects to exercise
the Option and to sell a portion of the Shares so purchased
to pay for the Exercise Price and whereby the NASD Dealer
irrevocably commits upon receipt of such Shares to forward
the Exercise Price directly to the Company, or (2) through a
--
"margin" commitment from Participant and an NASD Dealer
whereby Participant irrevocably
-2-
<PAGE>
elects to exercise the Option and to pledge the Shares so
purchased to the NASD Dealer in a margin account as security
for a loan from the NASD Dealer in the amount of the
Exercise Price, and whereby the NASD Dealer irrevocably
commits upon receipt of such Shares to forward the Exercise
Price directly to the Company; or
4.4 Tax Withholding. Prior to the issuance of the Shares
---------------
upon exercise of the Option. Participant must pay or provide for any applicable
federal, state and local withholding obligations of the Company. If the
Committee permits, Participant may provide for payment of withholding taxes upon
exercise of the Option by requesting that the Company retain Shares with a Fair
Market Value equal to the minimum amount of taxes required to be withheld. In
such case, the Company shall issue the net number of Shares to the Participant
by deducting the Shares retained from the Shares issuable upon exercise.
4.5 Issuance of Shares. Provided that the Exercise
------------------
Agreement and payment are in form and substance satisfactory to counsel for the
Company, the Company shall issue the Shares registered in the name of
Participant, Participant's authorized assignee, or Participant's legal
representative, and shall deliver certificates representing the Shares with the
appropriate legends affixed thereto.
5. NOTICE OF DISQUALIFYING DISPOSITION OF ISO SHARES. If the
-------------------------------------------------
Option is an ISO, and if Participant sells or otherwise disposes of any of the
Shares acquired pursuant to the ISO on or before the later of (a) the date two
(2) years after the Date of Grant, and (b) the date one (1) year after transfer
of such Shares to Participant upon exercise of the Option, Participant shall
immediately notify the Company in writing of such disposition. Participant
agrees that Participant may be subject to income tax withholding by the Company
on the compensation income recognized by Participant from the early disposition
by payment in cash or out of the current wages or other compensation payable to
Participant.
6. COMPLIANCE WITH LAWS AND REGULATIONS. The Plan and this
------------------------------------
Agreement are intended to comply with Section 25102(o) of the California
Corporations Code. Any provision of this Agreement which is inconsistent with
Section 25102(o) shall, without further act or amendment by the Company or the
Board, be reformed to comply with the requirements of Section 25102(o). The
exercise of the Option and the issuance and transfer of Shares shall be subject
to compliance by the Company and Participant with all applicable requirements of
federal and state securities laws and with all applicable requirements of any
stock exchange on which the Company's Common Stock may be listed at the time of
such issuance or transfer. Participant understands that the Company is under no
obligation to register or qualify the Shares with the SEC, any state securities
commission or any stock exchange to effect such compliance.
7. NONTRANSFERABILITY OF OPTION. The Option may not be
----------------------------
transferred in any manner other than by will or by the laws of descent and
distribution and may be exercised during the lifetime of Participant only by
Participant or in the event of Participant's incapacity, by Participant's
executor, administrator, heir or legatee. The terms of the Option shall be
binding upon the executors, administrators, successors and assigns of
Participant.
8. COMPANY'S RIGHT OF FIRST REFUSAL. Before any Vested Shares
--------------------------------
held by Participant or any transferee of such Vested Shares (either being
sometimes referred to herein as the "HOLDER") may be sold or otherwise
transferred (including without limitation a transfer by gift or operation of
law), the Company and/or its assignee(s) shall have an assignable right of first
refusal to purchase the Vested Shares to be sold or transferred (the "OFFERED
SHARES") on the terms and conditions set forth in the Exercise Agreement (the
"RIGHT OF FIRST REFUSAL").
8.1 Termination of Right of First Refusal. The Company's
-------------------------------------
Right of First Refusal will terminate when the Company's securities become
publicly traded.
9. TAX CONSEQUENCES. Set forth below is a brief summary as of
----------------
the Date of Grant of some of the federal and California tax consequences of
exercise of the Option and disposition of the Shares. THIS SUMMARY IS
NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE.
PARTICIPANT SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THE OPTION OR
DISPOSING OF THE SHARES.
-3-
<PAGE>
9.1 Exercise of ISO. If the Option qualifies as an ISO,
---------------
there will be no regular federal or California income tax liability upon the
exercise of the Option, although the excess, if any, of the Fair Market Value of
the Shares on the date of exercise over the Exercise Price will be treated as a
tax preference item for federal alternative minimum tax purposes and may subject
the Participant to the alternative minimum tax in the year of exercise.
9.2 Exercise of Nonqualified Stock Option. If the Option
-------------------------------------
does not qualify as an ISO, there may be a regular federal and California income
tax liability upon the exercise of the Option. Participant will be treated as
having received compensation income (taxable at ordinary income tax rates) equal
to the excess, if any, of the Fair Market Value of the Shares on the date of
exercise over the Exercise Price. If Participant is a current or former employee
of the Company, the Company will be required to withhold from Participant's
compensation or collect from Participant and pay to the applicable taxing
authorities an amount equal to a percentage of this compensation income at the
time of exercise.
9.3 Disposition of Shares. If the Shares are held for more
---------------------
than one year after the date of the issuance of the Shares pursuant to the
exercise of the Option for Vested Shares and, in the case of an ISO, are
disposed of more than two years after the Date of Grant, any gain realized on
disposition of the Shares will be treated as long term capital gain for federal
and California income tax purposes. If Shares purchased under an ISO are
disposed of within the applicable one year or two year period, any gain realized
on such disposition will be treated as compensation income (taxable at ordinary
income rates) to the extent of the excess, if any, of the Fair Market Value of
the Shares on the date of exercise over the Exercise Price. The Company may be
required to withhold from Participant's compensation or collect from Participant
and pay to the applicable taxing authorities an amount equal to a percentage of
this compensation income at the time of exercise.
10. PRIVILEGES OF STOCK OWNERSHIP. Participant shall not have
-----------------------------
any of the rights of a shareholder with respect to any Shares until the Shares
are issued to Participant.
11. INTERPRETATION. Any dispute regarding the interpretation of
--------------
this Agreement shall be submitted by Participant or the Company to the Committee
for review. The resolution of such a dispute by the Committee shall be final and
binding on the Company and Participant.
12. ENTIRE AGREEMENT. The Plan is incorporated herein by
----------------
reference. This Agreement and the Plan constitute the entire agreement of the
parties and supersede all prior undertakings and agreements with respect to the
subject matter hereof.
13. NOTICES. Any notice required to be given or delivered to the
-------
Company under the terms of this Agreement shall be in writing and addressed to
the Corporate Secretary of the Company at its principal corporate offices. Any
notice required to be given or delivered to Participant shall be in writing and
addressed to Participant at the address indicated above or to such other address
as such party may designate in writing from time to time to the Company. All
notices shall be deemed to have been given or delivered upon: personal delivery;
three (3) days after deposit in the United States mail by certified or
registered mail (return receipt requested); one (1) business day after deposit
with any return receipt express courier (prepaid); or one (1) business day after
transmission by facsimile, rapifax or telecopier.
14. SUCCESSORS AND ASSIGNS. The Company may assign any of its
----------------------
rights under this Agreement including its Right of First Refusal. This Agreement
shall be binding upon and inure to the benefit of the successors and assigns of
the Company. Subject to the restrictions on transfer set forth herein, this
Agreement shall be binding upon Participant and Participant's heirs, executors,
administrators, legal representatives, successors and assigns.
15. GOVERNING LAW. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of California as such laws
are applied to agreements between California residents entered into and to be
performed entirely within California. If any provision of this Agreement is
determined by a court of law to
-4-
<PAGE>
be illegal or unenforceable, then such provision will be enforced to the maximum
extent possible and the other provisions will remain fully effective and
enforceable.
16. ACCEPTANCE. Participant hereby acknowledges receipt of a
----------
copy of the Plan and this Agreement. Participant has read and understands the
terms and provisions thereof, and accepts the Option subject to all the terms
and conditions of the Plan and this Agreement. Participant acknowledges that
there may be adverse tax consequences upon exercise of the Option or disposition
of the Shares and that Participant should consult a tax adviser prior to such
exercise or disposition.
17. COUNTERPARTS. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized representative and Participant has executed this
Agreement in triplicate as of the Date of Grant.
E-TEK DYNAMICS, INC. PARTICIPANT
By: ___________________________________ ___________________________________
(Signature)
_______________________________________ ___________________________________
(Please print name) (Please print name)
_______________________________________
(Please print title)
-5-
<PAGE>
EXHIBIT 10.14
E-TEK DYNAMICS, INC.
--------------------
1997 EXECUTIVE EQUITY INCENTIVE PLAN
------------------------------------
As Adopted October 14, 1997
1. PURPOSE. The purpose of this Plan is to provide incentives to attract,
-------
retain and motivate eligible persons whose present and potential contributions
are important to the success of the Company, its Parent and Subsidiaries, by
offering them an opportunity to participate in the Company's future performance
through awards of Options, Restricted Stock and Stock Bonuses. Capitalized terms
not defined in the text are defined in Section 23.
2. SHARES SUBJECT TO THE PLAN.
--------------------------
2.1 Number of Shares Available. Subject to Sections 2.2 and 18, the
--------------------------
total number of Shares reserved and available for grant and issuance pursuant to
this Plan will be 4,444,445 Shares. Subject to Sections 2.2 and 18, Shares will
again be available for grant and issuance in connection with future Awards under
this Plan that: (a) are subject to issuance upon exercise of an Option but cease
to be subject to such Option for any reason other than exercise of such Option,
(b) are subject to an Award granted hereunder but are forfeited or are
repurchased by the Company as set forth herein, or (c) are subject to an Award
that otherwise terminates without Shares being issued. At all times the Company
will reserve and keep available a sufficient number of Shares as will be
required to satisfy the requirements of all outstanding Options granted under
this Plan and all other outstanding but unvested Awards granted under this Plan.
2.2 Adjustment of Shares. In the event that the number of outstanding
--------------------
shares of the Company's Common Stock is changed by a stock dividend,
recapitalization, stock split, reverse stock split, subdivision, combination,
reclassification or similar change in the capital structure of the Company
without consideration, then (a) the number of Shares reserved for issuance under
this Plan, (b) the Exercise Prices of and number of Shares subject to
outstanding Options, and (c) the Purchase Price of and number of Shares subject
to other outstanding Awards will be proportionately adjusted, subject to any
required action by the Board or the shareholders of the Company and compliance
with applicable securities laws; provided, however, that fractions of a Share
-------- -------
will not be issued but will either be paid in cash at Fair Market Value of such
fraction of a Share or will be rounded down to the nearest whole Share, as
determined by the Committee.
3. ELIGIBILITY. ISOs (as defined in Section 5 below) and other Awards may
-----------
be granted only to employees who are officers or directors of the Company or of
a Parent or Subsidiary of the Company. A person may be granted more than one
Award under this Plan.
4. ADMINISTRATION.
--------------
4.1 Committee Authority. This Plan will be administered by the
-------------------
Committee or the Board acting as the Committee. Subject to the general purposes,
terms and conditions of this Plan, and to the direction of the Board, the
Committee will have full power to implement and carry out this Plan. Without
limitation, the Committee will have the authority to:
(a) construe and interpret this Plan, any Award Agreement and any
other agreement or document executed pursuant to this Plan;
(b) prescribe, amend and rescind rules and regulations relating to
this Plan;
(c) select persons to receive Awards;
<PAGE>
(d) determine the form and terms of Awards;
(e) determine the number of Shares or other consideration subject to
Awards;
(f) determine whether Awards will be granted singly, in combination
with, in tandem with, in replacement of, or as alternatives to,
other Awards under this Plan or any other incentive or
compensation plan of the Company or any Parent or Subsidiary of
the Company;
(g) grant waivers of Plan or Award conditions;
(h) determine the vesting, exercisability and payment of Awards;
(i) correct any defect, supply any omission, or reconcile any
inconsistency in this Plan, any Award, any Award Agreement, any
Exercise Agreement or any Restricted Stock Purchase Agreement;
(j) determine whether an Award has been earned; and
(k) make all other determinations necessary or advisable for the
administration of this Plan.
4.2 Committee Discretion. Any determination made by the Committee
--------------------
with respect to any Award will be made in its sole discretion at the time of
grant of the Award or, unless in contravention of any express term of this Plan
or Award, and subject to Section 5.9, at any later time, and such determination
will be final and binding on the Company and on all persons having an interest
in any Award under this Plan. The Committee may delegate to one or more officers
of the Company the authority to grant an Award under this Plan.
5. OPTIONS. The Committee may grant Options to eligible persons and will
-------
determine whether such Options will be Incentive Stock Options within the
meaning of the Code ("ISOs") or Nonqualified Stock Options ("NQSOs"), the number
of Shares subject to the Option, the Exercise Price of the Option, the period
during which the Option may be exercised, and all other terms and conditions of
the Option, subject to the following:
5.1 Form of Option Grant. Each Option granted under this Plan will be
--------------------
evidenced by an Award Agreement which will expressly identify the Option as an
ISO or an NQSO ("Stock Option Agreement"), and will be in such form and contain
such provisions (which need not be the same for each Participant) as the
Committee may from time to time approve, and which will comply with and be
subject to the terms and conditions of this Plan.
5.2 Date of Grant. The date of grant of an Option will be the date on
-------------
which the Committee makes the determination to grant such Option, unless
otherwise specified by the Committee. The Stock Option Agreement and a copy of
this Plan will be delivered to the Participant within a reasonable time after
the granting of the Option.
5.3 Exercise Period. Options may be exercisable immediately (subject
---------------
to repurchase pursuant to Section 12 of this Plan) or may be exercisable within
the times or upon the events determined by the Committee as set forth in the
Stock Option Agreement governing such Option; provided, however, that no Option
-------- -------
will be exercisable after the expiration of ten (10) years from the date the
Option is granted; and provided further that no ISO granted to a person who
-------- -------
directly or by attribution owns more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or of any Parent or
Subsidiary of the Company ("TEN PERCENT SHAREHOLDER") will be exercisable after
the expiration of five (5) years from the date the ISO is granted. The Committee
also may provide for Options to become exercisable at one time or from time to
time, periodically or otherwise, in such number of Shares or percentage of
Shares as the Committee determines. Subject to earlier termination of the Option
as provided herein, each Participant who is not an officer, director or
consultant of the Company or of a Parent or Subsidiary of the Company shall have
the right to exercise an Option granted
2
<PAGE>
hereunder at the rate of at least twenty percent (20%) per year over five (5)
years from the date such Option is granted.
5.4 Exercise Price. The Exercise Price of an Option will be
--------------
determined by the Committee when the Option is granted and may not be less than
85% of the Fair Market Value of the Shares on the date of grant; provided that
(i) the Exercise Price of an ISO will not be less than 100% of the Fair Market
Value of the Shares on the date of grant and (ii) the Exercise Price of any ISO
granted to a Ten Percent Shareholder will not be less than 110% of the Fair
Market Value of the Shares on the date of grant. Payment for the Shares
purchased must be made in accordance with Section 8 of this Plan.
5.5 Method of Exercise. Options may be exercised only by delivery to
------------------
the Company of a written stock option exercise agreement (the "EXERCISE
AGREEMENT") in a form approved by the Committee (which need not be the same for
each Participant), stating the number of Shares being purchased, the
restrictions imposed on the Shares purchased under such Exercise Agreement, if
any, and such representations and agreements regarding Participant's investment
intent and access to information and other matters, if any, as may be required
or desirable by the Company to comply with applicable securities laws, together
with payment in full of the Exercise Price, and any applicable taxes, for the
number of Shares being purchased.
5.6 Termination. Subject to earlier termination pursuant to Sections
-----------
18 and 19 and notwithstanding the exercise periods set forth in the Stock Option
Agreement, exercise of an Option will always be subject to the following:
(a) If the Participant is Terminated for any reason except
death, Disability or for Cause, then the Participant may
exercise such Participant's Options only to the extent that
such Options are exercisable upon the Termination Date no
later than three (3) months after the Termination Date (or
such shorter time period, not less than thirty (30) days, as
may be specified in the Stock Option Agreement) or such
longer time period not exceeding five (5) years after the
Termination Date as may be determined by the Committee, with
any exercise beyond three (3) months after the Termination
Date deemed to be an NQSO, but in any event, no later than
the expiration date of the Options.
(b) If the Participant is Terminated because of Participant's
death or Disability (or the Participant dies within three
(3) months after a Termination other than because of
Participant's Disability or Cause), then Participant's
Options may be exercised only to the extent that such
Options are exercisable by Participant on the Termination
Date and must be exercised by Participant (or Participant's
legal representative or authorized assignee) no later than
twelve (12) months after the Termination Date (or such
shorter time period, not less than six (6) months, as may be
specified in the Stock Option Agreement) or such longer time
period not exceeding five (5) years after the Termination
Date as may be determined by the Committee, with any
exercise beyond (a) three (3) months after the Termination
Date when the Termination is for any reason other than the
Participant's death or disability, within the meaning of
Section 22(e)(3) of the Code, or (b) twelve (12) months
after the Termination Date when the Termination is for
Participant's death or disability, within the meaning of
Section 22(e)(3) of the Code, deemed to be an NQSO, but in
any event no later than the expiration date of the Options.
(c) If the Participant is terminated for Cause, then
Participant's Options shall expire on such Participant's
Termination Date, or at such later time and on such
conditions as are determined by the Committee.
5.7 Limitations on Exercise. The Committee may specify a reasonable
-----------------------
minimum number of Shares that may be purchased on any exercise of an Option,
provided that such minimum number will not prevent Participant from exercising
the Option for the full number of Shares for which it is then exercisable.
3
<PAGE>
5.8 Limitations on ISOs. The aggregate Fair Market Value (determined
-------------------
as of the date of grant) of Shares with respect to which ISOs are exercisable
for the first time by a Participant during any calendar year (under this Plan or
under any other incentive stock option plan of the Company or any Parent or
Subsidiary of the Company) will not exceed $100,000. If the Fair Market Value of
Shares on the date of grant with respect to which ISOs are exercisable for the
first time by a Participant during any calendar year exceeds $100,000, then the
Options for the first $100,000 worth of Shares to become exercisable in such
calendar year will be ISOs and the Options for the amount in excess of $100,000
that become exercisable in that calendar year will be NQSOs. In the event that
the Code or the regulations promulgated thereunder are amended after the
Effective Date (as defined in Section 19 below) to provide for a different limit
on the Fair Market Value of Shares permitted to be subject to ISOs, then such
different limit will be automatically incorporated herein and will apply to any
Options granted after the effective date of such amendment.
5.9 Modification, Extension or Renewal. The Committee may modify,
----------------------------------
extend or renew outstanding Options and authorize the grant of new Options in
substitution therefor, provided that any such action may not, without the
written consent of a Participant, impair any of such Participant's rights under
any Option previously granted. Any outstanding ISO that is modified, extended,
renewed or otherwise altered will be treated in accordance with Section 424(h)
of the Code. The Committee may reduce the Exercise Price of outstanding Options
without the consent of Participants affected by a written notice to them;
provided, however, that the Exercise Price may not be reduced below the minimum
- -------- -------
Exercise Price that would be permitted under Section 5.4 of this Plan for
Options granted on the date the action is taken to reduce the Exercise Price.
5.10 No Disqualification. Notwithstanding any other provision in this
-------------------
Plan, no term of this Plan relating to ISOs will be interpreted, amended or
altered, nor will any discretion or authority granted under this Plan be
exercised, so as to disqualify this Plan under Section 422 of the Code or,
without the consent of the Participant affected, to disqualify any ISO under
Section 422 of the Code.
6. RESTRICTED STOCK. A Restricted Stock Award is an offer by the Company
----------------
to sell to an eligible person Shares that are subject to restrictions. The
Committee will determine to whom an offer will be made, the number of Shares the
person may purchase, the Purchase Price, the restrictions to which the Shares
will be subject, and all other terms and conditions of the Restricted Stock
Award, subject to the following:
6.1 Form of Restricted Stock Award. All purchases under a Restricted
------------------------------
Stock Award made pursuant to this Plan will be evidenced by an Award Agreement
("RESTRICTED STOCK PURCHASE AGREEMENT") that will be in such form (which need
not be the same for each Participant) as the Committee will from time to time
approve, and will comply with and be subject to the terms and conditions of this
Plan. The Restricted Stock Award will be accepted by the Participant's execution
and delivery of the Restricted Stock Purchase Agreement and full payment for the
Shares to the Company within thirty (30) days from the date the Restricted Stock
Purchase Agreement is delivered to the person. If such person does not execute
and deliver the Restricted Stock Purchase Agreement along with full payment for
the Shares to the Company within thirty (30) days, then the offer will
terminate, unless otherwise determined by the Committee.
6.2 Purchase Price. The Purchase Price of Shares sold pursuant to a
--------------
Restricted Stock Award will be determined by the Committee and will be at least
85% of the Fair Market Value of the Shares on the date the Restricted Stock
Award is granted or at the time the purchase is consummated, except in the case
of a sale to a Ten Percent Shareholder, in which case the Purchase Price will be
100% of the Fair Market Value on the date the Restricted Stock Award is granted
or at the time the purchase is consummated. Payment of the Purchase Price may be
made in accordance with Section 8 of this Plan.
6.3 Restrictions. Restricted Stock Awards may be subject to the
------------
restrictions set forth in Section 12 of this Plan or such other restrictions (if
any) as the Committee may impose.
7. STOCK BONUSES.
-------------
7.1 Awards of Stock Bonuses. A Stock Bonus is an award of Shares
-----------------------
(which may consist of Restricted Stock) for services rendered to the Company or
any Parent or Subsidiary of the Company. A Stock
4
<PAGE>
Bonus may be awarded for past services already rendered to the Company, or any
Parent or Subsidiary of the Company pursuant to an Award Agreement (the "STOCK
BONUS AGREEMENT") that will be in such form (which need not be the same for each
Participant) as the Committee will from time to time approve, and will comply
with and be subject to the terms and conditions of this Plan. A Stock Bonus may
be awarded upon satisfaction of such performance goals as are set out in advance
in the Participant's individual Award Agreement (the "PERFORMANCE STOCK BONUS
AGREEMENT") that will be in such form (which need not be the same for each
Participant) as the Committee will from time to time approve, and will comply
with and be subject to the terms and conditions of this Plan. Stock Bonuses may
vary from Participant to Participant and between groups of Participants, and may
be based upon the achievement of the Company, Parent or Subsidiary and/or
individual performance factors or upon such other criteria as the Committee may
determine; provided, however, that performance-based bonuses shall be restricted
to individuals earning at least $60,000 per year and of adequate sophistication
and sufficiently empowered to achieve the performance goals.
7.2 Terms of Stock Bonuses. The Committee will determine the number
----------------------
of Shares to be awarded to the Participant and whether such Shares will be
Restricted Stock. If the Stock Bonus is being earned upon the satisfaction of
performance goals pursuant to a Performance Stock Bonus Agreement, then the
Committee will determine: (a) the nature, length and starting date of any period
during which performance is to be measured (the "PERFORMANCE PERIOD") for each
Stock Bonus; (b) the performance goals and criteria to be used to measure the
performance, if any; (c) the number of Shares that may be awarded to the
Participant; and (d) the extent to which such Stock Bonuses have been earned.
Performance Periods may overlap and Participants may participate simultaneously
with respect to Stock Bonuses that are subject to different Performance Periods
and different performance goals and other criteria. The number of Shares may be
fixed or may vary in accordance with such performance goals and criteria as may
be determined by the Committee. The Committee may adjust the performance goals
applicable to the Stock Bonuses to take into account changes in law and
accounting or tax rules and to make such adjustments as the Committee deems
necessary or appropriate to reflect the impact of extraordinary or unusual
items, events or circumstances to avoid windfalls or hardships.
7.3 Form of Payment. The earned portion of a Stock Bonus may be paid
---------------
currently or on a deferred basis with such interest or dividend equivalent, if
any, as the Committee may determine. Payment may be made in the form of cash,
whole Shares, including Restricted Stock, or a combination thereof, either in a
lump sum payment or in installments, all as the Committee will determine.
7.4 Termination During Performance Period. If a Participant is
-------------------------------------
Terminated during a Performance Period for any reason, then such Participant
will be entitled to payment (whether in Shares, cash or otherwise) with respect
to the Stock Bonus only to the extent earned as of the date of Termination in
accordance with the Performance Stock Bonus Agreement, unless the Committee will
determine otherwise.
8. PAYMENT FOR SHARE PURCHASES.
---------------------------
8.1 Payment. Payment for Shares purchased pursuant to this Plan may
-------
be made in cash (by check) or, where expressly approved for the Participant by
the Committee and where permitted by law:
(a) by cancellation of indebtedness of the Company to the
Participant;
(b) by surrender of shares that either: (1) have been owned by
Participant for more than six (6) months and have been paid
for within the meaning of SEC Rule 144 (and, if such shares
were purchased from the Company by use of a promissory note,
such note has been fully paid with respect to such shares);
or (2) were obtained by Participant in the public market;
(c) by tender of a full or half recourse promissory note having
such terms as may be approved by the Committee and bearing
interest at a rate sufficient to avoid imputation of income
under Sections 483 and 1274 of the Code; provided, however,
-------- -------
that Participants who are not employees or directors of the
Company will not be entitled to purchase
5
<PAGE>
Shares with a promissory note unless the note is adequately
secured by collateral other than the Shares;
(d) by waiver of compensation due or accrued to the Participant
for services rendered;
(e) with respect only to purchases upon exercise of an Option,
and provided that a public market for the Company's stock
exists:
(1) through a "same day sale" commitment from the
Participant and a broker-dealer that is a member of the
National Association of Securities Dealers (an "NASD
DEALER") whereby the Participant irrevocably elects to
exercise the Option and to sell a portion of the Shares
so purchased to pay for the Exercise Price, and whereby
the NASD Dealer irrevocably commits upon receipt of
such Shares to forward the Exercise Price directly to
the Company; or
(2) through a "margin" commitment from the Participant and
an NASD Dealer whereby the Participant irrevocably
elects to exercise the Option and to pledge the Shares
so purchased to the NASD Dealer in a margin account as
security for a loan from the NASD Dealer in the amount
of the Exercise Price, and whereby the NASD Dealer
irrevocably commits upon receipt of such Shares to
forward the Exercise Price directly to the Company; or
(f) by any combination of the foregoing.
8.2 Loan Guarantees. The Committee may help the Participant pay for
---------------
Shares purchased under this Plan by authorizing a guarantee by the Company of a
third-party loan to the Participant.
9. WITHHOLDING TAXES.
-----------------
9.1 Withholding Generally. Whenever Shares are to be issued in
---------------------
satisfaction of Awards granted under this Plan, the Company may require the
Participant to remit to the Company an amount sufficient to satisfy federal,
state and local withholding tax requirements prior to the delivery of any
certificate or certificates for such Shares. Whenever, under this Plan, payments
in satisfaction of Awards are to be made in cash, such payment will be net of an
amount sufficient to satisfy federal, state, and local withholding tax
requirements.
9.2 Stock Withholding. When, under applicable tax laws, a Participant
-----------------
incurs tax liability in connection with the exercise or vesting of any Award
that is subject to tax withholding and the Participant is obligated to pay the
Company the amount required to be withheld, the Committee may in its sole
discretion allow the Participant to satisfy the minimum withholding tax
obligation by electing to have the Company withhold from the Shares to be issued
that number of Shares having a Fair Market Value equal to the minimum amount
required to be withheld, determined on the date that the amount of tax to be
withheld is to be determined. All elections by a Participant to have Shares
withheld for this purpose will be made in accordance with the requirements
established by the Committee for such elections and be in writing in a form
acceptable to the Committee.
10. PRIVILEGES OF STOCK OWNERSHIP.
-----------------------------
10.1 Voting and Dividends. No Participant will have any of the rights
--------------------
of a shareholder with respect to any Shares until the Shares are issued to the
Participant. After Shares are issued to the Participant, the Participant will be
a shareholder and have all the rights of a shareholder with respect to such
Shares, including the right to vote and receive all dividends or other
distributions made or paid with respect to such Shares; provided, that if such
--------
Shares are Restricted Stock, then any new, additional or different securities
the Participant may become entitled to receive with respect to such Shares by
virtue of a stock dividend, stock split or any other change in the corporate or
capital structure of the Company will be subject to the same restrictions as the
Restricted Stock; provided, further, that the Participant will have no right to
-------- -------
retain such stock dividends or stock distributions with
6
<PAGE>
respect to Unvested Shares that are repurchased pursuant to Section 12. The
Company will comply with Section 260.140.1 of Title 10 of the California Code of
Regulations with respect to the voting rights of Common Stock.
10.2 Financial Statements. The Company will provide financial
--------------------
statements to each Participant prior to such Participant's purchase of Shares
under this Plan, and to each Participant annually during the period such
Participant has Awards outstanding; provided, however, the Company will not be
-------- -------
required to provide such financial statements to Participants whose services in
connection with the Company assure them access to equivalent information.
11. TRANSFERABILITY. Awards granted under this Plan, and any interest
---------------
therein, will not be transferable or assignable by Participant, and may not be
made subject to execution, attachment or similar process, otherwise than by will
or by the laws of descent and distribution or as consistent with the specific
Plan and Award Agreement provisions relating thereto. During the lifetime of the
Participant an Award will be exercisable only by the Participant or
Participant's legal representative, and any elections with respect to an Award,
may be made only by the Participant or Participant's legal representative.
12. RESTRICTIONS ON SHARES.
----------------------
12.1 Right of First Refusal. At the discretion of the Committee, the
----------------------
Company may reserve to itself and/or its assignee(s) in the Award Agreement a
right of first refusal to purchase all Shares that a Participant (or a
subsequent transferee) may propose to transfer to a third party, provided, that
such right of first refusal terminates upon the Company's initial public
offering of Common Stock pursuant an effective registration statement filed
under the Securities Act.
12.2 Right of Repurchase. At the discretion of the Committee, the
-------------------
Company may reserve to itself and/or its assignee(s) in the Award Agreement a
right to repurchase Unvested Shares held by a Participant following such
Participant's Termination at any time within ninety (90) days after
Participant's Termination Date or, in the case of securities issued upon
exercise of an Option after the Participant's Termination Date, within 90 days
after the date of such exercise for cash and/or cancellation of purchase money
indebtedness, at the Participant's Exercise Price or Purchase Price, as the case
may be.
13. CERTIFICATES. All certificates for Shares or other securities
------------
delivered under this Plan will be subject to such stock transfer orders, legends
and other restrictions as the Committee may deem necessary or advisable,
including restrictions under any applicable federal, state or foreign securities
law, or any rules, regulations and other requirements of the SEC or any stock
exchange or automated quotation system upon which the Shares may be listed or
quoted.
14. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a
------------------------
Participant's Unvested Shares, the Committee may require the Participant to
deposit all certificates representing Shares, together with stock powers or
other instruments of transfer approved by the Committee, appropriately endorsed
in blank, with the Company or an agent designated by the Company to hold in
escrow until such restrictions have lapsed or terminated, and the Committee may
cause a legend or legends referencing such restrictions to be placed on the
certificates. Any Participant who is permitted to execute a promissory note as
partial or full consideration for the purchase of Shares under this Plan will be
required to pledge and deposit with the Company all or part of the Shares so
purchased as collateral to secure the payment of Participant's obligation to the
Company under the promissory note; provided, however, that the Committee may
-------- -------
require or accept other or additional forms of collateral to secure the payment
of such obligation and, in any event, the Company will have full recourse
against the Participant under the promissory note notwithstanding any pledge of
the Participant's Shares or other collateral. In connection with any pledge of
the Shares, Participant will be required to execute and deliver a written pledge
agreement in such form as the Committee will from time to time approve. The
Shares purchased with the promissory note may be released from the pledge on a
pro rata basis as the promissory note is paid.
15. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any time or from
-----------------------------
time to time, authorize the Company, with the consent of the respective
Participants, to issue new Awards in exchange for the surrender and cancellation
of any or all outstanding Awards. The Committee may at any time buy from a
7
<PAGE>
Participant an Award previously granted with payment in cash, shares of Common
Stock of the Company (including restricted stock) or other consideration, based
on such terms and conditions as the Committee and the Participant may agree.
16. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Award will not be
----------------------------------------------
effective unless such Award is in compliance with all applicable federal and
state securities laws, rules and regulations of any governmental body, and the
requirements of any stock exchange or automated quotation system upon which the
Shares may then be listed or quoted, as they are in effect on the date of grant
of the Award and also on the date of exercise or other issuance. Notwithstanding
any other provision in this Plan, the Company will have no obligation to issue
or deliver certificates for Shares under this Plan prior to (a) obtaining any
approvals from governmental agencies that the Company determines are necessary
or advisable, and/or (b) compliance with any exemption or completion of any
registration or other qualification of such Shares under any state or federal
law or ruling of any governmental body that the Company determines to be
necessary or advisable. The Company will be under no obligation to register the
Shares with the SEC or to effect compliance with the exemption, registration,
qualification or listing requirements of any state securities laws, stock
exchange or automated quotation system, and the Company will have no liability
for any inability or failure to do so.
17. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Award granted
-----------------------
under this Plan will confer or be deemed to confer on any Participant any right
to continue in the employ of, or to continue any other relationship with, the
Company or any Parent or Subsidiary of the Company or limit in any way the right
of the Company or any Parent or Subsidiary of the Company to terminate
Participant's employment or other relationship at any time, with or without
cause.
18. CORPORATE TRANSACTIONS.
----------------------
18.1 Assumption or Replacement of Awards by Successor. In the event of
------------------------------------------------
(a) a dissolution or liquidation of the Company, (b) a merger or consolidation
in which the Company is not the surviving corporation (other than a merger or
----- ----
consolidation with a wholly-owned subsidiary, a reincorporation of the Company
in a different jurisdiction, or other transaction in which there is no
substantial change in the shareholders of the Company or their relative stock
holdings and the Awards granted under this Plan are assumed, converted or
replaced by the successor corporation, which assumption, conversion or
replacement will be binding on all Participants), (c) a merger in which the
Company is the surviving corporation but after which the shareholders of the
Company immediately prior to such merger (other than any shareholder which
merges with the Company in such merger, or which owns or controls another
corporation which merges with the Company in such merger) cease to own their
shares or other equity interests in the Company, or (d) the sale of all or
substantially all of the assets of the Company, any or all outstanding Awards
may be assumed, converted or replaced by the successor corporation (if any),
which assumption, conversion or replacement will be binding on all Participants.
In the alternative, the successor corporation may substitute equivalent Awards
or provide substantially similar consideration to Participants as was provided
to shareholders (after taking into account the existing provisions of the
Awards). The successor corporation may also issue, in place of outstanding
Shares of the Company held by the Participant, substantially similar shares or
other property subject to repurchase restrictions and other provisions no less
favorable to the Participant than those which applied to such outstanding Shares
immediately prior to such transaction described in this Subsection 18.1. In the
event such successor corporation (if any) refuses to assume or substitute
Awards, as provided above, pursuant to a transaction described in this
Subsection 18.1, then notwithstanding any other provision in this Plan to the
contrary, such Awards will accelerate immediately prior to the consummation of
and will expire on the consummation of such transaction at such time and on such
conditions as the Board will determine.
18.2 Other Treatment of Awards. Subject to any greater rights granted
-------------------------
to Participants under the foregoing provisions of this Section 18, in the event
of the occurrence of any transaction described in Section 18.1, any outstanding
Awards will be treated as provided in the applicable agreement or plan of
merger, consolidation, dissolution, liquidation or sale of assets.
18.3 Assumption of Awards by the Company. The Company, from time to
-----------------------------------
time, also may substitute or assume outstanding awards granted by another
company, whether in connection with an acquisition of
8
<PAGE>
such other company or otherwise, by either (a) granting an Award under this Plan
in substitution of such other company's award, or (b) assuming such award as if
it had been granted under this Plan if the terms of such assumed award could be
applied to an Award granted under this Plan. Such substitution or assumption
will be permissible if the holder of the substituted or assumed award would have
been eligible to be granted an Award under this Plan if the other company had
applied the rules of this Plan to such grant. In the event the Company assumes
an award granted by another company, the terms and conditions of such award will
remain unchanged (except that the exercise price and the number and nature of
------
Shares issuable upon exercise of any such option will be adjusted appropriately
pursuant to Section 424(a) of the Code). In the event the Company elects to
grant a new Award rather than assuming an existing award, such new Award may be
granted with a similarly adjusted Exercise Price.
19. ADOPTION AND SHAREHOLDER APPROVAL. This Plan will become effective on
---------------------------------
the date that it is adopted by the Board (the "EFFECTIVE DATE"). This Plan will
be approved by the shareholders of the Company (excluding Shares issued pursuant
to this Plan), consistent with applicable laws, within twelve (12) months before
or after the Effective Date. Upon the Effective Date, the Board may grant Awards
pursuant to this Plan; provided, however, that: (a) no Option may be exercised
-------- -------
prior to initial shareholder approval of this Plan; (b) no Option granted
pursuant to an increase in the number of Shares subject to this Plan approved by
the Board will be exercised prior to the time such increase has been approved by
the shareholders of the Company; (c) in the event that initial shareholder
approval of this Plan is not obtained within the time period provided herein,
all Awards granted hereunder will be canceled, any Shares issued pursuant to any
Award will be canceled and any purchase of Shares hereunder will be rescinded;
and (d) Awards granted pursuant to an increase in the number of Shares approved
by the Board which increase is not timely approved by Shareholders shall be
canceled, any Shares issued pursuant to any such Award shall be canceled and any
purchases of Shares subject to any such Award shall be rescinded.
20. TERM OF PLAN/GOVERNING LAW. Unless earlier terminated as provided
--------------------------
herein, this Plan will terminate ten (10) years from the Effective Date or, if
earlier, the date of shareholder approval. This Plan and all agreements
hereunder shall be governed by and construed in accordance with the laws of the
State of California.
21. AMENDMENT OR TERMINATION OF PLAN. Subject to Section 5.9, the Board
--------------------------------
may at any time terminate or amend this Plan in any respect, including without
limitation amendment of any form of Award Agreement or instrument to be executed
pursuant to this Plan; provided, however, that the Board will not, without the
-------- -------
approval of the shareholders of the Company, amend this Plan in any manner that
requires such shareholder approval pursuant to the Code or the regulations
promulgated thereunder as such provisions apply to ISO plans.
22. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of this Plan by the
--------------------------
Board, the submission of this Plan to the shareholders of the Company for
approval, nor any provision of this Plan will be construed as creating any
limitations on the power of the Board to adopt such additional compensation
arrangements as it may deem desirable, including, without limitation, the
granting of stock options and bonuses otherwise than under this Plan, and such
arrangements may be either generally applicable or applicable only in specific
cases.
23. DEFINITIONS. As used in this Plan, the following terms will have the
-----------
following meanings:
"AWARD" means any award under this Plan, including any Option,
Restricted Stock Award or Stock Bonus.
"AWARD AGREEMENT" means, with respect to each Award, the signed
written agreement between the Company and the Participant setting forth the
terms and conditions of the Award.
"BOARD" means the Board of Directors of the Company.
"CAUSE" means Termination because of (i) any willful material
violation by the Participant of any law or regulation applicable to the business
of the Company or a Parent or Subsidiary of the Company, the Participant's
conviction for, or guilty plea to, a felony or a crime involving moral
turpitude, any willful perpetration by the Participant of a common law fraud or
any unlawful use by the Participant of drugs or other controlled substances,
(ii) the Participant's commission of an act of personal dishonesty which
involves personal profit in
9
<PAGE>
connection with the Company or any other entity having a business relationship
with the Company, (iii) any material breach by the Participant of any material
provision of any agreement or understanding between the Company or any Parent or
Subsidiary of the Company, and the Participant regarding the terms of the
Participant's service as an employee, director, consultant, independent
contractor or adviser to the Company or any Parent or Subsidiary of the Company,
including without limitation, the willful and continued failure or refusal of
the Participant to perform the material duties required of such Participant as
an employee, director, consultant, independent contractor or adviser of the
Company or any Parent or Subsidiary of the Company, other than as a result of
having a Disability, or a breach of any applicable invention assignment and
confidentiality agreement or similar agreement between the Company or any Parent
or Subsidiary of the Company and the Participant, (iv) Participant's intentional
disregard of the policies of the Company so as to cause loss, damage or injury
to the property, reputation or employees of the Company or any Parent or
Subsidiary of the Company, or (v) any other misconduct by the Participant which
is materially injurious to the financial condition or business reputation of, or
is otherwise materially injurious to, the Company or a Parent or Subsidiary of
the Company.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means the committee appointed by the Board to administer
this Plan, or if no committee is appointed, the Board.
"COMPANY" means E-TEK Dynamics, Inc. or any successor corporation.
"DISABILITY" means a disability, whether temporary or permanent,
partial or total, as determined by the Committee.
"EXERCISE PRICE" means the price at which a holder of an Option may
purchase the Shares issuable upon exercise of the Option.
"FAIR MARKET VALUE" means, as of any date, the value of a share of the
Company's Common Stock determined as follows:
(a) if such Common Stock is then quoted on the Nasdaq National
Market, its closing price on the Nasdaq National Market on the
date of determination as reported in The Wall Street Journal;
-----------------------
(b) if such Common Stock is publicly traded and is then listed on a
national securities exchange, its closing price on the date of
determination on the principal national securities exchange on
which the Common Stock is listed or admitted to trading as
reported in The Wall Street Journal;
-----------------------
(c) if such Common Stock is publicly traded but is not quoted on the
Nasdaq National Market nor listed or admitted to trading on a
national securities exchange, the average of the closing bid and
asked prices on the date of determination as reported by The Wall
--------
Street Journal (or, if not so reported, as otherwise reported by
--------------
any newspaper or other source as the Board may determine); or
(d) if none of the foregoing is applicable, by the Committee in good
faith.
"OPTION" means an award of an option to purchase Shares pursuant to
Section 5.
"PARENT" means any corporation (other than the Company) in an unbroken
chain of corporations ending with the Company if each of such corporations other
than the Company owns stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations in such chain.
"PARTICIPANT" means a person who receives an Award under this Plan.
10
<PAGE>
"PLAN" means this E-TEK Dynamics, Inc. 1997 Executive Equity Incentive
Plan, as amended from time to time.
"PURCHASE PRICE" means the price at which a Participant may purchase
Restricted Stock.
"RESTRICTED STOCK" means Shares purchased pursuant to a Restricted
Stock Award.
"RESTRICTED STOCK AWARD" means an award of Shares pursuant to Section
6.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHARES" means shares of the Company's Common Stock reserved for
issuance under this Plan, as adjusted pursuant to Sections 2 and 18, and any
successor security.
"STOCK BONUS" means an award of Shares, or cash in lieu of Shares,
pursuant to Section 7.
"SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
"TERMINATION" or "TERMINATED" means, for purposes of this Plan with
respect to a Participant, that the Participant has for any reason ceased to
provide services as an employee, officer, director, consultant or advisor to the
Company or a Parent or Subsidiary of the Company. A Participant will not be
deemed to have ceased to provide services in the case of (i) sick leave, (ii)
military leave, or (iii) any other leave of absence approved by the Committee,
provided that such leave is for a period of not more than ninety (90) days
unless reemployment upon the expiration of such leave is guaranteed by contract
or statute, or unless provided otherwise pursuant to formal policy adopted from
time to time by the Company and issued and promulgated in writing. In the case
of any Participant on (i) sick leave, (ii) military leave, or (iii) an approved
leave of absence, the Committee may make such provisions respecting suspension
of vesting of the Award while on leave from the employ of the Company or a
Subsidiary as it may deem appropriate, except that in no event may an Option be
exercised after the expiration of the term set forth in the Stock Option
Agreement. The Committee will have sole discretion to determine whether a
Participant has ceased to provide services and the effective date on which the
Participant ceased to provide services (the "Termination Date").
----------------
"UNVESTED SHARES" means "Unvested Shares" as defined in the Award
Agreement.
"VESTED SHARES" means "Vested Shares" as defined in the Award
Agreement.
11
<PAGE>
E-TEK DYNAMICS, INC.
1997 EXECUTIVE EQUITY INCENTIVE PLAN
STOCK OPTION AGREEMENT
This Stock Option Agreement ("AGREEMENT") is made and entered into as
of the date of grant set forth below (the "DATE OF GRANT") by and between E-TEK
Dynamics, Inc., a California corporation (the "COMPANY"), and the participant
named below ("PARTICIPANT"). Capitalized terms not defined herein (please also
see Section 18 of this Agreement) shall have the meaning ascribed to them in the
Company's 1997 Executive Equity Incentive Plan (the "PLAN").
PARTICIPANT: __________________________________________________
SOCIAL SECURITY NUMBER: __________________________________________________
ADDRESS: __________________________________________________
TOTAL OPTION SHARES: __________________________________________________
EXERCISE PRICE PER SHARE: __________________________________________________
DATE OF GRANT: __________________________________________________
FIRST VESTING DATE: __________________________________________________
EXPIRATION DATE: __________________________________________________
(unless earlier terminated under Section 3 below)
TYPE OF STOCK OPTION
(CHECK ONE): [ ] INCENTIVE STOCK OPTION
[ ] NONQUALIFIED STOCK OPTION
1. GRANT OF OPTION. The Company hereby grants to Participant an
---------------
option (this "OPTION") to purchase the total number of shares of Common Stock of
the Company set forth above as Total Option Shares (the "SHARES") at the
Exercise Price Per Share set forth above (the "EXERCISE PRICE"), subject to all
of the terms and conditions of this Agreement and the Plan. If designated as an
Incentive Stock Option above, this Option is intended to qualify as an
"incentive stock option" ("ISO") within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "CODE").
<PAGE>
2. EXERCISE PERIOD.
---------------
2.1 Exercise Period of Option. This Option is immediately
-------------------------
exercisable although the Shares issued upon exercise of this Option will be
subject to the restrictions on transfer, Repurchase Option and Right of First
Refusal set forth in Sections 8 and 9, as the case may be, below. Provided
Participant continues to provide services to the Company or to any Parent or
Subsidiary of the Company, the Shares issuable upon exercise of this Option will
become vested with respect to 565,012 of the Shares on November 3, 1998 (the
"FIRST VESTING DATE") and thereafter at the end of each full succeeding month
after the First Vesting Date an additional 47,083 of the Shares will become
vested until the Shares are vested with respect to 100% of the Shares.
Notwithstanding any provision in the Plan or this Agreement to the contrary,
Options for Unvested Shares (as defined in Section 2.2 of this Agreement) will
not be exercisable on or after Participant's Termination Date.
2.2 Vesting of Options. Shares that are vested pursuant to the
------------------
schedule set forth in Section 2.1 are "VESTED SHARES." Shares that are not
vested pursuant to the schedule set forth in Section 2.1 are "UNVESTED SHARES."
Unvested Shares may not be sold or otherwise transferred by Participant without
the Company's prior written consent. For purposes of determining which specific
Shares are "Vested Shares," Vested Shares shall first be allocated to those that
are issued pursuant to an exercise of this Option.
2.3 Expiration. This Option shall expire on the Expiration Date
----------
set forth above and must be exercised, if at all, on or before the Expiration
Date.
3. TERMINATION.
-----------
3.1 Terminations for Which Vesting Will Accelerate. If (a) the
----------------------------------------------
Company Terminates Participant (i) for any reason other than Cause (as defined
in Section 18) or (ii) following a Change of Control (as defined in Section 18)
or (b) Participant Terminates for Good Reason (as defined in Section 18), the
vesting for the Option shall be accelerated by twelve months as of such
Termination. Notwithstanding the foregoing, if the Company is acquired in a
Change of Control transaction and, within six (6) months after such Change of
Control, Participant Terminates or the Company Terminates Participant, the
vesting for the Option shall be fully accelerated.
3.2 Termination Because of Death or Disability. If Participant
------------------------------------------
is Terminated because of death or Disability of Participant (or Participant dies
within three (3) months of Termination other than for Cause or because of
Participant's Disability), this Option, to the extent that it is vested and
exercisable by Participant on the Termination Date, may be exercised by
Participant (or Participant's legal representative) no later than twelve (12)
months after the Termination Date, but in any event no later than the Expiration
Date. Any exercise beyond (a) three (3) months after the Termination Date when
the Termination is for any reason other than the Participant's death or
disability, within the meaning of Section 22(e)(3) of the Code; or (b) twelve
(12) months after the Termination Date when the termination is for Participant's
death or disability, within the meaning of Section 22(e)(3) of the Code, is
deemed to be an NQSO.
-2-
<PAGE>
3.3 Termination for Cause. If Participant is Terminated for Cause,
---------------------
then this Option will expire on Participant's Termination Date, or at such later
time and on such conditions as determined by the Committee.
3.4 Termination for Any Reason Except Death, Disability or Cause.
------------------------------------------------------
If Participant is Terminated for any reason, except death, Disability or Cause,
this Option, to the extent (and only to the extent) that it would have been
exercisable by Participant on the Termination Date, may be exercised by
Participant no later than three (3) months after the Termination Date, but in
any event no later than the Expiration Date.
3.5 No Obligation to Employ. Nothing in the Plan or this Agreement
-----------------------
shall confer on Participant any right to continue in the employ of, or other
relationship with, the Company or any Parent or Subsidiary of the Company, or
limit in any way the right of the Company or any Parent or Subsidiary of the
Company to terminate Participant's employment or other relationship at any time,
with or without cause.
4. MANNER OF EXERCISE.
------------------
4.1 Stock Option Exercise Agreement. To exercise this Option,
-------------------------------
Participant (or in the case of exercise after Participant's death or incapacity,
Participant's executor, administrator, heir or legatee, as the case may be) must
deliver to the Company an executed stock option exercise agreement in the form
attached hereto as Exhibit A (the "EXERCISE AGREEMENT"), which shall set forth,
---------
inter alia, Participant's election to exercise this Option, the number of Shares
- ----- ----
being purchased, any restrictions imposed on the Shares and any representations,
warranties and agreements regarding Participant's investment intent and access
to information as may be required by the Company to comply with applicable
securities laws. If someone other than Participant exercises this Option, then
such person must submit documentation reasonably acceptable to the Company that
such person has the right to exercise this Option.
4.2 Limitations on Exercise. This Option may not be exercised
-----------------------
unless such exercise is in compliance with all applicable federal and state
securities laws, as they are in effect on the date of exercise. This Option may
not be exercised as to fewer than one hundred (100) Shares unless it is
exercised as to all Shares as to which this Option is then exercisable.
4.3 Payment. The Exercise Agreement shall be accompanied by
-------
full payment of the Exercise Price for the Shares being purchased in cash (by
check), or where permitted by law:
(a) by cancellation of indebtedness of the Company to the
Participant;
(b) by surrender of shares of the Company's Common Stock that either:
(1) have been owned by Participant for more than six (6) months
and have been paid for within the meaning of SEC Rule 144 (and,
if such shares were purchased from the Company by use of a
promissory note, such note has been fully paid
-3-
<PAGE>
with respect to such shares); or (2) were obtained by Participant
in the open public market; and (3) are clear of all liens,
claims, encumbrances or security interests;
(c) by tender of a promissory note having such terms as may be
approved by the Committee, which note shall be secured by a
pledge of all of the Shares so purchased;
(d) by waiver of compensation due or accrued to Participant for
services rendered;
(e) provided that a public market for the Company's stock exists, (1)
through a "same day sale" commitment from Participant and a
broker-dealer that is a member of the National Association of
Securities Dealers (an "NASD DEALER") whereby Participant
irrevocably elects to exercise this Option and to sell a portion
of the Shares so purchased to pay for the Exercise Price and
whereby the NASD Dealer irrevocably commits upon receipt of such
Shares to forward the Exercise Price directly to the Company, or
--
(2) through a "margin" commitment from Participant and an NASD
Dealer whereby Participant irrevocably elects to exercise this
Option and to pledge the Shares so purchased to the NASD Dealer
in a margin account as security for a loan from the NASD Dealer
in the amount of the Exercise Price, and whereby the NASD Dealer
irrevocably commits upon receipt of such Shares to forward the
Exercise Price directly to the Company; or
(f) by any combination of the foregoing.
4.4 Tax Withholding. Prior to the issuance of the Shares upon
---------------
exercise of this Option, Participant must pay or provide for any applicable
federal, state and local withholding obligations of the Company. If the
Committee permits, Participant may provide for payment of withholding taxes upon
exercise of this Option by requesting that the Company retain Shares with a Fair
Market Value equal to the minimum amount of taxes required to be withheld. In
such case, the Company shall issue the net number of Shares to the Participant
by deducting the Shares retained from the Shares issuable upon exercise.
4.5 Issuance of Shares. Provided that the Exercise Agreement
------------------
and payment are in form and substance satisfactory to counsel for the Company,
the Company shall issue the Shares registered in the name of Participant,
Participant's authorized assignee, or Participant's legal representative, and
shall deliver certificates representing the Shares with the appropriate legends
affixed thereto.
5. NOTICE OF DISQUALIFYING DISPOSITION OF ISO SHARES. If this
-------------------------------------------------
Option is an ISO, and if Participant sells or otherwise disposes of any of the
Shares acquired pursuant to the ISO on or before the later of (a) the date two
(2) years after the Date of Grant, and (b) the date one (1) year after transfer
of such Shares to Participant upon exercise of this Option, Participant shall
immediately
-4-
<PAGE>
notify the Company in writing of such disposition. Participant agrees that
Participant may be subject to income tax withholding by the Company on the
compensation income recognized by Participant from the early disposition by
payment in cash or out of the current wages or other compensation payable to
Participant.
6. COMPLIANCE WITH LAWS AND REGULATIONS. The exercise of this
------------------------------------
Option and the issuance and transfer of Shares shall be subject to compliance by
the Company and Participant with all applicable requirements of federal and
state securities laws and with all applicable requirements of any stock exchange
on which the Company's Common Stock may be listed at the time of such issuance
or transfer. Participant understands that the Company is under no obligation to
register or qualify the Shares with the Securities and Exchange Commission, any
state securities commission or any stock exchange to effect such compliance.
7. NONTRANSFERABILITY OF OPTION. This Option may not be transferred
----------------------------
in any manner other than by will or by the laws of descent and distribution and
may be exercised during the lifetime of Participant only by Participant or
Participant's legal representative. The terms of this Option shall be binding
upon the executors, administrators, successors and assigns of Participant.
8. COMPANY'S REPURCHASE OPTION FOR UNVESTED SHARES. The Company, or
-----------------------------------------------
its assignee, shall have this option to repurchase Participant's Unvested Shares
(as defined in Section 2.2 of this Agreement) on the terms and conditions set
forth in the Exercise Agreement (the "REPURCHASE OPTION") if Participant is
Terminated (as defined in the Plan) for any reason, or no reason, including
without limitation Participant's death, Disability (as defined in the Plan),
voluntary resignation or termination by the Company with or without Cause.
Notwithstanding the foregoing, if at the time of Participant's Termination (as
described in the first sentence of this Section 8), the fair market value of the
Unvested Shares is less than Participant's original purchase price, the Company
shall be required to repurchase, on the terms and conditions set forth in the
Exercise Agreement, the Unvested Shares (the "REPURCHASE OBLIGATION").
9. COMPANY'S RIGHT OF FIRST REFUSAL. Unvested Shares may not be
--------------------------------
sold or otherwise transferred by Participant without the Company's prior written
consent. Before any Vested Shares held by Participant or any transferee of such
Vested Shares may be sold or otherwise transferred (including without limitation
a transfer by gift or operation of law), the Company and/or its assignee(s)
shall have an assignable right of first refusal to purchase the Vested Shares to
be sold or transferred on the terms and conditions set forth in this Section
(the "RIGHT OF FIRST REFUSAL"). The Company's Right of First Refusal will
terminate when the Company's securities become publicly traded.
10. TAX CONSEQUENCES. Set forth below is a brief summary as of the
----------------
Effective Date of the Plan of some of the federal and California tax
consequences of exercise of this Option and disposition of the Shares. THIS
SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT
TO CHANGE. PARTICIPANT SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS
OPTION OR DISPOSING OF THE SHARES.
-5-
<PAGE>
10.1 Exercise of ISO. If this Option qualifies as an ISO, there will
---------------
be no regular federal or California income tax liability upon the exercise of
this Option, although the excess, if any, of the Fair Market Value of the Shares
on the date of exercise over the Exercise Price will be treated as a tax
preference item for federal income tax purposes and may subject the Participant
to the alternative minimum tax in the year of exercise.
10.2 Exercise of Nonqualified Stock Option. If this Option does not
-------------------------------------
qualify as an ISO, there may be a regular federal and California income tax
liability upon the exercise of this Option. Participant will be treated as
having received compensation income (taxable at ordinary income tax rates) equal
to the excess, if any, of the Fair Market Value of the Shares on the date of
exercise over the Exercise Price. If Participant is or was an employee of the
Company, the Company may be required to withhold from Participant's compensation
or collect from Participant and pay to the applicable taxing authorities an
amount equal to a percentage of this compensation income at the time of
exercise.
10.3 Disposition of Shares. If the Shares are held for more than one
---------------------
(1) year after the date of the transfer of the Shares pursuant to the exercise
of this Option for Vested Shares (or for more than one (1) year after the date
of transfer of the Shares pursuant to the exercise of an Option for Unvested
Shares for which a Section 83(b) election has been made), and, in the case of an
ISO, are disposed of more than two (2) years after the Date of Grant, any gain
realized on disposition of the Shares will be treated as long term capital gain
for federal and California income tax purposes. If Shares purchased under an ISO
are disposed of within the applicable one (1) year or two (2) year period, any
gain realized on such disposition will be treated as compensation income
(taxable at ordinary income rates) to the extent of the excess, if any, of the
Fair Market Value of the Shares on the date of exercise over the Exercise Price.
The Company may be required to withhold from Participant's compensation or
collect from Participant and pay to the applicable taxing authorities an amount
equal to a percentage of this compensation income at the time of exercise.
10.4 Section 83(b) Election for Unvested Shares. With respect to
------------------------------------------
Unvested Shares, which are subject to the Repurchase Option, unless an election
is filed by the Participant with the Internal Revenue Service (and, if
necessary, the proper state taxing authorities), within 30 days of the purchase
--------------
of the Unvested Shares, electing pursuant to Section 83(b) of the Internal
Revenue Code (and similar state tax provisions, if applicable) to be taxed
currently on any difference between the Exercise Price of the Unvested Shares
and their Fair Market Value on the date of purchase, there may be a recognition
of taxable income (including, where applicable, alternative minimum taxable
income) to the Participant, measured by the excess, if any, of the Fair Market
Value of the Unvested Shares at the time they cease to be Unvested Shares, over
the Exercise Price of the Unvested Shares.
11. PRIVILEGES OF STOCK OWNERSHIP. Participant shall not have any of
-----------------------------
the rights of a shareholder with respect to any Shares until the Shares are
issued to Participant.
12. INTERPRETATION. Any dispute regarding the interpretation of this
--------------
Agreement shall be submitted by Participant or the Company to the Committee for
review. The resolution of such a dispute by the Committee shall be final and
binding on the Company and Participant.
-6-
<PAGE>
13. ENTIRE AGREEMENT. The Plan is incorporated herein by reference.
----------------
This Agreement and the Plan constitute the entire agreement of the parties and
supersede all prior undertakings and agreements with respect to the subject
matter hereof.
14. NOTICES. Any notice required to be given or delivered to the
-------
Company under the terms of this Agreement shall be in writing and addressed to
the Corporate Secretary of the Company at its principal corporate offices. Any
notice required to be given or delivered to Participant shall be in writing and
addressed to Participant at the address indicated above or to such other address
as such party may designate in writing from time to time to the Company. All
notices shall be deemed to have been given or delivered upon: personal delivery;
three (3) days after deposit in the United States mail by certified or
registered mail (return receipt requested); one (1) business day after deposit
with any return receipt express courier (prepaid); or one (1) business day after
transmission by facsimile, rapifax or telecopier.
15. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights
----------------------
or obligations under this Agreement, including its rights to repurchase Shares
under the Repurchase Option and the Right of First Refusal and its obligation to
repurchase Shares under the Repurchase Obligation. This Agreement shall be
binding upon and inure to the benefit of the successors and assigns of the
Company. Subject to the restrictions on transfer set forth herein, this
Agreement shall be binding upon Participant and Participants heirs, executors,
administrators, legal representatives, successors and assigns.
16. GOVERNING LAW. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of California as such laws are applied
to agreements between California residents entered into and to be performed
entirely within California. If any provision of this Agreement is determined by
a court of law to be illegal or unenforceable, then such provision will be
enforced to the maximum extent possible and the other provisions will remain
fully effective and enforceable.
17. ACCEPTANCE. Participant hereby acknowledges receipt of a copy of
----------
the Plan and this Agreement. Participant has read and understands the terms and
provisions thereof, and accepts this Option subject to all the terms and
conditions of the Plan and this Agreement. Participant acknowledges that there
may be adverse tax consequences upon exercise of this Option or disposition of
the Shares and that Participant should consult a tax adviser prior to such
exercise or disposition.
18. DEFINITIONS. Notwithstanding anything to the contrary in the
-----------
Plan or Plan documents, the following definitions shall apply with respect to
this Option:
"CAUSE" shall mean (i) gross negligence or willful misconduct in
the performance of duties to the Company after one written warning detailing the
concerns and offering Participant opportunities to cure; (ii) material and
willful violation of any federal or state law; (iii) commission of any act of
fraud with respect to the Company; (iv) commission of a felony or a
-7-
<PAGE>
crime causing material harm to the standing and reputation of the Company; or
(v) intentional and improper disclosure of the Company's confidential or
proprietary information.
Termination for "GOOD REASON" shall occur if Participant
voluntarily resigns from employment because of (i) a material adverse change in
Participant's position with the Company which materially reduces Participant's
responsibility, without Cause and without Participant's written consent; (ii) a
material reduction in Participant's compensation without Participant's written
consent; or (iii) a relocation of Participant's place of employment outside of
the seven (7) Bay Area counties, without Participant's written consent.
A "CHANGE OF CONTROL" shall be deemed to occur upon: (i) the
sale, lease, conveyance or other disposition of all or substantially all of the
Company's assets as an entirety or substantially as an entirety to any person,
entity or group of persons acting in concert; (ii) any "person" (as such term is
used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended) becoming the "beneficial owner" (as defined in Rule 13d-3 under said
Act), directly or indirectly, of securities of the Company representing 50% or
more of the total voting power represented by the Company's then outstanding
voting securities; (iii) a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) at least 50% of the total voting
power represented by the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation; (iv) a change
in the composition of the Board of Directors of the Company occurring within a
two-year period, as a result of which fewer than a majority of the directors are
Incumbent Directors. "INCUMBENT DIRECTORS" shall mean directors who either (A)
are directors of the Company as of October 1, 1997, or (B) are elected, or
nominated for election, to the Board of Directors of the Company with the
affirmative votes of at least a majority of the Incumbent Directors at the time
of such election or nomination (but shall not include an individual whose
election or nomination is in connection with an actual or threatened proxy
contest relating to the election of directors to the Company; or (v) the
liquidation or winding up of the business of the Company.
19. COUNTERPARTS. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-8-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed in duplicate by its duly authorized representative and Participant has
executed this Agreement in triplicate as of the Date of Grant.
E-TEK DYNAMICS, INC. PARTICIPANT
By:_________________________
____________________________
(Please print name)
____________________________
(Please print title)
[SIGNATURE PAGE TO E-TEK DYNAMICS, INC.
EXECUTIVE OPTION AGREEMENT]
-9-
<PAGE>
EXHIBIT A
---------
STOCK OPTION EXERCISE AGREEMENT
-10-
<PAGE>
NO. 73
E-TEK DYNAMICS, INC.
1997 EXECUTIVE EQUITY INCENTIVE PLAN
STOCK OPTION EXERCISE AGREEMENT
This Exercise Agreement is made and entered into as of __________ (the
"EFFECTIVE DATE") by and between E-TEK Dynamics, Inc., a California corporation
(the "COMPANY"), and the Purchaser named below (the "PURCHASER"). Capitalized
terms not defined herein shall have the meaning ascribed to them in the
Company's 1997 Executive Equity Incentive Plan (the "PLAN") and the Stock Option
Agreement No. 1 between the Company and Purchaser, dated ________ (the "STOCK
OPTION AGREEMENT").
PURCHASER: _____________________________________
SOCIAL SECURITY NUMBER: _____________________________________
ADDRESS: _____________________________________
_____________________________________
TOTAL NUMBER OF SHARES: _____________________________________
EXERCISE PRICE PER SHARE: _____________________________________
TOTAL EXERCISE PRICE: _____________________________________
OPTION NO. 1 DATE OF GRANT: _____________________________________
TYPE OF OPTION: [ ] INCENTIVE STOCK OPTION
[ ] NONQUALIFIED STOCK OPTION
1. EXERCISE OF OPTION.
------------------
1.1 Exercise. Pursuant to exercise of that certain option ("OPTION")
--------
granted to Purchaser under the Plan and subject to the terms and conditions of
this Exercise Agreement,
<PAGE>
Purchaser hereby purchases from the Company, and the Company hereby sells to
Purchaser, the Total Number of Shares set forth above ("SHARES") of the
Company's Common Stock at the Exercise Price Per Share set forth above
("EXERCISE PRICE"). As used in this Exercise Agreement, the term "SHARES" refers
to the Shares purchased under this Exercise Agreement and includes all
securities received (a) in replacement of the Shares, (b) as a result of stock
dividends or stock splits with respect to the Shares, and (c) all securities
received in replacement of the Shares in a merger, recapitalization,
reorganization or similar corporate transaction.
1.2 Title to Shares. The exact spelling of the name(s) under which
---------------
Purchaser will take title to the Shares is:
________________________________________________________________________
________________________________________________________________________
Purchaser desires to take title to the Shares as follows:
[ ] Individual, as separate property
[ ] Husband and wife, as community property
[ ] Joint Tenants
[ ] Alone or with spouse as trustee(s) of the
following trust (including date):
________________________________________________________________________
________________________________________________________________________
[ ] Other; please specify: ___________________________________________
__________________________________________________________________
1.3 Payment. Purchaser hereby delivers payment of the Exercise
-------
Price in the manner permitted in the Stock Option Agreement as follows (check
and complete as appropriate):
[ ] in cash (by check) in the amount of $________, receipt of which
is acknowledged by the Company;
[ ] by cancellation of indebtedness of the Company to Purchaser in
the amount of $________;
[ ] by delivery of ________ fully-paid, nonassessable and vested shares
of the Common Stock of the Company owned by Purchaser for at least
six (6) months prior to the date hereof which have been paid for
within the meaning of SEC Rule 144, (if purchased by use of a
promissory note, such note has been fully paid with respect to such
vested shares), or obtained by Purchaser in the open public market,
and owned free and clear
-2-
<PAGE>
of all liens, claims, encumbrances or security interests, valued at
the current Fair Market Value of $________ per share;
[ ] by tender of a Promissory Note in the principal amount of $________,
having such terms as may be approved by the Committee and secured by
a Pledge Agreement herewith;
[ ] by the waiver hereby of compensation due or accrued for services
rendered in the amount of $________.
2. DELIVERY.
--------
2.1 Deliveries by Purchaser. Purchaser hereby delivers to the
-----------------------
Company (i) this Exercise Agreement, (ii) two (2) copies of a blank Stock Power
and Assignment Separate from Stock Certificate in the form of Exhibit 1 attached
---------
hereto (the "STOCK POWERS"), both executed by Purchaser (and Purchaser's spouse,
if any), (iii) if Purchaser is married, a Consent of Spouse in the form of
Exhibit 2 attached hereto (the "SPOUSE CONSENT") executed by Purchaser's spouse,
- ---------
(iv) the Exercise Price and payment or other provision for any applicable tax
obligations by delivery of a Secured Promissory Note in the form of Exhibit 3
---------
and (v) a Stock Pledge Agreement in the form of Exhibit 5 executed by Purchaser
---------
(the "PLEDGE AGREEMENT").
2.2 Deliveries by the Company. Upon its receipt of the Exercise
-------------------------
Price, payment or other provision for any applicable tax obligations and all the
documents to be executed and delivered by Purchaser to the Company under Section
2.1, the Company will issue a duly executed stock certificate evidencing the
Shares in the name of Purchaser, to be placed in escrow as provided in Section
11 to secure payment of Participant's obligation to the Company under the
promissory note and until expiration or termination of the Company's Repurchase
Option and Right of First Refusal described in Sections 8 and 9.
3. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser represents
-------------------------------------------
and warrants to the Company that:
3.1 Agrees to Terms of the Plan. Purchaser has received a copy of
---------------------------
the Plan and the Stock Option Agreement, has read and understands the terms of
the Plan, the Stock Option Agreement and this Exercise Agreement, and agrees to
be bound by their terms and conditions. Purchaser acknowledges that there may be
adverse tax consequences upon exercise of the Option or disposition of the
Shares, and that Purchaser should consult a tax adviser prior to such exercise
or disposition.
3.2 Purchase for Own Account for Investment. Purchaser is
---------------------------------------
purchasing he Shares for Purchaser's own account for investment purposes only
and not with a view to, or for sale in connection with, a distribution of the
Shares within the meaning of the Securities Act. Purchaser has no present
intention of selling or otherwise disposing of all or any portion of the Shares
and no
-3-
<PAGE>
one other than Purchaser has any beneficial ownership of any of the Shares.
3.3 Access to Information. Purchaser has had access to all
---------------------
information regarding the Company and its present and prospective business,
assets, liabilities and financial condition that Purchaser reasonably considers
important in making the decision to purchase the Shares, and Purchaser has had
ample opportunity to ask questions of the Company's representatives concerning
such matters and this investment.
3.4 Understanding of Risks. Purchaser is fully aware of (i) the
----------------------
highly speculative nature of the investment in the Shares; (ii) the financial
hazards involved; (iii) the lack of liquidity of the Shares and the restrictions
on transferability of the Shares (e.g., that Purchaser may not be able to sell
----
or dispose of the Shares or use them as collateral for loans); (iv) the
qualifications and backgrounds of the management of the Company; and (v) the tax
consequences of investment in the Shares. Purchaser is capable of evaluating
the merits and risks of this investment, has the ability to protect Purchaser's
own interests in this transaction and is financially capable of bearing a total
loss of this investment.
3.5 No General Solicitation. At no time was Purchaser presented with
-----------------------
or solicited by any publicly issued or circulated newspaper, mail, radio,
television or other form of general advertising or solicitation in connection
with the offer, sale and purchase of the Shares.
3.6 Purchaser's Qualifications. Purchaser has a preexisting personal
--------------------------
or business relationship with the Company and/or certain of its officers and/or
directors of a nature and duration sufficient to make Purchaser aware of the
character, business acumen and general business and financial circumstances of
the Company and/or such officers and directors. By reason of Purchaser's
business or financial experience, Purchaser is capable of evaluating the merits
and risks of this investment, has the ability to protect Purchaser's own
interests in this transaction and is financially capable of bearing a total loss
of this investment.
4. COMPLIANCE WITH SECURITIES LAWS.
-------------------------------
4.1 Compliance with U.S. Federal Securities Laws. Purchaser
--------------------------------------------
understands and acknowledges that the Shares have not been registered with the
SEC under the Securities Act and that, notwithstanding any other provision of
the Stock Option Agreement to the contrary, the exercise of any rights to
purchase any Shares is expressly conditioned upon compliance with the Securities
Act and all applicable state securities laws. Purchaser agrees to cooperate
with the Company to ensure compliance with such laws. The Shares are being
issued under the Securities Act pursuant to Section 4(2) of the Securities Act.
4.2 Compliance with California Securities Laws. THE SALE OF THE
------------------------------------------
SECURITIES THAT ARE THE SUBJECT OF THIS EXERCISE AGREEMENT, IF NOT YET QUALIFIED
WITH THE CALIFORNIA COMMISSIONER OF CORPORATIONS AND NOT
-4-
<PAGE>
EXEMPT FROM SUCH QUALIFICATION, IS SUBJECT TO SUCH QUALIFICATION, AND THE
ISSUANCE OF SUCH SECURITIES, AND THE RECEIPT OF ANY PART OF THE CONSIDERATION
THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS THE SALE IS EXEMPT. THE
RIGHTS OF THE PARTIES TO THIS EXERCISE AGREEMENT ARE EXPRESSLY CONDITIONED UPON
SUCH QUALIFICATION BEING OBTAINED OR AN EXEMPTION BEING AVAILABLE.
5. RESTRICTED SECURITIES.
---------------------
5.1 No Transfer Unless Registered or Exempt. Purchaser understands
---------------------------------------
that Purchaser may not transfer any Shares unless such Shares are registered
under the Securities Act or qualified under applicable state securities laws or
unless, in the opinion of counsel to the Company, exemptions from such
registration and qualification requirements are available. Purchaser
understands that only the Company may file a registration statement with the SEC
and that the Company is under no obligation to do so with respect to the Shares.
Purchaser has also been advised that exemptions from registration and
qualification may not be available or may not permit Purchaser to transfer all
or any of the Shares in the amounts or at the times proposed by Purchaser.
5.2 SEC Rule 144. In addition, Purchaser has been advised that SEC
------------
Rule 144 promulgated under the Securities Act, which permits certain limited
sales of unregistered securities, is not presently available with respect to the
Shares and, in any event, requires that the Shares be held for a minimum of one
(1) year, and in certain cases two (2) years, after they have been purchased and
---
paid for (within the meaning of Rule 144). Purchaser understands that Shares
- --------
paid for with a Note may not be deemed to be fully "paid for" within the meaning
of Rule 144 unless certain conditions are met and that, accordingly, the Rule
144 holding period of such Shares may not begin to run until such Shares are
fully paid for within the meaning of Rule 144. Purchaser understands that Rule
144 may indefinitely restrict transfer of the Shares so long as Purchaser
remains an "affiliate" of the Company or if "current public information" about
the Company (as defined in Rule 144) is not publicly available.
6. RESTRICTIONS ON TRANSFERS.
-------------------------
6.1 Disposition of Shares. Purchaser hereby agrees that Purchaser
---------------------
shall make no disposition of the Shares (other than as permitted by this
Exercise Agreement) unless and until:
(a) Purchaser shall have notified the Company of the proposed
disposition and provided a written summary of the terms and conditions of the
proposed disposition;
(b) Purchaser shall have complied with all requirements of this
Exercise Agreement applicable to the disposition of the Shares;
-5-
<PAGE>
(c) Purchaser shall have provided the Company with written
assurances, in form and substance satisfactory to counsel for the Company, that
(i) the proposed disposition does not require registration of the Shares under
the Securities Act or (ii) all appropriate action necessary for compliance with
the registration requirements of the Securities Act or of any exemption from
registration available under the Securities Act (including Rule 144) has been
taken; and
(d) Purchaser shall have provided the Company with written
assurances, in form and substance satisfactory to the Company, that the proposed
disposition will not result in the contravention of any transfer restrictions
applicable to the Shares pursuant to the provisions of the Commissioner Rules
identified in Section 4.2.
6.2 Restriction on Transfer. Purchaser shall not transfer, assign,
-----------------------
grant a lien or security interest in, pledge, hypothecate, encumber or otherwise
dispose of any of the Shares which are subject to the Pledge Agreement (if
applicable) or the Company's Repurchase Option or the Company's Right of First
Refusal, except as permitted by this Exercise Agreement.
6.3 Transferee Obligations. Each person (other than the Company) to
----------------------
whom the Shares are transferred by means of one of the permitted transfers
specified in this Exercise Agreement must, as a condition precedent to the
validity of such transfer, acknowledge in writing to the Company that such
person is bound by the provisions of this Exercise Agreement and that the
transferred Shares are subject to (i) both the Company's Repurchase Option and
the Company's Right of First Refusal granted hereunder and (ii) the market
stand-off provisions of Section 7, to the same extent such Shares would be so
subject if retained by the Purchaser.
7. MARKET STANDOFF AGREEMENT. Purchaser agrees in connection with any
-------------------------
registration of the Company's securities that, upon the request of the Company
or the underwriters managing any public offering of the Company's securities,
Purchaser will not sell or otherwise dispose of any Shares without the prior
written consent of the Company or such underwriters, as the case may be, for
such period of time (not to exceed 180 days) after the effective date of such
registration requested by such managing underwriters and subject to all
restrictions as the Company or the underwriters may specify.
8. COMPANY'S REPURCHASE OPTION FOR UNVESTED SHARES. The Company, or its
-----------------------------------------------
assignee, shall have the option to repurchase Purchaser's Unvested Shares (as
defined in Section 2.2 of the Stock Option Agreement) on the terms and
conditions set forth in this Section (the "REPURCHASE OPTION") if Purchaser is
Terminated (as defined in the Plan) for any reason, or no reason, including
without limitation Purchaser's death, Disability (as defined in the Plan),
voluntary resignation or termination by the Company with or without Cause.
Notwithstanding the foregoing, if at the time of Participant's Termination (as
described in the first sentence of this Section 8), the fair market value of the
Unvested Shares is less than Participant's original purchase price, the Company
shall be required to repurchase, on the terms and conditions set forth in this
Section, the Unvested Shares (the "REPURCHASE OBLIGATION").
-6-
<PAGE>
8.1 Termination and Termination Date. In case of any dispute as to
--------------------------------
whether Purchaser is Terminated, the Committee shall have discretion to
determine whether Purchaser has been Terminated and the effective date of such
Termination (the "TERMINATION DATE").
8.2 Exercise of Repurchase Option. At any time within ninety (90)
-----------------------------
dais after the Purchaser's Termination Date, the Company, or its assignee, may
elect to repurchase the Purchaser's Unvested Shares by giving Purchaser written
notice of exercise of the Repurchase Option.
8.3 Repurchase Obligation. If at the Termination Date, the fair
---------------------
market value of the Unvested Shares (as determined in good faith by the Board)
is less than Participant's original purchase price, the Company shall be
required to repurchase the Unvested Shares in accordance with Sections 8.4 and
8.5 below.
8.4 Calculation of Repurchase Price for Unvested Shares. The Company
---------------------------------------------------
or its assignee shall (a) have the option, in the case of the Repurchase Option,
or (b) be required, in the case of the Repurchase Obligation, to repurchase from
Purchaser (or from Purchaser's personal representative as the case may be) the
Unvested Shares at the Purchaser's Exercise Price, proportionately adjusted for
any stock split or similar change in the capital structure of the Company as set
forth in Section 2.2 of the Plan.
8.5 Payment of Repurchase Price. The repurchase price shall be
---------------------------
payable, at the option of the Company or its assignee, by check or by
cancellation of all or a portion of any outstanding indebtedness of Purchaser to
the Company or such assignee, or by any combination thereof. The repurchase
price shall be paid without interest within sixty (60) days after (a) exercise
of the Repurchase Option, in the case of the Repurchase Option, or (b) the
Termination Date, in the case of the Repurchase Obligation.
8.6 Right of Termination Unaffected. Nothing in this Exercise
-------------------------------
Agreement shall be construed to limit or otherwise affect in any manner
whatsoever the right or power of the Company (or any Parent or Subsidiary of the
Company) to terminate Purchaser's employment or other relationship with Company
(or the Parent or Subsidiary of the Company) at any time, for any reason or no
reason, with or without Cause.
9. COMPANY'S RIGHT OF FIRST REFUSAL. Unvested Shares may not be sold or
--------------------------------
otherwise transferred by Purchaser without the Company's prior written consent.
Before any Vested Shares held by Purchaser or any transferee of such Vested
Shares (either being sometimes referred to herein as the "HOLDER") may be sold
or otherwise transferred (including without limitation a transfer by gift or
operation of law), the Company and/or its assignee(s) shall have an assignable
right of first refusal to purchase the Vested Shares to be sold or transferred
(the "OFFERED SHARES") on the terms and conditions set forth in this Section
(the "RIGHT OF FIRST REFUSAL").
-7-
<PAGE>
9.1 Notice of Proposed Transfer. The Holder of the Offered Shares
---------------------------
shall deliver to the Company a written notice (the "NOTICE") stating: (i) the
Holder's bona fide intention to sell or otherwise transfer the Offered Shares;
(ii) the name of each proposed bona fide purchaser or other transferee
("PROPOSED TRANSFEREE"); (iii) the number of Offered Shares to be transferred to
each Proposed Transferee; (iv) the bona fide cash price or other consideration
for which the Holder proposes to transfer the Offered Shares (the "OFFERED
PRICE"); and (v) that the Holder will offer to sell the Offered Shares to the
Company and/or its assignee(s) at the Offered Price as provided in this Section.
9.2 Exercise of Right of First Refusal. At any time within thirty
----------------------------------
(30) days after the date of the Notice, the Company and/or its assignee(s) may,
by giving written notice to the Holder, elect to purchase all (or, with the
consent of the Holder, less than all) the Offered Shares proposed to be
transferred to any one or more of the Proposed Transferees named in the Notice,
at the purchase price determined as specified below.
9.3 Purchase Price. The purchase price for the Offered Shares
--------------
purchased under this Section will be the Offered Price. If the Offered Price
includes consideration other than cash, then the cash equivalent value of the
non-cash consideration shall conclusively be deemed to be the value of such non-
cash consideration as determined in good faith by the Board.
9.4 Payment. Payment of the Offered Price will be payable, at the
-------
option of the Company and/or its assignee(s) (as applicable), by check or by
cancellation of all or a portion of any outstanding indebtedness of the Holder
to the Company (or to such assignee, in the case of a purchase of Offered Shares
by such assignee) or by any combination thereof. The Offered Price will be paid
without interest within sixty (60) days after the Company's receipt of the
Notice, or, at the option of the Company and/or its assignee(s), in the manner
and at the time(s) set forth in the Notice.
9.5 Holder's Right to Transfer. If all of the Offered Shares
--------------------------
proposed in the Notice to be transferred to a given Proposed Transferee are not
purchased by the Company and/or its assignee(s) as provided in this Section,
then the Holder may sell or otherwise transfer such Offered Shares to that
Proposed Transferee at the Offered Price or at a higher price, provided that
--------
such sale or other transfer is consummated within 120 days after the date of the
Notice, and provided further, that (i) any such sale or other transfer is
-------- -------
effected in compliance with all applicable securities laws and (ii) the Proposed
Transferee agrees in writing that the provisions of this Section will continue
to apply to the Offered Shares in the hands of such Proposed Transferee. If the
Offered Shares described in the Notice are not transferred to the Proposed
Transferee within such 120 day period, then a new Notice must be given to the
Company, and the Company will again be offered the Right of First Refusal before
any Shares held by the Holder may be sold or otherwise transferred.
9.6 Exempt Transfers. Notwithstanding anything to the contrary in
----------------
this Section, the following transfers of Vested Shares will be exempt from the
Right of First Refusal: (i) the transfer of any or all of the Vested Shares
during Purchaser's lifetime by gift or on Purchaser's death by will or intestacy
to Purchasers "immediate family" (as defined below) or to a trust for the
benefit
-8-
<PAGE>
of Purchaser or Purchaser's immediate family, provided that each transferee or
other recipient agrees in a writing satisfactory to the Company that the
provisions of this Section will continue to apply to the transferred Vested
Shares in the hands of such transferee or other recipient; (ii) any transfer of
Vested Shares made pursuant to a statutory merger or statutory consolidation of
the Company with or into another corporation or corporations (except that the
Right of First Refusal and Repurchase Option will continue to apply thereafter
to such Vested Shares, in which case the surviving corporation of such merger or
consolidation shall succeed to the rights of the Company under this Section
unless the agreement of merger or consolidation expressly otherwise provides);
or (iii) any transfer of Vested Shares pursuant to the winding up and
dissolution of the Company. As used herein, the term "immediate family" will
----------------
mean Purchaser's spouse, the lineal descendant or antecedent, father, mother,
brother or sister, child, adopted child, grandchild or adopted grandchild of the
Purchaser or the Purchaser's spouse, or the spouse of any child, adopted child,
grandchild or adopted grandchild of Purchaser or the Purchaser's spouse.
9.7 Termination of Right of First Refusal. The Company's Right of
-------------------------------------
First Refusal will terminate when the Company's securities become publicly
traded.
10. RIGHTS AS SHAREHOLDER. Subject to the terms and conditions of this
---------------------
Exercise Agreement, Purchaser will have all of the rights of a shareholder of
the Company with respect to the Shares from and after the date that Shares are
issued to Purchaser until such time as Purchaser disposes of the Shares or the
Company and/or its assignee(s) exercise(s) the Repurchase Option or Right of
First Refusal. Upon an exercise of the Repurchase Option or the Right of First
Refusal, Purchaser will have no further rights as a holder of the Shares so
purchased upon such exercise, except the right to receive payment for the Shares
so purchased in accordance with the provisions of this Exercise Agreement, and
Purchaser will promptly surrender the stock certificate(s) evidencing the Shares
so purchased to the Company for transfer or cancellation.
11. ESCROW. As security for Purchaser's faithful performance of this
------
Exercise Agreement, Purchaser agrees, immediately upon receipt of the stock
certificate(s) evidencing the Shares, to deliver such certificate(s), together
with the Stock Powers executed by Purchaser and by Purchaser's spouse, if any
(with the date and number of Shares left blank), to the Secretary of the Company
or other designee of the Company ("ESCROW HOLDER"), who is hereby appointed to
hold such certificate(s) and Stock Powers in escrow and to take all such actions
and to effectuate all such transfers and/or releases of such Shares as are in
accordance with the terms of this Exercise Agreement. Purchaser and the Company
agree that Escrow Holder will not be liable to any party to this Exercise
Agreement (or to any other party) for any actions or omissions unless Escrow
Holder is grossly negligent or intentionally fraudulent in carrying out the
duties of Escrow Holder under this Exercise Agreement. Escrow Holder may rely
upon any letter, notice or other document executed by any signature purported to
be genuine and may rely on the advice of counsel and obey any order of any court
with respect to the transactions contemplated by this Exercise Agreement. The
Shares will be released from escrow upon termination of both the Repurchase
Option and the Right of First Refusal, provided, however, that the Shares will
-------- -------
be retained in escrow so long as they are subject to the Pledge Agreement.
-9-
<PAGE>
12. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS.
--------------------------------------------
12.1 Legends. Purchaser understands and agrees that the Company will
-------
place the legends set forth below or similar legends on any stock certificate(s)
evidencing the Shares, together with any other legends that may be required by
state or U.S. Federal securities laws, the Company's Articles of Incorporation
or Bylaws, any other agreement between Purchaser and the Company or any
agreement between Purchaser and any third party:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER THE
SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR
RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND APPLICABLE STATE
SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL
RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF
THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE
SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR
RESALE IS IN COMPLIANCE WITH THE SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAWS. THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN RESTRICTIONS ON PUBLIC RESALE AND TRANSFER, RIGHT OF REPURCHASE AND
RIGHT OF FIRST REFUSAL OPTIONS HELD BY THE ISSUER AND/OR ITS ASSIGNEE(S) AS
SET FORTH IN A STOCK OPTION EXERCISE AGREEMENT BETWEEN THE ISSUER AND THE
ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE
PRINCIPAL OFFICE OF THE ISSUER. SUCH PUBLIC SALE AND TRANSFER RESTRICTIONS
AND THE RIGHT OF REPURCHASE AND RIGHT OF FIRST REFUSAL ARE BINDING ON
TRANSFEREES OF THESE SHARES.
THE SHARES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO AN IRREVOCABLE
PROXY UNDER SUBDIVISION (e) OF SECTION 705 OF THE CALIFORNIA CORPORATIONS
CODE AS PROVIDED IN THE AGREEMENT.
12.2 Stop-Transfer Instructions. Purchaser agrees that, to ensure
--------------------------
compliance with the restrictions imposed by this Exercise Agreement, the Company
may issue appropriate "stop-transfer" instructions to its transfer agent, if
any, and if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
12.3 Refusal to Transfer. The Company will not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Exercise Agreement or (ii) to treat
as owner of such Shares, or to accord the right to vote or pay
-10-
<PAGE>
dividends to any purchaser or other transferee to whom such Shares have been so
transferred.
13. SALE OF THE COMPANY.
-------------------
13.1 Appointment of Proxy. Purchaser hereby appoints Summit/E-Tek
--------------------
Holdings, L.L.C. ("HOLDINGS") as his or her true and lawful proxy and attorney-
in-fact, with full power of substitution, to vote the Shares and other voting
securities of the Company for the approval and consummation of an Approved Sale
and all such other matters as expressly provided for in this Section 13. The
proxy and power granted by Purchaser pursuant to this Section 13.1 are (or, in
the case of any subsequent proxies, will be) coupled with an interest and are
(or, in the case of any subsequent proxies, will be) granted in accordance with
the provisions of (S) 705 of the California Corporations Code and shall each be
valid (and irrevocable) until the consummation of an Approved Sale. The proxy
and power granted by Purchaser pursuant to this Section 13.1 (and any subsequent
proxies and powers granted by Purchaser as contemplated below) may, at the
request of Holdings, be embodied in one or more separate instruments containing
terms consistent with the terms set forth in this Section 13.1, and in such case
Purchaser agrees to promptly execute and deliver each such separate instrument
or instruments. Purchaser acknowledges that the proxy granted hereby is
irrevocable in accordance with the provisions of (S) 705(e) of the California
Corporations Code until the consummation of an Approved Sale and is given to
secure Purchaser's obligation to vote the Shares and other voting securities of
the Company held by Purchaser for the approval and consummation of an Approved
Sale.
13.2 Approved Sale. For the purposes of this Section 13, an "APPROVED
-------------
SALE" shall mean any sale of all or substantially all (or any agreement to sell
all or substantially all) of the Company's assets determined on a consolidated
basis or any sale or exchange of all or substantially all (or any agreement to
sell or exchange substantially all) of the Company's outstanding capital stock
(whether by merger, sale, recapitalization, consolidation, reorganization,
combination or otherwise) to any Person or Persons which is approved by the
Board and the holders of a majority of the Shares then held by the Investors;
provided that no such transaction or contemplated transaction shall constitute
an Approved Sale hereunder unless: (i) upon the consummation of the Approved
Sale, all of the holders of Common Stock and Preferred Stock (on an as converted
to Common Stock basis) shall receive the same form and amount of consideration
per share of Common Stock, or if any holders of Common Stock or Preferred Stock
are given an option as to the form and amount of consideration to be received,
all holders shall be given the same option; and (ii) all holders of Shares
representing then currently exercisable rights to acquire shares of Common Stock
(including all holders of Preferred Stock) shall be given an opportunity to
either (A) exercise such rights (including conversion rights in the case of the
holders of Preferred Stock) prior to the consummation of the Approved Sale and
participate in such sale as holders of Common Stock or (B) upon the consummation
of the Approved Sale, receive in exchange for such rights consideration equal to
the amount determined by multiplying (1) the same amount of consideration per
share of Common Stock received by the holders of Common Stock in connection with
the Approved Sale less the exercise price (if any) per share of Common Stock of
such rights to acquire Common Stock by (2) the number of shares of Common Stock
represented by such then currently exercisable rights, and in
-11-
<PAGE>
the case of both clause (A) and clause (B) above, such holders of rights to
acquire shares of Common Stock shall also receive upon the exercise or exchange
of such rights such additional consideration, if any, as may be payable in
connection with such exercise or exchange (including, with respect to the
Preferred Stock, all accrued and unpaid dividends thereon payable pursuant to
the terms of the Articles of Incorporation). The following definitions shall
apply for the purposes of this Section 13.2 only:
(i) "PERSON" shall mean 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;
(ii) "SHARES" shall mean (a) any Common Stock purchased or otherwise
acquired by any Shareholder, (b) any Common Stock issued or issuable directly or
indirectly upon the conversion, exercise or exchange of any securities purchased
or otherwise acquired by any Shareholder which are convertible into or
exercisable or exchangeable for Common Stock (including the Preferred Stock and
any stock options granted by the Company) and (c) any capital stock or other
equity securities issued or issuable directly or indirectly with respect to the
securities referred to in clauses (a) or (b) above 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 securities
constituting Shares hereunder, such securities shall cease to be Shares when
they have been (x) effectively registered under the Securities Act and disposed
of in accordance with the registration statement covering them or (y) sold 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; other than in this
Section 13.2 and as expressly noted in Section 13.3, the term "SHARES" shall
have the meaning ascribed to it in Section 1.1;
(iii) "INVESTORS" shall mean the Persons who purchased shares of the
Company's Preferred Stock pursuant to that certain Recapitalization Agreement
dated as of June 27, 1997;
(iv) "SHAREHOLDERS" shall collectively mean the Persons who owned
shares of the Company's Common Stock or Preferred Stock immediately after the
July 23, 1997 recapitalization of the Company;
(v) "PREFERRED STOCK" shall mean the Company's Class A Convertible
Preferred Stock; and
(vi) "ARTICLES OF INCORPORATION" shall mean the Company's Amended and
Restated Articles of Incorporation as in effect from time to time.
13.3 Sale of Stock. If the Approved Sale is structured as a sale of stock,
-------------
Purchaser shall agree to sell the Shares on the terms and conditions approved by
the Board and the holders of a
-12-
<PAGE>
majority of the Shares (as such term is defined in Section 13.2) held by the
Investors (as such term is defined in Section 13.2).
13.4 Transfer of Shares. Prior to any transfer of Shares (as defined
------------------
in Section 1.1), other than in connection with an Approved Sale, the holder
thereof shall cause the prospective transferee to agree in writing to be bound
by the provisions of this Section 13.
13.5 Termination. The provisions of this Section 13 shall terminate
-----------
upon the consummation of an offering by the Company of its Common Stock to the
public pursuant to an effective registration statement under the Securities Act
or any comparable statement under any similar federal statute then in force.
14. TAX CONSEQUENCES. PURCHASER UNDERSTANDS THAT PURCHASER MAY SUFFER
----------------
ADVERSE TAX CONSEQUENCES AS A RESULT OF PURCHASER'S PURCHASE OR DISPOSITION OF
THE SHARES. PURCHASER REPRESENTS THAT PURCHASER HAS CONSULTED WITH ANY TAX
ADVISER PURCHASER DEEMS ADVISABLE IN CONNECTION WITH THE PURCHASE OR DISPOSITION
OF THE SHARES AND THAT PURCHASER IS NOT RELYING ON THE COMPANY FOR ANY TAX
ADVICE. IN PARTICULAR, IF THE SHARES ARE SUBJECT TO REPURCHASE BY THE COMPANY,
PURCHASER REPRESENTS THAT PURCHASER HAS CONSULTED WITH PURCHASER'S TAX ADVISER
CONCERNING THE ADVISABILITY OF FILING AN 83(b) ELECTION WITH THE INTERNAL
REVENUE SERVICE. Set forth below is a brief summary as of the date the Plan was
adopted by the Board of some of the U.S. Federal and California tax consequences
of exercise of the Option and disposition of the Shares. THIS SUMMARY IS
NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE.
PURCHASER SHOULD CONSULT A TAX ADVISER BEFORE EXECUTING THIS OPTION OR DISPOSING
OF THE SHARES.
14.1 Exercise of Incentive Stock Option. If the Option qualifies as an
----------------------------------
ISO, there will be no regular U.S. Federal income tax liability or California
income tax liability upon the exercise of the Option, although the excess, if
any, of the Fair Market Value of the Shares on the date of exercise over the
Exercise Price will be treated as a tax preference item for U.S. Federal
alternative minimum tax purposes and may subject Purchaser to the alternative
minimum tax in the year of exercise.
14.2 Exercise of Nonqualified Stock Option. If the Option does not
-------------------------------------
qualify as an ISO, there may be a regular U.S. Federal income tax liability and
a California income tax liability upon the exercise of the Option. Purchaser
will be treated as having received compensation income (taxable at ordinary
income tax rates) equal to the excess, if any, of the Fair Market Value of the
Shares on the date of exercise over the Exercise Price. If Purchaser is or was
an employee of the Company, the Company will be required to withhold from
Purchaser's compensation or collect from Purchaser and pay to the applicable
taxing authorities an amount equal to a percentage of this compensation income
at the time of exercise.
-13-
<PAGE>
14.3 Disposition of Shares. If the Shares are held for more
---------------------
than one (1) year after the date of the transfer of the Shares pursuant to the
exercise of the Option for Vested Shares (or for more than one (1) year after
the date of transfer of the Shares pursuant to the exercise of an Option for
Unvested Shares for which a Section 83(b) election has been made), and, in the
case of an ISO, are disposed of more than two (2) years after the Date of Grant,
any gain realized on disposition of the Shares will be treated as mid term or
long term capital gain for U.S. Federal income tax purposes depending on the
length of the holding period. If Shares purchased under an ISO are disposed of
within the applicable one (1) year or two (2) year period, any gain realized on
such disposition will be treated as compensation income (taxable at ordinary
income rates) to the extent of the excess, if any, of the Fair Market Value of
the Shares on the date of exercise over the Exercise Price. The Company may be
required to withhold from Purchaser's compensation or collect from Purchaser and
pay to the applicable taxing authorities an amount equal to a percentage of this
compensation income at the time of exercise.
14.4 Section 83(b) Election for Unvested Shares. With respect
------------------------------------------
to Unvested Shares, which are subject to the Repurchase Option, unless an
election is filed by the Purchaser with the Internal Revenue Service (and, if
necessary, the proper state taxing authorities), within 30 days of the purchase
--------------
of the Unvested Shares, electing pursuant to Section 83(b) of the Internal
Revenue Code (and similar state tax provisions, if applicable) to be taxed
currently on any difference between the Exercise Price of the Unvested Shares
and their Fair Market Value on the date of purchase, there may be a recognition
of taxable income (including, where applicable, alternative minimum taxable
income) to the Purchaser, measured by the excess, if any, of the Fair Market
Value of the Unvested Shares at the time they cease to be Unvested Shares, over
the Exercise Price of the Unvested Shares. PURCHASER HEREBY ASSUMES ALL
RESPONSIBILITY FOR FILING SUCH ELECTION AND PAYING ANY TAXES RESULTING FROM SUCH
ELECTION OR FROM FAILURE TO FILE THE ELECTION AND PAYING TAXES RESULTING FROM
THE LAPSE OF THE REPURCHASE RESTRICTIONS ON THE UNVESTED SHARES.
15. COMPLIANCE WITH LAWS AND REGULATIONS. The issuance and transfer
------------------------------------
of the Shares will be subject to and conditioned upon compliance by the Company
and Purchaser with all applicable state and U.S. Federal laws and regulations
and with all applicable requirements of any stock exchange or automated
quotation system on which the Company's Common Stock may be listed or quoted at
the time of such issuance or transfer.
16. SUCCESSORS AND ASSIGNS. The Company may assign any of its
----------------------
rights or obligations under this Exercise Agreement, including its rights to
repurchase Shares under the Repurchase Option and the Right of First Refusal and
its obligation to repurchase the Shares under the Repurchase Obligation. This
Exercise Agreement shall be binding upon and inure to the benefit of the
successors and assigns of the Company. Subject to the restrictions on transfer
herein set forth, this Exercise Agreement will be binding upon Purchaser and
Purchaser's heirs, executors, administrators, legal representatives, successors
and assigns.
-14-
<PAGE>
17. GOVERNING LAW; SEVERABILITY. This Exercise Agreement shall be
---------------------------
governed by and construed in accordance with the internal laws of the State of
California as such laws are applied to agreements between California residents
entered into and to be performed entirely within California. If any provision of
this Exercise Agreement is determined by a court of law to be illegal or
unenforceable, then such provision will be enforced to the maximum extent
possible and the other provisions will remain fully effective and enforceable.
18. NOTICES. Any notice required to be given or delivered to the Company
-------
shall be in writing and addressed to the Corporate Secretary of the Company at
its principal corporate offices. Any notice required to be given or delivered to
Purchaser shall be in writing and addressed to Purchaser at the address
indicated above or to such other address as Purchaser may designate in writing
from time to time to the Company. All notices shall be deemed effectively given
upon personal delivery, three (3) days after deposit in the United States mail
by certified or registered mail (return receipt requested), one (1) business day
after its deposit with any return receipt express courier (prepaid), or one (1)
business day after transmission by rapifax or telecopier.
19. FURTHER INSTRUMENTS. The parties agree to execute such further
-------------------
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Exercise Agreement.
20. HEADINGS. The captions and headings of this Exercise Agreement are
--------
included for ease of reference only and will be disregarded in interpreting or
construing this Exercise Agreement. All references herein to Sections will refer
to Sections of this Exercise Agreement.
21. ENTIRE AGREEMENT. The Plan, the Stock Option Agreement and this
----------------
Exercise Agreement, together with all its Exhibits, constitute the entire
agreement and understanding of the parties with respect to the subject matter of
this Exercise Agreement, and supersede all prior understandings and agreements,
whether oral or written, between the parties hereto with respect to the specific
subject matter hereof.
22. COUNTERPARTS. This Exercise Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-15-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Exercise Agreement to be
executed in duplicate by its duly authorized representative and Purchaser has
executed this Exercise Agreement in triplicate as of the Effective Date.
E-TEK DYNAMICS, INC. PURCHASER
By:_________________________ By:____________________________
____________________________ _______________________________
(Please print name)
____________________________
(Please print title)
[SIGNATURE PAGE TO E-TEK DYNAMICS, INC. EXECUTIVE STOCK OPTION EXERCISE
AGREEMENT]
-16-
<PAGE>
EXHIBIT 10.15
EXECUTION COPY
================================================================================
RECAPITALIZATION AGREEMENT
BY AND AMONG
E-TEK DYNAMICS, INC.,
THE PURCHASERS NAMED HEREIN,
THERESA STONE PAN,
JING JONG PAN
AND
THE TRUSTS NAMED HEREIN
================================================================================
June 27, 1997
<PAGE>
RECAPITALIZATION AGREEMENT
--------------------------
THIS RECAPITALIZATION AGREEMENT (this "Agreement") is made as of June 27,
---------
1997, by and among the Persons listed on the Schedule of Purchasers attached
----------------------
hereto (each, a "Purchaser" and collectively, the "Purchasers"), E-Tek Dynamics,
--------- ----------
Inc., a California corporation (the "Company"), the Persons listed on the
-------
Schedule of Trust Shareholders attached hereto (each, a "Trust Shareholder" and
- ------------------------------ -----------------
collectively, the "Trust Shareholders"), Theresa Stone Pan ("T.S. Pan") and Jing
------------------ --------
Jong Pan ("J.J. Pan"). The Trust Shareholders, T.S. Pan and J.J. Pan are
--------
sometimes collectively referred to herein as the "Shareholders" and individually
------------
as a "Shareholder". The Purchasers, the Company and the Shareholders are
-----------
sometimes collectively referred to herein as the "Parties" and individually as a
-------
"Party." Capitalized terms used herein and not otherwise defined herein have the
-----
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
-----------
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:
<PAGE>
Section 1. Recapitalization.
----------------
1A. Authorization.
-------------
(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
- ---------
may be required by the California Secretary of State in connection with such
filing) (as so amended and restated, the "Articles of Incorporation"). The
-------------------------
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
--------------- ---------
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.
------------ ---------
(iii) The Company shall authorize the repurchase of 30,000,000.17
shares of the Company's Common Stock from the Shareholders (the "Repurchased
-----------
Shares") for an aggregate purchase price equal to $120,000,000 (the "Repurchase
- ------ ----------
Price"). The number of Repurchased Shares to be repurchased from each
- -----
Shareholder is set forth on the Schedule of Shareholders attached hereto.
------------------------
1B. Investment Transaction. On the basis of the representations,
----------------------
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
----------------------
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
- ----------------------
funds in the amount set forth opposite such Purchaser's name on the Schedule of
-----------
Purchasers attached hereto, payable in the manner set forth in Paragraph 1D(i)
- ----------
below. The aggregate purchase price for such shares of Preferred Stock shall be
equal to $120,000,000 (the "Purchase Price").
--------------
1C. Repurchase Transaction. On the basis of the representations,
----------------------
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
----------
Transaction"): the Company shall repurchase from each Shareholder the number of
- -----------
Repurchased Shares set forth opposite such Shareholder's name on the Schedule of
-----------
Shareholders attached hereto and shall pay to each such Shareholder (in the
- ------------
manner set forth in Paragraphs 1D(iii) and 1D(iv) below) the portion
-2-
<PAGE>
of the Repurchase Price set forth opposite such Shareholder's name on the
Schedule of Shareholders attached hereto.
- ------------------------
1D. Closing. The closing of each of the Investment Transaction and
-------
the Repurchase Transaction (the "Closing") shall take place at the offices of
-------
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
------------
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
- ----------------------
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
----------------------
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")
--------------
established pursuant to the terms of an escrow agreement in the form of Exhibit
-------
B attached hereto (the "Escrow Agreement") among the Parties and the Escrow
- - ----------------
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
- ------------------------
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.
- ------------------------
(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.
-3-
<PAGE>
Section 2. Conditions of the Purchasers' Obligations at the Closing.
--------------------------------------------------------
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
-----------------------------------------
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
--------------------------------------
Incorporation shall have been amended and restated in the form of Exhibit A
---------
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
------------------- ------
have been amended and restated in the form of Exhibit C attached hereto, shall
---------
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
----------------------
Executives shall have entered into a shareholders agreement in the form of
Exhibit D attached hereto (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.
2E. Registration Agreement. The Company and the Shareholders shall
----------------------
have entered into a registration agreement in the form of Exhibit E attached
---------
hereto (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.
2F. Stock Option Plan. The Company shall have adopted a stock option
-----------------
plan in the form of Exhibit F attached hereto (the "Stock Option Plan") and the
--------- -----------------
Stock Option Plan shall be in full force and effect as of the Closing and shall
not have been amended or modified.
-4-
<PAGE>
2G. Escrow Agreement. Each of the Company, the Shareholders and the
----------------
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
--------------------
into an employment agreement in the form of Exhibit G attached hereto (the
---------
"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.
2I. Executive Agreements. The Company and each of the Executives
--------------------
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
-----------
a subscription agreement in the form of Exhibit H-2 attached hereto
-----------
(collectively, the "Executive Agreements"), and each of the Executive Agreements
--------------------
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
------------------------------------------------------
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
- -----------
as of the Closing Date and in form and substance reasonably satisfactory to the
Purchasers. The Purchasers shall have received from Crist, Schulz, Biorn &
Shepherd, 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
-----------
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
----------------------
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
----------------
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
-----
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
------------------------
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.
-5-
<PAGE>
2N. Litigation. No suit, action or other proceeding shall be pending
----------
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
-------
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
----------------------------------
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
------------------
(collectively, the "Third Party Approvals"), in each case on terms and
---------------------
conditions reasonably satisfactory to the Purchasers.
2Q. Governmental Consents and Approvals. The Parties shall have
-----------------------------------
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 Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as amended (the "Hart-Scott-Rodino
-----------------
Act"), shall have expired or been terminated (collectively, the "Governmental
- --- ------------
Approvals"), and the Company shall have received all permits from the California
- ---------
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
-----------------------
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
--------
reimbursed the Purchasers for their fees and expenses as provided in Paragraph
11A below.
2T. Real Estate Matters. The Purchasers shall have received an
-------------------
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.
-6-
<PAGE>
2U. Proceedings. All corporate and other proceedings taken or
------------
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
------------------
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 Paragraphs 2D, 2E, 2G, 2J, 2S, 2T, and 2U),
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
------
if consenting to in writing by the Purchasers.
Section 3. Conditions of the Obligations of the Company and the
----------------------------------------------------
Shareholders at the Closing. The obligations of the Company and each Shareholder
- ---------------------------
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
-----------------------------------------
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
-7-
<PAGE>
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
---------------------------------------
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
----------------------
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
----------------------
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
----------------
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
--------------------
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
----------------------------------
received from Kirkland & Ellis, counsel for the Purchasers, an opinion with
respect to the matters set forth in Exhibit J attached hereto, which shall be
---------
addressed to the Shareholders and dated as of the Closing Date.
3H. Litigation. No suit, action or other proceeding shall be pending
----------
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
-----------------------------------
received or obtained all Governmental Approvals that are necessary for the
consummation of the transactions contemplated hereby, and the waiting period
under the Hart-Scott-Rodino Act shall have expired or been terminated.
3J. Investment Transaction. The Purchasers shall have immediately
----------------------
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.
-8-
<PAGE>
3K. Expenses. At the Closing, the Company shall have paid or
--------
reimbursed the Shareholders for their fees and expenses as provided in Paragraph
11A below.
3L. Closing Certificate. The Purchasers shall have delivered to the
-------------------
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
------
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
------------------------------------
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
-------
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
-----------------------
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
--------------------------------
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
---------------------------------
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 Hart-Scott-Rodino Act, and shall make any further filings pursuant thereto
that may be necessary,
-9-
<PAGE>
proper or advisable in connection therewith, and the Company shall pay all
filing and other fees related to any filings under the Hart-Scott-Rodino Act.
4E. Operation of Business. The Company shall, and the Shareholders
---------------------
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
------------------
attached hereto and except that at or immediately prior to the Closing the
Company may pay bonuses to Ming Shih 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
-------------------------------
hereto.
-10-
<PAGE>
4F. Full Access. The Company shall, and the Shareholders shall cause
-----------
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
-----------------------------------
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
(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-
<PAGE>
(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-
<PAGE>
(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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
(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-
<PAGE>
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-
<PAGE>
(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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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
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<PAGE>
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-
<PAGE>
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-
<PAGE>
(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-
<PAGE>
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-
<PAGE>
(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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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 Hart-Scott-Rodino
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).
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<PAGE>
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
Hart-Scott-Rodino 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
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<PAGE>
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 Paragraph 5O (Tax Matters),
Paragraph 5Q (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
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<PAGE>
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-
<PAGE>
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 5B, Paragraph 5T, Paragraph 6A, Paragraph 6C,
Paragraph 6D, 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 5B, Paragraph 5T,
Paragraph 6A, Paragraph 6C, Paragraph 6D, 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 Paragraph 1C 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-
<PAGE>
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-
<PAGE>
(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-
<PAGE>
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
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<PAGE>
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, Amador, Butte, Calaveras, Colusa,
Contra Costa, Del Norte, El Dorado, Glenn, Humboldt, Imperial, Inyo, Kern,
Kings, Lake, Lassen, Madera, Marin, Mariposa, Mendocino, Merced, Modoc, Mono,
Monterey, Napa, Nevada, Placer, Plumas, Riverside, Sacramento, San Benito, San
Francisco, San Joaquin, San Luis Obispo, San Mateo, Santa Barbara, Santa Clara,
Santa Cruz, Shasta, Sierra, Siskiyou, Solano, 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-
<PAGE>
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
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<PAGE>
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.
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<PAGE>
(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
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<PAGE>
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-
<PAGE>
"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.
--------------------
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<PAGE>
"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 Paragraph 2I.
--------------------
"Executive Stock" has the meaning set forth in Paragraph 5B(ii).
---------------
"Executives" shall mean Ming Shih 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.
----------------------
"Hart-Scott-Rodino Act" has the meaning set forth in Paragraph 2R.
---------------------
"Improvements" has the meaning set forth in Paragraph 5CC(vi).
------------
-51-
<PAGE>
"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-
<PAGE>
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).
-------------------
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<PAGE>
"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.
----------------------
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<PAGE>
"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 Paragraph 2F.
-----------------
"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-
<PAGE>
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
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<PAGE>
(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, 10A, 10B, 11A, 11B, 11D, 11E,
11F, 11G, 11H, 11I, 11J, 11M, 11O, 11P, 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-
<PAGE>
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-
<PAGE>
together with an opinion of Kirkland & Ellis, Fenwick & 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 Kirkland & Ellis, Fenwick & 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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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.
1885 Lundy Avenue
San Jose, California 95131
Attn: President
Phone: (408) 432-6300
Facsimile: (408) 432-8550
with a copy to:
--------------
(which shall not constitute notice to the Company)
Fenwick & West LLP
Two Palo Alto Square
Palo Alto, California 94306
Attn: Jacqueline A. Daunt, Esq.
Phone: (415) 858-7232
Facsimile: (415) 857-0361
The Company (after the Closing):
-------------------------------
E-Tek Dynamics, Inc.
1885 Lundy Avenue
San Jose, California 95131
Attn: President
Phone: (408) 432-6300
Facsimile: (408) 432-8550
with copies to:
--------------
(which shall not constitute notice to the Company)
Summit Partners, L.P.
499 Hamilton Avenue, Suite 200
Palo Alto, California 94301
Attn: Mr. Walter G. Kortschak
Phone: (415) 321-1166
Facsimile: (415) 321-1188
-63-
<PAGE>
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attn: Ted H. Zook, Esq.
Phone: (312) 861-2294
Facsimile: (312) 861-2200
The Shareholders:
----------------
Theresa Stone Pan
Jing Jong Pan
[Address]
[Phone]
with a copy to:
--------------
(which shall not constitute notice to the Shareholders)
Fenwick & West LLP
Two Palo Alto Square
Palo Alto, California 94306
Attn: Jacqueline A. Daunt, Esq.
Phone: (415) 858-7232
Facsimile: (415) 857-0361
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)
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attn: Ted H. Zook, Esq.
Phone: (312) 861-2294
Facsimile: (312) 861-2200
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-
<PAGE>
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-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Recapitalization Agreement on the date first written above.
E-TEK DYNAMICS, INC.
By: /s/ Theresa Stone Pan
-----------------------------
Its: PRESIDENT
----------------------------
[Signature Page to Recapitalization Agreement]
<PAGE>
/s/ Theresa Stone Pan
-----------------------------
Theresa Stone Pan
/s/ Jing Jong Pan
-----------------------------
Jing Jong Pan
[Signature Page to Recapitalization Agreement]
<PAGE>
/s/ Robert A. Biorn
-----------------------------------------------------
Robert A. Biorn, Trustee of the J. J. Grace Pan
Charitable Remainder Unitrust UTA dated May 16, 1997
/s/ Robert A. Biorn
-----------------------------------------------------
Robert A. Biorn, Trustee of the Theresa Grace Pan
Charitable Remainder Unitrust UTA dated May 16, 1997
/s/ Robert A. Biorn
-----------------------------------------------------
Robert A. Biorn, Trustee of the Jing Jong Pan
Charitable Remainder Unitrust UTA dated June 26, 1997
/s/ Robert A. Biorn
-----------------------------------------------------
Robert A. Biorn, Trustee of the Theresa Stone Pan
Charitable Remainder Unitrust I UTA dated June 26,
1997
/s/ Robert A. Biorn
-----------------------------------------------------
Robert A. Biorn, Trustee of the Theresa Stone Pan
Charitable Remainder Unitrust II UTA dated June 26,
1997
/s/ Robert A. Biorn
-----------------------------------------------------
Robert A. Biorn, Trustee of the Theresa Stone Pan
Charitable Remainder Unitrust III UTA dated June 26,
1997
[Signature Page to Recapitalization Agreement]
<PAGE>
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, Woodsum & Co. IV, its
General Partner
By: [Signature]
_____________________________
General Partner
[Signature Page to Recapitalization Agreement]
<PAGE>
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]
<PAGE>
PETER J. MOONEY. as nominee for
the Broadview Partners Group
By: /s/ Peter J. Mooney
------------------------------
Its: Peter J. Mooney as nominee
-----------------------------
[Signature Page to Recapitalization Agreement]
<PAGE>
/s/ Vinita Gupta
------------------------------------
Vinita Gupta
BAIN SECURITIES, INC.
By:_________________________________
Gary Wilkinson
Its: Treasurer
[Signature Page to Recapitalization Agreement]
<PAGE>
__________________________________
Vinita Gupta
BAIN SECURITIES, INC.
By: /s/ Gary Wilkinson
------------------------------
Gary Wilkinson
Its: Treasurer
[Signature Page to Recapitalization Agreement]
<PAGE>
RANDOLPH STREET PARTNERS
By: /s/ [SIGNATURE]
------------------------------
Its: Managing Partner
-----------------------------
RANDOLPH STREET PARTNERS DIF,
LLC
By: /s/ [SIGNATURE]
------------------------------
Its: Managing Member
-----------------------------
[Signature Page to Recapitalization Agreement]
<PAGE>
F&W INVESTMENTS 1997
By: [SIGNATURE]
------------------------------
Its: General Partner
-----------------------------
[Signature Page to Recapitalization Agreement]
<PAGE>
SCHEDULE OF PURCHASERS
----------------------
<TABLE>
<CAPTION>
Number of
Shares of
Preferred Purchase Price for
Name and Address Stock Preferred Stock
- ----------------------- ------------ --------------------
<S> <C> <C>
Summit/E-Tek Holdings, L.L.C. 27,000,000 $108,000,000
c/o Summit Partners, L.P.
499 Hamilton Avenue
Suite 200
Palo Alto, California 94301
Attn: Walter G. Kortschak
Phone: (415) 321-1166
Facsimile: (415) 321-1188
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
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258-0001
Attn: Bernadette Rist
Phone: (412) 234-6340
Facsimile: (412) 234-0555
with a copy to:
General Motors Investment Management
Corporation
767 5th Avenue, 15th Floor
New York, New York 10153
Attn: Robert Cromwell
Phone: (212) 418-6125
Facsimile: (212) 418-6123
Peter J. Mooney, as nominee for the 250,000 $ 1,000,000
Broadview Partners Group
c/o Broadview Associates
950 Tower Lane, 18th Floor
Foster City, California 94404
Attn: Maryfrances Galligan
Phone: (415) 378-4738
Facsimile: (415) 378-4710
</TABLE>
<PAGE>
SCHEDULE OF SHAREHOLDERS
------------------------
<TABLE>
<CAPTION>
Number of
Repurchased Repurchase Closing Cash
Name and Address Shares Price Amount
- -------------------------------- ------------- --------------- ---------------
<S> <C> <C> <C>
Jing Jong Pan and Theresa Stone 19,575,495.59 $ 78,301,981.91 $ 73,301,981.91
Pan, Trustees of the J.J. &
Theresa Pan Revocable Trust
dated February 14, 1997
Robert A. Biorn, Trustee of the 1,499,935.82 $ 5,999,743.25 $ 5,999,743.25
J.J. Grace Pan Charitable
Remainder Unitrust UTA dated
May 16, 1997
Robert A. Biorn, Trustee of the 1,499,935.82 $ 5,999,743.25 $ 5,999,743.25
Theresa Grace Pan Charitable
Remainder Unitrust UTA dated
May 16, 1997
Robert A. Biorn, Trustee of the 2,468,623.80 $ 9,874,495.14 $ 9,874,495.14
Jing Jong Pan Charitable
Remainder Unitrust UTA dated
June 26, 1997
Robert A. Biorn, Trustee of the 1,499,935.82 $ 5,999,743.25 $ 5,999,743.25
Theresa Stone Pan Charitable
Remainder Unitrust 1 UTA dated
June 26, 1997
Robert A. Biorn, Trustee of the 1,728,036.66 $ 6,912,146.60 $ 6,912,146.60
Theresa Stone Pan Charitable
Remainder Unitrust II UTA
dated June 26, 1997
Robert A. Biorn, Trustee of the 1,728,036.66 $ 6,912,146.60 $ 6,912,146.60
Theresa Stone Pan Charitable
Remainder Unitrust III UTA
dated June 26, 1997
============= ============== ==============
Totals: 30,000,000.17 120,000,000.00 115,000,000.00
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Vinita Gupta 250,000 $1,000,000
c/o Digital Link Corporation
217 Humbolt Court
Sunnyvale, California 94089
Phone: (408) 745-4140
Facsimile: (408) 745-6250
Bain Securities, Inc. 62,500 $ 250,000
c/o Bain & Company, Inc.
2 Copley Place
Boston, Massachusetts 02116
Attn: Gary Wilkinson
Phone: (617) 572-3268
Facsimile: (617) 572-3266
Randolph Street Partners 62,500 $ 250,000
200 East Randolph Drive
Chicago, Illinois 60601
Attn: Jack S. Levin
Phone: (312) 861-2004
Facsimile: (312) 861-2200
Randolph Street Partners DIF, LLC 62,500 $ 250,000
200 East Randolph Drive
Chicago, Illinois 60601
Attn: Jack S. Levin
Phone: (312) 861-2004
Facsimile: (312) 861-2200
F&W Investments 1997 12,500 $ 50,000
c/o Fenwick & West
Two Palo Alto Square
Palo Alto, CA 94306
Attn: Jacqueline Daunt
Phone: (415) 858-7232
Facsimile: (415) 494-1417
========== ============
Totals: 30,000,000 $120,000,000
</TABLE>
<PAGE>
SCHEDULE OF TRUST SHAREHOLDERS
------------------------------
Jing Jong Pan and Theresa Stone Pan, Trustees of the J.J. & Theresa Pan
Revocable Trust dated February 14, 1997
Robert A. Biorn, Trustee of the J.J. Grace Pan Charitable Remainder Unitrust UTA
dated May 16, 1997
Robert A. Biorn, Trustee of the Theresa Grace Pan Charitable Remainder Unitrust
UTA dated May 16, 1997
Robert A. Biorn, Trustee of the Jing Jong Pan Charitable Remainder Unitrust UTA
dated June 26, 1997
Robert A. Biorn, Trustee of the Theresa Stone Pan Charitable Remainder Unitrust
I UTA dated June 26, 1997
Robert A. Biorn, Trustee of the Theresa Stone Pan Charitable Remainder Unitrust
II UTA dated June 26, 1997
Robert A. Biorn, Trustee of the Theresa Stone Pan Charitable Remainder Unitrust
III UTA dated June 26, 1997
<PAGE>
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 Theresa Stone 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.
<PAGE>
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 -
<PAGE>
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.
<PAGE>
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, Woodsum & Co. IV, its
General Partner
By: ____________________________________
General Partner
/s/ Theresa Stone Pan
--------------------------------------------
Theresa Stone Pan
(on her own behalf and on behalf of all of
the other Shareholders)
-3-
<PAGE>
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/ Theresa Stone 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, Woodsum & Co. IV, its
General Partner
By: [Signature]
------------------------------------
General Partner
/s/ Theresa Stone Pan
___________________________________________
Theresa Stone Pan
(on her own behalf and on behalf of all of
the other Shareholders)
-3-
<PAGE>
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 Jing Jong 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]
<PAGE>
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. Jing Jong Pan and Theresa Stone
Pan, Trustees of the J.J. & Theresa
Pan Revocable Trust dated
By: /s/ Michael J. Fitzpatrick February 14, 1997
-----------------------------
Michael J. Fitzpatrick,
President and CEO /s/ Theresa Stone Pan
----------------------------
SUMMIT/E-TEK HOLDINGS, L.L.C Theresa Stone Pan, Trustee
/s/ Jing Jong Pan
----------------------------
By: Summit Ventures IV, L.P., its Member Jing Jong Pan, Trustee
By: Summit Partners IV, L.P., its General /s/ Theresa Stone Pan
Partner ----------------------------
Theresa Stone Pan
By: Stamps, Woodsum & Co. IV, its /s/ Jing Jong Pan
General Partner ----------------------------
Jing Jong Pan
By: /s/ Walter Kortschak
----------------------------------
Walter Kortschak,
General Partner
Page 2
<PAGE>
EXHIBIT 10.16
EXECUTION COPY
E-TEK DYNAMICS, INC.
SHAREHOLDERS AGREEMENT
----------------------
THIS AGREEMENT is made as of July 23, 1997, by and among E-Tek
Dynamics, Inc., a California corporation (the "Company"), each of the Persons
-------
listed on the Schedule of Investors attached hereto (the "Investors") and each
--------------------- ---------
of the Persons listed on the Schedule of Existing Shareholders attached hereto
---------------------------------
(the "Existing Shareholders"). The Investors and the Existing Shareholders are
---------------------
collectively referred to herein as the "Shareholders" and individually as a
------------
"Shareholder." Except as otherwise provided herein, capitalized terms used
-----------
herein are defined in paragraph 9 hereof.
The Investors shall purchase shares of the Company's Class A
Convertible Preferred Stock pursuant to a Recapitalization Agreement, dated as
of June 27, 1997, by and among the Investors, the Founding Shareholders and the
Company (as the same may be amended from time to time in accordance with its
terms, the "Recapitalization Agreement").
--------------------------
The Existing Shareholders are the holders of shares of the Company's
Common Stock or options to purchase shares of the Company's Common Stock.
The Company and the Shareholders desire to enter into this Agreement
for the purposes, among others, of (i) establishing the composition of the
Company's board of directors (the "Board"), (ii) assuring continuity in the
-----
management and ownership of the Company and (iii) limiting the manner and terms
by which Shares may be transferred. The execution and delivery of this Agreement
is a condition to the Closing under the Recapitalization Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties to this Agreement hereby agree as
follows:
1. Board of Directors.
------------------
(a) From and after the Closing (as defined in the Recapitalization
Agreement) and until the provisions of this paragraph 1 cease to be effective,
each holder of Shares shall vote all of his, her or its Shares which are voting
shares and any other voting securities of the Company over which such holder has
voting control and shall take all other necessary or desirable actions within
his, her or its control (whether in his, her or its capacity as a shareholder,
director, member of a board committee or officer of the Company or otherwise,
and including attendance at meetings in person or by proxy for purposes of
obtaining a quorum and execution of written consents in lieu of meetings), and
the Company shall take all necessary or desirable actions within its control
(including calling special board and shareholder meetings), so that:
(i) the authorized number of directors on the Board shall be
established at five (5) directors;
<PAGE>
(ii) the following representatives shall be elected to the Board:
(A) one representative designated by the Founding
Shareholders (determined by a vote of the Founding Shareholders owning a
majority of the Shares held by all of the Founding Shareholders) (the
"Founding Director"), with Theresa Stone Pan serving as the Founding
-----------------
Director as of the date hereof;
(B) two representatives designated by the Investors
(determined by a vote of the Investors owning a majority of the Shares held
by all of the Investors) (the "Investor Directors");
------------------
(C) one representative who shall be the Company's Chief
Executive Officer (the "Management Director"); provided that until the
------------------- -------- ----
hiring by the Company of a new Chief Executive Officer following the
Closing, the Management Director Investor shall be designated by the
Founding Shareholders after consultation with the Investor Representative
(determined by a vote of the Founding Shareholders owning a majority of the
Shares held by all of the Founding Shareholders); and provided further
-------- -------
that, effective upon the hiring by the Company of a new Chief Executive
Officer following the Closing (it being understood that such new Chief
Executive Officer shall be approved by the Board and shall be acceptable to
Theresa Stone, Pan), the right of the Founding Shareholders under this
subparagraph 1(a)(ii)(C) to designate the Management Director shall forever
terminate, and in such event, upon the written request of the Investor
Representative, each holder of Shares shall vote all of his, her or its
Shares which are voting shares and any other voting securities of the
Company over which such holder has voting control and shall take all other
necessary or desirable action within his, her or its control to remove the
Management Director designated by the Founding Shareholders from the Board
and any Sub Board (as defined below) at the time specified in such written
request and to elect such Chief Executive Officer as a representative to
the Board: and provided further that after such election of the Chief
-------- -------
Executive Officer to the Board following the Closing, in the event of the
death, disability, resignation or termination for any reason of the Chief
Executive Officer of the Company and until his or her successor has been
elected Chief Executive Officer of the Company, such Management Director
shall be designated by the Shareholders (determined by a vote of the
Shareholders owning a majority of the Shares held by all the Shareholders);
and
(D) one representative (the "Outside Director") designated by
----------------
the Shareholders (determined by a vote of the Shareholders owning a
majority of the Shares held by all of the Shareholders); provided that such
-------- ----
representative is not a member of the Company's management or an employee
or officer of the Company or its Subsidiaries or a partner, member or
employee of an Investor (other than Broadview Associates, L.L.C.) or a
partner, member or employee of any partner or member of an Investor (other
than Broadview Associates, L.L.C.).
(iii) for so long as any Investor shall hold any Shares, one of the
Investor Directors shall serve as Chairman of the Board having the powers
and duties of such office
-2-
<PAGE>
as set forth in the Company's bylaws, with Walter G. Kortschak serving as
Chairman of the Board as of the date hereof;
(iv) the composition of the board of directors of each of the
Company's Subsidiaries (a "Sub Board") shall be the same as that of the
---------
Board;
(v) (A) a three member Compensation Committee shall be established
and shall include the two Investor Directors and the Founding Director and
(B) any other committees established by the Board or a Sub Board shall be
proportionately equivalent to that of the Board;
(vi) (A) the removal from the Board or a Sub Board (with or without
cause) of the Founding Director shall be at the written request of the
Founding Shareholders (determined by a vote of the Founding Shareholders
owning a majority of the Shares held by all of the Founding Shareholders),
but only upon such written request and under no other circumstances, (B)
the removal from the Board or a Sub Board (with or without cause) of any
Investor Director shall be at the written request of the Investors
(determined by a vote of the Investors owning a majority of the Shares held
by all of the Investors), but only upon such written request and under no
other circumstances, (C) the removal from the Board or a Sub Board (with or
without cause) of the Management Director (prior to the hiring by the
Company of a new Chief Executive Officer following the Closing) shall be at
the written request of the Founding Shareholders (determined by a vote of
the Founding Shareholders owning a majority of the Shares held by all of
the Founding Shareholders), but only upon such written request and under no
other circumstances, and the removal from the Board or a Sub Board (with or
without cause) of the Management Director (after the hiring by the Company
of a new Chief Executive Officer following the Closing) shall be at the
written request of the Shareholders (determined by a vote of the
Shareholders owning a majority of the Shares held by all of the
Shareholders), but only upon such written request and under no other
circumstances and (D) the removal from the Board or a Sub Board (with or
without cause) of the Outside Director shall be at the written request of
the Shareholders (determined by a vote of the Shareholders owning a
majority of the Shares held by all of the Shareholders), but only upon such
written request and under no other circumstances; and
(vii) (A) in the event that the Founding Director ceases to serve as
a member of the Board or a Sub Board during his or her term of office, the
resulting vacancy on the Board or a Sub Board shall be filled by a
representative designated as provided in subparagraph (ii)(A) above, (B) in
the event that any Investor Director ceases to serve as a member of the
Board or a Sub Board during his or her term of office, the resulting
vacancy on the Board or a Sub Board shall be filled by a representative
designated as provided in subparagraph (ii)(B) above, (C) in the event that
the Management Director ceases to serve as a member of the Board or a Sub
Board during his or her term of office, the resulting vacancy on the Board
or a Sub Board shall be filled by a representative designated as provided
in subparagraph (ii)(C) above, and (D) in the event that the Outside
Director ceases to serve as a member of the Board or a Sub Board during his
or her term of office, the resulting vacancy on the Board or a Sub Board
shall be filled by a representative designated as provided in subparagraph
(ii)(D) above.
-3-
<PAGE>
(b) The Company shall pay the reasonable out-of-pocket expenses
incurred by each director in connection with attending the meetings of the Board
or a Sub Board and any committees thereof. So long as any Investor Director or
Founding Director serves on the Board or a Sub Board, the Company's Articles of
Incorporation and bylaws shall provide for indemnification and exculpation of
directors to the fullest extent permitted under applicable law.
(c) If any party fails to designate a representative to fill a
directorship pursuant to the terms of this paragraph 1, the individual
previously holding such directorship shall be elected to such position, or if
such individual fails or declines to serve, the election of an individual to
such directorship shall be accomplished in accordance with the Company's
Articles of Incorporation and bylaws and applicable law; provided that the
Shareholders shall vote to remove such individual if the party or parties which
failed to designate such directorship so direct.
(d) The rights of the Founding Shareholders under this paragraph 1
shall terminate at such time as the Founding Shareholders and the members of the
Founding Shareholders' Family Group shall hold less than 25% of the Shares held
by the Founding Shareholders immediately following the Closing. In such event
(i) at the written request of the Investor Representative, each holder of Shares
shall vote all of his, her or its Shares which are voting shares and any other
voting securities of the Company over which such holder has voting control and
shall take all other necessary or desirable action within his, her or its
control to remove the Founding Director from the Board and any Sub Board at the
time specified in such written request and (ii) thereafter, the representative
to fill such directorship shall be designated by the holders of Common Stock in
accordance with the Articles of Incorporation.
(e) The provisions of this paragraph 1 shall terminate automatically
and shall be of no further force and effect upon the consummation of a Public
Offering.
2. Representations and Warranties. Each Shareholder represents and
------------------------------
warrants that (i) this Agreement has been duly authorized, executed and
delivered by such Shareholder and constitutes the valid and binding obligation
of such Shareholder, enforceable in accordance with its terms, and (ii) such
Shareholder has not granted and is not a party to any proxy, voting trust or
other agreement which is inconsistent with, conflicts with or violates any
provision of this Agreement. No holder of Shares shall grant any proxy or become
party to any voting trust or other agreement which is inconsistent with,
conflicts with or violates any provision of this Agreement.
3. Restrictions on Transfer of Shares.
----------------------------------
(a) General. No holder of Shares shall sell, transfer, assign, pledge
-------
or otherwise dispose of (whether with or without consideration and whether
voluntarily or involuntarily or by operation of law) any interest in any Shares
(a "Transfer"), except pursuant to a Public Sale or an Approved Sale (an "Exempt
-------- ------
Transfer") or in accordance with the provisions of this paragraph 3. Prior to
- --------
making any Transfer other than an Exempt Transfer, each Existing Shareholder
transferring any Shares (a "Transferring Shareholder") shall deliver a written
------------------------
notice (a "Sale Notice") to the Company and the Other Shareholders in order to
-----------
allow the Company and the Other Shareholders to exercise the rights granted
pursuant to paragraphs 3(b) and 3(c) below. Prior to making any transfer other
than an Exempt Transfer, each Investor transferring any shares of Common Stock
(a "Transferring Shareholder") shall deliver a written notice (a "Sale Notice")
------------------------ -----------
to the Founding
-4-
<PAGE>
Shareholders and the other Investors in order to allow the Founding Shareholders
and the other Investors to exercise the rights granted pursuant to paragraph
3(c) below. The Sale Notice shall disclose in reasonable detail the identity of
the prospective transferee(s), the number of Shares to be transferred and the
terms and conditions of the proposed Transfer. In no event shall any Transfer of
Shares pursuant to this paragraph 3 be made by any Existing Shareholder (i) to
any Person which engages in any business which is competitive with any business
of the Company or any of its Subsidiaries or any business proposed to be engaged
in by the Company or any of its Subsidiaries as of the date of such Transfer or
to any Person which directly or indirectly holds any interest in any such Person
or (ii) for any consideration other than cash payable upon consummation of such
Transfer or in installments over time. No Shareholder shall consummate any
Transfer until 30 days after the Sale Notice has been given to the Company and
the Other Shareholders (the "Election Period"), unless the parties to the
---------------
Transfer have been finally determined pursuant to this paragraph 3 prior to the
expiration of such 30-day period. The date of the first to occur of such events
is referred to herein as the "Authorization Date."
------------------
(b) First Refusal Rights Applicable to Existing Shareholders. The
--------------------------------------------------------
Company may elect to purchase all or any portion of an Existing Shareholder's
Shares to be transferred upon the same terms and conditions as those set forth
in the Sale Notice by delivering a written notice of such election to such
Existing Shareholder and the Investors within 20 days after the Sale Notice has
been delivered to the Company. If the Company has not elected to purchase all of
such Existing Shareholder's Shares to be transferred, the Other Shareholders may
elect to purchase the remaining Shares to be transferred upon the same terms and
conditions as those set forth in the Sale Notice by delivering written notice of
such election to such Existing Shareholder within 25 days after the Sale Notice
has been given to the Other Shareholders. If more than one of the Other
Shareholders elects to purchase such Shares, the Shares to be sold shall be
allocated among the Other Shareholders pro rata according to the number of
Shares owned by each such Other Shareholder. If the Company and/or the Other
Shareholders have not elected to purchase all of such Existing Shareholder's
Shares specified in the Sale Notice, such Existing Shareholder may Transfer the
Shares specified in the Sale Notice, subject to the provisions of paragraph 3(c)
below, at a price and on terms no more favorable to the transferee(s) thereof
than specified in the Sale Notice during the 30-day period immediately following
the Authorization Date. Any such Existing Shareholder's Shares not transferred
within such 30-day period shall be subject to the provisions of this paragraph 3
upon subsequent Transfer. If the Company or any of the Other Shareholders have
elected to purchase any Shares hereunder, the Transfer of such shares shall be
consummated as soon as practical after the delivery of the election notice(s) to
the Transferring Shareholder, but in any event within 15 days after the
expiration of the Election Period. The Company and/or the Investors may assign
their rights under this paragraph 3(b) to one or more designees.
(c) Participation Rights. If the Company and/or the Other
--------------------
Shareholders have not elected to purchase all of the Shares to be transferred by
an Existing Shareholder pursuant to paragraph 3(b) above, or in the event of a
Transfer of shares of Common Stock by an Investor, each Other Shareholder may
elect to participate in the contemplated Transfer by delivering written notice
to the Transferring Shareholder and the Company within 30 days after receipt by
such Other Shareholder of the Sale Notice. If any Other Shareholders have
elected to participate in such Transfer, the Transferring Shareholder and the
electing Other Shareholders shall be entitled to sell in the contemplated
Transfer, at the same price and on the same terms, a number of shares of Common
Stock equal to the product of (i) the quotient determined by dividing the
percentage of
-5-
<PAGE>
Shares owned by such Person by the aggregate percentage of Shares owned by the
Transferring Shareholder and all electing Other Shareholders and (ii) the number
of shares of Common Stock to be sold in the contemplated sale.
For example, if the Sale Notice contemplated a sale of 100 shares
-----------
of Common Stock, and if the Transferring Shareholder was at such
time the owner of 30% of all Shares and if one Other Shareholder
elected to participate and such Other Shareholder owned 20% of
all Shares, the Transferring Shareholder would be entitled to
sell 60 shares of Common Stock (30% divided by 50% x 100 shares
of Common Stock) and the electing Other Shareholder would be
entitled to sell 40 shares of Common Stock (20% divided by 50% x
100 shares of Common Stock).
The Transferring Shareholder shall use his, her or its best efforts to obtain
the agreement of the prospective transferee(s) to the participation of the Other
Shareholders in the contemplated Transfer and shall not Transfer any shares of
Common Stock to the prospective transferee(s) if such transferee(s) refuses to
allow the participation of the Other Shareholders. Each Shareholder transferring
shares of Common Stock pursuant to this paragraph 3(c) shall pay its pro rata
share (based on the number of shares of Common Stock to be sold) of the expenses
incurred by the Shareholders in connection with such Transfer and shall be
obligated to join on a pro rata basis (based on the number of shares of Common
Stock to be sold) in any indemnification or other obligations that the
Transferring Shareholder agrees to provide in connection with such Transfer
(other than any such obligations that relate specifically to a particular
Shareholder such as indemnification with respect to representations and
warranties given by a Shareholder regarding such Shareholder's title to and
ownership of shares of Common Stock).
(d) Certain Permitted Transfers. The restrictions contained in this
---------------------------
paragraph 3 shall not apply with respect to any Transfer of Shares by any
Shareholder (i) in the case of any Shareholder which is an individual, pursuant
to applicable laws of descent and distribution or among such Shareholder's
Family Group and, in the case of the Founding Shareholders (other than any
Permitted Transferees), the Transfer of not more than 6,000,000 Shares (as such
number shall be proportionately adjusted for any subsequent stock splits,
combinations or dividends or similar events) to one or more charitable remainder
trusts, charitable lead trusts or charitable foundations established by the
Founding Shareholders (other than any Permitted Transferees) or (ii) in the case
of an Investor, among its Affiliates or among any of the other Investors or
their Affiliates (collectively referred to herein as "Permitted Transferees");
---------------------
provided that such restrictions shall continue to be applicable to the Shares
- -------- ----
after any such Transfer and the transferees of such Shares shall agree in
writing to be bound by the provisions of this Agreement as a condition precedent
to any such Transfer and shall (if requested by the Company or the Investors in
connection with a Transfer pursuant to clause (i) above) deliver an opinion of
counsel to the Company and the Investors (which counsel and form and substance
of opinion shall be acceptable to the Company and the Investors) to the effect
that this Agreement shall thereafter constitute a valid and binding obligation
of such transferee, enforceable in accordance with its terms. As an additional
condition precedent to the Transfer of any Shares to any member of the Founding
Shareholders' Family Group, the transferee of such Shares shall agree in writing
to be bound by the provisions of Paragraph 8B of the Recapitalization Agreement
as though such transferee was substituted as a "Shareholder" thereunder and
shall (if requested by the Company or the Investors in connection with a
Transfer pursuant to clause (i) above) deliver an opinion of counsel to the
Company and the Investors (which
-6-
<PAGE>
counsel and form and substance of opinion shall be acceptable to the Company and
the Investors) to the effect that such transferee's obligations under the
Recapitalization Agreement shall thereafter constitute a valid and binding
obligation of such transferee, enforceable in accordance with its terms. An
individual Shareholder's "Family Group" means such Shareholder's spouse,
------------
descendants, antecedents and siblings (whether natural or adopted) or any trust,
family partnership or other entity established solely for the benefit of such
Shareholder and/or such Shareholder's spouse and/or descendants or antecedents
or siblings. An Investor's "Affiliate" means any other Person directly or
---------
indirectly controlling, controlled by or under common control with such
Investor, any partner of an Investor which is a partnership, any member of an
Investor which is a limited liability company and any partner or member of any
partner or member of an Investor. Notwithstanding the foregoing, no party hereto
shall avoid the provisions of this Agreement by making one or more transfers to
one or more Permitted Transferees and then disposing of all or any portion of
such party's interest in any such Permitted Transferee.
(e) Termination of Restrictions. The restrictions set forth in this
---------------------------
paragraph 3 shall continue with respect to each Share following any Transfer
thereof (other than an Exempt Transfer or a Transfer to the Company or an
Investor or its designee pursuant to paragraph 3(b) above or a Transfer pursuant
to paragraph 3(c) above); provided that all such restrictions shall terminate
-------- ----
upon the consummation of a Public Offering.
4. Holdback Agreement. No Shareholder shall effect any public sale
------------------
or distribution of any Shares or of any other capital stock or equity securities
of the Company, or any securities convertible into or exchangeable or
exercisable for such stock or securities, during the seven days prior to the
date of any proposed registered public offering of the Company's Common Stock as
set forth in a written notice delivered to such Shareholder at least seven days
prior to such date (or of which such Shareholder is otherwise aware at least
seven days prior to such date) and during the 180-day period beginning on the
effective date of the Company's initial public offering of its Common Stock
under the Securities Act or during the seven days prior to the date of any
proposed registered public offering of the Company's Common Stock as set forth
in a written notice delivered to such Shareholder at least seven days prior to
such date (or of which such Shareholder is otherwise aware at least seven days
prior to such date) and the 90-day period beginning on the effective date of (A)
the next registered public offering of the Company's Common Stock and (B) any
underwritten Demand Registration or any underwritten Piggyback Registration (as
such terms are defined in the Registration Agreement dated as of the date hereof
between the Investors, the Founding Shareholders and the Company), unless the
underwriters managing the registration otherwise agree. The restrictions on
transfer set forth in this paragraph 4 shall continue with respect to each Share
until the date on which such Share has been transferred in a Public Sale.
5. Sale of the Company.
-------------------
(a) Each Existing Shareholder hereby appoints the Investor
Representative as his, her or its true and lawful proxy and attorney-in-fact,
with full power of substitution, to vote all of his, her or its Shares and other
voting securities of the Company for the approval and consummation of an
Approved Sale and all such other matters as expressly provided for in this
paragraph 5. The proxies and powers granted by each Existing Shareholder
pursuant to this paragraph 5(a) are (or, in the case of any subsequent proxies,
will be) coupled with an interest and are (or, in the case of any subsequent
proxies, will be) granted in accordance with the provisions of Section 705 of
the California
-7-
<PAGE>
Corporations Code and shall each be valid (and irrevocable) for a period of
eleven (11) months following the Closing. The proxies and powers granted by each
Existing Shareholder pursuant to this paragraph 5(a) (and any subsequent proxies
and powers granted by the Existing Shareholders as contemplated below) may, at
the request of the Investor Representative, be embodied in one or more separate
instruments containing terms consistent with the terms set forth in this
paragraph 5(a), and in such case each Existing Shareholder agrees to promptly
execute and deliver each such separate instrument or instruments. The proxies
and powers described above shall not be valid after the expiration of eleven
(11) months following the Closing. No Existing Shareholder shall thereafter be
obligated to again appoint the Investor Representative as his, her or its true
and lawful proxy and attorney-in-fact for an additional eleven (11) month period
or periods to vote all of his, her or its Shares or other voting securities of
the Company for the approval and consummation of any Approved Sale and such
other matters as expressly provided for in this paragraph 5; provided, however,
-------- -------
that if any such Existing Shareholder fails for any reason to do so upon the
expiration of any such eleven (11) month period or periods, all of such Existing
Shareholders rights (but not obligations) under this Agreement and the
Registration Agreement shall automatically and forever thereafter terminate and
shall be of no further force and effect.
(b) For purposes of this Agreement, an "Approved Sale" shall mean any
-------------
sale of all or substantially all (or any agreement to sell all or substantially
all) of the Company's assets determined on a consolidated basis or any sale or
exchange of all or substantially all (or any agreement to sell or exchange all
or substantially all) of the Company's outstanding capital stock (whether by
merger, sale, recapitalization, consolidation, reorganization, combination or
otherwise) to any Person or Persons which is approved by the Board and the
holders of a majority of the Shares then held by the Investors; provided that no
such transaction or contemplated transaction shall constitute an Approved Sale
hereunder unless: (i) upon the consummation of the Approved Sale, all of the
holders of Common Stock and Preferred Stock (on an as converted to Common Stock
basis) shall receive the same form and amount of consideration per share of
Common Stock, or if any holders of Common Stock or Preferred Stock are given an
option as to the form and amount of consideration to be received, all holders
shall be given the same option; and (ii) all holders of Shares representing then
currently exercisable rights to acquire shares of Common Stock (including all
holders of Preferred Stock) shall be given an opportunity to either (A) exercise
such rights (including conversion rights in the case of the holders of Preferred
Stock) prior to the consummation of the Approved Sale and participate in such
sale as holders of Common Stock or (B) upon the consummation of the Approved
Sale, receive in exchange for such rights consideration equal to the amount
determined by multiplying (1) the same amount of consideration per share of
Common Stock received by the holders of Common Stock in connection with the
Approved Sale less the exercise price (if any) per share of Common Stock of such
rights to acquire Common Stock by (2) the number of shares of Common Stock
represented by such then currently exercisable rights, and in the case of both
clause (A) and clause (B) above, such holders of rights to acquire shares of
Common Stock shall also receive upon the exercise or exchange of such rights
such additional consideration, if any, as may be payable in connection with such
exercise or exchange (including, with respect to the Preferred Stock, all
accrued and unpaid dividends thereon payable pursuant to the terms of the
Articles of Incorporation). If the Approved Sale is structured as a sale of
stock, each holder of Shares shall agree to sell all of his, her or its Shares
and rights to acquire Shares on the terms and conditions approved by the Board
and the holders of a majority of the Shares held by the Investors.
-8-
<PAGE>
(c) Each holder of Shares shall bear his, her or its pro-rata share
(based upon the number of Shares held by such holder) of the costs of any
Approved Sale to the extent such costs are incurred for the benefit of all
holders of Shares and are not otherwise paid by the Company or the acquiring
party and shall be obligated to join on a pro rata basis (based on the number of
Shares held by such holder) in any indemnification or other obligations that the
holders of a majority of the Shares agree to provide in connection with such
Approved Sale (other than any such obligations that relate specifically to a
holder of Shares such as indemnification with respect to representations and
warranties given by a holder regarding such holder's title to and ownership of
Shares).
(d) The provisions of this paragraph 5 shall terminate upon the
consummation of a Public Offering.
6. First Refusal Rights Applicable to Issuances of Common Stock.
------------------------------------------------------------
(a) Except for issuances of Common Stock (a) to the Company's and any
of its Subsidiaries' employees, consultants, lenders, lessors or other creditors
as approved by the Board or the Compensation Committee (including pursuant to
options or other rights to acquire Common Stock approved by the Board or the
Compensation Committee), (b) in connection with the acquisition of another
company or business or (c) pursuant to a Public Offering, if the Company
authorizes the issuance or sale of any shares of Common Stock or any securities
(including debt securities) containing options or rights to acquire any shares
of Common Stock (other than as a dividend on the outstanding shares of Common
Stock) or any securities exchangeable for or convertible into Common Stock or
such securities exchangeable for or convertible into Common Stock, the Company
shall first offer to sell to each Investor holding any Shares and to each of the
Founding Shareholders holding any Shares, a portion of such shares or securities
equal to the quotient determined by dividing (1) the number of shares of Common
Stock held by such Person (including the number of shares of Common Stock
issuable upon conversion of the Preferred Stock) by (2) the total number of
shares of Common Stock then outstanding (including the number of shares of
Common Stock issuable upon conversion of the Preferred Stock). Each Investor and
each of the Founding Shareholders shall be entitled to purchase such shares or
securities at the most favorable price and on the most favorable terms as such
shares or securities are to be offered or sold to any other Persons; provided
--------
that if all Persons entitled to purchase or receive such stock or securities are
- ----
required to also purchase other securities of the Company, each Investor and
each of the Founding Shareholders exercising their rights pursuant to this
paragraph shall also be required to purchase the same strip of securities (on
the same terms and conditions) that such other Persons are required to purchase.
The purchase price for all shares and securities offered to the Investors and
the Founding Shareholders shall be payable in cash or, to the extent otherwise
consistent with the terms offered to any other Persons, installments over time.
(b) In order to exercise its purchase rights hereunder, an Investor
or a Founding Shareholder must within 20 days after receipt of written notice
from the Company describing in reasonable detail the shares or securities being
offered, the purchase price therefor, the payment terms and such Investor's or
such Founding Shareholder's percentage allotment, deliver a written notice to
the Company describing its election hereunder. If all of the shares and
securities offered to the Investors and the Founding Shareholder are not fully
subscribed by the Investors and the Founding Shareholder, the remaining stock
and securities shall be reoffered by the Company to any of the Investors or the
Founding Shareholder purchasing such Person's full allotment upon the terms
-9-
<PAGE>
set forth in this paragraph, except that such holders must exercise their
purchase rights within five days after receipt of such reoffer.
(c) Upon the expiration of the offering periods described above, the
Company shall be entitled to sell such shares or securities which the Investors
and the Founding Shareholders have not elected to purchase during the 60 days
following such expiration on terms and conditions no more favorable to the
purchasers thereof than those offered to the Investors and the Founding
Shareholders. Any shares or securities offered or sold by the Company after such
60-day period must be reoffered to the Investors and the Founding Shareholders
pursuant to the terms of this paragraph 6.
(d) The rights of the Investors and the Founding Shareholder under
this paragraph 6 shall terminate upon the consummation of a Public Offering.
7. Legend. Each certificate evidencing Shares and each certificate
------
issued in exchange for or upon the Transfer of any Shares (if such shares remain
Shares after such Transfer) shall be stamped or otherwise imprinted with a
legend in substantially the following form:
"The securities represented by this certificate are subject to a
Shareholders Agreement dated as of July 23, 1997, among the
issuer of such securities (the "Company") and certain of the
-------
Company's shareholders, as amended and modified from time to
time. A copy of such Shareholders Agreement shall be furnished
without charge by the Company to the holder hereof upon written
request."
The Company shall imprint such legend on certificates evidencing Shares
outstanding as of the date hereof. The legend set forth above shall be removed
from the certificates evidencing any shares which cease to be Shares in
accordance with paragraph 9 hereof.
8. Transfers; Future Sales. Prior to any holder of Shares
-----------------------
Transferring any Shares (other than pursuant to an Exempt Transfer) to any
Person and prior to the Company issuing any Common Stock (other than pursuant to
a Public Offering) or any options or other rights to acquire Common Stock or any
securities convertible into or exchangeable for such Common Stock to any Person,
such holder or the Company, as the case may be, shall cause the prospective
transferee to be bound by this Agreement and to execute and deliver to the
Company and the other Shareholders a counterpart of this Agreement; provided
--------
that the failure to cause any such transferee to comply with the foregoing shall
- ----
not terminate or otherwise modify this Agreement. Transferees of Shares held by
Investors shall be deemed to be Investors hereunder. Transferees of Shares held
by Existing Shareholders (other than the Investors or their designees, who shall
be deemed to be Investors hereunder) and transferees of Common Stock (or options
or other rights to acquire Common Stock or securities convertible into or
exchangeable for such Common Stock) issued by the Company shall be deemed to be
Existing Shareholders hereunder (except that no such transferees from the
Existing Shareholders or the Company shall have the right to participate in any
sale of shares of Common Stock by the Investors pursuant to paragraph 3(c)
above). The provisions of this paragraph 8 shall terminate upon the consummation
of a Public Offering.
-10-
<PAGE>
9. Definitions.
-----------
"Articles of Incorporation" means the Company's Amended and Restated
-------------------------
Articles of Incorporation as in effect from time to time.
"Closing" has the meaning given such term in the Recapitalization
-------
Agreement.
"Common Stock" means the Company's common stock, no par value per
------------
share.
"Founding Shareholders" means those Persons identified with an
---------------------
asterisk on the Schedule of Existing Shareholders attached hereto and their
---------------------------------
Permitted Transferees (except that, for purposes of paragraphs 1 and 6 above and
paragraph 11 below, the term "Founding Shareholders" shall only mean those
Persons identified with an asterisk on the Schedule of Existing Shareholders
---------------------------------
attached hereto).
"Investor Representative" means Summit/E-Tek Holdings, L.L.C.
-----------------------
"Other Shareholders" means the Investors and the Founding
------------------
Shareholders.
"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.
"Preferred Stock" means the Company's Class A Convertible Preferred
---------------
Stock, no par value per share.
"Public Offering" means any offering by the Company of its Common
---------------
Stock to the public pursuant to an effective registration statement under the
Securities Act or any comparable statement under any similar federal statute
then in force.
"Public Sale" means any sale of Shares to the public pursuant to an
-----------
offering registered under the Securities Act or to the public through a broker,
dealer or market maker pursuant to the provisions of Rule 144 adopted under the
Securities Act (or any similar provision then in force).
"Securities Act" means the Securities Act of 1933, as amended from
--------------
time to time.
"Shares" means (i) any Common Stock purchased or otherwise acquired or
------
held by any Shareholder, (ii) any Common Stock issued or issuable directly or
indirectly upon the conversion, exercise or exchange of any securities purchased
or otherwise acquired by any Shareholder which are convertible into or
exercisable or exchangeable for Common Stock (including the Preferred Stock and
any stock options granted by the Company) and (iii) any capital stock or other
equity securities issued or issuable directly or indirectly with respect to the
securities referred to in clauses (i) or (ii) above 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 securities
constituting Shares hereunder, such securities shall cease to be Shares when
they have been (x) effectively registered under the Securities Act and disposed
of in accordance with the
-11-
<PAGE>
registration statement covering them or (y) sold 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.
"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 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 limited
liability company, 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 the managing director, managing member or general partner of
such limited liability company, partnership, association or other business
entity.
10. Financial Statements and Other Information. So long as any
------------------------------------------
Investor or Founding Shareholder holds any Shares, the Company shall deliver to
such Investor or Founding Shareholder, as the case may be:
(a) as soon as available but in any event within 30 days after the
end of each monthly accounting period in each fiscal year, unaudited
consolidating and consolidated statements of income and cash flows of the
Company and its Subsidiaries for such monthly period and for the period from the
beginning of the fiscal year to the end of such month, and unaudited
consolidating and consolidated balance sheets of the Company and its
Subsidiaries as of the end of such monthly period, setting forth in each case
comparisons to the corresponding period in the preceding fiscal year, and all
such statements shall be prepared in accordance with generally accepted
accounting principles, consistently applied (subject to the absence of footnote
disclosures and normal recurring year-end adjustments) and shall be certified by
the Company's chief financial officer; and
(b) within 90 days after the end of each fiscal year, consolidating
and consolidated statements of income and cash flows of the Company and its
Subsidiaries for such fiscal year, and consolidating and consolidated balance
sheets of the Company and its Subsidiaries as of the end of such fiscal year,
setting forth in each case comparisons to the preceding fiscal year, all
prepared in accordance with generally accepted accounting principles,
consistently applied, and accompanied by (A) an opinion with respect to the
consolidated financial statements of an independent accounting firm of
recognized national standing containing no exceptions or qualifications (except
for qualifications regarding specified contingent liabilities), and (B) a copy
of such firm's annual management letter to the Board.
11. Inspection Rights. The Company shall permit any representatives
-----------------
designated by any Investor holding more than 300,000 Shares and any Founding
Shareholder (so long as such Investor or Founding Shareholder holds any Shares),
upon reasonable notice and during normal business hours and at such other times
as any such holder may reasonably request (and, in the Company's discretion,
subject to the execution of a satisfactory confidentiality agreement), to visit
-12-
<PAGE>
and inspect any of the properties of the Company and its Subsidiaries and
examine the corporate and financial records of the Company and its Subsidiaries.
12. Transfers in Violation of Agreement. Any Transfer or attempted
-----------------------------------
Transfer of any Shares in violation of any provision of this Agreement shall be
void, and the Company shall not record such Transfer on its books or treat any
purported transferee of such Shares as the owner of such Shares for any purpose.
13. Amendment and Waiver. Except as otherwise provided herein, no
--------------------
modification, amendment or waiver of any provision of this Agreement shall be
effective against the Company or the Shareholders unless such modification,
amendment or waiver is approved in writing by the Company, the Investors holding
a majority of the Shares then held by the Investors and the Existing
Shareholders holding a majority of the Shares then held by the Existing
Shareholders. The failure of any party to enforce any of the provisions of this
Agreement shall in no way be construed as a waiver of such provisions and shall
not affect the right of such party thereafter to enforce each and every
provision of this Agreement in accordance with its terms.
14. 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 is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
the validity, legality or enforceability of any other provision of this
Agreement in such jurisdiction or affect the validity, legality or
enforceability of any provision in any other jurisdiction, but this Agreement
shall be reformed, construed and enforced in such jurisdiction as if such
invalid, illegal or unenforceable provision had never been contained herein. The
Existing Shareholders acknowledge and agree that the covenants and agreements
set forth in this agreement were a material inducement to the Investors to enter
into the Recapitalization Agreement and consummate the transactions contemplated
thereby, and the Investors would not obtain the benefit of their bargain as set
forth herein and in the Recapitalization Agreement and the other agreements
contemplated thereby as specifically negotiated by the Shareholders if any of
such Existing Shareholders breached or challenged any of the provisions of this
Agreement. Therefore, notwithstanding anything to the contrary expressed or
implied in this paragraph 13 or elsewhere in this Agreement, each of the
Existing Shareholders unconditionally and forever covenants and agrees that such
Existing Shareholder will not directly or indirectly challenge the validity,
legality or enforceability of any provision of this Agreement and will cooperate
with the Company (at the Company's cost and expense, except in connection with a
breach by such Existing Shareholder) to enforce the provisions of this
Agreement.
15. Entire Agreement. Except as otherwise expressly set forth herein,
----------------
this Agreement embodies the complete agreement and understanding among the
parties hereto with respect to the subject matter hereof and supersedes and
preempts any prior understandings, agreements or representations by or among the
parties, written or oral, which may have related to the subject matter hereof in
any way.
16. Successors and Assigns. Except as otherwise expressly provided
----------------------
herein, this Agreement shall bind and inure to the benefit of and be enforceable
by the Company and its successors and assigns and the Shareholders and any
subsequent holders of Shares and the respective successors and assigns of each
of them, so long as they hold Shares; provided that the rights of the
-------- ----
-13-
<PAGE>
Founding Shareholders under paragraphs 1, 3(c), 6 and 11 above may not be
assigned without the prior written approval of the holders of a majority of the
Shares held by the Investors and the rights of the Other Shareholders under
paragraph 3(b) above may not be assigned without the prior written approval of
the holders of a majority of the Shares held by the Investors.
17. Counterparts. This Agreement may be executed in multiple
------------
counterparts (including by means of telecopied signature pages), each of which
shall be an original and all of which taken together shall constitute one and
the same agreement.
18. Remedies. The parties hereto shall be entitled to enforce their
--------
rights under this Agreement specifically, to recover damages by reason of any
breach of any provision of this Agreement and to exercise all other rights
existing in their favor. The parties hereto agree and acknowledge that money
damages would not be an adequate remedy for any breach of the provisions of this
Agreement and that the Company and any Shareholder may in its sole discretion
apply to any court of law or equity of competent jurisdiction for specific
performance and/or injunctive relief (without posting a bond or other security)
in order to enforce or prevent any violation of the provisions of this
Agreement.
19. Notices. Any notice provided for in this Agreement shall be in
-------
writing and shall be either personally delivered, or mailed first class mail
(postage prepaid) or sent by reputable overnight courier service (charges
prepaid) to the Company at the address set forth below and to any other
recipient at the address indicated on the schedules hereto and to any subsequent
holder of Shares subject to this Agreement at such address as indicated by the
Company's records, or at such address or to the attention of such other Person
as the recipient party has specified by prior written notice to the sending
party. Notices shall be deemed to have been given hereunder when delivered
personally, three days after deposit in the U.S. mail and one day after deposit
with a reputable overnight courier service (charges prepaid). The Company's
address is:
E-Tek Dynamics, Inc.
1885 Lundy Avenue, Suite 103
San Jose, California 95131
Attention: Chief Executive Officer
20. Governing Law. All issues and questions concerning the
-------------
construction, validity, interpretation and enforcement of this Agreement and the
exhibits and schedules 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.
21. Business Days. If any time period for giving notice or taking
-------------
action hereunder expires on a day which is a Saturday, Sunday or legal holiday
in the state in which the Company's chief executive office is then located, the
time period shall automatically be extended to the business day immediately
following such Saturday, Sunday or legal holiday.
-14-
<PAGE>
22. Descriptive Headings, etc. The descriptive headings of this
--------------------------
Agreement are inserted for convenience only and do not constitute a part of this
Agreement. The use of the term "including" herein shall mean "including without
limitation."
23. No Strict Construction. The parties hereto have participated
----------------------
jointly in the negotiation and drafting of this Agreement. In the event an
ambiguity or question or intent or interpretation arises, this Agreement shall
be construed as it was drafted jointly by the parties hereto, and no presumption
or burden of proof shall arise favoring or disfavoring any party hereto by
virtue of the authorship of any of the provisions of this Agreement.
* * * * *
-15-
<PAGE>
Consent and Community Property Waiver
The undersigned hereby acknowledges that the undersigned has read this
Agreement and understands its contents. The undersigned is aware that this
Agreement provides for the purchase of shares of Common Stock from the
undersigned's spouse. The undersigned hereby acknowledges and agrees that the
interest of the undersigned's spouse in such Common Stock is subject to this
Agreement and any interest the undersigned may have in such Common Stock shall
be irrevocably bound by this Agreement and further that the undersigned's
community property interest, if any, shall be similarly bound by this Agreement.
The undersigned has sought legal advice with respect to such waiver and has
determined after carefully reviewing this Agreement that the undersigned will
waive such community property right.
________________________________________
By:
___________________________________
Witness
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
E-TEK DYNAMICS, INC.
By: /s/ Theresa Stone Pan
----------------------------------------
Its: PRESIDENT
---------------------------------------
SUMMIT/E-TEK HOLDINGS, L.L.C.
By: Summit Ventures IV, L.P., its
Manager
By Summit Partners IV, L.P., its
General Partner
By: Stamps, Woodsum & Co. IV, its
General Partner
By: /s/ Walter G. Kortschak
---------------------------------
General Partner
MELLON BANK, N.A.,
as Trustee for First Plaza Group Trust
as directed by General Motors Investment
Management Corporation
By: _______________________________________
Name:
Title:
BROADVIEW ASSOCIATES, L.L.C.
By: _______________________________________
Its: ______________________________________
[Signature Page to Shareholders Agreement]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
E-TEK DYNAMICS, INC.
By: _________________________________________
Its: ________________________________________
SUMMIT/E-TEK HOLDINGS, L.L.C.
By: Summit Ventures IV, L.P., its
Manager
By Summit Partners IV, L.P., its
General Partner
By: Stamps, Woodsum & Co. IV, its
General Partner
By: ___________________________________
General Partner
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: /s/ Robert F. Sass
-----------------------------------------
Name: Robert F. Sass
Title: V.P.
BROADVIEW ASSOCIATES, L.L.C.
By: _________________________________________
Its: ________________________________________
[Signature Page to Shareholders Agreement]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
E-TEK DYNAMICS, INC.
By: ____________________________________
Its: ___________________________________
SUMMIT/E-TEK HOLDINGS, L.L.C.
By: Summit Ventures IV, L.P., its
Manager
By Summit Partners IV, L.P., its
General Partner
By: Stamps, Woodsum & Co. IV, its
General Partner
By: ______________________________
General Partner
MELLON BANK, N.A.,
as Trustee for First Plaza Group
Trust as directed by General Motors
Investment Management Corporation
By: ____________________________________
Name:
Title:
PETER J. MOONEY, as nominee for the
Broadview Partners Group
By: /s/ Peter J. Mooney
------------------------------------
Its: Peter J Mooney as nominee
-----------------------------------
[Signature Page to Shareholders Agreement]
<PAGE>
RANDOLPH STREET PARTNERS
By: [Signature]
-------------------------------------
Its: Managing Partner
------------------------------------
RANDOLPH STREET PARTNERS DIF, LLC
By: [Signature]
-------------------------------------
Its: Managing Member
------------------------------------
F&W INVESTMENTS 1997
By: ____________________________________
Its: ___________________________________
________________________________________
Theresa Stone Pan
________________________________________
Jing Jong Pan
Jing Jong Pan and Theresa Stone Pan,
Trustees of the J.J. & Theresa Pan
Revocable Trust dated February 14, 1997
________________________________________
Jing Jong Pan
________________________________________
Theresa Stone Pan
[Signature Page to Shareholders Agreement]
<PAGE>
RANDOLPH STREET PARTNERS
By: ________________________________
Its: _______________________________
RANDOLPH STREET PARTNERS DIF, LLC
By: ________________________________
Its: _______________________________
F&W INVESTMENTS 1997
By: /s/ [Signature]
--------------------------------
Its: _______________________________
/s/ Theresa Stone Pan
------------------------------------
Theresa Stone Pan
/s/ Jing Jong Pan
------------------------------------
Jing Jong Pan
Jing Jong Pan and Theresa Stone Pan,
Trustees of the J.J. & Theresa Pan
Revocable Trust dated February 14,
1997
/s/ Jing Jong Pan
------------------------------------
Jing Jong Pan
/s/ Theresa Stone Pan
------------------------------------
Theresa Stone Pan
[Signature Page to Shareholders Agreement]
<PAGE>
/s/ Ming Shih
------------------------------------
Ming Shih
/s/ Kung Shih 7/21/97
------------------------------------
Kung Shih
[Signature Page to Shareholders Agreement]
<PAGE>
/s/ Vinita Gupta
------------------------------------
Vinita Gupta
BAIN SECURITIES, INC.
By:_________________________________
Gary Wilkinson
Its: Treasurer
[Signature Page to Shareholders Agreement]
<PAGE>
____________________________________
Vinita Gupta
BAIN SECURITIES, INC.
By: /s/ Gary Wilkinson
---------------------------------
Gary Wilkinson
Its: Treasurer
[Signature Page to Shareholders Agreement]
<PAGE>
SCHEDULE OF INVESTORS
---------------------
Name and Address
- ----------------
Summit/E-Tek Holdings, L.L.C.
c/o Summit Partners, L.P.
499 Hamilton Avenue
Suite 200
Palo Alto, California 94301
Attn: Walter G. Kortschak
Phone: (415) 321-1166
Facsimile: (415) 321-1188
with a copy to:
- --------------
(which shall not constitute notice to the Investors)
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attn: Ted H. Zook, Esq.
Bain Securities, Inc.
c/o Bain & Company, Inc.
2 Copley Place
Boston, Massachusetts 02116
Attn: Gary Wilkinson
Phone: (617) 572-3268
Facsimile: (617) 572-3266
Peter J. Mooney, as nominee
for the Broadview Partners Group
c/o Broadview Associates
950 Tower Lane, 18th Floor
Foster City, California 94404
Attn: Maryfrances Galligan
Phone: (415) 378-4738
Facsimile: (415) 378-4710
F&W Investments 1997
c/o Fenwick & West
Two Palo Alto Square
Palo Alto, CA 94306
Attn: Jacqueline Daunt
Phone: (415) 858-7232
Facsimile: (415) 494-1417
<PAGE>
Vinita Gupta
c/o Digital Link Corporation
217 Humbolt Court
Sunnyvale, California 94089
Phone: (408) 745-4140
Facsimile: (408) 745-6250
Mellon Bank, N.A., as Trustee for
First Plaza Group Trust as directed by
General Motors Investment Management Corporation
Mellon Bank
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258-0001
Attn: Bernadette Rist
Phone: (412)234-6340
Facsimile: (412) 234-0555
with a copy to:
General Motors Investment Management Corporation
767 5th Avenue, 15th Floor
New York, New York 10153
Attn: Robert Cromwell
Phone: (212)418-6125
Facsimile: (212)418-6123
Randolph Street Partners
200 East Randolph Drive
Chicago, Illinois 60601
Attn: Jack S. Levin
Phone: (312)861-2004
Facsimile: (312)861-2200
Randolph Street Partners DIF, LLC
200 East Randolph Drive
Chicago, Illinois 60601
Attn: Jack S. Levin
Phone: (312)861-2004
Facsimile: (312)861-2200
<PAGE>
SCHEDULE OF EXISTING SHAREHOLDERS
---------------------------------
Name and Address
- ----------------
**Jing Jong Pan and Theresa Stone Pan,
Trustees of the J.J. & Theresa Pan
Revocable Trust dated February 14, 1997
c/o Crist, Schulz, Biorn & Shepherd
550 Hamilton Avenue, Suite 300
Palo Alto, CA 94301
Attn: Robert A. Biorn
Jing Jong Pan
Theresa Stone Pan
[Address]
with a copy to:
- --------------
(which shall not constitute notice to the Founding Shareholders)
Fenwick & West
Two Palo Alto Square
Palo Alto, California 94306
Attn: Jacqueline A. Daunt, Esq.
Ming Shih
[Address]
Kung Shih
[Address]
<PAGE>
EXHIBIT 10.17
EXECUTION COPY
E-TEK DYNAMICS, INC.
REGISTRATION AGREEMENT
----------------------
THIS AGREEMENT is made as of July 23, 1997, by and among E-Tek Dynamics,
Inc., a California corporation (the "Company"), the parties listed as Investors
-------
on the Schedule of Investors attached hereto (collectively, the "Investors") and
--------------------- ---------
Theresa Stone Pan, Jing Jong Pan and the J.J. & Theresa Pan Revocable Trust
(collectively, the "Founders").
--------
WHEREAS, the parties to this Agreement are parties to a Recapitalization
Agreement dated as of June 27, 1997 (as the same may be amended and modified
from time to time in accordance with its terms, the "Recapitalization
----------------
Agreement");
- ---------
WHEREAS, in order to induce the Investors to enter into the
Recapitalization Agreement, the Company has agreed to provide the registration
rights set forth in this Agreement;
WHEREAS, the execution and delivery of this Agreement is a condition to the
Closing under the Recapitalization Agreement; and
WHEREAS, unless otherwise provided in this Agreement, capitalized terms
used herein shall have the meanings set forth in paragraph 8 hereof.
NOW, THEREFORE, the parties hereto agree as follows:
1. Demand Registrations.
--------------------
(a) Requests for Registration. At any time after the Closing under the
-------------------------
Recapitalization Agreement, the holders of a majority of the Investor
Registrable Securities may request registration under the Securities Act of all
or any portion of their Registrable Securities on Form S-1 or any similar long-
form registration ("Long-Form Registrations") or Form S-2 or S-3 or any similar
-----------------------
short-form registration ("Short-Form Registrations"), if available. All
------------------------
registrations requested pursuant to this paragraph 1(a) are referred to herein
as "Demand Registrations". Each request for a Demand Registration shall specify
--------------------
the approximate number of Registrable Securities requested to be registered and
the anticipated per share price range for such offering. Within ten days after
receipt of a request for a Demand Registration, the Company shall give written
notice of such requested registration to all other holders of Registrable
Securities and, subject to paragraph 1(d) below, shall include in such
registration all Registrable Securities with respect to which the Company has
received written requests for inclusion therein within 20 days after the receipt
of the Company's notice.
(b) Long-Form Registrations. The holders of Investor Registrable
-----------------------
Securities shall be entitled to request (i) three Long-Form Registrations in
which the Company shall pay all Registration Expenses ("Company-paid Long-Form
----------------------
Registrations") and (ii) an unlimited number of Long-Form Registrations in which
- -------------
the holders of Investor Registrable Securities shall pay their
<PAGE>
share of the Registration Expenses as set forth in paragraph 5 hereof. A
registration shall not count as one of the permitted Company-paid Long-Form
Registrations until it has become effective, and neither the last nor any
subsequent Company-paid Long-Form Registration shall count as one of the
permitted Company-paid Long-Form Registrations unless the holders of Investor
Registrable Securities are able to register and sell at least 90% of the
Investor Registrable Securities requested to be included in such registration;
provided that in any event the Company shall pay all Registration Expenses in
- -------- ----
connection with any registration initiated as a Company-paid Long-Form
Registration whether or not it has become effective and whether or not such
registration has counted as one of the permitted Company-paid Long-Form
Registrations hereunder.
(c) Short-Form Registrations. In addition to the Long-Form Registrations
------------------------
provided pursuant to paragraph 1(b) above, the holders of Investor Registrable
Securities shall be entitled to request an unlimited number of Short-Form
Registrations in which the Company shall pay all Registration Expenses. Demand
Registrations shall be Short-Form Registrations whenever the Company is
permitted to use any applicable short form. After the Company has become subject
to the reporting requirements of the Securities Exchange Act, the Company shall
use its best efforts to make Short-Form Registrations on Form S-3 available for
the sale of Registrable Securities. The Company shall pay all Registration
Expenses in connection with any registration initiated as a Short-Form
Registration whether or not it has become effective.
(d) Priority on Demand Registrations. The Company shall not include in any
--------------------------------
Demand Registration any securities which are not Registrable Securities without
the prior written consent of the holders of a majority of the Investor
Registrable Securities included in such registration. If a Demand Registration
is an underwritten offering and the managing underwriters advise the Company in
writing that in their opinion the number of Registrable Securities and, if
permitted hereunder, other securities requested to be included in such offering
exceeds the number of Registrable Securities and other securities, if any, which
can be sold in an orderly manner in such offering within a price range
acceptable to the holders of a majority of the Investor Registrable Securities
initially requesting registration, the Company shall include in such
registration (i) first, the Registrable Securities requested to be included in
such registration, pro rata among the holders of such Registrable Securities on
the basis of the number of Registrable Securities owned by each such holder and
(ii) second, any other securities requested to be included in such registration;
provided that, notwithstanding the foregoing, in connection with the first two
- -------- ----
registrations of Investor Registrable Securities pursuant to this Agreement
(whether pursuant to a Demand Registration or a Piggyback Registration), if any
such registration is a Demand Registration, the Company shall include (i) first,
the Investor Registrable Securities requested to be included in such
registration, pro rata among the holders of such Investor Registrable Securities
on the basis of the number of Investor Registrable Securities owned by each such
holder, (ii) second, the Founder Registrable Securities requested to be included
in such registration, pro rata among the holders of such Founder Registrable
Securities on the basis of the number of Founder Registrable Securities owned by
each such holder and (iii) third, any other securities requested to be included
in such registration (it being understood, however, that neither the last nor
any subsequent registration subject to this proviso shall count as one of the
two registrations subject to this proviso unless the holders of Investor
Registrable Securities are able to register and sell at least 75% of the
Investor Registrable Securities requested to be included in such registration).
-2-
<PAGE>
(e) Expenses. Any Persons other than holders of Registrable Securities who
--------
participate in Demand Registrations which are not at the Company's expense must
pay their share of the Registration Expenses as provided in paragraph 5 hereof.
(f) Selection of Underwriters. The holders of a majority of the Investor
-------------------------
Registrable Securities included in any Demand Registration shall have the right
to select the investment banker(s) and manager(s) to administer the offering.
(g) Other Registration Rights. Except as provided in this Agreement, the
-------------------------
Company shall not grant to any Persons the right to request the Company to
register any equity securities of the Company (whether as a demand registration
or piggyback registration), or any securities convertible or exchangeable into
or exercisable for such securities, without the prior written consent of the
holders of a majority of the Investor Registrable Securities.
2. Piggyback Registrations.
-----------------------
(a) Right to Piggyback. Whenever the Company proposes to register any of
------------------
its securities under the Securities Act (other than pursuant to a Demand
Registration or a registration on Form S-4 or S-8 or any successor or similar
forms) and the registration form to be used may be used for the registration of
Registrable Securities (a "Piggyback Registration"), the Company shall give
prompt written notice to all holders of Registrable Securities of its intention
to effect such a registration and, subject to paragraphs 2(c) and 2(d) below,
shall include in such registration all Registrable Securities with respect to
which the Company has received written requests for inclusion therein within 20
days after the receipt of the Company's notice.
(b) Piggyback Expenses. The Registration Expenses of the holders of
------------------
Registrable Securities shall be paid by the Company in all Piggyback
Registrations whether or not such registration is consummated.
(c) Priority on Primary Registrations. If a Piggyback Registration is an
---------------------------------
underwritten primary registration on behalf of the Company, and the managing
underwriters advise the Company in writing that in their opinion the number of
securities requested to be included in such registration exceeds the number
which can be sold in such offering without adversely affecting the marketability
of the offering, the Company shall include in such registration (i) first, the
securities the Company proposes to sell, (ii) second, the Registrable Securities
requested to be included in such registration, pro rata among the holders of
such Registrable Securities on the basis of the number of Registrable Securities
owned by each such holder and (iii) third, any other securities requested to be
included in such registration; provided that, notwithstanding the foregoing, in
-------- ----
connection with the first two registrations of Investor Registrable Securities
pursuant to this Agreement (whether pursuant to a Demand Registration or a
Piggyback Registration), if any such registration is to be made in connection
with an underwritten primary registration on behalf of the Company, the Company
shall include (i) first, the securities the Company proposes to sell, (ii)
second, the Investor Registrable Securities requested to be included in such
registration, pro rata among the holders of such Investor Registrable Securities
on the basis of the number of Investor Registrable Securities owned by each such
holder, (iii) third, the Founder Registrable Securities requested to be included
in such registration, pro rata among the holders of such Founder Registrable
-3-
<PAGE>
Securities on the basis of the number of Founder Registrable Securities owned by
each such holder and (iv) fourth, any other securities requested to be included
in such registration (it being understood, however, that neither the last nor
any subsequent registration subject to this proviso shall count as one of the
two registrations subject to this proviso unless the holders of Investor
Registrable Securities are able to register and sell at least 75% of the
Investor Registrable Securities requested to be included in such registration).
(d) Priority on Secondary Registrations. If a Piggyback Registration is an
-----------------------------------
underwritten secondary registration on behalf of holders of the Company's
securities (other than the holders of Investor Registrable Securities), and the
managing underwriters advise the Company in writing that in their opinion the
number of securities requested to be included in such registration exceeds the
number which can be sold in such offering without adversely affecting the
marketability of the offering, the Company shall include in such registration
(i) first, the securities requested to be included therein by the holders
requesting such registration and the Registrable Securities requested to be
included in such registration, pro rata among the holders of such securities on
the basis of the number of securities owned by each such holder and (ii) second,
any other securities requested to be included in such registration; provided
--------
that, notwithstanding the foregoing, in connection with the first two
- ----
registrations of Investor Registrable Securities pursuant to this Agreement
(whether pursuant to a Demand Registration or a Piggyback Registration), if any
such registration is to be made in connection with an underwritten secondary
registration on behalf of holders of the Company's securities (other than the
holders of Investor Registrable Securities), the Company shall include (i)
first, the securities requested to be included therein by the holders requesting
such registration and the Investor Registrable Securities requested to be
included in such registration, pro rata among the holders of such securities on
the basis of the number of securities owned by each such holder, (ii) second,
the Founder Registrable Securities requested to be included in such
registration, pro rata among the holders of such Founder Registrable Securities
on the basis of the number of Founder Registrable Securities owned by each such
holder and (iii) third, any other securities requested to be included in such
registration (it being understood, however, that neither the last nor any
subsequent registration subject to this proviso shall count as one of the two
registrations subject to this proviso unless the holders of Investor Registrable
Securities are able to register and sell at least 75% of the Investor
Registrable Securities requested to be included in such registration).
(e) Withdrawal by the Company. If, at any time after giving written notice
-------------------------
of its intention to register any of its securities as set forth in paragraph
2(a) and prior to the effective date of such registration statement filed in
connection with such registration, the Company's board of directors shall
determine in its good faith judgment for any reason not to register such
securities, the Company may, at its election, give written notice of such
determination to each holder of Registrable Securities and thereupon shall be
relieved of its obligation to register any Registrable Securities in connection
with such registration (but not from its obligation to pay the Registration
Expenses in connection therewith as provided herein).
3. Holdback Agreements.
-------------------
(a) No holder of Registrable Securities shall effect any public sale or
distribution (including sales pursuant to Rule 144) of equity securities of the
Company, or any securities
-4-
<PAGE>
convertible into or exchangeable or exercisable for such securities, during the
seven days prior to the date of any proposed registered public offering of the
Company's Common Stock as set forth in a written notice delivered to such holder
at least seven days prior to such date (or of which such holder is otherwise
aware at least seven days prior to such date) and the 180-day period beginning
on the effective date of the Company's initial public offering of its Common
Stock under the Securities Act or during the seven days prior to the date of any
proposed registered public offering of the Company's Common Stock as set forth
in a written notice delivered to such holder at least seven days prior to such
date (or of which such holder is otherwise aware at least seven days prior to
such date) and the 90-day period beginning on the effective date of (A) the next
registered public offering of the Company's Common Stock and (B) any
underwritten Demand Registration or any underwritten Piggyback Registration in
which Registrable Securities are included (except as part of such underwritten
registration), unless the underwriters managing the registered public offering
otherwise agree.
(b) The Company (i) shall not effect any public sale or distribution of
its equity securities, or any securities convertible into or exchangeable or
exercisable for such securities, during the seven days prior to and the 180-day
period beginning on the effective date of the Company's initial public offering
of its Common Stock under the Securities Act or during the seven days prior to
and the 90-day period beginning on the effective date of (A) the next registered
public offering of the Company's Common Stock and (B) any underwritten Demand
Registration or any underwritten Piggyback Registration in which Registrable
Securities are included (except as part of such underwritten registration or
pursuant to registrations on Form S-8 or any successor or similar form), unless
the underwriters managing the registered public offering otherwise agree, and
(ii) shall cause each holder of at least 2% of its Common Stock, or any
securities convertible into or exchangeable or exercisable for Common Stock,
purchased from the Company at any time after the date of this Agreement (other
than in a registered public offering) to agree not to effect any public sale or
distribution (including sales pursuant to Rule 144) of any such securities
during such periods (except as part of such underwritten registration, if
otherwise permitted), unless the underwriters managing the registered public
offering otherwise agree.
4. Registration Procedures. Whenever the holders of Registrable Securities
-----------------------
have requested that any Registrable Securities be registered pursuant to this
Agreement, the Company shall use its best efforts to effect the registration and
the sale of such Registrable Securities in accordance with the intended method
of disposition thereof, and pursuant thereto the Company shall as expeditiously
as possible:
(a) prepare and file with the Securities and Exchange Commission a
registration statement with respect to such Registrable Securities and use its
best efforts to cause such registration statement to become effective; provided
that before filing a registration statement or prospectus or any amendments or
supplements thereto, the Company shall furnish to the counsel selected by the
holders of a majority of the Investor Registrable Securities covered by such
registration statement copies of all such documents proposed to be filed, which
documents shall be subject to the review and comment of such counsel;
(b) notify each holder of Registrable Securities of the effectiveness of
each registration statement filed hereunder and prepare and file with the
Securities and Exchange
-5-
<PAGE>
Commission such amendments and supplements to such registration statement and
the prospectus used in connection therewith as may be necessary to keep such
registration statement effective for a period of either (i) not less than six
months or, if such registration statement relates to an underwritten offering,
such longer period as in the opinion of counsel for the underwriters a
prospectus is required by law to be delivered in connection with sales of
Registrable Securities by an underwriter or dealer or (ii) such shorter period
as will terminate when all of the securities covered by such registration
statement have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof as set forth in such registration
statement (but in any event not before the expiration of any longer period
required under the Securities Act), and to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement until such time as all such securities have been disposed
of in accordance with the intended methods of disposition by the seller or
sellers thereof set forth in such registration statement and the prospectus used
in connection therewith;
(c) furnish to each seller of Registrable Securities such number of copies
of such registration statement, each amendment and supplement thereto, the
prospectus included in such registration statement (including each preliminary
prospectus) and such other documents as such seller may reasonably request in
order to facilitate the disposition of the Registrable Securities owned by such
seller;
(d) use its best efforts to register or qualify such Registrable
Securities under such other securities or blue sky laws of such jurisdictions as
any seller (including any underwriter) reasonably requests and do any and all
other acts and things which may be reasonably necessary or advisable to enable
such seller to consummate the disposition in such jurisdictions of the
Registrable Securities owned by such seller; provided that the Company shall not
-------- ----
be required to (i) qualify generally to do business in any jurisdiction where it
would not otherwise be required to qualify but for this subparagraph, (ii)
subject itself to taxation in any such jurisdiction or (iii) consent to general
service of process in any such jurisdiction;
(e) notify each seller of such Registrable Securities, at any time when a
prospectus relating thereto is required to be delivered under the Securities
Act, of the happening of any event as a result of which the prospectus included
in such registration statement contains an untrue statement of a material fact
or omits any fact necessary to make the statements therein not misleading, and,
at the request of any such seller, the Company shall prepare a supplement or
amendment to such prospectus so that, as thereafter delivered to the purchasers
of such Registrable Securities, such prospectus shall not contain an untrue
statement of a material fact or omit to state any fact necessary to make the
statements therein not misleading;
(f) cause all such Registrable Securities to be listed on each securities
exchange on which similar securities issued by the Company are then listed and,
if not so listed, to be listed on the NASD automated quotation system and, if
listed on the NASD automated quotation system, use its best efforts to secure
designation of all such Registrable Securities covered by such registration
statement as a NASDAQ "national market system security" within the meaning of
Rule 11Aa2-1 of the Securities and Exchange Commission or, failing that, to
secure NASDAQ authorization for such Registrable Securities and, without
limiting the generality of the foregoing, to arrange for at
-6-
<PAGE>
least two market makers to register as such with respect to such Registrable
Securities with the NASD;
(g) provide a transfer agent and registrar for all such Registrable
Securities not later than the effective date of such registration statement;
(h) enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as the holders of
a majority of the Investor Registrable Securities being sold or the
underwriters, if any, reasonably request in order to expedite or facilitate the
disposition of such Registrable Securities (including effecting a stock split or
a combination of shares);
(i) make available for inspection by one counsel selected by the holders
of a majority of the Registrable Securities included in such registration
statement, any underwriter participating in any disposition pursuant to such
registration statement and any attorney, accountant or other agent retained by
any such underwriter, all financial and other records, pertinent corporate
documents and properties of the Company, and cause the Company's officers,
directors, employees and independent accountants to supply all information
reasonably requested by any such attorney, underwriter, or underwriter's
attorney, accountant or agent in connection with such registration statement
(provided that the Company may impose reasonable confidentiality restrictions on
the recipients of any confidential information);
(j) otherwise use its best efforts to comply with all applicable rules and
regulations of the Securities and Exchange Commission, and make available to its
security holders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve months beginning with the first day of
the Company's first full calendar quarter after the effective date of the
registration statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act and Rule 158 thereunder;
(k) permit any holder of Registrable Securities which holder, in its sole
and exclusive judgment, might be deemed to be an underwriter or a controlling
person of the Company, to participate in the preparation of such registration or
comparable statement and to require the insertion therein of material, furnished
to the Company in writing, which in the reasonable judgment of such holder and
its counsel should be included;
(l) in the event of the issuance of any stop order suspending the
effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any Common Stock included in such registration statement for sale in any
jurisdiction, the Company shall use its best efforts promptly to obtain the
withdrawal of such order;
(m) use its best efforts to cause such Registrable Securities covered by
such registration statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the sellers
thereof to consummate the disposition of such Registrable Securities; and
-7-
<PAGE>
(n) obtain a cold comfort letter from the Company's independent public
accountants in customary form and covering such matters of the type customarily
covered by cold comfort letters as the holders of a majority of the Investor
Registrable Securities and/or Founder Registrable Securities being sold
reasonably request.
5. Registration Expenses.
---------------------
(a) All expenses incident to the Company's performance of or compliance
with this Agreement, including without limitation all registration and filing
fees, fees and expenses of compliance with securities or blue sky laws, printing
expenses, messenger and delivery expenses, fees and disbursements of custodians,
and fees and disbursements of counsel for the Company and all independent
certified public accountants, underwriters (excluding discounts and commissions
of all holders of Registrable Securities, which shall be paid by such holders)
and other Persons retained by the Company (all such expenses being herein called
"Registration Expenses"), shall be borne as provided in this Agreement, except
---------------------
that the Company shall, in any event, pay its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expense of any annual audit or
quarterly review, the expense of any liability insurance and the expenses and
fees for listing the securities to be registered on each securities exchange on
which similar securities issued by the Company are then listed or on the NASD
automated quotation system.
(b) In connection with each Demand Registration and each Piggyback
Registration, the Company shall reimburse the holders of Registrable Securities
included in such registration for the reasonable fees and disbursements of one
counsel chosen by the holders of a majority of the Investor Registrable
Securities initially requesting such registration.
(c) To the extent Registration Expenses are not required to be paid by the
Company, each holder of securities included in any registration hereunder shall
pay those Registration Expenses allocable to the registration of such holder's
securities so included, and any Registration Expenses not so allocable shall be
borne by all sellers of securities included in such registration in proportion
to the aggregate selling price of the securities to be so registered.
6. Indemnification.
---------------
(a) The Company agrees to indemnify, to the extent permitted by law, each
holder of Registrable Securities, its officers and directors and each Person who
controls such holder (within the meaning of the Securities Act) against all
losses, claims, damages, liabilities and expenses caused by, or relating to any
action or proceeding arising out of or based upon, any untrue or alleged untrue
statement of material fact contained in any registration statement, prospectus
or preliminary prospectus or any amendment thereof or supplement thereto or any
omission or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as the
same are caused by or contained in any information furnished in writing to the
Company by such holder expressly for use therein or by such holder's failure to
deliver a copy of the registration statement or prospectus or any amendments or
supplements thereto after the Company has furnished such holder with a
sufficient number of copies of the same. In connection with an underwritten
offering, the Company shall indemnify such underwriters, their
-8-
<PAGE>
officers and directors and each Person who controls such underwriters (within
the meaning of the Securities Act) to the same extent as provided above with
respect to the indemnification of the holders of Registrable Securities.
(b) In connection with any registration statement in which a holder of
Registrable Securities is participating, each such holder shall furnish to the
Company in writing such information and affidavits as the Company reasonably
requests for use in connection with any such registration statement or
prospectus and, to the extent permitted by law, shall indemnify the Company, its
directors and officers and each Person who controls the Company (within the
meaning of the Securities Act) against any losses, claims, damages, liabilities
and expenses resulting from any untrue or alleged untrue statement of material
fact contained in the registration statement, prospectus or preliminary
prospectus or any amendment thereof or supplement thereto or any omission or
alleged omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading, but only to the extent that such
untrue statement or omission is contained in any information or affidavit so
furnished in writing by such holder; provided that the obligation to indemnify
-------- ----
shall be individual, not joint and several, for each holder and shall be limited
to the net amount of proceeds received by such holder from the sale of
Registrable Securities pursuant to such registration statement.
(c) Any Person entitled to indemnification hereunder shall (i) give prompt
written notice to the indemnifying party of any claim with respect to which it
seeks indemnification; provided that the failure to give prompt notice shall not
-------- ----
impair any Person's right to indemnification hereunder to the extent such
failure has not prejudiced the indemnifying party and (ii) unless in such
indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties may exist with respect to such claim,
permit such indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party. If such defense is assumed,
the indemnifying party shall not be subject to any liability for any settlement
made by the indemnified party without its consent (but such consent shall not be
unreasonably withheld). An indemnifying party who is not entitled to, or elects
not to, assume the defense of a claim shall not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim.
(d) The indemnification provided for under this Agreement shall remain in
full force and effect regardless of any investigation made by or on behalf of
the indemnified party or any officer, director or controlling Person of such
indemnified party and shall survive the transfer of securities. The Company also
agrees to make such provisions, as are reasonably requested by any indemnified
party, for contribution to such party in the event the Company's indemnification
is unavailable for any reason.
7. Participation in Underwritten Registrations. No Person may participate
-------------------------------------------
in any registration hereunder which is underwritten unless such Person (i)
agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Person or Persons entitled hereunder
to approve such arrangements and (ii) completes and executes all questionnaires,
-9-
<PAGE>
powers of attorney, indemnities, underwriting agreements and other documents
required under the terms of such underwriting arrangements.
8. Definitions.
-----------
(a) "Founder Registrable Securities" means (i) any Common Stock held by
------------------------------
the Founders and (ii) any Common Stock issued or issuable with respect to the
Common Stock referred to in clause (i) above 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 Founder Registrable
Securities, such securities shall cease to be Founder Registrable Securities
when they have been distributed to the public pursuant to an offering registered
under the Securities Act or sold to the public through a broker, dealer or
market maker in compliance with Rule 144 under the Securities Act (or any
similar rule then in force) or repurchased by the Company or any Subsidiary.
(b) "Investor Registrable Securities" means (i) any Common Stock issued or
-------------------------------
issuable upon the conversion of the Preferred Stock (as defined in the
Recapitalization Agreement) issued pursuant to the Recapitalization Agreement,
(ii) any securities issued or issuable with respect to the securities referred
to in clause (i) above by way of a stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization and (iii) any other shares of Common Stock held by
Persons holding securities described in clauses (i) or (ii) above. As to any
particular Investor Registrable Securities, such securities shall cease to be
Investor Registrable Securities when they have been distributed to the public
pursuant to an offering registered under the Securities Act or sold to the
public through a broker, dealer or market maker in compliance with Rule 144
under the Securities Act (or any similar rule then in force) or repurchased by
the Company or any Subsidiary.
(c) "Registrable Securities" means, collectively, the Investor Registrable
----------------------
Securities and the Founder Registrable Securities. For purposes of this
Agreement, a Person shall be deemed to be a holder of Registrable Securities,
and the Registrable Securities shall be deemed to be in existence, whenever such
Person has the right to acquire directly or indirectly such Registrable
Securities (upon conversion or exercise in connection with a transfer of
securities or otherwise, but disregarding any restrictions or limitations upon
the exercise of such right), whether or not such acquisition has actually been
effected, and such Person shall be entitled to exercise the rights of a holder
of Registrable Securities hereunder (it being understood, however, that any
Registrable Securities which are not shares of Common Stock shall be converted
or otherwise exchanged into shares of Common Stock immediately prior to the
effectiveness of any registration statement pursuant to which such Common Stock
is to be registered).
(d) Unless otherwise stated, other capitalized terms contained herein have
the meanings set forth in the Recapitalization Agreement.
-10-
<PAGE>
9. Miscellaneous.
-------------
(a) No Inconsistent Agreements: The Company shall not hereafter enter into
--------------------------
any agreement with respect to its securities which is inconsistent with or
violates the rights granted to the holders of Registrable Securities in this
Agreement.
(b) Remedies. Any Person having rights under any provision of this
--------
Agreement shall be entitled to enforce such rights, specifically, to recover
damages caused by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law. The parties hereto agree and
acknowledge that money damages may not be an adequate remedy for any breach of
the provisions of this Agreement and that any party may in its sole discretion
apply to any court of law or equity of competent jurisdiction (without posting
any bond or other security) for specific performance and for other injunctive
relief in order to enforce or prevent violation of the provisions of this
Agreement.
(c) Amendments and Waivers. Except as otherwise provided herein, the
----------------------
provisions of this Agreement may be amended or waived only upon the prior
written consent of the Company, the holders of a majority of the Investor
Registrable Securities and the holders of a majority of the Founder Registrable
Securities (but only to the extent that the holders of Founder Registrable
Securities would be adversely affected by such amendment or waiver).
(d) Successors and Assigns. All covenants and agreements in this Agreement
----------------------
by or on behalf of any of the parties hereto shall bind and inure to the benefit
of the respective successors and assigns of the parties hereto whether so
expressed or not. In addition, whether or not any express assignment has been
made, the provisions of this Agreement which are for the benefit of purchasers
or holders of Registrable Securities are also for the benefit of, and
enforceable by, any subsequent holder of Registrable Securities.
(e) 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 is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
(f) Counterparts. This Agreement may be executed simultaneously in two or
------------
more 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.
(g) Descriptive Headings. The descriptive headings of this Agreement are
--------------------
inserted for convenience only and do not constitute a part of this Agreement.
(h) Governing Law. All issues and questions concerning the construction,
-------------
validity, interpretation and enforcement of this Agreement 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
-11-
<PAGE>
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.
(i) 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, sent to the recipient by reputable overnight courier service (charges
prepaid) or 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 each Investor at the address indicated on the
Schedule of Investors attached hereto and to the Company or the Founders at the
- ---------------------
address indicated below:
To the Company:
--------------
E-Tek Dynamics, Inc.
1885 Lundy Avenue, Suite 103
San Jose, California 95131
Attn: President
To the Founders:
---------------
c/o Ms. Theresa Stone Pan
Jing Jong Pan
[Address]
with a copy to:
--------------
(which shall not constitute notice to the Founders)
Fenwick & West, LLP
Two Palo Alto Square
Suite 800
Palo Alto, California 94306
Attn: Jacqueline A. Daunt, Esq.
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.
* * * * *
-12-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
E-TEK DYNAMICS, INC.
By: /s/ Theresa Stone Pan
----------------------------------------
Its: PRESIDENT
----------------------------------------
SUMMIT/E-TEK HOLDINGS, L.L.C.
By: Summit Ventures IV, L.P., its Manager
By Summit Partners IV, L.P., its General
Partner
By: Stamps, Woodsum & Co. IV, its General
Partner
By: /s/ Walter G. Kortschak
---------------------------------------
General Partner
MELLON BANK, N.A.,
as Trustee for First Plaza Group Trust
as directed by General Motors Investment
Management Corporation
By: ______________________________________
Name:
Title:
[Signature Page to Registration Agreement]
-13-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
E-TEK DYNAMICS, INC.
By: __________________________________
Its: _________________________________
SUMMIT/E-TEK HOLDINGS, L.L.C.
By: Summit Ventures IV, L.P., its
Manager
By Summit Partners IV, L.P., its
General Partner
By: Stamps, Woodsum & Co. IV, its
General Partner
By: _________________________________
General Partner
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: /s/ Robert F. Sass
-----------------------------------
Name: Robert F. Sass
Title: V.P.
[Signature Page to Registration Agreement]
-13-
<PAGE>
PETER J. MOONEY, as nominee for the
Broadview Partners Group
By: /s/ Peter J. Mooney
-------------------------------
Its: Peter J. Mooney as nominee
-------------------------------
RANDOLPH STREET PARTNERS
By: _______________________________
Its: ______________________________
RANDOLPH STREET PARTNERS DIF, LLC
By: _______________________________
Its: ______________________________
F&W INVESTMENTS 1997
By: _______________________________
Its: ______________________________
___________________________________
Theresa Stone Pan
___________________________________
Jing Jong Pan
[Signature Page to Registration Agreement]
-14-
<PAGE>
BROADVIEW ASSOCIATES, L.L.C.
By:________________________________
Its:_______________________________
RANDOLPH STREET PARTNERS
By: /s/ [Signature]
-------------------------------
Its: Managing Member
-------------------------------
RANDOLPH STREET PARTNERS DIF, LLC
By: /s/ [SIGNATURE]
--------------------------------
Its: Managing Member
--------------------------------
F&W INVESTMENTS 1997
By: ________________________________
Its: ________________________________
_____________________________________
Theresa Stone Pan
_____________________________________
Jing Jong Pan
[Signature Page to Registration Agreement]
-14-
<PAGE>
BROADVIEW ASSOCIATES, L.L.C.
By:___________________________________
Its:__________________________________
RANDOLPH STREET PARTNERS
By:____________________________________
Its:___________________________________
RANDOLPH STREET PARTNERS DIF, LLC
By:____________________________________
Its:___________________________________
F&W INVESTMENTS 1997
By: [SIGNATURE]
------------------------------------
Its:___________________________________
/s/ Theresa Stone Pan
---------------------------------------
Theresa Stone Pan
/s/ Jing Jong Pan
---------------------------------------
Jing Jong Pan
[Signature Page to Registration Agreement]
-14-
<PAGE>
Jing Jong Pan and Theresa Stone Pan,
Trustees of the J.J. & Theresa Pan Revocable
Trust dated February 14, 1997
/s/ Jing Jong Pan
--------------------------------------------
Jing Jong Pan
/s/ Theresa Stone Pan
--------------------------------------------
Theresa Stone Pan
[Signature Page to Registration Agreement]
-15-
<PAGE>
Page intentionally left blank.
[Signature Page to Registration Agreement]
-16-
<PAGE>
/s/ Vinita Gupta
-----------------------------------
Vinita Gupta
BAIN SECURITIES, INC.
By:_________________________
Gary Wilkinson
Its: Treasurer
[Signature Page to Registration Agreement]
-17-
<PAGE>
____________________________________
Vinita Gupta
BAIN SECURITIES, INC.
By: /s/ Gary Wilkinson
---------------------------------
Gary Wilkinson
Its: Treasurer
[Signature Page to Registration Agreement]
-17-
<PAGE>
SCHEDULE OF INVESTORS
---------------------
Name and Address
----------------
Summit/E-Tek Holdings, L.L.C.
c/o Summit Partners, L.P.
499 Hamilton Avenue
Suite 200
Palo Alto, California 94301
Attn: Walter G. Kortschak
Phone: (415) 321-1166
Facsimile: (415) 321-1188
with a copy to:
- --------------
(which shall not constitute notice to the Investors)
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attn: Ted H. Zook, Esq.
Bain Securities, Inc.
c/o Bain & Company, Inc.
2 Copley Place
Boston, Massachusetts 02116
Attn: Gary Wilkinson
Phone: (617) 572-3268
Facsimile: (617) 572-3266
Peter J. Mooney, as nominee
for the Broadview Partners Group
c/o Broadview Associates
950 Tower Lane, 18th Floor
Foster City, California 94404
Attn: Maryfrances Galligan
Phone: (415) 378-4738
Facsimile: (415) 378-4710
F&W Investments 1997
c/o Fenwick & West
Two Palo Alto Square
Palo Alto, CA 94306
Attn: Jacqueline Daunt
Phone: (415) 858-7232
Facsimile: (415) 494-1417
-18-
<PAGE>
Vinita Gupta
c/o Digital Link Corporation
217 Humbolt Court
Sunnyvale, California 94089
Phone: (408) 745-4140
Facsimile: (408) 745-6250
Mellon Bank, N.A., as Trustee for
First Plaza Group Trust as directed by
General Motors Investment Management Corporation
Mellon Bank
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258-0001
Attn: Bernadette Rist
Phone: (412) 234-6340
Facsimile: (412) 234-0555
with a copy to:
General Motors Investment Management Corporation
767 5th Avenue, 15th Floor
New York, New York 10153
Attn: Robert Cromwell
Phone: (212) 418-6125
Facsimile: (212) 418-6123
Randolph Street Partners
200 East Randolph Drive
Chicago, Illinois 60601
Attn: Jack S. Levin
Phone: (312) 861-2004
Facsimile: (312) 861-2200
Randolph Street Partners DIF, LLC
200 East Randolph Drive
Chicago, Illinois 60601
Attn: Jack S. Levin
Phone: (312) 861-2004
Facsimile: (312) 861-2200
-19-
<PAGE>
AMENDMENT NO. 1 TO
REGISTRATION AGREEMENT
This Amendment No. 1 to Registration Agreement (this "Amendment") is made
---------
and entered into effective as of November 5, 1997 by and among E-TEK Dynamics,
Inc., a California corporation (the "Company"), the parties listed as Investors
-------
on the Schedule of Investors attached hereto (collectively, the "Investors") and
--------------------- ---------
Theresa Stone Pan, Jing Jong Pan and the J.J. & Theresa Pan Revocable Trust
(collectively, the "Founders").
--------
WHEREAS, all of the parties to this Amendment have previously entered into
a certain Registration Agreement dated as of July 23, 1997 (the "Registration
Agreement") providing registration rights for certain of the Company's
securities held by the Investors and the Founders;
WHEREAS, the parties to the Registration Agreement desire to amend the
Registration Agreement to provide certain registration rights for the Company's
securities issued or issuable pursuant to the Company's 1997 Executive Equity
Incentive Plan (the "Executive Plan"), as provided herein; and
--------------
WHEREAS, capitalized terms used herein and not otherwise defined herein
shall have the meanings set forth in the Registration 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. SECTION 4. The first clause of Section 4 of the Registration Agreement
is hereby amended to read in its entirety as follows:
"With respect to the Executive Plan Registration or whenever the
holders of Registrable Securities have requested that any Registrable
Securities be registered pursuant to this Agreement, the Company shall
use its best efforts to effect the registration and the sale of such
Registrable Securities in accordance with the intended method of
disposition thereof, and pursuant thereto the Company shall as
expeditiously as possible:"
2. SECTIONS 8(c) AND 8(d). Sections 8(c) and 8(d)of the Registration
Agreement are hereby renumbered as Sections 8(d) and 8(e),
respectively. The first sentence of the newly renumbered Section 8(d)
of the Registration Agreement is hereby amended to read as follows:
""Registrable Securities" means, collectively, the Investor
----------------------
Registrable Securities, the Founder Registrable Securities and the
Executive Registrable Securities."
<PAGE>
3. NEW SECTION 8(c). The Registration Agreement is hereby amended by
adding thereto a new Section 8(c) to read in its entirety as follows:
"(c) "Executive Registrable Securities" means (i) any Common Stock
--------------------------------
issued pursuant to the Company's 1997 Executive Equity Incentive Plan
(the "Executive Plan") or any Common Stock issuable upon exercise of
--------------
options granted pursuant to the Company's Executive Plan and (ii) any
Common Stock issued or issuable with respect to the Common Stock
referred to in clause (i) above 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
Executive Registrable Securities, such securities shall cease to be
Executive Registrable Securities when they have been distributed to
the public pursuant to an offering registered under the Securities Act
or sold to the public through a broker, dealer or market maker in
compliance with Rule 144 under the Securities Act (or any similar rule
then in force) or repurchased by the Company or any Subsidiary."
4. NEW SECTION 9(j). The Registration Agreement is hereby amended by
adding thereto a new Section 9(j) to read in its entirety as follows:
"(j) Additional Parties. At any time and from time to time, the
------------------
Company may, without obtaining the signature, consent or permission of
any of the other parties to this Agreement, add as parties to this
Agreement those persons ("New Parties") who have received a grant of
-----------
the Company's securities (an "Award") pursuant to the Company's
-----
Executive Plan. The Award(s) of any New Parties shall be deemed
Executive Registrable Securities for the purposes of this Agreement.
The Company and any New Parties will execute counterpart signature
pages to this Agreement indicating the number of shares of the
Company's Common Stock constituting the Award(s) and such New Parties
will, upon delivery to the Company of such signature pages, become
parties to, and bound by, this Agreement. The Company will promptly
furnish copies of the signature pages of any New Parties to the
Investors and Founders."
5. NEW SECTION 10. The Registration Agreement is hereby amended by
adding thereto a new Section 10 to read in its entirety as follows:
"10. Executive Plan Registration on Form S-3. The Company, at its
---------------------------------------
expense, shall register under the Securities Act all of the Executive
Registrable Securities on a Form S-3 resale registration statement, such
registration statement to be effective within ten days of the effectiveness
of the registration statement of the Company's initial public offering (the
"Executive Plan Registration").
---------------------------
-2-
<PAGE>
6. EFFECTIVENESS OF AMENDMENT. This Amendment will become effective once
executed by the Company and by the holders of a majority of the
Investor Registrable Securities and by the holders of a majority of
the Founder Registrable Securities.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first written above.
E-TEK DYNAMICS, INC.
By:
______________________________________________
Michael J. Fitzpatrick, President
SUMMIT/E-TEK HOLDINGS, L.L.C.
By: Summit Ventures IV, L.P., its Manager
By: Summit Partners IV, L.P., its General Partner
By: Stamps, Woodsum & Co. IV, its General Partner
By: ______________________________________________
General Partner
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: ________________________________________________
Name:
Title:
PETER J. MOONEY, as nominee for the
Broadview Partners Group
By:________________________________________________
Its:________________________________________________
-3-
<PAGE>
[Signature Page to Amendment No. 1 to Registration Agreement]
-4-
<PAGE>
RANDOLPH STREET PARTNERS
By: ____________________________________________
Its: ___________________________________________
RANDOLPH STREET PARTNERS DIF, LLC
By: ____________________________________________
Its: ___________________________________________
F&W INVESTMENTS 1997
By: ____________________________________________
Its: ___________________________________________
________________________________________________
Theresa Stone Pan
________________________________________________
Jing Jong Pan
Jing Jong Pan and Theresa Stone Pan, Trustees of
the J.J. & Theresa Pan Revocable Trust dated
February 14, 1997
________________________________________________
Jing Jong Pan
________________________________________________
Theresa Stone Pan
[Signature Page to Amendment No. 1 to Registration Agreement]
-5-
<PAGE>
__________________________________________
Vinita Gupta
__________________________________________
BAIN SECURITIES, INC.
By: ______________________________________
Gary Wilkinson
Its: Treasurer
[Signature Page to Amendment No. 1 to Registration Agreement]
-6-
<PAGE>
SCHEDULE OF INVESTORS
---------------------
Name and Address
----------------
Summit/E-Tek Holdings, L.L.C.
c/o Summit Partners, L.P.
499 Hamilton Avenue
Suite 200
Palo Alto, California 94301
Attn: Walter G. Kortschak
Phone: (415) 321-1166
Facsimile: (415) 321-1188
with a copy to:
- --------------
(which shall not constitute notice to the Investors)
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attn: Ted H. Zook, Esq.
Bain Securities, Inc.
c/o Bain & Company, Inc.
2 Copley Place
Boston, Massachusetts 02116
Attn: Gary Wilkinson
Phone: (617) 572-3268
Facsimile: (617) 572-3266
Peter J. Mooney, as nominee for the
Broadview Partners Group
c/o Broadview Associates
950 Tower Lane, 18th Floor
Foster City, California 94404
Attn: Maryfrances, Galligan
Phone: (415) 378-4738
Facsimile: (415) 378-4710
<PAGE>
F&W Investments 1997
c/o Fenwick & West LLP
Two Palo Alto Square
Palo Alto, CA 94306
Attn: Jacqueline Daunt
Phone: (415) 858-7232
Facsimile: (415) 494-1417
Vinita Gupta
c/o Digital Link Corporation
217 Humbolt Court
Sunnyvale, California 94089
Phone: (408) 745-4140
Facsimile: (408) 745-6250
Mellon Bank, N.A., as Trustee for
First Plaza Group Trust as directed by
General Motors Investment Management Corporation
Mellon Bank
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258-0001
Attn: Bernadette Rist
Phone: (412) 234-6340
Facsimile: (412) 234-0555
with a copy to:
- --------------
General Motors Investment Management Corporation
767 5th Avenue, 15th Floor
New York, New York 10153
Attn: Robert Cromwell
Phone: (212) 418-6125
Facsimile: (212) 418-6123
Randolph Street Partners
200 East Randolph Drive
Chicago, Illinois 60601
Attn: Jack S. Levin
Phone: (312) 861-2004
Facsimile: (312) 861-2200
<PAGE>
Randolph Street Partners DIF, LLC
200 East Randolph Drive
Chicago, Illinois 60601
Attn: Jack S. Levin
Phone: (312) 861-2004
Facsimile: (312) 861-2200
-3-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
written below.
E-TEK DYNAMICS, INC.
By: ________________________________
Its: _______________________________
NEW PARTY
Signature: __________________________
Name: MICHAEL FITZPATRICK
Number of shares of E-Tek Common Stock
Constituting the Award(s): 2,825,000
Date: NOVEMBER 13, 1997
[Signature Page to Registration Agreement]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
written below.
E-TEK DYNAMICS, INC.
By: ________________________________
Its: _______________________________
NEW PARTY
Signature: __________________________
Name: SANJAY SUBHEDAR
Number of shares of E-Tek Common Stock
Constituting the Award(s): 1,200,000
Date: DECEMBER 11, 1997
[Signature Page to Registration Agreement]
<PAGE>
EXHIBIT 10.18
PURCHASE AGREEMENT FOR REAL PROPERTY
AND ESCROW INSTRUCTIONS
-----------------------
This Purchase Agreement for Real Property and Escrow Instructions
("Agreement") is entered into by and between TR BRELL CAL CORP., an Illinois
corporation, ("Seller"), and E-TEK DYNAMICS, INC., a California corporation
("Buyer").
1. PURCHASE OF PROPERTY. Seller agrees to sell to Buyer and Buyer agrees
--------------------
to purchase from Seller, the Property (as described in Paragraph 2.1) in
consideration for the payment of the Purchase Price (as described in Paragraph
2.4), together with the respective promises of the parties set forth in this
Agreement.
2. BASIC TERMS AND DEFINITIONS.
---------------------------
2.1 PROPERTY. The term "Property" shall mean: (i) the land which is
--------
legally described on Exhibit A attached to this Agreement and made a part
hereof and containing approximately 9.82 acres ("Land") together with all
improvements, fixtures and equipment located on the Land, including the
three (3) two-story research and development/office buildings containing
approximately 177,000 square feet in the aggregate and commonly referred to
as 1865, 1875 and 1885 Lundy Avenue, San Jose, California (collectively,
the "Building"), (excluding, however, any fixtures or equipment owned by
tenants of the Building or any property manager), (ii) Seller's leasehold
rights in the leases with the tenants described on Exhibit B attached to
this Agreement and made a part hereof ("Leases"), (iii) whatever rights
Seller has in any easements, rights of way, development rights, and real
property rights appurtenant to the Land, to the extent they are assignable
(collectively, "Real Property Rights"), (iv) whatever rights Seller has in
Contracts, Licenses and Permits (as defined in Paragraph 13) and (v) any
personal property owned by Landlord, located on the Land, and used in
connection therewith ("Personal Property").
2.2 BUYER. E-TEK Dynamics, Inc., whose address is c/o Matthew Lucero,
-----
1885 Lundy Avenue, San Jose, California 95131; Telephone: (408) 432-6300;
Telecopier: (408) 432-8550.
2.3 SELLER. TR Brell Cal Corp., whose address is c/o The Koll
------
Company, 4343 Von Karman Avenue, Newport Beach, California 92660-2083,
Attention: Warren Starks; Telephone: (714) 852-5252; Telecopier: (714) 250-
6055.
2.4 PURCHASE PRICE. The purchase price for the Property shall be
--------------
Eleven Million Dollars ($11,000,000.00) ("Purchase Price").
<PAGE>
2.5 EFFECTIVE DATE. The effective date of this Agreement the date on
--------------
which this Agreement is fully executed as indicated by the later date of
the Seller's and Buyer's signatures as shown on page 27 of this Agreement
("Effective Date").
2.6 DUE DILIGENCE PERIOD. The period beginning on the Effective Date
--------------------
and ending at 5:00 p.m. on the thirtieth (30th) day thereafter.
2.7 CLOSING DATE. The Closing shall occur within sixty (60) days
------------
following the expiration of the Due Diligence Period or on such other date
as is mutually agreed upon by the parties ("Closing Date").
2.8 TERMS OF PURCHASE.
-----------------
(a) THE DEPOSIT. Initially, a wire transfer or cashier's or
-----------
certified check in the amount of One Hundred Thousand Dollars
($100,000.00) (the "Deposit") shall be delivered to Escrow Holder by
Buyer upon execution of this Agreement as a condition to the "Opening
of Escrow" as provided in Paragraph 7.2. Escrow Holder shall place the
Deposit in an interest-bearing account and all earned interest shall
accrue to the Buyer's benefit, unless Seller is entitled to the
Deposit as liquidated damages under Paragraph 6.5, in which event the
interest shall accrue to Seller's benefit. For purposes of this
Agreement, any accrued interest shall be deemed part to the "Deposit".
If Buyer terminates or is deemed to have terminated this Agreement
prior to the expiration of the Due Diligence Period in accordance with
Section 3.2.2 of this Agreement, the Deposit shall be refunded to
Buyer. If Buyer does not so terminate this Agreement, Buyer shall
increase the Deposit by Two Hundred Thousand Dollars ($200,000.00) for
a total Deposit of Three Hundred Thousand Dollars ($300,000.00) prior
to the expiration of the Due Diligence Period. The Deposit shall be
applied to the Purchase Price at Closing (as hereinafter defined).
(b) BUYER'S CASH AT CLOSING. The balance of the Purchase Price
-----------------------
less the amount of the Deposit, plus any other amounts to be paid by
Buyer under this Agreement, shall be delivered to Escrow Holder by
Buyer as provided in Paragraph 5.3.
2.9 ESCROW. Escrow Number 760352 at the Escrow Holder which shall be
------
opened as provided in Paragraph 7.2.
2.10 ESCROW HOLDER. Chicago Title Company, whose address is 110 W.
-------------
Taylor Street, San Jose, California 95110, Escrow Officer: Sharman McKenna,
Telephone: (408) 292-4212; Telecopier: (408) 282-1404.
2
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2.11 TITLE POLICY. A CLTA Owners Protection Policy of Title Insurance
------------
issued by Chicago Title Insurance Company ("Title Company"), in the amount
of the Purchase Price, subject to the standard preprinted exceptions
therein, the exceptions to title listed on Exhibit C attached hereto and
incorporated herein and any exceptions created or resulting from Buyer's
acts, or otherwise approved by Buyer (collectively, the "Permitted
Exceptions").
3. CONDITIONS PRECEDENT TO BUYER'S PERFORMANCE. Buyer's obligation to
-------------------------------------------
purchase the Property is subject to the satisfaction or waiver of all the
conditions set forth below (which are for Buyer's benefit) on or before the
Closing Date.
3.1 TITLE CONDITION.
---------------
3.1.1 As soon as reasonably practicable after the Opening of
Escrow, Buyer shall request and obtain from the Title Company a
current CLTA coverage preliminary report for the Property (the
"Preliminary Report"), together with copies of all documents available
to the Title company referenced as recorded exceptions in the
Preliminary Report. No later than the last day of the Due Diligence
Period, Buyer may disapprove the Preliminary Report by delivering
written notice to Seller and Escrow Holder (the "Notice of Defect")
specifying each matter shown in the Preliminary Report, if any, which
is disapproved by Buyer (each a "Disapproved Exception"). Seller's
failure to receive the Notice of Defect within the Due Diligence
Period shall be conclusively deemed to constitute Buyer's disapproval
of the Preliminary Report as if Buyer had delivered a Notice of Defect
disapproving each matter shown in the Preliminary Report.
3.1.2 Within five (5) business days after receiving a Notice of
Defect or after the end of the Due Diligence Period if Buyer failed to
deliver the Notice of Defect, Seller shall deliver to Buyer and Escrow
Holder notice as to whether Seller will use its reasonable efforts to
cure the Disapproved Exception(s). Buyer's failure to receive any
notice from Seller within that five (5) business day period shall be
deemed to be notice to Buyer that Seller elected not to cure the
Disapproved Exception(s). Buyer shall be deemed to have terminated
this Agreement under Paragraph 6.3 unless Buyer waives its disapproval
of the Disapproved Exception(s) and agrees to acquire title to the
Property subject to the Disapproved Exception(s) by written notice
delivered to Seller and Escrow Holder within three (3) business days
after Seller's notice (or deemed notice) as provided in this Paragraph
3.1.2.
3.1.3 If Seller notifies Buyer in writing, as provided in
Paragraph 3.1.2, that it would use its reasonable efforts to cure a
Disapproved Exception, and then fails to cure that Disapproved
Exception by no later than three (3) business days
3
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before the Closing Date, Buyer, as its only remedy for Seller having
failed to cure the Disapproved Exception, may elect by written notice
to Seller and Escrow Holder, to be received no later than two (2)
business days before the Closing Date, either to terminate this
Agreement or to Close Escrow and to acquire the Property, subject to
the Disapproved Exception(s), which Seller shall have no obligation to
cure. Seller's failure to receive notice of Buyer's election by such
time shall be deemed an election by Buyer to terminate this Agreement.
3.1.4 If Buyer properly elects to terminate this Agreement as
provided in this Paragraph 3.1, or if this Agreement is deemed to be
terminated as provided in this Paragraph 3.1, this Agreement shall
terminate and the Deposit shall be returned to Buyer as provided in
Paragraph 6.3. Additionally, if Seller fails to use reasonable efforts
to cure a Disapproved Exception after notifying Buyer of Seller's
intention to do so, and if Buyer terminates this Agreement because of
the Disapproved Exception which Seller failed to use reasonable
efforts to cure, Seller shall pay Buyer's reasonable out-of-pocket
expenses incurred in connection with this transaction (not to exceed
$40,000.00 in any event) during the period between the date on which
Buyer received notice from Seller that Seller would use reasonable
efforts to cure such exception and the date of such termination.
3.1.5 A Disapproved Exception shall be considered to have been
cured if the Title Company agrees to issue the Title Policy to Buyer
without that Disapproved Exception being reflected as an exception to
coverage under the Title Policy or with such Disapproved Exception
reflected but insured over via an endorsement acceptable to Buyer.
3.1.6 For purposes of this Paragraph 3.1, "reasonable efforts"
shall not include any obligation of Seller to incur any expense
whatsoever in connection with correcting any Disapproved Exception
(except with respect to Seller's own financing or other security
transactions), nor shall Seller's notice to Buyer regarding any of
those items obligate Seller to incur any expense, except to the extent
expressly stated otherwise in the notice. Nothing in this Paragraph
3.1 shall obligate Buyer to expend any funds to cure a Disapproved
Exception(s).
3.1.7 Seller covenants not to encumber the Property or any
portion thereof at any time after the Effective Date. If Seller does
so encumber the Property, the release of any such encumbrance or
provision of title insurance coverage over such encumbrance to Buyer's
satisfaction shall be a condition precedent to Buyer's obligation to
close.
4
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3.2 FEASIBILITY CONDITION.
---------------------
3.2.1 Buyer shall have until 5:00 p.m. on the last day of
the Due Diligence Period to confirm in Buyer's sole discretion, at
Buyer's sole expense, whether Buyer may feasibly acquire and use the
Property for Buyer's intended purpose. During the Due Diligence
Period, Buyer shall, in addition to all other matters regarding the
Property, have reviewed (or shall have assumed the risk of not
reviewing) all of the following:
(a) the physical condition of the Property;
(b) title to Property;
(c) the availability of all necessary utilities and
gravity sewers and storm drains for the Property;
(d) rental agreements, leases, service contracts,
tax bills and other written agreements or notices which affect
the Property to the extent furnished to Buyer;
(e) building inspection reports and engineering
reports to the extent furnished to Buyer;
(f) the environmental condition of the Land and the
Building, including the existence of toxic waste and hazardous
substances; and
(g) the economic feasibility of Buyer's intended use
of the Property.
3.2.2 By the end of the Due Diligence Period, Buyer shall
provide written notice to Seller and Escrow Holder as to whether Buyer
approves the feasibility of acquiring the Property (either
"Feasibility Notice" or "Non-Feasibility Notice"). If Seller and
Escrow Holder receive a Feasibility Notice from Buyer by the end of
the Due Diligence Period, or do not receive either form of written
notice, this feasibility condition shall be conclusively deemed
satisfied in all respects including Buyer's approval of each of the
items set out in Paragraph 3.2.1. If Seller and Escrow Holder receive
the Non-Feasibility Notice by the end of the Due Diligence Period,
Escrow and this Agreement shall terminate, and the Deposit shall be
returned to Buyer, as provided in Paragraph 6.3.
3.2.3 Within three (3) business days following the Effective
Date, Seller shall make available for Buyer's review, in the offices
of Seller's property
5
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manager or at the Building, originals or true copies of the following
documents to the extent that such documents exist and are within the
possession or control of Seller or any of its agents: all Leases,
Contracts, Licenses and Permits, current tax and utility bills,
surveys, plans and specifications, current operating and expense
reports, environmental assessment reports, engineering reports,
notices from governmental agencies, repair records and inspection and
maintenance reports. Seller may, at its option and expense, provide
copies of any or all of the aforesaid documents or materials in lieu
of having Buyer examine the same at the offices of the property or at
the Building.
3.3 ESTOPPELS. No later than three (3) business days prior to the
---------
Closing Date, Seller shall have delivered to Buyer estoppel certificates
("Estoppels") substantially in the form of Exhibit D attached hereto and
incorporated herein, from GenRad, Inc., Ornetix Network Products
("Ornetix"), PC-tel, Inc., County of Santa Clara and VLSI Technology, Inc.
and from such additional tenants of the Property under Leases (excluding
Buyer) such that the Estoppels cover no less than seventy percent (70%) of
the occupied square footage of the Building (excluding square footage
leased by Buyer). If Seller has not delivered such Estoppels on or before
the Closing Date, Buyer shall notify Seller in writing as to the status of
such Estoppels, and Seller may, but shall not be obligated to, execute a
Seller estoppel or estoppels ("Seller Estoppel") in the form of Exhibit E
attached hereto and incorporated herein, certifying as to the status of any
Lease for which an Estoppel has not been received, and Buyer shall accept a
Seller Estoppel in lieu of Estoppels from tenants, to the extent necessary
to satisfy the percentage closing condition described above.
Notwithstanding the foregoing, (a) Seller shall be required to deliver a
Seller Estoppel for Ornetix if Ornetix does not furnish an Estoppel, and
(b) Seller shall not be permitted to furnish, and Buyer need not accept, a
Seller Estoppel for GenRad, Inc., PC-tel, Inc., County of Santa Clara or
VLSI Technology, Inc. (collectively, the "Required Tenants"). Seller shall
use reasonable efforts to obtain Estoppels from all tenants of the Property
but shall be under no obligation to execute any Seller Estoppel (except
with respect to Ornetix). The failure to obtain Estoppels from any of the
Required Tenants or to provide the Estoppels in the percentage required
above shall not constitute a default by Seller hereunder, but shall only
constitute a failure of a closing condition entitling Buyer to terminate
the Agreement and receive a refund of the Deposit. Notwithstanding anything
to the contrary stated in this Section 3.3, if the provisions of any Lease
allow a tenant to submit a tenant estoppel certificate which contains
different or less information than provided for in Exhibit D, and such
tenant furnishes such an estoppel certificate based on the requirements of
its Lease, such estoppel shall be deemed sufficient for the purposes hereof
notwithstanding the fact that it may not be in the form of Exhibit D.
Seller's liability under any Seller Estoppel shall terminate as of the
earlier to occur of (i) the ninetieth (90th) day following the Closing (or
the one hundred eightieth (180th) day, with respect to Ornetix), and (ii)
the date on which Seller delivers to Buyer the Estoppel from the relevant
tenant. If and to the extent that Buyer's lender requires tenant estoppel
certificates from a greater number of tenants
6
<PAGE>
or in a different form than is required under this Section 3.3,
satisfaction of such lender requirements shall not be a condition to
Buyer's obligation to perform its obligations under this Agreement and
Seller shall have no obligation to comply with such lender requirements.
Additionally, once Estoppels are delivered to Buyer, Seller shall have no
obligation to update any Estoppel nor shall any such updating be a
condition to Buyer's obligation to perform its obligations under this
Agreement.
Buyer shall have the option, in its sole discretion, at any time prior
to Closing, to terminate this Agreement by written notice thereof to
Seller, if (i) the requisite Estoppels as set forth above are not delivered
to Buyer by such time or (ii) any such requisite Estoppel reflects a
material and adverse deviation from matters shown on the Rent Roll (as
defined in Section 9.1(j) of this Agreement); provided, however, that Buyer
shall first provide written notice to Seller of any such material adverse
deviation or of Buyer's intention to terminate due to failure to deliver
the requisite Estoppels (either, an "Estoppel Deficiency") together with a
copy of the relevant Estoppel(s) and upon receipt of such notice Seller
shall have the right, at its option, to attempt to cure or reconcile such
Estoppel Deficiency and the Closing shall be extended for five (5) business
days to allow Seller to accomplish such cure or reconciliation. If Seller
is unable to effect a cure or reconciliation or elects not to cure or
reconcile (or not to continue attempts to cure or reconcile) and Buyer
elects to terminate this Agreement pursuant to its aforesaid right, the
Deposit and all interest earned accrued thereon shall be returned to Buyer
and neither party shall have any further liability under this Agreement
except for those which expressly survive such termination. For purposes
hereof, the term "material adverse deviation" shall mean (a) a deviation or
deviations from the state of facts set forth in the Rent Roll which is not
refuted by written evidence in Seller's possession or control, or (b) a
claim of a landlord default which has been made in accordance with a
tenant's lease; and which deviation or claim, if true, would, in the
aggregate, result in a reduction in the net income from the Property
(either by virtue of a reduction in the reported rental stream or an
increase in landlord liability) of more than $50,000.00. In respect to
deviations from the Rent Roll which result in a net income reduction of
$50,000.00 or less, Seller shall, at its option, either cure or reconcile
such deviations as provided above or provide Buyer with a credit against
the Purchase Price for the amount of any uncured or unreconciled deviation
at Closing. A "material adverse deviation" shall also include a deviation
or deviations from the stated expiration dates of Leases the result of
which is that tenants occupying at least 10,000 square feet of space claim
that the expiration dates of their Leases are at least 180 days later than
the dates set forth in the Rent Roll.
3.4 REPRESENTATIONS AND WARRANTIES. All of Seller's Representations
------------------------------
and Warranties shall be true as of Closing or qualified as provided in
Paragraph 9.1.
3.5 DELIVERY OF DOCUMENTS. Seller shall have signed, acknowledged and
---------------------
timely delivered all documents and instruments to Escrow Holder as required
by
7
<PAGE>
Paragraph 5.3 below and shall have timely performed all of the obligations
of Seller hereunder.
4. CONDITIONS PRECEDENT TO SELLER'S PERFORMANCE. Seller's obligation to
--------------------------------------------
sell the Property is subject to the satisfaction (or waiver) of all conditions
set forth below (which are for Seller's benefit) within the time periods
specified.
4.1 PERFORMANCE OF COVENANTS. Buyer shall have timely performed all
------------------------
of its covenants under this Agreement.
4.2 REPRESENTATIONS AND WARRANTIES. All of Buyer's Representations
------------------------------
and Warranties provided in Paragraph 9.2 shall be true as of Closing or
qualified as provided in Section 9.2.
4.3 DELIVERY OF DOCUMENTS. Buyer shall have signed, acknowledged and
---------------------
timely delivered all documents, monies, and instruments to Escrow Holder as
required by this Agreement.
5. CLOSING.
-------
5.1 THE CLOSING.
-----------
(a) The Closing shall occur by no later than 5:00 p.m on the
Closing Date.
(b) The terms "Close of Escrow" and/or "Closing" are used in this
Agreement to mean the time the Grant Deed is filed of record by the
Escrow Holder in the Office of the County Recorder of Santa Clara
County.
(c) The occurrence of the Closing shall constitute Buyer's and
Seller's agreement that all of its conditions precedent to each of
their respective obligations to perform have been satisfied or waived.
5.2 SELLER'S CLOSING OBLIGATIONS. On or before 12:00 noon on the last
----------------------------
business day immediately before the Closing Date, Seller shall deliver to
Escrow Holder:
(a) A Grant Deed in the form attached as Exhibit F ("Grant
Deed"), signed by Seller and acknowledged, covering the Land;
(b) An Assignment of Leases in the form attached as Exhibit G
("Assignment of Leases") signed by Seller;
8
<PAGE>
(c) A General Assignment in the form attached as Exhibit H
("General Assignment"), signed by Seller;
(d) A certificate of non-foreign status in the form attached as
Exhibit I ("Seller's Certificate") and a California Real Estate
Withholding Exemption Certificate (Form 590RE), signed by Seller;
(e) A bill of sale in the form attached as Exhibit J ("Bill of
Sale"), signed by Seller;
(f) Documents evidencing Seller's good standing and valid
existence in the State of California; and
(g) Any additional instruments (signed by Seller and
acknowledged, if appropriate) as may be necessary to comply with this
Agreement.
5.3 BUYER'S CLOSING OBLIGATIONS. On or before 12:00 noon on the last
---------------------------
business day immediately before the Closing Date, Buyer shall deliver to
Escrow Holder;
(a) Cash equal to that amount provided for in Paragraph 2.8(b).
The cash must be by direct deposit or by wire transfer of funds
actually made in Escrow Holder's depository bank account by 12:00 noon
on the last business day immediately before the Closing Date;
(b) The Assignment of Leases (or counterpart), signed by Buyer;
(c) The General Assignment (or counterpart), signed by Buyer;
(d) Documents evidencing Buyer's good standing and valid
existence in the State of California and authority of Buyer and
parties acting on behalf of Buyer to consummate this transaction; and
(e) Any additional funds and instruments (signed by Buyer and
acknowledged, if appropriate) as may be necessary to comply with this
Agreement, including without limitation, a Statement(s) of
Identification.
5.4 TITLE POLICY. If Buyer desires any special endorsements to the
------------
coverage provided by the Title Policy (including, without limitation,
extended ALTA coverage and affirmative coverage over, or deletion of, any
creditor's rights exception or exclusion), Buyer shall obtain and pay for
these endorsements and coverage, including any survey costs; and obtaining
such endorsements shall not be a condition of Closing. The issuance of the
endorsements and coverage shall not delay the Closing. The issuance of the
Title Policy shall be in lieu of any express or implied warranty of Seller
concerning title to the
9
<PAGE>
Property (other than any warranties provided by the giving of the Grant
Deed), and, following the Closing, Buyer agrees that its only remedy for
damages incurred by reason of any defect in the title shall be against only
the Title Company (except with respect to any violation of any warranties
provided by the giving of the Grant Deed).
6. TERMINATION OF THIS AGREEMENT.
-----------------------------
6.1 FAILURE TO CLOSE BY CLOSING DATE. If Escrow fails to close as of
--------------------------------
5:00 p.m. on the Closing Date, and except as otherwise agreed in writing by
Seller and Buyer, this Agreement and Escrow shall automatically terminate
and cancel without further action by Escrow Holder or any party (unless the
failure to close is a result of Seller's default) and notwithstanding any
provision contained in Escrow Holder's general provisions, and the Deposit
shall be disbursed to the party entitled thereto pursuant to the terms of
this Agreement.
6.2 FAILURE OF A CONDITION. Except in those instances where Escrow
----------------------
automatically terminates under the terms of this Agreement, if any
condition is not satisfied or waived within the time period and in the
manner set forth in this Agreement, then the party for whose benefit the
condition exists (as provided in Paragraphs 3 and 4 of this Agreement) may
terminate this Agreement by delivering written notice to the other party
and to Escrow Holder after the end of the applicable time period; provided
that if Buyer terminates because of a failure of a condition in Paragraph 3
hereof, Buyer shall be entitled to a return of the Deposit.
6.3 CONSEQUENCES. If this Agreement terminates (or is properly
------------
terminated by either party) as specifically provided by its terms, then
each of the following shall occur: Escrow shall be deemed automatically
canceled regardless of whether cancellation instructions are signed;
neither party shall have any further obligation to the other under this
Agreement (except for breach of this Agreement as those remedies may be
limited hereunder; and as provided under Paragraphs 10.1, 10.2, 10.3 and
15.18 which shall survive termination of this Agreement); all rights
granted to Buyer under this Agreement and in the Property shall terminate;
and, except as provided to the contrary in Paragraph 6.5 (concerning
Seller's right to retain the Deposit as liquidated damages), Escrow Holder
shall return all funds and documents then held in Escrow to the party
depositing the same.
6.4 ESCROW CANCELLATION CHARGES. If Escrow fails to close because of
---------------------------
either party's default, the defaulting party shall be liable for all Escrow
cancellation and Title Company charges. If Escrow fails to close for any
other reason, Buyer and Seller shall each pay one-half of any Escrow
cancellation and Title Company charges.
10
<PAGE>
6.5 LIQUIDATED DAMAGES. IF BUYER FAILS TO COMPLETE THE PURCHASE OF
------------------
THE PROPERTY AS PROVIDED IN THIS AGREEMENT AND THE FAILURE TO CLOSE
CONSTITUTES A DEFAULT BY BUYER IN THE PERFORMANCE OF BUYER'S OBLIGATIONS
UNDER THIS AGREEMENT, SELLER SHALL BE RELEASED FROM ALL OF ITS OBLIGATIONS
UNDER THIS AGREEMENT, AND ESCROW HOLDER SHALL IMMEDIATELY DELIVER, DESPITE
ANY INSTRUCTIONS TO THE CONTRARY, THE DEPOSIT TO SELLER, AND SELLER SHALL
BE ENTITLED TO RETAIN THE DEPOSIT AS LIQUIDATED DAMAGES. SELLER AND BUYER
SHALL INDEMNIFY ESCROW HOLDER FOR ANY LIABILITY, COSTS AND EXPENSES BY
REASON OF ESCROW HOLDER'S GOOD FAITH COMPLIANCE WITH THIS PARAGRAPH. THE
PARTIES EXPRESSLY AGREE THAT THE AMOUNT OF THE DEPOSIT IS A REASONABLE
ESTIMATE OF THE EXTENT TO WHICH SELLER WOULD BE DAMAGED IF THIS TRANSACTION
FAILS TO CLOSE AS A RESULT OF BUYER'S DEFAULT, IN LIGHT OF THE DIFFICULTY
THE PARTIES WOULD HAVE IN DETERMINING SELLER'S ACTUAL DAMAGES, AS A RESULT
OF A FAILURE OF THIS TRANSACTION TO CLOSE BECAUSE OF BUYER'S DEFAULT.
SELLER'S RETENTION OF THE DEPOSIT AS LIQUIDATED DAMAGES SHALL BE SELLER'S
EXCLUSIVE REMEDY FOR DAMAGES BY REASON OF BUYER'S FAILURE TO COMPLETE THE
PURCHASE OF THE PROPERTY IN ACCORDANCE WITH THE TERMS OF THIS AGREEMENT;
PROVIDED, HOWEVER, THAT NOTHING CONTAINED HEREIN SHALL BE DEEMED TO LIMIT
SELLER'S RIGHTS OR REMEDIES UNDER SECTIONS 10.1, 10.2, 10.3 AND 15.18
BELOW.
SELLER'S INITIALS /s/ [SIGNATURE] BUYER'S INITIALS
----------------------------
/s/ [SIGNATURE]
----------------------------
7. GENERAL ESCROW PROVISIONS.
-------------------------
7.1 ESCROW INSTRUCTIONS. This Agreement when signed by Buyer and
-------------------
Seller shall also constitute Escrow Instructions to Escrow Holder.
7.2 OPENING ESCROW. When both (i) this Agreement, fully signed or in
--------------
signed counterparts, and (ii) Buyer's Deposit are delivered to Escrow
Holder, Escrow shall be deemed open and Escrow Holder shall immediately
notify Buyer and Seller by telephone and in writing of the date of Opening
of Escrow.
7.3 GENERAL PROVISIONS. Notwithstanding anything to the contrary in
------------------
this Agreement, the General Provisions of Escrow Holder, if any, which are
later signed by the parties, are incorporated by reference to the extent
they are not inconsistent with the provisions of this Agreement. If there
is any inconsistency between the provisions of those General Provisions and
any of the provisions of this Agreement, the provisions of
11
<PAGE>
this Agreement shall control. If any requirements relating to the duties or
obligations of the Escrow Holder are unacceptable to the Escrow Holder, or
if the Escrow Holder requires additional instructions, the parties agree to
make any deletions, substitutions and additions as counsel for Buyer and
Seller shall mutually approve and which do not materially alter the terms
of this Agreement. Any supplemental instructions shall be signed only as an
accommodation to Escrow Holder and shall not be deemed to modify or amend
the rights of Buyer and Seller, as between Buyer and Seller, unless the
supplemental instructions expressly so provide.
7.4 PRORATIONS. The following prorations shall be made between Seller
----------
and Buyer at the Close of Escrow, based on the actual number of days in the
month in which the Closing occurs and a three hundred sixty-five (365) day
year:
(a) Taxes, real property taxes, special taxes, utility fees and
deposits, common area maintenance expenses, Property operating
expenses, personal property taxes, if any, with respect to the
Personal Property, assessments, sewer charges, and other costs and
expenses attributable to the Property shall be prorated as of the
Close of Escrow. To the extent any expenses or charges for the
Property are paid by tenants to the landlord under the Leases on an
estimated basis, for which a future reconciliation of actual to
estimates is to be performed, Seller and Buyer shall make an
adjustment at Closing for the applicable reconciliation period in
which the Closing occurs based on a comparison of the actual Property
expenses paid by Seller as of the Closing Date to the estimated
Property expenses paid by tenants to Seller. The adjustment for such
reconciliation period shall be calculated as follows: To the extent
the estimated payments made by tenants to Seller as of the Closing
Date exceed the actual Property expenses paid by Seller as of the
Closing Date, Buyer shall receive a credit for the excess tenant
payments. To the extent actual Property expenses paid by Seller as of
the Closing Date exceed the estimated payments made by tenant as of
the Closing Date, Seller shall receive a credit at Closing, to the
extent Seller is entitled to receive from the tenants payments of such
shortfall under the terms of the applicable Leases. Buyer shall then
assume all rights and obligations to collect from or pay to Lease
tenants any reconciliation amounts.
(b) All rents, additional rent, income, and other amounts
payable to the owner or landlord of the Property (collectively,
"Property Rent") shall also be prorated as of Close of Escrow. Accrued
but unpaid Property Rent existing as of the Closing shall not be
prorated; provided, however, that Buyer shall use reasonable efforts
to collect such accrued but unpaid Property Rent (but shall not be
obligated to institute litigation or to incur expenses other than
nominal expenses), from and after the Closing, and Buyer shall remit
any Property Rent received from and after the Closing attributable to
the period prior to the Closing immediately to Seller. For purposes of
this Agreement, any payments received
12
<PAGE>
by Buyer after Closing from a tenant whose Property Rent was due and
unpaid as of the Closing, regardless of how such payment is labeled or
designated by such tenant, shall be accounted for and applied as
follows: (i) first, to due and unpaid Property Rent for the month in
which Closing occurs and Seller shall be entitled to its prorated
portion of such Property Rent for such month, (ii) second, to Property
Rent then due and payable to Buyer, and (iii) third, to delinquent
Property Rent owed to Seller for periods prior to the month in which
Closing occurs. Amounts received after Closing by Buyer to which
Seller is entitled pursuant to the foregoing provisions, up to the
amount of the delinquency as of the Closing, shall be remitted
immediately by Buyer to Seller. Seller hereby reserves its rights
under the Leases to the extent any tenant under any of the Leases is
delinquent in the payment of Property Rent thereunder as of the
Closing Date, and Buyer shall from and after the Closing Date,
reasonably cooperate with Seller to the extent necessary to enable
Seller to pursue recovery of the delinquent Property Rent, including
any litigation instituted by and paid for by Seller on or prior to
Closing. Seller shall notify Buyer in writing of the name of each
tenant, if any, whose Property Rent is delinquent. Notwithstanding the
foregoing, in no event shall Seller have the right to take any action
after Closing against any tenant that is delinquent in the payment of
Property Rent as of the Closing if such action would cause a
termination of the tenant's lease or disturb such tenant in its
occupancy of its premises.
(c) Security deposits and advance rents (which have not been
applied pursuant to the terms of the Leases) shall be transferred or
credited to Buyer at Closing.
(d) Any tenant improvement or leasing commission costs or
referral fees paid or incurred by Seller from the Effective Date
through the Closing Date with respect to leases or other rental
agreements (and renewals, extensions or expansions under existing
leases or rental agreements) executed from the Effective Date through
the Closing Date shall be paid by Buyer to Seller at Closing (prorated
based upon the rental income received by Seller or Buyer for the
applicable lease, renewal or expansion term), provided that, with
respect to any lease or other rental agreement entered into after the
expiration of the Due Diligence Period, Buyer will only be responsible
for such costs or fees if Buyer approves such lease or other rental
agreement in writing, prior to lease execution, such approval not to
be unreasonably withheld or delayed. Buyer shall provide its written
consent or rejection of any proposed lease within five (5) business
days of receipt of a copy of the proposed lease terms. Buyer's failure
to provide such written rejection or consent within such five (5)
business day period shall be deemed approval of the proposed lease. If
Closing occurs, Buyer shall also reimburse Seller for any costs
related to capital improvements incurred by Seller for life safety
work or asset preservation, repairs or replacements incurred from
13
<PAGE>
the Effective Date through the Closing Date, so long as Buyer has
approved the same in writing in advance of such costs being incurred,
such approval not to be unreasonably withheld, conditioned or delayed.
(e) Buyer shall provide Seller with such information and copies
of invoices and other documents and records as Seller shall reasonably
request, evidencing that Buyer has remitted to Seller all amounts
required as a result of any reconciliation of the expenses of the
Property referenced in Section 7.4(a) above to the estimated payments
of such expenses received from the tenants of the Property (including
any post-closing adjustments thereto).
(f) If any errors or omissions are made regarding adjustments
and prorations, the parties shall make the appropriate corrections
promptly upon the discovery thereof. If any estimations are made at
the Close of Escrow regarding adjustments or prorations, the parties
shall make the appropriate correction promptly when accurate
information becomes available. Any corrected adjustment or proration
shall be paid in cash to the party entitled to the adjustment.
Notwithstanding anything to the contrary above, the above right to
adjustment shall terminate six (6) months after Close of Escrow.
7.5 PAYMENT OF COSTS. Seller shall pay for (i) the base premium
----------------
charges for the CLTA portion of the Title Policy ("Standard Premium"), (ii)
one-half (1/2) of all Escrow costs and fees, and (iii) all county
documentary transfer taxes and one-half of any City transfer taxes. Buyer
shall pay (i) one-half (1/2) of all Escrow costs and fees; (ii) any
additional Title Company charges in excess of the Standard Premium
(including, without limitation, the ALTA portion of the Title Policy and
any endorsements or survey costs), (iii) one-half of any city transfer
taxes, (iv) all costs arising from or relating to the financing by Buyer of
this transaction, (v) recording fees for the Grant Deed and other documents
(including, without limitation, any financing documents). Other Escrow
costs and fees shall be paid in the manner customary in Santa Clara County.
7.6 ESCROW HOLDER AUTHORIZED TO COMPLETE BANKS. If necessary, Escrow
------------------------------------------
Holder is authorized to insert in all blanks in the Closing documents, the
date of recordation of the Grant Deed.
7.7 RECORDATION AND DELIVERY OF FUNDS AND DOCUMENTS. When Buyer and
-----------------------------------------------
Seller have satisfied their respective Closing obligations under Paragraphs
5.2 and 5.3 and each of the conditions under Paragraphs 3 and 4 have either
been satisfied or waived, Escrow Holder shall promptly undertake all of the
following in the manner indicated.
(a) Prorate all matters as described in Paragraph 7.4.
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<PAGE>
(b) Cause the Grant Deed, and any other documents which the
parties hereto may mutually direct, to be recorded in the Official
Records of Santa Clara County, California in the order set forth in
this Agreement. Escrow Holder is instructed not to affix the amount of
the documentary transfer tax on the face of the Grant Deed, but to
supply same by separate affidavit.
(c) Disburse funds deposited by Buyer with Escrow Holder towards
payment of all items chargeable to the account of Buyer pursuant
hereto in payment of such costs including, without limitation, the
payment of the Purchase Price to Seller.
(d) Deliver originals and conformed copies of all documents to
Seller and Buyer, as appropriate.
(e) Direct the Title Company to issue the Title Policy to Buyer.
8. BROKERAGE COMMISSIONS. Upon the Close of Escrow, Seller shall pay a
---------------------
real estate brokerage commission to CPS, Inc. ("Broker") with respect to this
transaction in accordance with Seller's separate agreement with the Broker. It
is understood that neither Seller nor Buyer has engaged a broker or finder in
connection with this transaction other than the Broker. Each party shall
indemnify and hold the other harmless from and against all claims, liabilities,
costs, damages and expenses (including, without limitation, attorneys' fees and
costs), resulting from or arising out of any claims for finder's fees or
commissions arising out of any contract or commitments made by or through the
indemnifying party by any broker or finder other than the Broker. The
obligations of the parties under this Section 8 shall survive the Closing.
9. REPRESENTATIONS AND WARRANTIES.
------------------------------
9.1 SELLER'S REPRESENTATIONS AND WARRANTIES. In consideration of
---------------------------------------
Buyer entering into this Agreement and as an inducement to Buyer to buy the
Property from Seller, Seller makes the following representations and
warranties, each of which is true, accurate and material and is being
relied upon by Buyer:
(a) AUTHORITY. Seller is an Illinois corporation, in good
---------
standing, and qualified to do business in California. Seller has the
legal right, power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby, and the execution,
delivery and performance of this Agreement have been duly authorized
and no other action by Seller is requisite to the valid and binding
execution, delivery and performance of this Agreement, except as
otherwise expressly set forth herein.
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(b) FOREIGN PERSON AFFIDAVIT. Seller is not a foreign person as
------------------------
defined in Section 1445 of the Internal Revenue Code of 1986, as
amended.
(c) LEASES AND PERMITTED EXCEPTIONS. Except for the Leases and
-------------------------------
Permitted Exceptions, to Seller's knowledge, there are no other leases
or other agreements (whether oral or written) affecting or relating to
the right of any party to possession of the Property or any portion
thereof.
(d) LEASE NOTICES. Seller has not received any written notice of
-------------
any pending or threatened claims by any tenant(s) of the Property
against Seller or of the breach or nonperformance of any agreement or
covenant with respect to any tenant(s) under Leases of the Property,
except as otherwise noted in the Estoppels or in any other information
provided by Seller to Buyer with respect to the Leases or the
Property. To Seller's knowledge, the Leases are in full force and
effect. No rent has been prepaid for the benefit of tenant(s) nor
security deposits paid, other than as disclosed in the Leases, as
otherwise disclosed to Buyer by Seller in writing, or as otherwise
disclosed in the Estoppels.
(e) DEFAULT NOTICES. Except as otherwise disclosed to Buyer in
---------------
writing, Seller has not received any written notice of default with
respect to any obligation of Seller pertaining to the Property which
remains uncured or which will be binding upon Buyer from and after the
Closing.
(f) LAWSUITS. Seller has not initiated and has not received
--------
written notice of any suits, proceedings or governmental
investigations pending or threatened in writing before any agency,
court or other governmental authority which relate to the Property.
(g) NOTICES OF VIOLATIONS. Seller has not received any written
---------------------
notice of any violation of applicable law, ordinance or regulation
with respect to the Property which has not been remedied or which has
not otherwise been disclosed by Seller to Buyer in the information and
materials previously delivered by Seller to Buyer.
(h) CONDEMNATION. Seller has not received any written notice
------------
from any governmental authority of any pending or threatened
proceedings in eminent domain which would adversely affect the
Property or any portion thereof.
(i) LEASING COSTS. There are no tenant improvement allowances or
-------------
costs or leasing commission costs or referral fees owed by Seller
under any of the Leases which will be unpaid as of Closing, except for
allowances, costs or fees pursuant to any Leases or Lease amendments
entered into pursuant to Section 16
16
<PAGE>
of this Agreement; provided, however, that Buyer shall have no
liability for any such allowances, costs or fees unless Buyer was
given prior notice of the relevant Lease or Lease amendment and
consented in writing to be obligated for such matters.
(j) RENT ROLL. Attached as Exhibit B to this Agreement is a
---------
current tenant status report relating to the Leases (the "Rent Roll")
which is true and correct in all material respects.
(k) ENVIRONMENTAL CLAIMS. Seller has not received any written
--------------------
notice of any claim from the owner of any other property regarding
contamination emanating from the Property and Seller has not received
any written notice of any claim from any individual regarding exposure
to environmental contamination on or about the Property.
Seller shall remake and update the foregoing representations and warranties
as of the Closing Date. To the extent that the remade and updated
representations and warranties disclose a "material adverse change" from
the information contained in the representations and warranties set forth
in this Agreement and Buyer was not advised of the facts giving rise to
such "material adverse change" prior to the expiration of the Due Diligence
Period, such "material adverse change" shall not constitute a Seller
default, but Buyer shall have the right to terminate this Agreement in
which event the Deposit and all interest earned thereon shall be returned
to Buyer and neither party shall have any further liability under this
Agreement except for those which expressly survive such termination. For
purposes hereof, the term "material adverse change" shall mean a change or
changes from the state of facts set forth in the original Seller
representations and warranties set forth in this Agreement which would, in
the aggregate, result in a potential reduction in the net income from the
Property (either by virtue of a reduction in the reported rental stream or
an increase in landlord liability) of more than $50,000.00. With regard to
changes the effect of which would cause a net income reduction of
$50,000.00 or less, Seller shall, at its option, either remedy the
situation involving the changed state of facts or provide Buyer with a
credit against the Purchase Price for the amount of the reasonably
estimated cost or liability associated with the "material adverse change."
A "material adverse change," with respect to the representation and
warranty set forth in Section 9.1(j) above, shall also include a change
from the stated expiration dates of Leases the result of which is that the
leases of tenants occupying at least 10,000 square feet of space expire at
least 180 days later than the dates set forth in the Rent Roll.
The representations and warranties made by Seller in this Agreement shall
survive the recordation of the Grant Deed for a period of one hundred
eighty (180) days and any action for a breach of any representation or
warranty must be made and filed within said one hundred eighty (180) day
period.
17
<PAGE>
9.2 BUYER'S REPRESENTATIONS AND WARRANTIES. In consideration of
--------------------------------------
Seller entering into this Agreement and as an inducement to Seller to sell
the Property to Buyer, Buyer makes the following representations and
warranties, each of which shall be true and accurate as of the Effective
Date and Close of Escrow, and each of which is material and is being relied
upon by Seller:
(a) AUTHORITY. Buyer has the legal right, power and authority to
---------
enter into this Agreement and to consummate the transactions
contemplated hereby, and the execution, delivery and performance of
this Agreement have been duly authorized and no other action by Buyer
is requisite to the valid and binding execution, delivery and
performance of this Agreement, except as otherwise expressly set forth
herein.
(b) "AS IS". Except for the representations and warranties
-------
expressly provided in Paragraph 9.1 above, Buyer agrees (i) that it is
purchasing the Property on as "As Is" basis and based on its own
investigation of the Property, (ii) that neither Seller nor Seller's
employees, agents, brokers, representatives, managers, property
managers, asset managers, officers, principals, attorneys or
contractors (collectively, "Seller's Representatives") have made any
warranty, representation or guarantee, express, implied or statutory,
written or oral, including, without limitation, any implied warranty
of merchantability or fitness for any use or purpose or of reasonable
workmanship, concerning the Property or any of the products or
improvements located thereon or therein (including, without
limitation, the Building), and (iii) that neither Seller nor Seller's
Representatives have made any warranty, representation or guarantee as
to any government limitation or restriction, or absence thereof,
pertaining to the Property, or as to the presence or absence of any
latent defeat, subsurface soil condition, environmental condition,
hazardous substance, toxic waste or any other matter pertaining to the
physical condition (title, mapping, grading, construction, or
otherwise) of the Property. Buyer is familiar with the Property and
its suitability for Buyer's intended use. Buyer acknowledges that
Buyer has been provided access to the Property, and as of the end of
the Due Diligence Period, will have had an adequate opportunity to
review any and all aspects of the Property Buyer deems relevant to its
decision to purchase the Property, including the Documents (as defined
below), which Buyer acknowledges receipt of. Except for the
representations and warranties expressly provided in Paragraph 9.1
above, all of Seller's and Seller's Representatives' statements
whenever made, are made only as an accommodation to Buyer and are not
intended to be relied or acted upon in any manner by Buyer. All
documents, records, agreements, writings, statistical and financial
information and all other information (collectively, "Documents")
which have been given to Buyer by Seller, or Seller's Representatives,
have been delivered as an accommodation to Buyer and without
18
<PAGE>
any representation or warranty (except as specifically provided above)
as to the sufficiency, accuracy, completeness, validity, truthfulness,
enforceability, or assignability of any of the Documents, all of which
Buyer relies on at its own risk. Notwithstanding the foregoing, Seller
is not aware of any material inaccuracies in those Documents which
were prepared by Seller. Buyer acknowledges that neither Seller nor
Seller's Representatives have made any representation regarding the
availability of, or amount of, any fee, assessment, or cost relating
to the development, construction, mapping, access, occupancy or
ownership of the Property.
(c) SELLER'S RESPONSIBILITY. Buyer represents and covenants that
-----------------------
Seller shall not have any liability, obligation or responsibility of
any kind with respect to the following:
(i) The content or accuracy of any report, opinion or
conclusion of any soils or environmental experts
(including, without limitation, those contained in
the Environmental Reports) or other engineer or other
person or entity who has examined the Property;
(ii) The content or accuracy of any information released
to Buyer by an engineer or planned in connection with
the development of the Property;
(iii) Any of the items delivered to Buyer in connection
with Buyer's review of the condition of the Property;
and
(iv) The content or accuracy of any other cost,
projection, financial or marketing analysis or other
information given to Buyer by Seller or Seller's
Representatives or reviewed by Buyer with respect to
the Property.
(d) TRUTH OF REPRESENTATIONS. The representations and warranties
------------------------
of Buyer set forth in this Agreement shall be true on and as of the
Close of Escrow as if those representations and warranties were made
on and as of such time. The representations and warranties made by
Buyer in this Agreement shall survive the recordation of the Grant
Deed for a period of one hundred eighty (180) days and any action for
a breach of any representation or warranty must be made and filed
within said one hundred eighty (180) day period.
10. ENTRY ON PROPERTY.
-----------------
19
<PAGE>
10.1 LICENSE TO ENTER FOR INVESTIGATION. Until Escrow closes or this
----------------------------------
Agreement is terminated, Buyer and Buyer's employees, agents, consultants
and contractors shall have a limited license to enter upon the Property,
during usual business hours, after receipt by Seller of twenty-four (24)
business hours advance notice of its intention to enter the Property (the
"License") so long as the activities do not damage the Property and subject
to any rights of tenants under the Leases. Before beginning any tests or
investigations which contemplate the drilling or disturbance of the surface
of the Property, Buyer shall submit to Seller for its approval, which shall
not be unreasonably withheld, to be exercised in good faith, Buyer's
operational plan for conducting the tests or investigations Seller may have
a representative present during any tests or investigations and Buyer shall
provide Seller with prior notice of any tests or investigations. After any
entry, Buyer shall promptly repair any damage caused by Buyer or its
employees, agents, consultants or contractors in connection with the
exercise of the right of entry described above. Buyer shall not allow any
dangerous or hazardous condition to be created on or arise from Buyer's
entry on the Property. Buyer shall comply with all applicable laws and
governmental regulations applicable to its entry to the Property. Buyer
shall keep the Property free and clear of all mechanics' liens and
materialmen's liens arising out of any of Buyer's activities. The License
may be revoked by Seller at any time, and shall in any event be deemed
revoked upon termination of this Agreement.
10.2 INDEMNIFICATION ON ENTRIES. Buyer shall indemnify, defend (with
--------------------------
counsel selected by Buyer and reasonably approved by Seller), and hold
harmless Seller and Seller's officers, directors, shareholders, employees,
agents, managers, property mangers, asset managers, attorneys,
representatives, subsidiary and parent corporations, affiliated entities,
and the above parties' successors and assigns excluding, however, any
person or entity that held title to the Property or any portion thereof
prior to the date Seller acquired title thereto (each, a "Predecessor In
Title"), and the Property, (all of the above parties (other than any
Predecessor In Title) and the Property are collectively referred to as
"Indemnified Parties and Property") from and against all claims, losses,
liens, liabilities, damages, expenses and costs (including, without
limitation, attorneys' fees and costs) arising from or relating to the
entry of Buyer and its representatives, agents, employees, consultants and
contractors on the Property pursuant to the terms of Section 10.1, as
opposed to Buyer's right to possession of portions of the Property pursuant
to a lease or leases of portions of the Property. The obligation to
indemnify, defend and hold harmless referred to in this Section 10.2 shall
not extend to or cover any losses, damages, liens, claims or liabilities
arising from the mere discovery of any hazardous or toxic materials on the
Property except for, and only to the extent that, any actions or omissions
of Buyer or anyone acting for or on behalf of Buyer in making such
discovery either increase losses, damages, liens, claims or liabilities
which Seller could sustain as a result of such materials or cause Seller to
incur losses, damages, liens, claims or liabilities which it would not have
incurred from the presence of such materials alone. Buyer's obligations
under this paragraph shall survive the Close of Escrow and
20
<PAGE>
the termination of this Agreement and shall not be limited by any insurance
required under Paragraph 10.3).
10.3 INSURANCE ON ENTRIES. Buyer shall maintain or cause to be
--------------------
maintained either Comprehensive General Liability insurance or Commercial
General Liability insurance to cover Buyer's activities on the Property.
Prior to entering on the Property, Buyer shall deliver to Seller a
Certificate of Insurance evidencing compliance with the terms of this
paragraph. The liability insurance policy shall have a combined single
limit per occurrence liability limit of at least $2,000,000.00 for premises
liability, bodily injury, personal injury and property damage, shall be
primary and noncontributing with any insurance which may be carried by
Seller, and shall name Seller as an additional insured, and shall be
written by companies rated A/XII or better in "Best's Insurance Guide" and
authorized to do business in California. The insurance policy shall be
maintained and kept in effect by Buyer (or Buyer's agent), at Buyer's
agent's) sole expense, at all times during the term of this Agreement. The
insurance policy shall provide that it may not be canceled or modified
without at least thirty (30) days prior written notice to Seller, or until
this Agreement is terminated.
11. CONDEMNATION OR CASUALTY.
------------------------
11.1 CONDEMNATION. Seller, upon actually becoming aware of same,
------------
shall promptly notify Buyer, in writing, of any condemnation proceeding
affecting the Property commenced prior to the Close of Escrow or upon
receipt of any written notice of a potential condemnation. If, by reason of
any such proceeding, the value of the Property is materially impaired,
Buyer may, at its option, elect either to (i) terminate this Agreement, or
(ii) continue the Agreement in effect, in which event, upon the Close of
Escrow, Seller shall assign to Buyer, and Buyer shall be entitled to
receive, any compensation, awards, or other payments or relief resulting
from such condemnation proceeding. As used herein, "materially impaired"
shall mean that the cost to restore the Property or the value of the
portion of the Property to be condemned exceeds Seven Hundred Fifty
Thousand Dollars ($750,000.00).
11.2 CASUALTY. If, before the Closing, all or any portion of the
--------
Property is damaged by a casualty (a "Casualty"), Seller shall notify Buyer
of this event after actual knowledge of the Casualty, and if the cost to
restore the same will exceed Seven Hundred Fifty Thousand Dollars
($750,000.00), Buyer shall have the option to either (i) terminate this
Agreement as of the date of the Casualty, or (ii) continue with this
transaction in accordance with the terms of this Agreement and without any
adjustment in the Purchase Price, by delivery of written notice of Buyer's
election to Seller and Escrow Holder within five (5) days after receipt of
Seller's notice. If Seller and Escrow Holder receive Buyer's election to
terminate this transaction or have not received any notice from Buyer
within the 5-day period, then this transaction shall terminate, and the
21
<PAGE>
Deposit shall be returned to Buyer, as provided in Paragraph 6.3. If Buyer
elects to continue with this transaction or is obligated to do so, as
provided above, then the Casualty proceeds from any insurance obtained by
Seller for the Property which are payable as a result of such Casualty, if
any, shall become the property of and be assigned to Buyer after Close of
Escrow and Seller shall pay to Buyer the amount of Seller's deductible
which amount, in any event, shall not exceed the cost to repair the damage
caused by the casualty. If the Casualty is not covered by insurance, Buyer
may elect to terminate this Agreement and the Deposit and interest earned
thereon shall be returned to Buyer.
12. WAIVER BY BUYER. Buyer hereby waives and relinquishes any and all
---------------
rights and remedies Buyer may now or hereafter have against the Indemnified
Parties (excluding any past, present or future tenants of the Property) and
Property, whether know or unknown, with respect to any past, present or future
presence or existence of any hazardous or toxic waste, substances or materials
of any kind or nature ("Hazardous Materials") on, under or about the Property or
surrounding land or with respect to any past, present or future violations of
any rules, regulations or laws, now or hereafter enacted, regulating or
governing the use, handling, storage or disposal of Hazardous Materials
(collectively, "Environmental Laws") including, without limitation, any and all
rights Buyer may now or hereafter have to seek contributions from the
Indemnified Parties and Property under (i) Section 113(f)(i) of the
Comprehensive Environmental Response Compensation and Liability Act of 1980
("CERCLA"), as amended by the Superfund Amendments and Reauthorization Act of
1986 ("SARA") (42 U.S.C. Section 9613), as the same may be further amended or
replaced by any similar law, rule or regulation and (ii) Section 25300 et seq.
-- ---
of the Carpenter-Presley-Tanner Hazardous Substance Account Act (California
Health and Safety Code, Division 20, Chapter 6.95), as the same may be further
amended or replaced by any similar law, rule or regulation. Buyer hereby further
releases the Indemnified Parties and Property from any and all liability whether
known or unknown now or hereafter existing with respect to the Property under
Section 107 of CERCLA (42 U.S.C. Section 9607). Solely with respect to matters
released under this Section 12, Buyer expressly waives all rights under
California Civil Code Section 1542, which provides as follows:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT
KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE,
WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE
DEBTOR."
The waivers and releases by Buyer herein contained shall survive the Close
of Escrow and the recordation of the Grant Deed in perpetuity.
/s/ [SIGNATURE] Buyer's Initials
----------------------------
22
<PAGE>
13. CONTRACTS, LICENSES AND PERMITS. In connection with the purchase,
-------------------------------
Seller shall assign to Buyer, and Buyer shall assume, "As Is" at Close of
Escrow, without representation or warranty, all of Seller's rights, liabilities
and obligations, if any, and to the extent assignable, to all warranties and
guarantees and all permits and licenses, to the extent they relate to the
Property (collectively, "Licenses and Permits"). Such assignment shall be in the
form attached as Exhibit H to this Agreement. All Service Contracts and
management contracts for the Property entered into by Seller with respect to the
Property (the "Contracts") shall be terminated by Seller as of Closing so long
as such Contracts are so terminable and unless Buyer notifies Seller prior to
the expiration of the Due Diligence Period that Buyer has elected to assume any
such Contracts in which event all of Seller's right, title and interest under
such Contracts shall be assigned to Buyer at Close of Escrow and Buyer shall
assume same.
14. REMEDIES AGAINST SELLER. IF CLOSE OF ESCROW AND THE CONSUMMATION OF
-----------------------
THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT DO NOT OCCUR BY REASON OF ANY
DEFAULT OR BREACH BY SELLER IN ITS OBLIGATION TO TRANSFER THE PROPERTY TO BUYER,
BUYER SHALL BE ENTITLED TO EITHER (i) THE RETURN OF THE DEPOSIT AND ANY INTEREST
ACTUALLY ACCRUED THEREON; OR (ii) THE REMEDY OF SPECIFIC PERFORMANCE; AS BUYER
MAY ELECT, AS BUYER'S SOLE AND EXCLUSIVE REMEDIES FOR SUCH BREACH OR DEFAULT,
AND BUYER SHALL NOT BE ENTITLED OR HAVE ANY RIGHT TO RECEIVE ANY OTHER DAMAGES
OR OTHER RELIEF, LEGAL OR EQUITABLE.
/s/ [SIGNATURE] Seller's Initials /s/ [SIGNATURE]
- ------------------------ ------------------------
Buyer's Initials
In addition to the foregoing remedies, if the consummation of the
transaction contemplated by this Agreement does not occur by reason of Seller's
intentional breach of a provision or obligation of Seller set forth in this
Agreement, Seller shall be liable to Buyer for Buyer's out-of-pocket third party
expenses incurred in connection with this transaction during the period
commencing on the Effective Date and ending upon the termination of the
transaction, in an amount not to exceed Forty Thousand Dollars ($40,000.00) in
any event.
15. GENERAL PROVISIONS.
------------------
15.1 ASSIGNMENT.
----------
(a) This Agreement shall be binding upon and shall inure to the
benefit of Buyer and Seller and their respective successors and
permitted assigns.
(b) Buyer may only assign this Agreement and any interest or
right under this Agreement or under the Escrow after obtaining
Seller's prior written consent, which shall not be unreasonably
withheld or delayed, provided that
23
<PAGE>
Seller's consent shall not be unreasonably withheld with respect to
any assignment by Buyer to an entity or person that controls, is
controlled by, or is under common control with Buyer. Any assignment
shall not relieve Buyer of its obligations under this Agreement.
(c) Buyer shall give Seller at least ten (10) business days prior
notice of any assignment and, for the purpose of Seller considering
its approval, Buyer shall furnish Seller with information reasonably
requested by Seller from which Seller can evaluate financial
creditworthiness of the proposed assignee.
15.2 ATTORNEYS' FEES AND COSTS. In any action or proceeding between
-------------------------
the parties to enforce or interpret any of the terms or provisions of this
Agreement, the prevailing party in the action or proceeding shall be
entitled to recover from the non-prevailing party, in addition to damages,
injunctive relief or other relief, its reasonable costs and expenses,
including, without limitation, costs and reasonable attorneys' fees, both
at trial and on appeal.
15.3 NOTICES AND APPROVALS. Any notice, approval, disapproval, demand
---------------------
or other communications required or permitted to be given by any provision
of this Agreement ("notice") which either party desires to give to the
other party or to Escrow Holder shall be deemed to be sufficiently given or
served: (i) when delivered personally to the party to whom the notice is to
be delivered, (ii) on the third (3rd) business day following its deposit in
the U.S. mail (first class) or the first (1st) business day following
delivery to a reputable overnight commercial courier, addressed to the
party at the party's address as it appears in this Agreement, or at any
other address as that party may from time to time specify by written
notice; or (iii) when given by transmittal over electronic transmitting
devices, such as Telex or telecopier machine, if the party to whom the
notice is sent has such a device in its office, provided a complete copy of
any notice so transmitted shall also be mailed in the same manner as
required for mailed notice.
15.4 CONTROLLING LAW. This Agreement shall be deemed to be entered
---------------
into within Santa Clara County and shall be construed under the laws of the
State of California in effect at the time of the signing of this Agreement.
The parties consent to the jurisdiction of the California courts with venue
in Santa Clara County.
15.5 TITLES AND CAPTION. Titles and captions are for conveniences
------------------
only and shall not constitute a portion of this Agreement. References to
paragraph numbers are to paragraphs in this Agreement, unless expressly
stated otherwise.
15.6 INTERPRETATION. As used in this Agreement, masculine, feminine
--------------
or neuter gender and the singular or plural number shall each be deemed to
include the others where and when the context so dictates. The word
"including" shall be construed as if
24
<PAGE>
followed by the words "without limitation." If a dispute over the
interpretation or construction of any provision, term or word contained in
this Agreement, this document shall be interpreted and construed neutrally,
and not against either Buyer or Seller.
15.7 NO WAIVER. A waiver by either party of a beach of any of the
---------
covenants, conditions or obligations under this Agreement to be performed
by the other party shall not be construed as a waiver of any succeeding
breach of the same or other covenants, conditions or obligations of this
Agreement.
15.8 MODIFICATIONS. Any alteration, change or modification of or to
-------------
this Agreement, in order to come effective, shall be made in writing and in
each instance signed on behalf of each party.
15.9 SEVERABILITY. If any term or provision of this Agreement, or its
------------
application to any party or set of circumstances, shall be held, to any
extent, invalid or unenforceable, the remainder of this Agreement, or the
application of the term or provision to persons or circumstances other than
those as to whom on which it is held invalid or unenforceable, shall not be
affected, and each shall be valid and enforceable to the fullest extent
permitted by law.
15.10 INTEGRATION OF PRIOR AGREEMENTS AND UNDERSTANDINGS. This
--------------------------------------------------
Agreement contains the entire understanding between the parties relating to
the transactions contemplated by this Agreement. All prior or
contemporaneous agreements, understandings, representations, warranties and
statements, whether oral or written, expressed or implied, are superseded
in their entirety by this Agreement, and are of no force or effect, in
whole or in party.
15.11 NOT AN OFFER. Seller's delivery of unsigned copies of this
------------
Agreement is solely for the purposes of review by Buyer, and neither the
delivery nor any prior communications between Buyer and Seller, whether
oral or written, shall in any way be construed as an offer by Seller, nor
in any way imply that Seller is under any obligation to enter the
transaction which is the subject of this Agreement. The signing of this
Agreement by Buyer constitutes an offer which shall not be deemed accepted
by Seller unless and until Seller has signed this Agreement and delivered a
duplicate original to Buyer.
15.12 TIME OF ESSENCE. Time is expressly made of the essence as to
---------------
the performance of each and every obligation and condition of this
Agreement.
15.13 POSSESSION OF PROPERTY. Buyer shall be entitled to possession
----------------------
of the Property only after the Closing and not before.
25
<PAGE>
15.14 COUNTERPARTS. This Agreement may be signed in multiple
------------
counterparts which shall, when signed by all parties, constitute a binding
agreement.
15.15 EXHIBITS INCORPORATED BY REFERENCE. All exhibits attached to
----------------------------------
this Agreement are incorporated in this Agreement by this reference.
15.16 COMPUTATION OF TIME. The time in which any act is to be done
-------------------
under this Agreement is computed by excluding the first day (such as the
Effective Date), and including the last day, unless the last day is a
holiday or Saturday or Sunday, and then that day is also excluded. All
references to time shall be deemed to refer to California time.
15.17 JOINT AND SEVERAL LIABILITY. If Buyer is composed of more than
---------------------------
one individual or entity, all obligations and liabilities of Buyer under
this Agreement shall be joint and several as to each of those individuals
or entities who compose Buyer.
15.18 BUYER'S WORK PRODUCT CONCERNING THE PROPERTY. If for any reason
--------------------------------------------
(other than a breach or default by Seller) Buyer fails to purchase the
Property, Buyer shall promptly deliver to Seller, at no cost or expense to
Seller, and without representation or warranty as to sufficiency, accuracy,
completeness, validity, truthfulness, enforceability or assignability, all
test results, studies, plans, reports or other materials or work product
prepared by Buyer, or its agents, employees or contractors, related to the
Property ("Work Product"). Work Product shall not include any financial
projections, internal memoranda or attorney-client privileged documents.
Buyer's obligation hereunder shall survive termination of the Agreement.
Following delivery, Seller may use this Work Product for any purpose.
15.19 NO OBLIGATIONS TO THIRD PARTIES. The execution and delivery of
-------------------------------
this Agreement shall not be deemed to confer any rights upon, nor obligate
any of the parties to this Agreement to, and person or entity other than
Seller and Buyer. There are not any third party beneficiaries to this
Agreement.
15.20 SURVIVAL OF COVENANTS. The covenants, agreements, indemnitees,
---------------------
representations and warranties of Buyer and Seller shall survive the Close
of Escrow and termination of this Agreement.
16. SPECIAL COVENANTS OF SELLER. Between the Effective Date and the
---------------------------
Closing Date, Seller covenants and agrees that Seller shall (a) maintain the
Property in the manner that Seller is currently maintaining the Property, at
Seller's cost and expense (except as otherwise provided in this Agreement),
reasonable wear and tear accepted; (b) not enter into any contracts or
agreements to sell the Property or which will be binding upon the Property after
the Closing, except as otherwise permitted under this Agreement; (c) not
transfer the Property nor
26
<PAGE>
execute or consent to the execution of any Lease or other agreement granting
third party rights to occupancy or possession of any portion of the Property,
except that (i) during the period between the Effective Date and the expiration
of the Due Diligence Period, Seller may continue to lease the Property in the
same manner as it had done prior to the Effective Date and shall promptly give
Buyer written notice of any such Leases entered into by Seller, and (ii) after
the expiration of the Due Diligence Period, Seller shall not execute any Lease
or modify, extend or terminate any Lease without the prior written consent of
Buyer, which consent shall not be unreasonably withheld or delayed, (d) not
encumber the Property or create any new exception to title affecting the
Property, without Buyer's consent; (e) deliver to Buyer each and every material
notice or communication Seller receives in writing from any governmental
authority pertaining to the ownership of the Property, promptly following
Seller's actual receipt of the same; and (f) fully perform the material
obligations of the lessor under the Leases and promptly notify Buyer of any and
all defaults of which Seller has actual knowledge of by the tenants under the
Leases.
17. EXISTING LEASE. Nothing contained in this Agreement is intended to, or
--------------
shall, affect or impair any rights which Buyer may have, as a tenant, under its
existing lease of space in the Building.
SELLER: BUYER:
TR BRELL CAL CORP., E-TEK DYNAMICS, INC., a
an Illinois corporation California corporation
By: /s/ [SIGNATURE] By: /s/ Theresa Pan
------------------------------- -------------------------------
Title: Title: President
------------------------- ----------------------------
Name: Name: Theresa Pan
-------------------------- -----------------------------
Date of Seller's signature: Date of Buyer's signature:
____________________, 1996 8/28, 1996
27
<PAGE>
EXHIBIT A
---------
LEGAL DESCRIPTION OF LAND
-------------------------
The land referred to below situated in the County of Santa Clara, State of
California and described as follows:
Parcel A, as shown on Parcel Map filed January 15, 1982 in Book 495 of
Maps, at Pages 3 and 4, Santa Clara County Records.
Assessor's Parcel No. 244-19-017
A-1
<PAGE>
EXHIBIT 10.19
PURCHASE AND SALE AGREEMENT
AND ESCROW INSTRUCTIONS
To: Santa Clara Land Title Company Dated: July 11, 1997
701 Miller Street ("Effective Date")
San Jose, CA 95110
Attn: Liz Zankich Escrow No. _________
NEXUS PROPERTIES, INC., a California corporation ("Seller") has the
contractual right to acquire certain unimproved real property located in the
City of San Jose, County of Santa Clara, State of California, located on
Ringwood Court (APN 244-19-029), and more particularly described in Exhibit A
---------
attached hereto and made a part hereof (the "Property"). The Property is
comprised of approximately four and seven hundred forty-one thousandths (4.741)
acres.
E-TEK DYNAMICS, INC., a California corporation ("Buyer"), desires to
purchase the Property from Seller, and Seller desires to sell the Property to
Buyer following the acquisition by Seller of title to the Property, all upon the
following terms and conditions.
This Purchase and Sale Agreement and Escrow Instructions ("Agreement")
nominates you as escrow holder ("Escrow Holder") and constitutes an agreement by
which Seller agrees to sell, and Buyer agrees to buy, the Property described
above.
ARTICLE 1
DEPOSITS
--------
1.1 Deposit.
-------
1.1.1 Initial Deposit. Within three (3) days following the
---------------
Effective Date, Buyer shall deliver to Escrow Holder, together with a fully
executed copy of this Agreement, the sum of Twenty-five Thousand Dollars
($25,000) (the "Initial Deposit") as a deposit on account of the Purchase Price
(defined in Section 2.1). The Initial Deposit shall be placed by Escrow Holder
in an interest-bearing account for the benefit of Buyer.
1.1.2 Second Deposit. Following the satisfaction or waiver by
--------------
Buyer in writing of the conditions set forth in Sections 3.1.1 and 3.1.2 below,
(which shall occur on or before July 21, 1997), Buyer shall deliver to Escrow
Holder the additional sum of Seventy-five Thousand Dollars ($75,000) (the
"Second Deposit"), as an additional deposit on account of the Purchase Price.
The Second Deposit shall be placed by Escrow Holder in an interest bearing
account for the benefit of Buyer. The Initial Deposit and the Second Deposit are
collectively referred to as the "Deposit". After Buyer makes the Second Deposit,
the Deposit (and all interest earned thereon while in escrow) shall be non-
refundable to Buyer (except as otherwise provided
-1-
<PAGE>
in Section 3.2) but applicable to the Purchase Price at the close of escrow
hereunder (as defined in Section 6.1.1).
1.2 Liquidated Damages. BUYER AND SELLER AGREE THAT SELLER'S ECONOMIC
------------------
DETRIMENT RESULTING FROM THE REMOVAL OF THE PROPERTY FROM THE REAL ESTATE MARKET
FOR THE ESCROW PERIOD AND ANY CARRYING AND OTHER COSTS INCURRED AFTER THE
REMOVAL OF THE PROPERTY FROM THE REAL ESTATE MARKET ARE IMPRACTICABLE OR
EXTREMELY DIFFICULT TO ASCERTAIN. BUYER AND SELLER AGREE THAT THE AMOUNT OF THE
DEPOSIT IS A REASONABLE ESTIMATE OF THE DAMAGES THAT WILL BE INCURRED BY SELLER
IN THE EVENT ESCROW FAILS TO CLOSE ON THE PROPERTY AFTER BUYER MAKES THE SECOND
DEPOSIT AND THIS AGREEMENT TERMINATES AS A RESULT OF A MATERIAL BREACH OR
DEFAULT OF THIS AGREEMENT BY BUYER. BUYER AGREES THAT IN THE EVENT OF A MATERIAL
BREACH OR DEFAULT BY BUYER AND TERMINATION OF THIS AGREEMENT AS A RESULT
THEREBY, SELLER SHALL BE ENTITLED TO RETAIN THE DEPOSIT AS LIQUIDATED DAMAGES
AND NOT AS A PENALTY. SELLER HEREBY WAIVES THE REMEDY OF SPECIFIC PERFORMANCE
WITH RESPECT TO ANY DEFAULT BY BUYER OF ITS OBLIGATION TO PURCHASE THE PROPERTY
AND AGREES THAT THE LIQUIDATED DAMAGES SET FORTH HEREIN SHALL BE SELLER'S SOLE
REMEDY IN THE EVENT BUYER MATERIALLY BREACHES OR DEFAULTS HEREUNDER AND THIS
AGREEMENT TERMINATES AS A RESULT THEREBY. BY INITIALING THIS SECTION 1.2 BELOW,
BUYER AND SELLER AGREE TO THE TERMS OF THIS SECTION 1.2.
SELLER'S INITIALS: /s/ Signature BUYER'S INITIALS: /s/ Signature
ARTICLE 2
PURCHASE PRICE
--------------
2.1 Purchase Price. The purchase price for the Property ("Purchase Price")
--------------
shall be the sum of Three Million Fifty Thousand Dollars ($3,050,000).
2.2 Payment. The Purchase Price referred to in Section 2.1 shall be
-------
payable in cash by Buyer to Seller at the close of escrow hereunder. Buyer shall
deposit such balance of the Purchase Price into escrow not later than two (2)
days prior to the scheduled close of escrow hereunder. The Deposit shall be
credited against the Purchase Price at the close of escrow.
ARTICLE 3
CONDITIONS OF ESCROW
--------------------
3.1 Buyer's Condition to Closing. The close of escrow on the Property and
----------------------------
Buyer's obligation under this Agreement to purchase the Property shall be
subject to the satisfaction, at or prior to the time stated herein, of the
following conditions, with Buyer to retain the right to waive
-2-
<PAGE>
in writing, in whole or in part, any of the following conditions at or prior to
the time stated herein for satisfaction of such conditions or for approval or
disapproval by Buyer:
3.1.1 Preliminary Title Report. Concurrently with the execution of
------------------------
this Agreement, Seller shall deliver, or cause to be delivered, to Buyer a
current preliminary title report (the "Title Report") from Escrow Holder and all
underlying title documents referenced in such Title Report showing the state of
the title of the Property. Buyer shall have until the expiration of the
Feasibility Period (defined in Section 3.1.2) to notify Seller, in writing, of
Buyer's objection to any exceptions contained in the Title Report and/or any
other rights, interests or matters not shown of record but which are discovered
by Buyer as a result of a survey, inspection or inquiry (hereinafter referred to
as "Title Defects"). Upon receipt of such notification, Seller shall have five
(5) calendar days within which to elect, by written notice to Buyer, to remove
or delete from the title to be conveyed to Buyer any Title Defects objected to
by Buyer. If Seller so elects to cure such Title Defects, the same shall be
cured by Seller, at its expense, prior to the close of escrow and such Title
Defects shall not constitute Approved Exceptions (defined below). If Seller does
not elect or is unable to cure such Title Defects, Seller shall notify Buyer
thereof in writing within said five (5) day period, and Buyer may elect within
five (5) calendar days of receipt of Seller's notice to either waive its
objections and proceed with the purchase of the Property pursuant to the terms
of this Agreement or terminate this Agreement and all of its obligations. In the
event Buyer elects to terminate this Agreement as provided in the immediately
preceding sentence, then all rights and obligations hereunder shall cease and
Buyer shall be entitled to the return of the Deposit (and all interest accrued
on the Deposit while in escrow). For purposes of this Agreement, the term
"Approved Exceptions" shall mean those title exceptions applicable to the
Property, accepted by Buyer in accordance with the terms of this Section 3.1.1.
3.1.2 Feasibility Study. Subject to extension as provided in this
-----------------
Section 3.1.2, Buyer shall have until 5:00 p.m. on July 21, 1997 (the
"Feasibility Period") (i) to conduct such studies or investigations of the
Property (including, without limitation, land use designation and zoning studies
and environmental or other physical testing) or matters pertaining thereto as
Buyer may deem appropriate to ascertain whether the Property is suited to
Buyer's intended purposes, including any studies or investigations necessary to
ascertain the likelihood of obtaining such governmental approvals as may be
necessary to enable Buyer to develop the Property for its intended purposes;
(ii) to review the Property Documents (defined in Article 4); and (iii) to
determine in Buyer's sole discretion whether the development of the Property is
economically feasible, and to deliver to Seller and Escrow Holder its written
notice of approval or disapproval of the feasibility of the Property. If Buyer
does not give Seller and Escrow Holder written notice of disapproval on or
before the expiration of the Feasibility Period, then this condition shall be
deemed approved.
For purposes of this Section 3.1.2 and Section 3.1.1 above, the date of
Buyer's receipt of the Property Documents and the Title Report and underlying
title documents shall be evidenced by a written receipt, signed and dated by
Buyer. If Seller has not caused the Title Report and underlying title documents
or the Property Documents to be delivered to Buyer concurrently with the
execution of this Agreement, then the Feasibility Period shall be extended by
one (1) day for each
-3-
<PAGE>
day of delay in delivering the Title Report and underlying title documents or
the Property Documents.
3.1.3 Environmental Condition of Property. As of the close of escrow
------------------------------------
on the Property, the Property shall be free of all hazardous or toxic materials
that could inhibit or impair development of the Property, which materials were
not disclosed in the Property Documents, and the existence of which was
discovered after the expiration of the Feasibility Period. Nothing stated herein
shall obligate Buyer to clean up or remediate any hazardous or toxic materials
that may exist on, in or under the Property as of the Effective Date or prior to
the close of escrow hereunder.
3.1.4 Title Policy. At the close of escrow on the Property, Escrow
------------
Holder shall be willing and prepared to issue to Buyer a CLTA standard form
owner's policy of title insurance (or, if Buyer so elects and Buyer has obtained
a survey, if necessary, an ALTA owner's extended coverage policy of title
insurance) in the amount of the Purchase Price to be paid by Buyer to Seller
insuring Buyer's (or its designee's) fee title to the Property, subject only to
current, non-delinquent real property taxes and assessments and the Approved
Exceptions. The preceding notwithstanding, the close of escrow shall not be
extended in the event Buyer is unable to obtain a survey prior to the date
scheduled for close of escrow. In such event, Buyer will accept a CLTA form of
policy.
Prior to the close of escrow, Seller shall not, without the prior written
consent of Buyer, create any encumbrance or lien upon the Property, or originate
or cause any assessments to be charged against the Property.
3.1.5 Performance by Seller. Seller shall have performed, observed
---------------------
and complied with all of the material covenants, agreements, and conditions
required by this Agreement covering the Property to be performed, observed and
complied with by it. In addition, the representations and warranties of Seller
set forth in Section 7.1 of this Agreement, shall be true and correct as of the
close of escrow.
3.2 Failure of Buyer's Conditions to Close of Escrow. If any of the
------------------------------------------------
conditions in Sections 3.1.1 or 3.1.2 are not satisfied or waived by Buyer in
writing at or prior to the time prescribed herein, then Buyer may terminate this
Agreement by written notice to Seller and, in such event, Buyer shall be
entitled to the return of the Deposit and all interest accrued on the Deposit
while in escrow.
If, following satisfaction of the conditions set forth in Sections 3.1.1
and 3.1.2 above, any of the conditions described in Sections 3.1.3, 3.1.4 or
3.1.5 are not satisfied or waived in writing by Buyer prior to the close of
escrow, then, in addition to any other rights or remedies available to Buyer at
law or in equity (including, without limitation, specific performance), Buyer
shall be entitled to the return of the Deposit and the interest accrued on the
Deposit while in escrow and, if any condition set forth in Section 3.1.3, 3.1.4
or 3.1.5 is not satisfied as a result of a breach or default by Seller or any of
its agents, employees, contractors or other representatives, then Seller shall
reimburse Buyer for all reasonable out-of-pocket expenses paid or incurred by
Buyer to third
-4-
<PAGE>
parties in connection with this transaction, including, without limitation, all
due diligence expenses, costs of environmental assessments and reports issued or
prepared in connection therewith, architectural and engineering fees and costs,
and reasonable attorney's fees.
ARTICLE 4
PROPERTY DOCUMENTS
------------------
Concurrently with the execution of this Agreement (i.e., on the Effective
Date), Seller shall deliver to Buyer, at no cost to Buyer, copies of all
documents in Seller's possession or control related to the Property, including,
without limitation, those documents, records, maps, building plans, reports or
agreements described below (collectively, the "Property Documents"). The
Property Documents shall include, without limitation, a topographical survey, a
soils report, and an environmental assessment report. Seller shall deliver to
Buyer any additional documents or information described in this Article 4 which
come into Seller's possession after the Effective Date and during the escrow
period:
(i) All surveys (including any ALTA surveys), geologic, soils,
groundwater and environmental assessments and/or toxic reports and engineers'
and consultants' plans, grading plans, reports and studies which Seller may have
prepared or caused to be prepared relating to the Property, or any portion
thereof;
(ii) All agreements, plans and specifications, and as-built
drawings, including any amendments thereto, if any, entered into and/or prepared
by Seller for the construction of any public improvements on or adjacent to the
Property, or any portion thereof;
(iii) All development agreements, design guidelines, permits,
approvals, commitments or memoranda of understanding, including any amendments
thereto, issued to or entered into by Seller with any governmental entity
relating to the development of the Property and all approvals, either interim or
final, of the planning commission or the city council of the City of San Jose
and the submissions or applications of Seller to said City, commission or
council with respect to such approvals and all correspondence relating thereto;
and
(iv) Copies of the real property tax bills for the two (2)
immediately preceding tax fiscal years.
ARTICLE 5
RIGHT OF ENTRY
--------------
From the Effective Date and throughout the escrow period, Buyer and its
designated agents, employees, consultants and representatives shall be granted a
right of entry on the Property to perform such soil, groundwater, engineering
and geological tests, environmental and architectural studies, and other
physical inspections and to make such other reports as Buyer shall deem
appropriate and for any other purpose related to Buyer's investigation or
proposed development of the Property; provided, however, that Buyer shall repair
any damage to the Property caused by Buyer's entry and activities thereon and
shall remove or cause to be bonded
-5-
<PAGE>
any mechanic's or materialman's liens arising out of Buyer's performance of any
work of improvement upon the Property. Buyer shall notify Seller prior to any
entry by Buyer onto the Property, and prior to performing any physical testing
of the Property. Buyer shall indemnify and hold Seller harmless from any lien,
loss, claim, liability, or expense, including attorneys' fees and costs, arising
out of Buyer's activities on the Property; provided, however, that Buyer shall
have no liability to Seller for any lien, loss, claim, liability or expense
arising as a result of Buyer discovering any Hazardous Materials (defined below)
in, on or under the Property in connection with its investigation of the
Property.
ARTICLE 6
ESCROW AND ESCROW CLOSING; PRORATIONS; COSTS
--------------------------------------------
6.1 Close of Escrow. Escrow shall close on the Property, subject to
---------------
satisfaction or waiver in writing by Buyer of the conditions set forth in
Section 3.1, on or before August 6, 1997. The close of escrow on the Property
(or closing of escrow) shall mean the recordation of the grant deed describing
the Property as described in Section 6.4 below.
6.2 Deed and Payment. Seller shall deposit with Escrow Holder prior to the
----------------
close of escrow, a grant deed ("Grant Deed") in the standard form of Escrow
Holder, incorporating the legal description of the Property, and properly
executed and acknowledged by Seller. The parties hereto shall instruct Escrow
Holder to deliver to Seller the Purchase Price when (1) Escrow Holder holds for
Buyer, and is able to record, the Grant Deed describing the Property; (2) Escrow
Holder is prepared to issue to Buyer a policy of title insurance applicable to
the Property as described in Section 6.3; and (3) the conditions of Buyer's
obligation to close escrow on the Property as specified in Section 3.1 have been
either satisfied or waived by Buyer in writing. At or prior to the close of
escrow, and as a condition thereto, Seller shall execute and deposit in escrow
for delivery to Escrow Holder and Buyer a Seller's affidavit meeting the
requirements of Internal Revenue Code Section 1445(b)(2), certifying that Seller
is not a "foreign person" within the meaning of Internal Revenue Code Section
1445(f)(3). At or prior to the close of escrow, Seller shall also execute a
California Withholding Exemption Certificate (Form 590) indicating Buyer is not
required to withhold any portion of the Purchase Price.
6.3 Title Insurance. The parties hereto shall instruct Escrow Holder to
---------------
provide to Buyer, at Seller's expense, at the close of escrow on the Property, a
CLTA standard form owner's policy of title insurance (or at Buyer's election, an
ALTA extended coverage owner's policy provided Buyer pays the excess premium
associated with such ALTA extended coverage and the cost of any survey required
to enable the Escrow Holder to issue such insurance) in the aggregate amount of
the Purchase Price to be paid under this Agreement, showing fee title to the
Property vested in Buyer (or Buyer's designee) subject only to the following
exceptions: (1) non-delinquent real property taxes and assessments; (2) the
Approved Exceptions; (3) any other such exceptions to title as are approved by
Buyer in writing; and (4) the standard printed exclusions from coverage in a
CLTA standard form owner's, or an ALTA extended coverage owner's, policy of
title insurance. Seller shall reasonably cooperate with Buyer to try to cause
Escrow
-6-
<PAGE>
Holder to eliminate the creditor's rights exclusion for Buyer's title insurance
coverage, at no cost to Seller.
6.4 Recordation and Delivery. At the close of escrow on the Property, the
------------------------
parties hereto shall instruct Escrow Holder to forward the Grant Deed describing
the Property to the County recorder for recordation and to deliver the policy of
title insurance and all tax statements to Buyer at the address set forth in
Article 8. Escrow Holder shall be instructed to request the County recorder not
to affix the amount of documentary transfer taxes on the Grant Deed but on a
separate statement to be attached to the Grant Deed after recording.
6.5 Prorations. The parties hereto shall instruct Escrow Holder to prorate
----------
between Buyer and Seller at close of escrow the non-delinquent installments of
city and county real property taxes covering the Property.
6.6 Costs. At the close of escrow hereunder, Seller shall pay all County
-----
transfer and conveyance taxes associated with the conveyance of the Property
from Seller to Buyer, and the cost of the title insurance premium for the CLTA
policy of title insurance described in Section 6.3 above. Seller and Buyer shall
each pay one-half (1/2) of the City transfer tax. All other charges or costs
incurred by the parties in connection with the close of escrow hereunder
including, without limitation, escrow fees, recording charges, and document
preparation fees, shall be allocated to such party as is customary in Santa
Clara County. Each party shall bear its own attorney's fees incurred in
connection with the subject transaction.
ARTICLE 7
REPRESENTATIONS AND WARRANTIES
------------------------------
7.1 Seller's Representations and Warranties. Seller makes the following
---------------------------------------
representations and warranties, which are true as of the date hereof and shall
be true as of the close of escrow hereunder:
7.1.1 Seller's Acquisition of the Property. Seller has the
------------------------------------
contractual right to acquire the Property pursuant to a written agreement with
the owner of fee title to the Property (the "Acquisition Agreement"), which
right to acquire is unconditional on the part of the Seller under the
Acquisition Agreement. There are no conditions to be fulfilled by Seller as
conditions precedent to Seller's right to acquire the Property which conditions
cannot be fulfilled on or before the date on which close of escrow under this
Agreement is expected to occur. Seller shall use its diligent efforts to perform
any and all obligations of Seller under the Acquisition Agreement and, subject
to the satisfaction or waiver by Buyer of the conditions set forth in Sections
3.1.1 and 3.1.2, Seller shall acquire the Property on or before the date
scheduled for close of escrow hereunder.
7.1.2 Hazardous Materials. Except for certain herbicides and
-------------------
pesticides described in the environmental assessment report delivered to Buyer
with the Property Documents, to the best of Seller's knowledge, based on said
environmental assessment report, no Hazardous Materials (as defined below) exist
in, on or under the Property in violation of
-7-
<PAGE>
applicable environmental laws, rules or regulations. For purposes of this
Agreement, Hazardous Materials shall mean any substance, water or material which
has been determined or is hereafter determined by any state, federal or local
government authority to be capable of posing a risk of injury to health, safety
and/or property, including, but not limited to, all of those materials, wastes
and substances defined as "hazardous substances," "hazardous materials," or
"toxic substances" in the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq.; the
------
Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq.; the
------
Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq.; and
------
those substances defined as "hazardous wastes" in Section 25117 of the
California Health & Safety Codes or as "hazardous substances" in Section 25316
of the California Health & Safety Code; in the regulations adopted and
publications promulgated pursuant to such laws including Sections 66680 through
66685 of Title 22 of the California Administrative Code, Division 4, Chapter 30;
and in the Hazardous Materials storage, use or discharge ordinances of the
County of Santa Clara, if any.
7.1.3 Obligations Imposed on Buyer. To the best of Seller's
----------------------------
knowledge, no representation or commitment has been made to any governmental
authority, utility company, or school district relating to any portion of the
Property, which would impose an obligation upon Buyer (i) to make any
contributions or dedications of money or land, (ii) to construct, install, or
maintain any improvements of a public or private nature on or off the Property,
or (iii) to limit or restrict the construction of improvements on the Property
to specific plans.
7.1.4 Notice of Interest in Property. No notice has been given to
------------------------------
Seller of any threatened or pending action to establish an ownership or
beneficial interest in the Property or of any proceedings which may result in
the issuance of such notice, and Seller is aware of no such notice or
proceedings.
7.1.5 Public Improvement Charges. To the best of Seller's knowledge,
--------------------------
there are no public improvements required or planned by any governmental agency
having jurisdiction of the Property which will result in any charge being levied
or assessed against the Property.
7.1.6 Legal Actions Affecting the Property. To the best of Seller's
------------------------------------
knowledge, there are no existing claims, suits, actions, or legal proceedings
pending or, threatened which affect the Property or Seller's ability to perform
its obligations hereunder.
7.1.7 Liens and Encumbrances. To the best of Seller's knowledge,
-----------------------
based upon the due diligence review undertaken by Seller pursuant to the
Acquisition Agreement, there are no liens, encumbrances or other title matters
affecting the Property other than those title exceptions identified on the Title
Report referred to in Section 3.1.1 above.
7.1.8 Delivery of Reports. Seller has delivered to Buyer all of the
--------------------
reports, studies and documents and agreements in its possession or control or of
which it is aware, dealing with or related to Hazardous Materials on, in or
under the Property.
-8-
<PAGE>
7.2 Validity Through Close of Escrow. Seller shall promptly advise Buyer
--------------------------------
if Seller acquires any information which would affect the continued validity of
the representations and warranties set forth in this Article 7. If any of said
representations and warranties of Seller set forth in this Article 7 shall not
be true and correct at the time the same is made or as of the close of escrow
hereunder, and upon written notice from Buyer to Seller on or prior to such
close of escrow, this Agreement shall terminate at Buyer's election (except with
respect to any rights, obligations, or liabilities arising out of any breach of
this Agreement by either party hereto) and, in addition to any other remedies to
which Buyer may be entitled, the Deposit and the interest accrued on the Deposit
while in escrow shall be immediately returned to Buyer. The representations and
warranties set forth in this Article 7 shall not survive the close of escrow
hereunder.
ARTICLE 8
NOTICES
-------
All notices called for pursuant to these instructions shall be given in
writing by personal delivery, in writing, by overnight private courier,
facsimile or by United States mail, postage prepaid, return receipt requested.
Overnight couriered notices shall be deemed received the next business day
following delivery to the private courier. Facsimile notices shall be deemed
received on the date sent (provided confirmation of receipt is received by the
party transmitting such notice and such notice is also sent on that same date by
any of the other means set forth herein). Any notice given by regular United
States mail shall be deemed given three (3) business days after the time such
notice was deposited in the United States mail. Mailed or couriered notices
shall be addressed as set forth below, but either party may change its address
by giving written notice thereof to the other in accordance with the provisions
of this Article.
To Seller: Nexus Properties, Inc.
1740 Technology Drive, Suite 315
San Jose, CA 95110
Attn: R. Darrell Gary
Fax No.: (408) 441-1208
To Buyer: E-TEK Dynamics, Inc.
1885 Lundy Avenue
San Jose, CA 95131
Attn: Matthew J. Lucero, Esq.
Fax No.: (408) 432-8550
To Escrow Holder: Santa Clara Land Title Company
701 Miller Street
San Jose, CA. 95110
Attn: Liz Zankich
Fax No.: (408) 275-0824
-9-
<PAGE>
ARTICLE 9
BROKER'S COMMISSIONS
--------------------
Seller and Buyer each represent and warrant to the other that it has not
dealt with any real estate broker, agent or salesperson other than CPS, The
Commercial Property Services Company ("Broker"), in connection with this
transaction. Seller agrees to pay to Broker upon the close of escrow hereunder a
real estate brokerage commission pursuant to a separate written agreement
between Seller and Broker. Subject to the foregoing, each party shall indemnify,
defend and hold harmless the other on account of any claims, demands, causes of
action, or judgments respecting payment of any sales commission, brokerage
commission or finder's fee, including attorneys' fees and court costs, arising
from or brought by any third party (other than Broker) who has dealt or claims
to have dealt with such indemnifying party pertaining to the Property. This
obligation to indemnify, defend and hold harmless shall survive the close of
escrow.
ARTICLE 10
GENERAL ESCROW INSTRUCTIONS
---------------------------
Except as otherwise expressly provided herein and in lieu of the general
provisions of Escrow Holder's standard form instructions, the following shall
apply:
10.1 Deposit of Funds. All funds received in this escrow shall be
----------------
deposited with other escrow funds in a general escrow account or accounts of
Escrow Holder, with any state or national bank, and may be transferred to any
other general escrow account or accounts. All disbursements shall be made by
check of Escrow Holder.
10.2 Prorations and Adjustments. All prorations and/or adjustments called
--------------------------
for in this escrow are to be made on the basis of a thirty (30) day month.
10.3 Transaction Reporting. Escrow Holder is instructed to report this
---------------------
transaction on Form 1099 pursuant to Section 6045 of the Internal Revenue Code
as amended by the Tax Reform Act of 1986.
ARTICLE 11
GENERAL PROVISIONS
------------------
As a part of this Agreement between Buyer and Seller with which you, as
Escrow Holder, need not be concerned, Buyer and Seller further agree as follows:
11.1 Possession. Buyer shall be entitled to possession of the Property
----------
(free and clear of all tenancies and rights of occupancy by third parties) on
the close of escrow.
11.2 Merger. All negotiations and agreements, oral or written, heretofore
-------
had by and between the parties and their agents with respect to this transaction
are merged into this Agreement, which completely sets forth the obligations of
the parties.
-10-
<PAGE>
11.3 Attorneys' Fees. In the event either party brings an action at law or
---------------
in equity to enforce, interpret or redress the breach of this Agreement, the
prevailing party in such action shall be entitled to its litigation expenses and
reasonable attorneys' fees incurred in addition to all other relief as may be
allowed by law. "Prevailing party" within the meaning of this section shall
include, without limitation, a party who brings an action, which action is
dismissed after the other party's payment of the sum allegedly due or
performance of the covenant allegedly breached or if the party obtains
substantially the relief sought by it in the action.
11.4 Amendment. This Agreement may be amended only by a writing signed by
---------
each of the parties hereto.
11.5 Counterpart. This Agreement may be executed in counterparts, each of
-----------
which shall be an original, but all of which shall constitute one instrument.
11.6 Assignment. This Agreement may not be assigned by Buyer.
----------
11.7 Successors. All terms and provisions of this Agreement shall be
----------
binding upon and shall inure to the benefit of, and be enforceable by, the
parties hereto and the respective permitted assigns and successors of Seller and
Buyer.
11.8 Captions. The captions and headings in this Agreement are for
--------
reference and convenience only and shall not limit or expand the meaning of the
provisions of this Agreement.
11.9 Governing Law. This Agreement shall be governed by the laws of the
-------------
State of California.
11.10 Exhibits. All exhibits attached hereto are incorporated herein by
--------
reference.
-11-
<PAGE>
11.11 Interpretation of Agreement. The parties hereto acknowledge and
---------------------------
agree that, although this Agreement has been drafted by Buyer's legal counsel,
Seller and/or its legal counsel have negotiated, or had an opportunity to
negotiate, the terms of this Agreement. Consequently, the doctrine that
ambiguities in an agreement should be resolved against the drafting party shall
not be employed in connection with this Agreement and this Agreement shall be
interpreted in accordance with its fair meaning.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
SELLER:
NEXUS PROPERTIES, INC.,
a California corporation
By: /s/ R. Darrell Gary
----------------------------
R. Darrell Gary
Its: President
By: ___________________________
___________________________
Its: ___________________________
BUYER:
E-TEK DYNAMICS, INC.,
a California corporation
By: /s/ Theresa Stone Pan
----------------------------
Theresa Stone Pan
----------------------------
Its: President
By: ___________________________
___________________________
Its: ___________________________
-12-
<PAGE>
Instructions accepted this 14th day of July, 1997.
SANTA CLARA LAND TITLE COMPANY
By: /s/ Donear Enyll
---------------------------
Donear Enyll
---------------------------
Its: President
--------------------------
-13-
<PAGE>
Page No. 4
File No. 00123213-B
EXHIBIT A
LEGAL DESCRIPTION
All that certain real property situate in the City of San Jose, County of Santa
Clara, State of California, described as follows:
Parcel 1, as shown on that Parcel Map filed for record in the office of the
Recorder of the County of Santa Clara, state of California on May 11, 1983, in
Book 512 of Maps, page(s) 18.
EXCEPTING THERFROM the underground water or rights thereto, with no right of
surface entry, as granted to San Jose Water Works, a California corporation by
instrument recorded May 23, 1983 in Book H 575, page 321, Official Records.
ARB NO: -0-
APN NO: 244-19-029
<PAGE>
EXHIBIT 10.20
[LOGO]
BANK OF AMERICA STANDING LOAN AGREEMENT
================================================================================
This Standing Loan Agreement (the "Agreement"), dated as of November 8,
1996, is between E-TEK DYNAMICS, INC., a California corporation ("Borrower") and
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION ("Bank").
AGREEMENT
- ---------
1. LOAN TERMS.
----------
1.1 AMOUNT AND PURPOSE.
-------------------
Bank will make a loan to Borrower in the principal amount of SEVEN MILLION
SEVEN HUNDRED THOUSAND AND NO/100 Dollars ($7,700,000.00), (the "Loan") to be
used for acquisition of real property.
The Loan will be evidenced by a promissory note (the "Note") payable to
Bank in the original principal amount of the Loan and will be secured by a Deed
of Trust With Assignment of Rents, Security Agreement and Fixture Filing (the
"Deed of Trust") covering certain improved real property commonly known as 1865,
1875 and 1885 Lundy Avenue, San Jose, California 95131 and more particularly
described on Exhibit A attached to the Deed of Trust (the "Real Property") (the
Real Property together with all buildings, structures and other improvements now
or hereafter located thereon (the "Improvements"), and the personal property
described in the Deed of Trust and defined therein and herein as "Personalty",
being hereinafter collectively referred to as the "Property").
1.2 ADDITIONAL CREDIT SUPPORT. THERESA STONE PAN and JING JONG PAN
-------------------------
(collectively, "Guarantors") will guaranty Borrower's obligations under this
Agreement pursuant to a Payment Guaranty of even date herewith (collectively,
the "Guaranties").
1.3 DOCUMENTATION. At or prior to the closing of this transaction, Borrower
-------------
must deliver the following documents and other items, executed and acknowledged
as appropriate, all in form and substance satisfactory to Bank: (a) this
Agreement; (b) the Note; (c) the Deed of Trust; (d) a UCC-1 Financing Statement
perfecting a first-position lien on all personal property collateral that is
perfected by filing; (e) the Guaranties, if any; (f) an ALTA title insurance
policy insuring Bank that the Deed of Trust constitutes a valid and enforceable
lien on the Property subject and subordinate only to such liens or other matters
as Bank has approved in writing; (g) if requested, an ALTA/ASCM survey of the
Real Property and the improvements thereon certified to Bank; (h) if the Deed of
Trust is to be junior to any other lien or deed of trust on the Property, a
Beneficiary's Statement from the holder of such prior lien or deed of trust; (i)
evidence of the casualty and other insurance coverage as required under this
Agreement or otherwise by Bank in writing; (j) if Borrower is anything other
than a natural person, evidence of Borrower's due formation and good standing,
as well as due authorization and execution of the Loan Documents; (k) if
applicable, non-disturbance, attornment and subordination agreements,
subordination agreements and estoppel certificates from tenants leasing space in
the Property; (l) if the Property is to be leased to third parties, Borrower's
pro forma lease form; (m) a loan fee in the amount of $77,000.00; (n) an
Environmental Questionnaire and Disclosure Statement prepared and certified by
Borrower, and, if Bank requires an environmental survey of the Property prepared
by environmental consultant satisfactory to Bank; and (o) such other documents,
property information and other assurances as Bank may require.
1.4 LOAN DOCUMENTS. This Agreement, the Note, the Deed and Trust, the
--------------
Guaranties, if any, and all other documents evidencing securing or otherwise
pertaining to the Loan are referred to as the "Loan Documents."
1.5 AUTOMATIC DEDUCTION.
-------------------
Borrower agrees that monthly payments on the Note will be deducted
automatically on the due date from checking account number [checking account
number] maintained by Borrower at the Bank (the "Checking Account").
Bank will debit the Checking Account on the dates the payments become due.
If a due date does not fall on a banking day, Bank will debit the Checking
Account on the first banking day following the due date.
Borrower will maintain the Checking Account in good standing with Bank
throughout the term of the Loan, and maintain sufficient funds in the Checking
Account on the dates Bank enters debits authorized by this Agreement. If there
are insufficient funds in the Checking Account on the date Bank enters any debit
authorized by this Agreement, without limiting Bank's other remedies in such an
event, the debit will be reversed.
Borrower hereby grants to Bank a security interest in the Checking Account,
and any other accounts from which Borrower may from time to time authorize Bank
to debit payments due on the Loan, for the purpose of securing the payment of
amounts Bank is authorized to deduct from the Checking Account or such other
accounts. The security interest is granted only to the extent of such authorized
deductions, and does not secure any other obligation owed by Borrower to Bank,
whether under this Agreement or otherwise.
1.6 DISBURSEMENT PROCEDURES. Bank will disburse the Loan Proceeds as follows:
-----------------------
(a) First, to Bank, the approximate sum of $75,764.50 which represents
disbursements for the following items:
Loan Fee $ 77,000.00
Documentation Fee $ 1,000.00
Appraisal Fee $ 7,000.00
UCC Filing Fee $ 36.50
Tax Service Contract Fee(s) $ 728.00
Less Prepaid Deposit $(10,000.00)
-----------
TOTAL $ 75,764.50
<PAGE>
(b) Second, if the funding of the Loan proceeds is other than on the first
day of a calendar month, to Bank, all interest then due on the indebtedness
evidenced by, and at the interest rate specified in the Note (and calculated on
an actual 365 day basis) from the date of funding until the first day of the
month following the month in which funding occurred.
(c) Third, to Chicago Title Company, to disburse on behalf of the Borrower
the remaining Loan proceeds to pay for the title policy, endorsements, related
fees and to pay the seller to purchase the Property. In the event the Loan
proceeds are not sufficient to complete the acquisition, Borrower shall pay from
its own funds any remaining amounts required to complete the transaction. In the
event there is an excess of Loan proceeds, said excess shall be immediately
disbursed to Borrower.
2. COVENANTS OF THE BORROWER.
-------------------------
Borrower promises to keep each of the following covenants:
2.1 COMPLIANCE WITH LAW. Borrower will comply with all existing and future
-------------------
laws, regulations, orders, building restrictions and requirements of, and all
permits and approvals from, and agreements with and commitments to, all
governmental, judicial or legal authorities having jurisdiction over the
Property or Borrower's business conducted thereon or therefrom, and with all
restrictive covenants and other title encumbrances encumbering the Property (all
collectively, the "Requirements").
2.2 CONDITIONAL SALES CONTRACTS; REMOVAL OF FIXTURES AND EQUIPMENT: Without
--------------------------------------------------------------
Bank's prior written consent, Borrower must not (i) purchase any materials,
equipment, furnishings or fixtures to be installed on the Property under any
agreement where the seller reserves a lien, security interest or title thereto,
or the right of removal or repossession after such items are installed on the
Property; and (ii) remove or permit to be removed from the Real Property or the
improvements any equipment, machinery or fixtures used in connection with the
management, maintenance, operation or enjoyment thereof unless replaced by
articles of equal suitability and value owned by Borrower free and clear of any
lien or security interest.
2.3 SITE VISITS. Borrower grants Bank, its agents and representatives the right
-----------
to enter and visit the Property at any reasonable time for the purposes of
observing, performing appraisals, inspecting the Property, taking soil or
groundwater samples, and conducting tests, among other things, to investigate
for the presence of Hazardous Substances, as defined in Article IV. Borrower
must also allow Bank to examine, copy and audit its books and records. Bank is
under no duty to visit or observe the Property, or to examine any books or
records. Any site visit, observation or examination by Bank is solely for the
purpose of protecting Bank's security and preserving Bank's rights under the
Loan Documents. Neither Borrower nor any other party is entitled to rely on any
site visit, observation or testing by Bank, its agents or representatives. Bank
owes no duty of care to protect Borrower or any other party against, or to
inform Borrower or any other party of, any adverse condition affecting the
Property, including any defects in the design or construction of any
improvements on the Property or the presence of any Hazardous Substances on the
Property. Bank is not obligated to disclose to Borrower or any other party any
report or findings made as a result of, or in connection with, any site visit,
observation or testing by Bank. Prior to entering the Property, Bank must give
Borrower reasonable notice of its intent to enter. Bank must exercise reasonable
efforts to avoid interfering with Borrower's use of the Property in connection
with the activities permitted under this Section.
2.4 INSURANCE. Borrower must maintain the following insurance:
---------
(a) All risk property damage insurance in non-reporting form on the
Property, with a policy limit in an amount not less than the full insurable
value of the Property on a replacement cost basis, including tenant
improvements, if any. The policy shall include a business interruption (or rent
loss, if more appropriate endorsement, a lender's loss payable endorsement (438
BFU) in favor of Bank, and any other endorsements required by Bank.
(b) Commercial General Liability coverage with such limits as Bank may
require. This policy must name Bank as additional insured. Coverage must be
written on an occurrence basis not claims made.
(c) Such other insurance as Bank may require, which may include (i)
earthquake insurance, if such Insurance is express required as a condition to
disbursement of the Loan proceeds or if any time the Property is situated in a
delineated earthquake fault zone as shown on an earthquake fault zone map
adopted under California Alquist-Priolo Earthquake Fault Zoning Act, or any
successor thereto and (ii) flood insurance, if the Property is situated in an
area designated as "flood prone," "within a flood plain" or similar designation
under federal or state law.
All policies of insurance required by Bank must be issued to companies approved
by Bank and otherwise be acceptable to Bank as to amounts, forms, risk coverages
and deductibles. In addition each policy (except workers' compensation) must
provide Bank at least thirty (30) days' prior notice of cancellation, non-
renewal or modification. If Borrower fails to keep any such coverage in effect
while the Loan is outstanding, Bank may procure the coverage at Borrower's
expense. Borrower must reimburse Bank, on demand, for all premiums advanced by
Bank, which advances are considered to be additional loans to Borrower secured
by the Deed of Trust and bearing interest at the Default Rate provided in the
Note.
2.5 PRESERVATION OF RIGHTS. Borrower must obtain, preserve and maintain in good
----------------------
standing, as applicable, all rights, privileges and franchises necessary or
desirable for the operation of the Property and the conduct of Borrower's
business thereon and therefrom.
2.6 MAINTENANCE AND REPAIR. Borrower must (i) maintain the Property, including
----------------------
the parking and landscaping portions thereof, in good condition and repair, (ii)
promptly make, or cause tenants to make all necessary structural and non-
structural repairs to the Property, and (iii) not demolish, alter, remove or add
to any Improvements, excepting the installation or construction of tenant
improvements in connection with any leases approved in accordance with this
Agreement. Borrower shall pay when due all claims for labor performed and
materials furnished therefor in connection with any improvements or construction
activities.
2.7 PAYMENT OF EXPENSES. Borrower must pay all costs and expenses incurred by
-------------------
in connection with the making, disbursement and administration of the Loan, as
well as any revisions, extensions, renewals or "workouts" of the Loan, and in
the exercise of any of Bank's rights or remedies under this Agreement. Such
costs and expenses include title insurance, recording and escrow charges, fees
for appraisal, environmental services, legal fees and expenses of Bank's counsel
and any other reasonable fees and costs for services, regardless of whether such
services are furnished by Bank's employees or by independent contractors.
Borrower acknowledges that the Loan Fee does not include amounts payable by
Borrower under this section. All such sums incurred by Bank and not immediately
reimbursed by Borrower are considered additional loans to Borrower secured by
the Deed of Trust and bearing interest at the Default Rate provided in the Note.
2.8 FINANCIAL AND OTHER INFORMATION.
-------------------------------
(a) Borrower must provide Bank, without prior request or demand, within
ninety (90) days of the close of Borrower's fiscal year-end, its audited annual
financial statements, including a
<PAGE>
year-end balance sheet and annual profit and loss statement. Additionally,
Borrower shall provide Bank with its company prepared monthly financial
statements within thirty (30) days after month end.
(b) Borrower shall provide Bank with Guarantor's personal annual financial
statements by June 30th of each year, and copies of Guarantor's tax returns, and
any extensions thereof, together with all supporting schedules, within forty-
five (45) days of filing date.
(c) Borrower must also provide an annual operating statement and rent roll
on the Property in form and substance satisfactory to Bank.
(d) On request, Borrower must promptly provide Bank with any other
financial or other information concerning its and each such Guarantor's affairs
and properties as Bank may request.
2.9 NOTICES. Borrower must promptly notify Bank in writing of:
-------
(a) any litigation affecting Borrower, any Guarantor or the Property, and,
if Borrower or any Guarantor is other than a natural person or trust, any
general partner or controlling shareholder or managing member of Borrower or
such Guarantor where the amount claimed is FIVE HUNDRED THOUSAND DOLLARS
($500,000) or more; and
(b) any notice that the Property or Borrower's or Guarantor's business
fails in any respect to comply with any applicable law, regulation or court
order; and
(c) any material adverse change in the physical condition of the Property
or Borrower's or any Guarantor's financial condition or operations or other
circumstance that adversely affects Borrower's intended use of the Property or
Borrower's ability to repay the Loan.
2.10 INDEMNITY. Borrower agrees to indemnify, defend with counsel acceptable to
---------
Bank, and hold Bank harmless from and against all liabilities, claims, actions,
damages, costs and expenses (including all legal fees and expenses of Bank's
counsel) arising out of or resulting from the ownership, operation, or use of
the Property, whether such claims are based on theories of derivative liability,
comparative negligence or otherwise. Notwithstanding anything to the contrary in
any other Loan Document, the provisions of this Section 2.10 are not secured by
the Deed of Trust, and shall survive the termination of this Agreement,
repayment of the Loan and foreclosure of the Deed of Trust or similar
proceedings.
2.11 PERFORMANCE OF ACTS. Upon request by Bank, Borrower must perform all acts
-------------------
may be necessary or advisable to perfect any lien or security interest provided
for in the Loan Documents or to carry out the intent of the Loan Documents.
2.12 NOTICE OF CHANGE. Borrower must give Bank prior written notice of any
----------------
change in:
(a) the location of its place of business or its chief executive office if
it has more than one place of business; and
(b) Borrower's name or business structure. Unless otherwise approved by
Bank in writing, Borrower agrees that all Property that consists of personal
property (other than the books and records) will be located at the Real Property
and that all books and records will be located at Borrower's place of business
or chief executive office if Borrower has more than one place of business.
2.13 NEGATIVE COVENANTS. Without Bank's prior written consent, Borrower must
------------------
not:
(a) engage in any business activities substantially different from
Borrower's present business;
(b) liquidate or dissolve Borrower's business;
(c) lease or dispose of all or a substantial part Borrower's business or
Borrower's assets;
(d) sell any assets for less than fair market price; or
(e) enter into any consolidation, merger, pool, joint venture, syndicate or
other combination.
2.14 KEEPING GUARANTOR INFORMED. Borrower must keep each Guarantor, and any
--------------------------
third party executing the Deed of Trust or an other security instrument securing
the Loan, informed of Borrower financial condition and business operations and
all other circumstances which may affect Borrower's ability to pay or perform
its obligations under the Loan Documents. In addition, Borrower must deliver to
each such person all of the financial information required to be furnished to
Bank hereunder.
3. USE OR LEASING OF THE PROPERTY.
------------------------------
3.1 USE OF THE PROPERTY. Borrower must develop and hold the Property as income
-------------------
property for lease to unaffiliated third parties in accordance with the
provisions of this Article III. The above notwithstanding, Borrower shall occupy
a portion of the Property.
3.2 LEASING. Borrower must use best efforts to keep all spaces on the Property
-------
leased. If requested by Bank, Borrower must submit a pro forma lease for
approval by the Bank. All leases of space must be entered into with bona fide
third party tenants, financially capable of performing their obligations under
the leases, in arms-length transactions at the then current market rate for
comparable space Borrower must perform all obligations of landlord under all
leases and must not accept payment of more than one month's rent in advance from
any tenant.
3.3 DELIVERY OF LEASING INFORMATION AND DOCUMENTS. Borrower must promptly
---------------------------------------------
deliver to Bank such rent rolls, leasing schedules and reports, operating
statements or other leasing information as Bank from time to time may request,
and must promptly notify Bank of any material tenant dispute or material adverse
change in leasing activity on the Property. Borrower must promptly obtain and
deliver to Bank such estoppel certificates and subordination and attornment
agreements from tenants as Bank from time to time may require. In no event is
any approval by Bank of a lease a representation of any kind with regard to the
lease or its enforceability, or the financial capacity of any tenant or lease
guarantor.
3.4 INCOME FROM PROPERTY. Borrower must first apply all income derived from the
--------------------
Property, including all income from leases, to pay costs and expenses associated
with the ownership, maintenance, operation and leasing of the Property,
including all amounts then required to be paid under the Loan Documents, before
using or applying such income for any other purpose. No such income is to be
distributed or paid to any partner, shareholder or, if Borrower is a trust, to
any beneficiary or trustee, unless all such costs and expenses which are then
due have been paid in full.
4. HAZARDOUS SUBSTANCES.
--------------------
Notwithstanding any provision in the Deed of Trust or any other Loan
Document, the provisions of this Article IV are not to be secured by the Deed of
Trust and shall survive termination of this Agreement, repayment of the Loan,
and foreclosure of the Deed of Trust or similar proceedings.
4.1 DEFINITION OF HAZARDOUS SUBSTANCE. For purposes of this Agreement, a
---------------------------------
"Hazardous Substance" is defined to mean any
<PAGE>
substance, material or waste, including asbestos and petroleum (including crude
oil or any fraction thereof), which is or becomes designated, classified or
regulated as "toxic," "hazardous," a "pollutant" or similar designation under
any federal, state or local law, regulation or ordinance.
4.2 INDEMNITY REGARDING HAZARDOUS SUBSTANCES. Borrower agrees to indemify and
----------------------------------------
hold Bank harmless from and against all liabilities, claims, actions, loss,
damages, including, without limitation, foreseeable and unforeseeable
consequential damages, costs and expenses (including sums paid in settlement of
claims and all consultant, expert and legal fees and expenses of Bank's counsel)
directly or indirectly arising out of or resulting from any Hazardous Substance
being present at any time in or around any part of the Property, or in the soil,
groundwater or soil vapor on or under the Property, including those incurred in
connection with any investigation of site conditions or any clean-up, remedial,
removal or restoration work, or any resulting damages or injuries to the person
or property of any third parties or to any natural resources. In addition,
Borrower must similarly indemnify, defend and hold harmless any persons
purchasing the Property through a foreclosure sale or following a foreclosure
sale, and any persons purchasing the Loan or any portion of or interest in it.
Upon demand by Bank, Borrower must defend any investigation, action or
proceeding alleging the presence of any Hazardous Substance in any such
location, which affects the Property or which is brought or commenced against
Bank, whether alone or together with Borrower or any other person, all at
Borrower's own cost and by counsel to be approved by Bank in the exercise of its
reasonable judgment. In the alternative, Bank may elect to conduct its own
defense at the expense of Borrower.
4.3 REPRESENTATION AND WARRANTY. Before signing this Agreement, Borrower
---------------------------
researched and inquired into the previous, current and contemplated uses and
ownership of the Property. Based on that due diligence, Borrower represents and
warrants that, to the best of its knowledge, no Hazardous Substance has been or
will be disposed of, released onto or otherwise exists in, on, or under the
Property, except as Borrower has disclosed to Bank in writing.
4.4 COMPLIANCE WITH LAW; NOTICES. Borrower has complied, and must comply and
----------------------------
cause all occupants of the Property to comply, with all laws, regulations and
ordinances governing or applicable to Hazardous Substances as well as the
recommendations of any qualified environmental engineer or other expert.
Borrower must promptly notify Bank if it knows or suspects there may be any
Hazardous Substance in or around the Property, or in the soil or groundwater
under the Property, or if any action or investigation by any governmental agency
or third party pertaining to Hazardous Substances is pending or threatened.
5. REPRESENTATIONS AND WARRANTIES.
------------------------------
Borrower promises that each representation and warranty set forth below is
true, accurate and correct.
5.1 FORMATION; AUTHORITY. If Borrower is anything other than a natural person,
--------------------
it has complied with all laws and regulations concerning its organization,
existence and the transaction of its business, and is in good standing in each
state in which it conducts its business. Borrower is authorized to execute,
deliver and perform its obligations under each of the Loan Documents.
5.2 COMPLIANCE WITH LAW. The Property and the actual use thereof by Borrower
-------------------
complies in all material respects with all Requirements. Borrower has received
no notices of violations of any Requirements. There are no claims, actions,
proceedings or investigations pending or threatened against Borrower or
affecting the property except for those previously disclosed by Borrower to Bank
in writing.
5.3 NO VIOLATION. The execution and delivery of this Agreement and the other
------------
Loan Documents and the performance by Borrower its obligations hereunder and
thereunder will not result in a default under any other material agreement to
which Borrower is a party, or violate any Requirements.
5.4 FINANCIAL INFORMATION. All financial information which has been and will be
---------------------
delivered to Bank, including all information relation to the financial condition
of Borrower, any of its partner shareholders, members, or other principals, any
Guarantor, and the Property, does and will fairly and accurately represent the
financial condition being reported on. All such information was and will be
prepared in accordance with generally accepted accounting principle consistently
applied, unless otherwise noted. As of the date hereof, there has been no
material adverse change in any financial condition reported at any time to Bank.
5.5 BORROWER NOT A "FOREIGN PERSON". Borrower is not "foreign person" within
------------------------------
the meaning of Section 1445(f)(3) of the Internal Revenue Code of 1986, as
amended from time to time.
5.6 DISCLOSURE TO GUARANTOR AND/OR THIRD PARTIES. Before each Guarantor, and,
--------------------------------------------
if applicable, each third party executing the Deed or Trust or other instrument
securing the Loan, became obligated in connection with the Loan, Borrower made
full disclosure to that person regarding Borrower's financial condition and
business operations and all other circumstances bearing upon Borrower ability to
pay and perform its obligations under the Loan Documents.
5.7 OWNERSHIP OF PROPERTY. Borrower owns directly, and no through any
---------------------
affiliated entity, all of the personal property and fixtures necessary for the
operation and management of the Property for the uses presently being
conducted thereon.
6. DEFAULT AND REMEDIES.
--------------------
6.1 EVENTS OF DEFAULT. Borrower will be in default under this Agreement upon
-----------------
the occurrence of any one or more of the following events ("Event of Default"):
(a) Borrower fails to make any payment due under the Note, within ten (10)
days after the date due, or Borrower fails to make any payment demanded by Bank
under any other Loan Document, within ten (10) days after written demand by
Bank; or
(b) Borrower fails to timely observe, perform and comply with any covenant
contained in this Agreement other than those referred to in clause (a), and does
not either cure that failure within thirty (30) days after written notice from
Bank, or, if the default cannot be cured in thirty (30) days, within a
reasonable time but not to exceed ninety (90) days after written notice; or
(c) Borrower or any Guarantor, or Borrower's managing general partner, if
it is a partnership, or its majority shareholder if Borrower is a corporation,
or its managing member if Borrower is a limited liability company, becomes
insolvent or the subject of any bankruptcy or other voluntary or involuntary
proceeding, in or out of court, for the adjustment of debtor-creditor
relationships; or
(d) Borrower or any Guarantor dissolves, terminates, or liquidates, or any
of these events happens to Borrower's managing general partner if it is a
partnership or to its majority shareholder if it is a corporation, or its
managing member if Borrower is a limited liability company, or if Borrower or
any Guarantor is a trust, the trust is revoked or materially modified or there
is a change or substitution of the trustee; or
(e) Borrower or any Guarantor dies or becomes permanently disabled, or any
of these events happens to Borrower's
-4-
<PAGE>
or any Guarantor's managing general partner, if it is a partnership, or managing
member, it is a limited liability company, its chief executive officer, if it is
a corporation, or its trustee, if it is a trust; or
(f) Any representation or warranty made or given by Borrower in this
Agreement or any other Loan Document proves to be false or misleading in any
material respect; or
(g) Any Guarantor revokes its Guaranty or any Guaranty becomes ineffective
for any reason; or
(h) A default is declared or occurs under any of the other Loan Documents
(and, if a cure period is provided with respect to said default, said default is
not fully cured within the period provided in said Loan Document for cure of
said default); or
(i) Bank fails to have an enforceable first lien on or security interest in
any property given as security for the Loan (except for prior liens approved by
Bank in writing); or
(j) A lawsuit in excess of any insurance coverage where the amount claimed
is $500,000 or more is filed against Borrower or any Guarantor, or a judgment in
an amount greater than $500,000 in excess of any insurance coverage is entered
against Borrower or any Guarantor, or any government authority takes action that
materially adversely affects Borrower's intended use of the Property or
Borrower's or any Guarantor's ability to repay the Loan; or
(k) Borrower, any Guarantor, or any person affiliated with Borrower or any
Guarantor fails to meet the conditions of, or fails to perform any obligation
under, any other agreement Borrower has with Bank or any affiliate of Bank. For
the purposes of this section, "affiliated with" means in control of, controlled
by or under common control with; or
(l) Borrower, any Guarantor or any person affiliated with Borrower or any
Guarantor defaults in connection with any credit such person has with any
lender, if the default consists of the failure to make a payment when due or
gives the other lender the right to accelerate the obligation. For the purposes
of this section, "affiliated with" means in control of, controlled by or under
common control with; or
(m) There is a material adverse change in Borrower's or any Guarantor's
financial condition, or event or condition that materially impairs Borrower's
intended use of the Property or Borrower's or any Guarantor's ability to repay
the Loan.
6.2 REMEDIES. If an Event of Default occurs under this Agreement, Bank may
--------
exercise any right or remedy which it has under any of the Loan Documents, or
which is otherwise available at law or in equity or by statute, and all of
Bank's rights and remedies shall be cumulative. All of Borrower's obligations
under the Loan Documents shall become immediately due and payable without notice
of default, presentment or demand for payment, protest or notice of nonpayment
or dishonor, or other notices or demands of any kind or character, all at Bank's
option, exercisable in its sole discretion.
7. REFERENCE AND ARBITRATION
-------------------------
7.1 JUDICIAL REFERENCE. In any judicial action between or among the parties,
------------------
including but not limited to any action or cause of action arising out of or
relating to this Agreement or the Loan Documents or based on or arising from an
alleged tort, all decisions of fact and law must at the request of any party be
referred to a referee in accordance with California Code of Civil Procedure
Sections 638 et seq. g. The parties must designate to the court a referee or
-- --- -
referees elected under the auspices of the American Arbitration Association
("AAA") in the same manner as arbitrators are selected in AAA-sponsored
proceedings. The presiding referee of the panel, or the referee if there is a
single referee, must be an active attorney or retired judge. Judgment upon the
award rendered by such referee or referees may be entered in the court in which
such proceeding was commenced in accordance with California Code of Civil
Procedure Sections 644 and 645.
7.2 MANDATORY ARBITRATION. After the Deed of Trust has been released, fully
---------------------
reconveyed, or extinguished, any controversy or claim between or among the
parties, including those arising out of or relating to this Agreement or the
Loan Documents and any claim based on or arising from an alleged tort, must at
the request of any party be determined by arbitration. The arbitration must be
conducted in accordance with the United States Arbitration Act (Title 9, U.S.
Code), notwithstanding any choice of law provision in this Agreement, and under
the Commercial Rules of the AAA. The arbitrator(s) must give effect to statutes
of limitation in determining any claim. Any controversy concerning whether an
issue is arbitrable must be determined by the arbitrator(s). Judgment upon the
arbitration award may be entered in any court having jurisdiction. The
institution and maintenance of an action for judicial relief or pursuit of a
provisional or ancillary remedy does not constitute a waiver of the right of any
party, including the plaintiff, to submit the controversy or claim to
arbitration if any other party contests such action for judicial relief.
7.3 REAL PROPERTY COLLATERAL. Notwithstanding the provisions of Section 7.2, no
------------------------
controversy or claim may be submitted to arbitration without the consent of all
parties if, at the time of the proposed submission, such controversy or claim
arises from or relates to an obligation to Bank which is secured by real
property collateral. If all parties do not consent to submission of such a
controversy or claim to arbitration, the controversy or claim must be determined
as provided in Section 7.1.
7.4 PROVISIONAL REMEDIES, SELF-HELP AND FORECLOSURE. No provision of this
-----------------------------------------------
Article VII limits the right of any party to this Agreement to exercise self-
help remedies such as setoff, foreclosure against or sale of any real or
personal property collateral or security, or obtaining provisional or ancillary
remedies from a court of competent jurisdiction before, after, or during the
pendency of any arbitration or other proceeding. The exercise of a remedy does
not waive the right of either party to resort to arbitration or reference. At
Bank's option, foreclosure under a deed of trust or mortgage may be accomplished
either by exercise of power of sale under the deed of trust or mortgage or by
judicial foreclosure.
8. MISCELLANEOUS PROVISIONS.
------------------------
8.1 NO WAIVER; CONSENTS. No alleged waiver by Bank is effective unless in
-------------------
writing, and no waiver may be construed as a continuing waiver. No waiver is
implied from any delay or failure by Bank to take action on account of any
default of Borrower. Consent by Bank to any act or omission by Borrower may not
be construed as a consent to any other or subsequent act or omission.
8.2 NO THIRD PARTIES BENEFITED. This Agreement is made and entered into for the
--------------------------
sole protection and benefit of Bank and Borrower and their successors and
assigns. No trust fund is created by this Agreement and no other persons or
entities have any right of action under this Agreement or any right to the Loan
funds.
8.3 NOTICES. All notices given under this Agreement must be in writing and are
-------
effectively served upon delivery, or if mailed, upon the first to occur of
receipt or the expiration of forty-eight (48) hours after deposit in first-class
or certified United States mail, postage prepaid, sent to the party at its
address appearing below its signature. Those addresses may be changed by either
party by notice to the other party.
<PAGE>
8.4 ATTORNEYS' FEES. If any lawsuit, reference or arbitration is commenced
---------------
which arises out of, or which relates to this Agreement, the Loan Documents or
the Loan, including any alleged tort action, regardless of which party commences
the action, the prevailing party is entitled to recover from each other party
such sums as the court, referee or arbitrator may adjudge to be reasonable
attorneys' fees in the action or proceeding, in addition to costs and expenses
otherwise allowed by law. Any such attorneys' fees incurred by either party in
enforcing a judgment in its favor under this Agreement are recoverable
separately from and in addition to any other amount included in such judgment,
and such attorneys' fees obligations are intended to be severable from the other
provisions of this Agreement and to survive and not be merged into any such
judgment. In all other situations, including any bankruptcy or other voluntary
or involuntary proceeding, in or out of court, for the adjustment of debtor-
creditor relationships, Borrower agrees to pay all of Bank's costs and expenses,
including attorneys' fees, which may be incurred in any effort to collect or
enforce the Loan or any part of it or any term of any Loan Document. Attorneys'
fees include the allocated costs for services of in-house counsel.
8.5 HEIRS, SUCCESSORS AND ASSIGNS. The terms of this Agreement shall bind and
-----------------------------
benefit the heirs, legal representatives, successors and assigns of the parties;
provided, however, that Borrower may not assign this Agreement without the prior
written consent of Bank. Bank has the right to transfer the Loan to any other
persons or entities without the consent of or notice to Borrower. Without the
consent of or notice to Borrower, Bank may disclose to any prospective purchaser
of any securities issued by Bank, and to any prospective or actual purchaser of
any interest in the Loan or any other loans made by Bank to Borrower, any
financial or other information relating to Borrower, the Loan or the Property.
8.6 INTERPRETATION. The language of this Agreement must be construed as a whole
--------------
according to its fair meaning, and not strictly for or against any party. The
word "include(s)" means "include(s), without limitation," and the word
"including" means "including, but not limited to."
8.7 MISCELLANEOUS. This Agreement may not be modified or amended except by a
-------------
written agreement signed by the parties. The invalidity or unenforceability of
any one or more provisions of this Agreement in no way affects any other
provision. If Borrower consists of more than one person or entity, each is
jointly and severally liable to Bank for the faithful performance of this
Agreement and the other Loan Documents. Time is of the essence in the
performance of this Agreement and the other Loan Documents. This Agreement is
governed by California law. This Agreement may be executed in one or more
counterparts, each of which is, for all purposes deemed an original and all such
counterparts taken together, constitute one and the same instrument.
8.8 INTEGRATION AND RELATION TO LOAN COMMITMENT. The Loan Documents fully state
-------------------------------------------
all of the terms and conditions of the parties' agreement regarding the matters
mentioned in or incidental to this Agreement. The Loan Documents supersede all
oral negotiations and prior writings concerning the subject matter of the Loan
Documents, including any loan commitment issued to Borrower.
8.9 ACTIONS. Bank has the right, but not the obligation, to commence, appear
-------
in, and defend any action or proceeding which might affect its security or its
rights, duties or liabilities relating to the Loan, the Property, or any of the
Loan Documents. Borrower must pay promptly on demand all of Bank's reasonable
out-of-pocket costs, expenses, and legal fees and expenses of Bank's counsel
incurred in those actions or proceedings.
8.10 RELATIONSHIPS WITH OTHER BANK CUSTOMERS. From time to time, Bank may have
---------------------------------------
business relationships with Borrower's customers, suppliers, contractors,
tenants, partners, shareholders, officers or directors, with businesses offering
products or services similar to those of Borrower, or with persons seeking to
invest in borrow from or lend to Borrower. Borrower agrees that in no event is
the Bank obligated to disclose to Borrower any information concerning any other
Bank customer. Borrower further agrees that Bank may extend credit to those
parties and may take any action it may deems necessary to collect any such
credit, regardless of any effect the extension or collection of such credit may
have on Borrower's financial condition or operations.
8.11 LOAN COMMISSION. Bank is not obligated to pay an brokerage commission or
---------------
fee in connection with or arising out of the Loan. Borrower must pay any and all
brokerage commissions or fee arising out of or in connection with the Loan.
IN WITNESS WHEREOF, Borrower and Bank have executed this Agreement as of
the date first above written.
Borrower:
E-TEK DYNAMICS, INC.,
a California corporation
BY: /s/ Theresa Stone Pan
--------------------------------
Theresa Stone Pan
President
BY: /s/ Jing Jong Pan
--------------------------------
Jing Jong Pan
Chairman of the Board
Address:
1885 Lundy Avenue
San Jose, CA 95131
Bank:
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By:__________________________________
Name:________________________________
Title:_______________________________
Address:
CMLS #1777
P.O. Box 3609
Los Angeles, California 90051
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<PAGE>
EXHIBIT 10.21
================================================================================
[LOGO BANK OF AMERICA BUSINESS LOAN AGREEMENT
APPEARS NATIONAL TRUST AND SAVINGS ASSOCIATION
HERE]
- --------------------------------------------------------------------------------
This Agreement dated as of September 30, 1997, is between Bank of America
National Trust and Savings Association (the "Bank") and E-Tek Dynamics, Inc.
(the "Borrower").
1. FACILITY NO. 1: LINE OF CREDIT AMOUNT AND TERMS
1.1 LINE OF CREDIT AMOUNT.
(a) During the availability period described below, the Bank will provide a
line of credit ("Facility No. 1") to the Borrower. The amount of the line
of credit (the "Facility No. 1 Commitment") is Ten Million Dollars
($10,000,000).
(b) This is a revolving line of credit providing for cash advances and letters
of credit. During the availability period, the Borrower may repay principal
amounts and reborrow them.
(c) The Borrower agrees not to permit the outstanding principal balance of
advances under the line of credit plus the outstanding amounts of any
letters of credit, including amounts drawn on letters of credit and not yet
reimbursed, to exceed the Facility No. 1 Commitment.
1.2 AVAILABILITY PERIOD. The line of credit is available between the date of
this Agreement and September 30, 1998 (the "Facility No. 1 Expiration Date")
unless the Borrower is in default.
1.3 INTEREST RATE.
(a) Unless the Borrower elects an optional interest rate as described below,
the interest rate computed on the principal balance outstanding from time
to time shall be the Bank's Reference Rate.
(b) The Reference Rate is the rate of interest publicly announced from time to
time by the Bank in San Francisco, California, as its Reference Rate. The
Reference Rate is set by the Bank based on various factors, including the
Bank's costs and desired return, general economic conditions and other
factors, and is used as a reference point for pricing some loans. The Bank
may price loans to its customers at, above, or below the Reference Rate.
Any change in the Reference Rate shall take effect at the opening of
business on the day specified in the public announcement of a change in the
Bank's Reference Rate.
1.4 REPAYMENT TERMS.
(a) The Borrower will pay interest on September 30, 1997, and then monthly
thereafter until payment in full of any principal outstanding under this
line of credit.
(b) The Borrower will repay in full all principal and any unpaid interest or
other charges outstanding under this line of credit no later than the
Facility No. 1 Expiration Date. Any interest period for any optional
interest rate (as described below) shall expire no later than the Facility
No. 1 Expiration Date.
1.5 OPTIONAL INTEREST RATES. Instead of the interest rate based on the Bank's
Reference Rate, the Borrower may elect the optional interest rates listed below
for this Facility No. 1 during interest periods agreed to by the Bank and the
Borrower. The optional interest rates shall be subject to the terms and
conditions described later in this Agreement. Any principal amount bearing
interest at an optional rate under this Agreement is referred to as a "Portion."
The following optional interest rates are available:
(a) the LIBOR Rate plus 1.5 percentage points.
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<PAGE>
1.6 LETTERS OF CREDIT. This line of credit may be used for financing commercial
letters of credit with a maximum maturity of 120 days but not to extend more
than 120 days beyond the Facility No. 1 Expiration Date. Each commercial letter
of credit will require drafts payable at sight or up to 60 days after sight.
The Borrower agrees:
(a) any sum drawn under a letter of credit may, at the option of the Bank, be
added to the principal amount outstanding under this Agreement. The amount
will bear interest and be due as described elsewhere in this Agreement.
(b) if there is a default under this Agreement and the Borrower has failed to
cure the same within the cure period, if any, applicable to such default,
to immediately prepay and make the Bank whole for any outstanding letters
of credit upon the written request of the Bank.
(c) the issuance of any letter of credit and any amendment to a letter of
credit is subject to the Bank's written approval and must be in form and
content satisfactory to the Bank and in favor of a beneficiary acceptable
to the Bank.
(d) to sign the Bank's form Application and Agreement for Commercial Letter of
Credit.
(e) to pay any issuance and/or other reasonable fees that the Bank notifies the
Borrower will be charged for issuing and processing letters of credit for
the Borrower.
(f) to allow the Bank to automatically charge its checking account for
applicable fees, discounts, and other charges.
2. FACILITY NO. 2: TERM LOAN AMOUNT AND TERMS
2.1 LOAN AMOUNT. The Bank agrees to provide a term loan ("Facility No. 2") to
the Borrower in the amount of Three Million Dollars ($3,000,000) (the "Facility
No. 2 Commitment").
2.2 AVAILABILITY PERIOD. The loan is available in one disbursement from the
Bank between the date of this Agreement and September 30, 1997, unless the
Borrower is in default.
2.3 INTEREST RATE. Unless the Borrower elects an optional interest rate as
described below, the interest rate computed on the outstanding principal balance
of the loan shall be the Bank's Reference Rate.
2.4 REPAYMENT TERMS.
(a) The Borrower will pay all accrued but unpaid interest on October 31, 1997,
and then monthly thereafter and upon payment in full of the principal of
the loan.
(b) The Borrower will repay principal in 36 successive monthly installments of
Eight Thousand Three Hundred Thirty-Three and 33/100 Dollars ($8,333.33)
starting October 31, 1997. On September 30, 2000, the Borrower will repay
the remaining principal balance plus any interest then due.
(c) The Borrower may prepay the loan in full or in part at any time. The
prepayment will be applied to the most remote payment of principal due
under Paragraph 2.4(b) above.
2.5 OPTIONAL INTEREST RATES. Instead of the interest rate based on the Bank's
Reference Rate, the Borrower may elect the optional interest rates listed below
for this Facility No. 2 during interest periods agreed to by the Bank and the
Borrower. The optional interest rates shall be subject to the terms and
conditions described later in this Agreement. Any principal amount bearing
interest at an optional rate under this Agreement is referred to as a "Portion."
The following optional interest rates are available:
(a) the LIBOR Rate plus 1.7 percentage points.
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-2-
<PAGE>
3. OPTIONAL INTEREST RATES
3.1 OPTIONAL RATES. Each optional interest rate is a rate per year. Interest
will be paid as follows: for Facility No. 1, on the last day of each interest
period, and, if the interest period is longer than one month, then on the last
day of each month during the interest period; for Facility No. 2, on the last
day of each interest period, and, if the interest period is longer than three
months, then on the last day of each quarter during the interest period. At the
end of any interest period, the interest rate will revert to the rate based on
the Reference Rate, unless the Borrower has designated another optional interest
rate for the Portion. No Portion will be converted to a different interest rate
during the applicable interest period. Upon the occurrence of an event of
default under this Agreement, the Bank may terminate the availability of
optional interest rates for interest periods commencing after the default
occurs.
3.2 LIBOR RATE. The election of LIBOR Rates shall be subject to the following
terms and requirements:
(a) For Facility No. 1, the interest period during which the LIBOR Rate will be
in effect will be one, two, or three months. For Facility No. 2, the
interest period during which the LIBOR Rate will be in effect will be two,
three or six months. The first day of the interest period must be a day
other than a Saturday or a Sunday on which the Bank is open for business in
California, New York and London and dealing in offshore dollars (a "LIBOR
Banking Day"). The last day of the interest period and the actual number of
days during the interest period will be determined by the Bank using the
practices of the London inter-bank market.
(b) Each LIBOR Rate Portion will be for an amount not less than Five Hundred
Thousand Dollars ($500,000).
(c) The "LIBOR Rate" means the interest rate determined by the following
formula, rounded upward to the nearest 1/100 of one percent. (All amounts
in the calculation will be determined by the Bank as of the first day of
the interest period.)
LIBOR Rate = London Inter-Bank Offered Rate
------------------------------
(1.00 - Reserve Percentage)
Where,
(i) "London Inter-Bank Offered Rate" means the interest rate at which the
Bank's London Branch, London, Great Britain, would offer U.S. dollar
deposits for the applicable interest period to other major banks in
the London inter-bank market at approximately 11:00 a.m. London time
two (2) London Banking Days before the commencement of the interest
period. A "London Banking Day" is a day on which the Bank's London
Branch is open for business and dealing in offshore dollars.
(ii) "Reserve Percentage" means the total of the maximum reserve
percentages for determining the reserves to be maintained by member
banks of the Federal Reserve System for Eurocurrency Liabilities, as
defined in Federal Reserve Board Regulation D, rounded upward to the
nearest 1/100 of one percent. The percentage will be expressed as a
decimal, and will include, but not be limited to, marginal, emergency,
supplemental, special, and other reserve percentages.
(d) The Borrower shall irrevocably request a LIBOR Rate Portion no later than
12:00 noon San Francisco time on the LIBOR Banking Day preceding the day on
which the London Inter-Bank Offered Rate will be set, as specified above.
(e) The Borrower may not elect a LIBOR Rate with respect to any principal
amount which is scheduled to be repaid before the last day of the
applicable interest period.
(f) Each prepayment of a LIBOR Rate Portion, whether voluntary, by reason of
acceleration or otherwise, will be accompanied by the amount of accrued
interest on the amount prepaid and a prepayment fee as described below. A
"prepayment" is a payment of an amount on a date earlier than the scheduled
payment date for such amount as required by this Agreement. The prepayment
fee shall be equal to the amount (if any) by which:
- --------------------------------------------------------------------------------
-3-
<PAGE>
(i) the additional interest which would have been payable during the
interest period on the amount prepaid had it not been prepaid, exceeds
(ii) the interest which would have been recoverable by the Bank by placing
the amount prepaid on deposit in the domestic certificate of deposit
market, the eurodollar deposit market, or other appropriate money
market selected by the Bank, for a period starting on the date on
which it was prepaid and ending on the last day of the interest period
for such Portion (or the scheduled payment date for the amount
prepaid, if earlier).
(g) The Bank will have no obligation to accept an election for a LIBOR Rate
Portion if any of the following described events has occurred and is
continuing:
(i) Dollar deposits in the principal amount, and for periods equal to the
interest period, of a LIBOR Rate Portion are not available in the
London inter-bank market; or
(ii) the LIBOR Rate does not accurately reflect the cost of a LIBOR Rate
Portion.
4. FEES AND EXPENSES
4.1 FEES. The Borrower agrees to pay a Thirty Thousand Dollar ($30,000) fee for
Facility No. 1 and a Thirty Thousand Dollar ($30,000) fee for Facility No. 2.
Both fees are due on or before the date of this Agreement.
4.2 EXPENSES. The Borrower agrees to immediately repay the Bank for reasonable
expenses that include, but are not limited to, filing, recording and search
fees, appraisal fees, title report fees and documentation fees.
4.3 REIMBURSEMENT COSTS. If there is a default under this Agreement and the
Borrower has failed to cure the same within the cure period, if any, applicable
to such default, the Borrower agrees to reimburse the Bank for the cost of
periodic audits and appraisals of the personal property collateral securing this
Agreement, at such intervals as the Bank may reasonably require after the
occurrence of the default and the expiration of the cure period (if any). The
audits and appraisals may be performed by employees of the Bank or by
independent appraisers.
5. COLLATERAL
5.1 PERSONAL PROPERTY. The Borrower's obligations to the Bank under this
Agreement will be secured by personal property the Borrower now owns or will own
in the future as listed below. The collateral is further defined in security
agreement(s) executed by the Borrower.
(a) Equipment.
(b) Inventory.
(c) Receivables.
6. DISBURSEMENTS, PAYMENTS AND COSTS
6.1 REQUESTS FOR CREDIT. Each request for an extension of credit will be made
in writing in a manner acceptable to the Bank, or by another means acceptable to
the Bank.
6.2 DISBURSEMENTS AND PAYMENTS. Each disbursement by the Bank and each payment
by the Borrower will be:
(a) made at the Bank's branch (or other location) selected by the Bank from
time to time;
(b) made for the account of the Bank's branch selected by the Bank from time to
time;
- --------------------------------------------------------------------------------
-4-
<PAGE>
(c) made in immediately available funds, or such other type of funds selected
by the Bank;
(d) evidenced by records kept by the Bank. In addition, the Bank may, at its
discretion, require the Borrower to sign one or more promissory notes.
6.3 TELEPHONE AND TELEFAX AUTHORIZATION.
(a) The Bank may honor telephone or telefax instructions for advances or
repayments or for the designation of optional interest rates and telefax
requests for the issuance of letters of credit given by any one of the
individuals authorized to sign loan agreements on behalf of the Borrower,
or any other individual designated by any one of such authorized signers.
(b) Advances will be deposited in and repayments will be withdrawn from the
Borrower's [account number] account number or such other of the Borrower's
accounts with the Bank as designated in writing by the Borrower.
(c) The Borrower indemnifies and excuses the Bank (including its officers,
employees, and agents) from all liability, loss, and costs in connection
with any act resulting from telephone or telefax instructions it reasonably
believes are made by any individual authorized by the Borrower to give such
instructions. This indemnity and excuse will not cover any such liability,
loss, or costs directly resulting from, and exclusively attributable to,
the Bank's gross negligence or wilFful misconduct and will survive this
Agreement's termination.
6.4 DIRECT DEBIT (PRE-BILLING).
(a) The Borrower agrees that the Bank will debit the Borrower's deposit account
number [account number] or such other of the Borrower's accounts with the
Bank as designated in writing by the Borrower (the "Designated Account") on
the date each payment of principal and interest and any fees from the
Borrower becomes due (the "Due Date"). If the Due Date is not a banking
day, the Designated Account will be debited on the next banking day.
(b) Approximately 3 days prior to each Due Date, the Bank will mail to the
Borrower a statement of the amounts that will be due on that Due Date (the
"Billed Amount"). The calculation will be made on the assumption that no
new extensions of credit or payments will be made between the date of the
billing statement and the Due Date, and that there will be no changes in
the applicable interest rate.
(c) The Bank will debit the Designated Account for the Billed Amount,
regardless of the actual amount due on that date (the "Accrued Amount").
If the Billed Amount debited to the Designated Account differs from the
Accrued Amount, the discrepancy will be treated as follows:
(i) If the Billed Amount is less than the Accrued Amount, the Billed
Amount for the following Due Date will be increased by the amount of
the discrepancy. The Borrower will not be in default by reason of any
such discrepancy.
(ii) If the Billed Amount is more than the Accrued Amount, the Billed
Amount for the following Due Date will be decreased by the amount of
the discrepancy.
Regardless of any such discrepancy, interest will continue to accrue based
on the actual amount of principal outstanding without compounding. The Bank
will not pay the Borrower interest on any overpayment.
(d) The Borrower will maintain sufficient funds in the Designated Account to
cover each debit. If there are insufficient funds in the Designated Account
on the date the Bank enters any debit authorized by this Agreement, the
debit will be reversed.
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6.5 BANKING DAYS. Unless otherwise provided in this Agreement, a banking day is
a day other than a Saturday or a Sunday on which the Bank is open for business
in California. All payments and disbursements which would be due on a day which
is not a banking day will be due on the next banking day. All payments received
on a day which is not a banking day will be applied to the credit on the next
banking day.
6.6 TAXES. If any payments to the Bank under this Agreement are made from
outside the United States, the Borrower will not deduct any foreign taxes from
any payments it makes to the Bank. If any such taxes are imposed on any payments
made by the Borrower (including payments under this paragraph), the Borrower
will pay the taxes and will also pay to the Bank, at the time interest is paid,
any additional amount which the Bank specifies as necessary to preserve the
after-tax yield the Bank would have received if such taxes had not been imposed.
The Borrower will confirm that it has paid the taxes by giving the Bank official
tax receipts (or notarized copies) within 30 days after the due date.
6.7 ADDITIONAL COSTS. The Borrower will pay the Bank, on demand, for the Bank's
costs or losses arising from any statute or regulation, or any request or
requirement of a regulatory agency which is applicable to all national banks or
a class of all national banks. The costs and losses will be allocated to the
loan in a manner determined by the Bank, using any reasonable method. The costs
include the following:
(a) any reserve or deposit requirements; and
(b) any capital requirements relating to the Bank's assets and commitments for
credit.
6.8 INTEREST CALCULATION. Except as otherwise stated in this Agreement, all
interest and fees, if any, will be computed on the basis of a 360-day year and
the actual number of days elapsed. This results in more interest or a higher fee
than if a 365-day year is used. Installments of principal which are not paid
when due under this Agreement shall continue to bear interest until paid.
6.9 DEFAULT RATE. Upon the occurrence and during the continuation of any
default under this Agreement, principal amounts outstanding under this Agreement
will at the option of the Bank bear interest at a rate which is 2.0 percentage
point(s) higher than the rate of interest otherwise provided under this
Agreement. This will not constitute a waiver of any default. This default rate
will become effective upon the Borrower's receipt of written notice from the
Bank.
6.10 INTEREST COMPOUNDING. At the Bank's sole option in each instance, any
interest, fees or costs which are not paid when due under this Agreement shall
bear interest from the due date at an annual rate equal to the Bank's Reference
Rate plus 1.00 percentage point. This may result in compounding of interest.
7. CONDITIONS
The Bank must receive the following items, in form and content acceptable to the
Bank, before it is required to extend any credit to the Borrower under this
Agreement:
7.1 AUTHORIZATIONS. Evidence that the execution, delivery and performance by
the Borrower of this Agreement and any instrument or agreement required under
this Agreement have been duly authorized.
7.2 GOVERNING DOCUMENTS. A copy of the Borrower's articles of incorporation.
7.3 SECURITY AGREEMENTS. Signed original security agreements, assignments,
financing statements and fixture filings (together with collateral in which the
Bank requires a possessory security interest), which the Bank requires.
7.4 EVIDENCE OF PRIORITY. Evidence that security interests and liens in favor
of the Bank are valid, enforceable, and prior to all others' rights and
interests, except those the Bank consents to in writing.
7.5 INSURANCE. Evidence of insurance coverage, as required in the "Covenants"
section of this Agreement.
7.6 OTHER ITEMS. Any other items that the Bank reasonably requires.
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8. REPRESENTATIONS AND WARRANTIES
When the Borrower signs this Agreement, and until the Bank is repaid in full,
the Borrower makes the following representations and warranties. Each request
for an extension of credit constitutes a renewed representation.
8.1 ORGANIZATION OF BORROWER. The Borrower is a corporation duly formed and
existing under the laws of the state where organized.
8.2 AUTHORIZATION. This Agreement, and any instrument or agreement required
hereunder, are within the Borrower's powers, have been duly authorized, and do
not conflict with any of its organizational papers.
8.3 ENFORCEABLE AGREEMENT. This Agreement is a legal, valid and binding
agreement of the Borrower, enforceable against the Borrower in accordance with
its terms, and any instrument or agreement required hereunder, when executed and
delivered, will be similarly legal, valid, binding and enforceable.
8.4 GOOD STANDING. In each state in which the Borrower does business, it is
properly licensed, in good standing, and, where required, in compliance with
fictitious name statutes.
8.5 NO CONFLICTS. This Agreement does not conflict with any law, agreement, or
obligation by which the Borrower is bound.
8.6 FINANCIAL INFORMATION. All financial and other information that has been or
will be supplied to the Bank is:
(a) sufficiently complete to give the Bank accurate knowledge of the Borrower's
financial condition.
(b) in compliance with all government regulations that apply.
8.7 LAWSUITS. There is no lawsuit, tax claim or other dispute pending or
threatened against the Borrower, which, if lost, would impair the Borrower's
financial condition or ability to repay the loan, except as have been disclosed
in writing to the Bank.
8.8 COLLATERAL. All collateral required in this Agreement is owned by the
grantor of the security interest free of any title defects or any liens or
interests of others.
8.9 PERMITS, FRANCHISES. The Borrower possesses all permits, memberships,
franchises, contracts and licenses required and all trademark rights, trade name
rights, patent rights and fictitious name rights necessary to enable it to
conduct the business in which it is now engaged.
8.10 OTHER OBLIGATIONS. The Borrower is not in default on any obligation for
borrowed money, any purchase money obligation or any other material lease,
commitment, contract, instrument or obligation.
8.11 INCOME TAX MATTERS. The Borrower has no knowledge of any pending
assessments or adjustments of its income tax for any year, except as have been
disclosed in writing to the Bank.
8.12 NO EVENT OF DEFAULT. There is no event which is, or with notice or lapse of
time or both would be, a default under this Agreement.
8.13 LOCATION OF BORROWER. The Borrower's place of business (or, if the Borrower
has more than one place of business, its chief executive office) is located at
the address listed under the Borrower's signature on this Agreement.
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9. COVENANTS
The Borrower agrees, so long as credit is available under this Agreement and
until the Bank is repaid in full:
9.1 USE OF PROCEEDS. To use the proceeds of Facility No. 1 only for financing
inventory and receivables and to use the proceeds of Facility No. 2 only to
repay the total amount advanced to the Borrower under the 1995 Agreement (as
defined in Paragraph 12.11 below) that was used by the Borrower to purchase the
Ringwood Property (as defined in Paragraph 9.8 below), which amount is
outstanding under Facility No. 1.
9.2 FINANCIAL INFORMATION. To provide the following financial information and
statements in form and content acceptable to the Bank, and such additional
information as reasonably requested by the Bank from time to time:
(a) Within 90 days of the Borrower's fiscal year end, the Borrower's annual
financial statements. These financial statements must be audited (with an
opinion satisfactory to the Bank) by a Certified Public Accountant ("CPA")
acceptable to the Bank.
(b) Within 30 days of the period's end, the Borrower's monthly financial
statements. These financial statements may be Borrower prepared.
9.3 TANGIBLE NET WORTH. To maintain tangible net worth equal to at least Thirty
Five Million Dollars ($35,000,000).
"Tangible net worth" means the gross book value of the Borrower's assets
(excluding goodwill, patents, trademarks, trade names, organization expense,
treasury stock, unamortized debt discount and expense, capitalized or deferred
research and development costs, deferred marketing expenses, deferred
receivables, and other like intangibles) less total liabilities, including but
not limited to accrued and deferred income taxes, and any reserves against
assets.
9.4 TOTAL LIABILITIES TO TANGIBLE NET WORTH RATIO. To maintain a ratio of total
liabilities to tangible net worth not exceeding 1.10:1.0.
"Total liabilities" means the sum of current liabilities plus long term
liabilities.
9.5 CASH FLOW RATIO. To maintain a cash flow ratio of at least 1.25:1.0.
"Cash flow ratio" means the ratio of cash flow to the sum of lease payments made
under capital leases plus principal payments made on long term liabilities plus
interest expense. "Cash flow" is defined as net income from operations and
investments, before taxes, plus interest expense, plus depreciation, depletion,
amortization and other non-cash charges. This ratio will be calculated at the
end of each fiscal year.
9.6 PROFITABILITY. To maintain a positive net income after taxes and
extraordinary items for each quarterly accounting period.
9.7 OTHER DEBTS. Not to have outstanding or incur any direct or contingent
liabilities or lease obligations (other than those to the Bank), or become
liable for the liabilities of others without the Bank's written consent. This
does not prohibit:
(a) Acquiring goods, supplies, or merchandise on normal trade credit.
(b) Endorsing negotiable instruments received in the usual course of business.
(c) Obtaining surety bonds in the usual course of business.
(d) Liabilities and leases in existence on the date of this Agreement disclosed
in writing to the Bank.
(e) Additional debts and lease obligations for the acquisition of fixed or
capital assets permitted under Paragraph 9.9 of this Agreement.
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(f) Additional debts and lease obligations for ordinary business purposes.
9.8 OTHER LIENS. Not to create, assume, or allow any security interest or lien
(including judicial liens) on property the Borrower now or later owns including,
without limitation, the Borrower's real property located at Ringwood Court, San
Jose, CA (APN 244-19-029) (the "Ringwood Property"), except:
(a) Deeds of trust and security agreements in favor of the Bank.
(b) Liens for taxes not yet due.
(c) Liens outstanding on the date of this Agreement disclosed in writing to the
Bank.
Neither the Bank nor the Borrower intend that an equitable mortgage or similar
lien be created on the Ringwood Property or that the obligations of the Borrower
to the Bank under this Agreement be secured by the Ringwood Property.
9.9 CAPITAL EXPENDITURES. Not to spend or incur obligations (including the
total amount of any capital leases) for more than Ten Million Dollars
($10,000,000) in any single fiscal year to acquire fixed or capital assets.
9.10 DIVIDENDS AND DISTRIBUTIONS. Not to make any distributions or pay any
dividends on any of its shares except dividends payable in capital stock of the
Borrower, and not to purchase, redeem or otherwise acquire for value any of its
shares, or create any sinking fund in relation thereto.
9.11 LOANS TO OFFICERS. Not to make any loans, advances or other extensions of
credit to any of the Borrower's executives, officers, directors or shareholders
(or any relatives of any of the foregoing).
9.12 CHANGE OF OWNERSHIP. Not to cause, permit, or suffer any change, direct or
indirect, in the Borrower's capital ownership.
9.13 OUT OF DEBT PERIOD (FACILITY NO. 1). To repay any advances in full, and not
to draw any additional advances on its revolving line of credit, for a period of
at least 30 consecutive days in each line-year. "Line-year" means the period
between the date of this Agreement and September 30, 1998, and each subsequent
one-year period (if any). For the purposes of this paragraph, "advances" does
not include undrawn amounts of outstanding letters of credit.
9.14 NOTICES TO BANK. To promptly notify the Bank in writing of:
(a) any lawsuit over Three Hundred Thousand Dollars ($300,000) against the
Borrower.
(b) any substantial dispute between the Borrower and any government authority.
(c) any failure to comply with this Agreement.
(d) any material adverse change in the Borrower's business condition (financial
or otherwise), operations, properties or prospects, or ability to repay the
credit.
(e) any change in the Borrower's name, legal structure, place of business, or
chief executive office if the Borrower has more than one place of business.
9.15 BOOKS AND RECORDS. To maintain adequate books and records.
9.16 AUDITS. To allow the Bank and its agents to inspect the Borrower's
properties (including taking and removing samples for environmental testing) and
examine, audit and make copies of books and records at any reasonable time and
upon reasonable advance notice; provided, however, that such notice is not
required during any period when a default has occurred under this Agreement and
has not been cured by the last day of the cure period, if any, applicable to
such default. If any of the Borrower's properties, books or records are in the
possession of a third party, the Borrower authorizes that third party to permit
the Bank or its agents to have
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access to perform inspections or audits and to respond to the Bank's requests
for information concerning such properties, books and records. The Bank has no
duty to inspect the Borrower's properties or to examine, audit or copy books and
records and the Bank shall not incur any obligation or liability by reason of
not making any such inspection or inquiry. In the event that the Bank inspects
the Borrower's properties or examines, audits or copies books and records, the
Bank will be acting solely for the purposes of protecting the Bank's security
and preserving the Bank's rights under this Agreement. Neither the Borrower nor
any other party is entitled to rely on any inspection or other inquiry by the
Bank. The Bank owes no duty of care to protect the Borrower or any other party
against, or to inform the Borrower or any other party of, any adverse condition
that may be observed as affecting the Borrower's properties or premises, or the
Borrower's business. In the event that the Bank has a duty or obligation under
applicable laws, regulations or legal requirements to disclose any report or
findings made as a result of, or in connection with, any site visit, observation
or testing by the Bank, the Bank may make such a disclosure to the Borrower or
any other party.
9.17 COMPLIANCE WITH LAWS. To comply with the laws (including any fictitious
name statute), regulations, and orders of any government body with authority
over the Borrower's business.
9.18 PRESERVATION OF RIGHTS. To maintain and preserve all rights, privileges,
and franchises the Borrower now has.
9.19 MAINTENANCE OF PROPERTIES. To make any repairs, renewals, or replacements
to keep the Borrower's properties in good working condition.
9.20 PERFECTION OF LIENS. To help the Bank perfect and protect its security
interests and liens, and reimburse it for related costs it incurs to protect its
security interests and liens.
9.21 COOPERATION. To take any action reasonably requested by the Bank to carry
out the intent of this Agreement.
9.22 INSURANCE.
(a) INSURANCE COVERING COLLATERAL. To maintain all risk property damage
insurance policies covering the tangible property comprising the
collateral. Each insurance policy must be in an amount acceptable to the
Bank. The insurance must be issued by an insurance company acceptable to
the Bank and must include a lender's loss payable endorsement in favor of
the Bank in a form acceptable to the Bank.
(b) GENERAL BUSINESS INSURANCE. To maintain insurance satisfactory to the Bank
as to amount, nature and carrier covering property damage (including loss
of use and occupancy) to any of the Borrower's properties, public liability
insurance including coverage for contractual liability, product liability
and workers' compensation, and any other insurance which is usual for the
Borrower's business.
(c) EVIDENCE OF INSURANCE. Upon the request of the Bank, to deliver to the Bank
a copy of each insurance policy, or, if permitted by the Bank, a
certificate of insurance listing all insurance in force.
9.23 ADDITIONAL NEGATIVE COVENANTS. Not to, without the Bank's written consent:
(a) engage in any business activities substantially different from the
Borrower's present business.
(b) liquidate or dissolve the Borrower's business.
(c) enter into any consolidation, merger, or other combination, or become a
partner in a partnership, a member of a joint venture, or a member of a
limited liability company.
(d) sell, assign, lease, transfer or otherwise dispose of any assets for less
than fair market value, or enter into any agreement to do so.
(e) sell, assign, lease, transfer or otherwise dispose of all or a substantial
part of the Borrower's business or the Borrower's assets except in the
ordinary course of the Borrower's business.
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(f) enter into any sale and leaseback agreement covering any of its fixed or
capital assets.
(g) acquire or purchase a business or its assets.
10. HAZARDOUS WASTE INDEMNIFICATION
The Borrower will indemnify and hold harmless the Bank from any loss or
liability directly or indirectly arising out of the use, generation,
manufacture, production, storage, release, threatened release, discharge,
disposal or presence of a hazardous substance. This indemnity will apply whether
the hazardous substance is on, under or about the Borrower's property or
operations or property leased to the Borrower. The indemnity includes but is not
limited to attorneys' fees (including the reasonable estimate of the allocated
cost of in-house counsel and staff). The indemnity extends to the Bank, its
parent, subsidiaries and all of their directors, officers, employees, agents,
successors, attorneys and assigns. "Hazardous substances" means any substance,
material or waste that is or becomes designated or regulated as "toxic,"
"hazardous," "pollutant," or "contaminant" or a similar designation or
regulation under any federal, state or local law (whether under common law,
statute, regulation or otherwise) or judicial or administrative interpretation
of such, including without limitation petroleum or natural gas. This indemnity
will survive repayment of the Borrower's obligations to the Bank.
11. DEFAULT
If any of the following events occurs, the Bank may do one or more of the
following: declare the Borrower in default, stop making any additional credit
available to the Borrower, and require the Borrower to repay its entire debt
immediately and without prior notice. If an event of default occurs under the
paragraph entitled "Bankruptcy," below, with respect to the Borrower, then the
entire debt outstanding under this Agreement will automatically be due
immediately.
11.1 FAILURE TO PAY. The Borrower fails to make a payment under this Agreement
within 5 days after the date when due.
11.2 LIEN PRIORITY. The Bank fails to have an enforceable first lien (except for
any prior liens to which the Bank has consented in writing) on or security
interest in any property given as security for this Agreement. If, in the Bank's
opinion, the failure is capable of being remedied, it will not be considered an
event of default under this Agreement for a period of 10 days after the earlier
of (a) the date the Borrower knew or should have known of such failure or (b)
the date on which the Bank gives written notice of such failure to the Borrower;
provided however, that the Bank will not be obligated to extend any additional
credit to the Borrower during that period.
11.3 FALSE INFORMATION. The Borrower has given the Bank materially false or
misleading information or representations.
11.4 BANKRUPTCY. The Borrower files a bankruptcy petition, a bankruptcy petition
is filed against the Borrower or the Borrower makes a general assignment for the
benefit of creditors.
11.5 RECEIVERS. A receiver or similar official is appointed for the Borrower's
business, or the business is terminated.
11.6 LAWSUITS. Any lawsuit or lawsuits are filed on behalf of one or more trade
creditors against the Borrower in an aggregate amount of Five Hundred Thousand
Dollars ($500,000) or more in excess of any insurance coverage.
11.7 JUDGMENTS. Any judgments or arbitration awards are entered against the
Borrower, or the Borrower enters into any settlement agreements with respect to
any litigation or arbitration, in an aggregate amount of Five Hundred Thousand
Dollars ($500,000) or more in excess of any insurance coverage.
11.8 GOVERNMENT ACTION. Any government authority takes action that the Bank
reasonably believes materially adversely affects the Borrower's financial
condition or ability to repay.
11.9 MATERIAL ADVERSE CHANGE. A material adverse change occurs in the Borrower's
business condition (financial or otherwise), operations, properties or
prospects, or ability to repay the credit.
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11.10 CROSS-DEFAULT. Any default occurs under any agreement in connection with
any credit the Borrower has obtained from anyone else or which the Borrower has
guaranteed in the amount of Five Hundred Thousand Dollars ($500,000) or more in
the aggregate if the default consists of failing to make a payment when due or
gives the other lender the right to accelerate the obligation.
11.11 DEFAULT UNDER RELATED DOCUMENTS. Any guaranty, subordination agreement,
security agreement, deed of trust, or other document required by this Agreement
is violated or no longer in effect unless such document is no longer in effect
because it has been renewed on substantially the same terms and conditions.
11.12 OTHER BANK AGREEMENTS. The Borrower fails to meet the conditions of, or
fails to perform any obligation under any material term of any other agreement
the Borrower has with the Bank or any affiliate of the Bank.
11.13 OTHER BREACH UNDER AGREEMENT. The Borrower fails to meet the conditions
of, or fails to perform any obligation under, any material term of this
Agreement not specifically referred to in this Article. This includes any
failure or anticipated failure by the Borrower to comply with any financial
covenants set forth in this Agreement, whether such failure is evidenced by
financial statements delivered to the Bank or is otherwise known to the Borrower
or the Bank.
12. ENFORCING THIS AGREEMENT; MISCELLANEOUS
12.1 GAAP. Except as otherwise stated in this Agreement, all financial
information provided to the Bank and all financial covenants will be made under
generally accepted accounting principles, consistently applied.
12.2 CALIFORNIA LAW. This Agreement is governed by California law.
12.3 SUCCESSORS AND ASSIGNS. This Agreement is binding on the Borrower's and
the Bank's successors and assignees. The Borrower agrees that it may not
voluntarily assigns this Agreement without the Bank's prior consent. The Bank
may sell participations in or assign this loan, and may, upon prior written
notice to the Borrower, exchange financial information about the Borrower with
actual or potential participants or assignees. If a participation is sold or the
loan is assigned, the purchaser will have the right of set-off against the
Borrower.
12.4 ARBITRATION.
(a) This paragraph concerns the resolution of any controversies or claims
between the Borrower and the Bank, including but not limited to those
that arise from:
(i) This Agreement (including any renewals, extensions or
modifications of this Agreement);
(ii) Any document, agreement or procedure related to or delivered in
connection with this Agreement;
(iii) Any violation of this Agreement; or
(iv) Any claims for damages resulting from any business conducted
between the Borrower and the Bank, including claims for injury to
persons, property or business interests (torts).
(b) At the request of the Borrower or the Bank, any such controversies or
claims will be settled by arbitration in accordance with the United
States Arbitration Act. The United States Arbitration Act will apply even
though this Agreement provides that it is governed by California law.
(c) Arbitration proceedings will be administered by the American Arbitration
Association and will be subject to its commercial rules of arbitration.
(d) For purposes of the application of the statute of limitations, the filing
of an arbitration petition or the initiation of an arbitration by any
other means pursuant to this paragraph is the equivalent of the filing of
a lawsuit, and any claim or controversy which may be arbitrated under
this paragraph is subject to any
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applicable statute of limitations. The arbitrators will have the authority
to decide whether any such claim or controversy is barred by the statute of
limitations and, if so, to dismiss the arbitration on that basis.
(e) If there is a dispute as to whether an issue is arbitrable, the arbitrators
will have the authority to resolve any such dispute.
(f) The decision that results from an arbitration proceeding may be submitted
to any authorized court of law to be confirmed and enforced.
(g) The procedure described above will not apply if the controversy or claim,
at the time of the proposed submission to arbitration, arises from or
relates to an obligation to the Bank secured by real property located in
California. In this case, both the Borrower and the Bank must consent to
submission of the claim or controversy to arbitration. If both parties do
not consent to arbitration, the controversy or claim will be settled as
follows:
(i) The Borrower and the Bank will designate a referee (or a panel of
referees) selected under the auspices of the American Arbitration
Association in the same manner as arbitrators are selected in
Association-sponsored proceedings;
(ii) The designated referee (or the panel of referees) will be appointed
by a court as provided in California Code of Civil Procedure Section
638 and the following related sections;
(iii) The referee (or the presiding referee of the panel) will be an
active attorney or a retired judge; and
(iv) The award that results from the decision of the referee (or the
panel) will be entered as a judgment in the court that appointed the
referee, in accordance with the provisions of California Code of
Civil Procedure Sections 644 and 645.
(h) This provision does not limit or expand the right of the Borrower or the
Bank to:
(i) exercise self-help remedies such as setoff;
(ii) foreclose against or sell any real or personal property collateral;
or
(iii) act in a court of law, before, during or after the arbitration
proceeding to obtain:
(A) an interim remedy; and/or
(B) additional or supplementary remedies.
(i) The pursuit of or a successful action for interim, additional or
supplementary remedies, or the filing of a court action, does not
constitute a waiver of the right of the Borrower or the Bank, including
the suing party, to submit the controversy or claim to arbitration if the
other party contests the lawsuit. However, if the controversy or claim
arises from or relates to an obligation to the Bank which is secured by
real property located in California at the time of the proposed submission
to arbitration, this right is limited according to the provision above
requiring the consent of both the Borrower and the Bank to seek resolution
through arbitration.
(j) If the Bank forecloses against any real property securing this Agreement,
the Bank has the option to exercise the power of sale under the deed of
trust or mortgage, or to proceed by judicial foreclosure.
12.5 SEVERABILITY; WAIVERS. If any part of this Agreement is not enforceable,
the rest of the Agreement may be enforced. The Bank retains all rights, even if
it makes a loan after default. If the Bank waives a default, it may enforce a
later default. Any consent or waiver under this Agreement must be in writing.
12.6 ATTORNEYS' FEES. The Borrower shall reimburse the Bank for any reasonable
costs and attorneys' fees incurred by the Bank in connection with the
enforcement or preservation of any rights or remedies under this Agreement and
any other documents executed in connection with this Agreement, and including
any
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amendment, waiver, "workout" or restructuring under this Agreement. In the event
of a lawsuit or arbitration proceeding, the prevailing party is entitled to
recover costs and reasonable attorneys' fees incurred in connection with the
lawsuit or arbitration proceeding, as determined by the court or arbitrator. In
the event that any case is commenced by or against the Borrower under the
Bankruptcy Code (Title 11, United States Code) or any similar or successor
statute, the Bank is entitled to recover costs and reasonable attorneys' fees
incurred by the Bank related to the preservation, protection, or enforcement of
any rights of the Bank in such a case. As used in this paragraph, "attorneys'
fees" includes the allocated costs of in-house counsel.
12.7 ONE AGREEMENT. This Agreement and any related security or other
agreements required by this Agreement, collectively:
(a) represent the sum of the understandings and agreements between the Bank
and the Borrower concerning this credit; and
(b) replace any prior oral or written agreements between the Bank and the
Borrower concerning this credit; and
(c) are intended by the Bank and the Borrower as the final, complete and
exclusive statement of the terms agreed to by them.
In the event of any conflict between this Agreement and any other agreements
required by this Agreement, this Agreement will prevail.
12.8 NOTICES. All notices required under this Agreement shall be personally
delivered or sent by first class mail, postage prepaid, to the addresses on the
signature page of this Agreement, or to such other addresses as the Bank and the
Borrower may specify from time to time in writing.
12.9 HEADINGS. Article and paragraph headings are for reference only and
shall not affect the interpretation or meaning of any provisions of this
Agreement.
12.10 COUNTERPARTS. This Agreement may be executed in as many counterparts as
necessary or convenient, and by the different parties on separate counterparts
each of which, when so executed, shall be deemed an original but all such
counterparts shall constitute but one and the same agreement.
12.11 PRIOR AGREEMENT SUPERSEDED. This Agreement supersedes the Business Loan
Agreement entered into as of September 29, 1995, between the Bank and the
Borrower, as amended (the "1995 Agreement"), and any credit outstanding
thereunder shall be deemed to be outstanding under this Agreement.
- --------------------------------------------------------------------------------
-14-
<PAGE>
This Agreement is executed as of the date stated at the top of the first page.
[LOGO]
BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION E-TEK DYNAMICS, INC.
X /s/ MAHESH KHARKAR X /s/ THERESA STONE PAN
---------------------------- ------------------------------
BY: MAHESH KHARKAR BY: THERESA STONE PAN
TITLE: VICE PRESIDENT TITLE: PRESIDENT
ADDRESS WHERE NOTICES TO THE BANK ADDRESS WHERE NOTICES TO THE BORROWER
ARE TO BE SENT: ARE TO BE SENT:
International Trade Banking Office #1768
P.O. Box 37000 1885 Lundy Avenue
San Francisco, CA 94137 San Jose, CA 95131
- --------------------------------------------------------------------------------
-15-
<PAGE>
[LOGO] BANK OF AMERICA AMENDMENT TO DOCUMENTS
- --------------------------------------------------------------------------------
AMENDMENT NO. 1 TO BUSINESS LOAN AGREEMENT
This Amendment No. 1 (the "Amendment") dated as of 10/3 1997, is between
Bank of America National Trust and Savings Association (the "Bank") and E-Tek
Dynamics, Inc. (the "Borrower").
RECITALS
--------
A. The Bank and the Borrower entered into a certain Business Loan
Agreement dated as of September 30, 1997 (the "Agreement").
B. The Bank and the Borrower desire to amend the Agreement.
AGREEMENT
---------
1. DEFINITIONS. Capitalized terms used but not defined in this Amendment
------------
shall have the meaning given to them in the Agreement.
2. AMENDMENTS. The Agreement is hereby amended as follows:
----------
2.1 Paragraph 2.2 is amended by substituting "October 30, 1997" for
"September 30, 1997".
3. EFFECT OF AMENDMENT. Except as provided in this Amendment, all of the
-------------------
terms and conditions of the Agreement shall remain in full force and effect.
This Amendment is executed as of the date stated at the beginning of
this Amendment.
BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION E-Tek Dynamics, Inc.
X /s/ MAHESH KHARKAR X /s/ THERESA STONE PAN
----------------------------------- --------------------------------
BY: MAHESH KHARKAR, VICE PRESIDENT BY: THERESA STONE PAN, PRESIDENT
- --------------------------------------------------------------------------------
-1-
<PAGE>
[LOGO] BANK OF AMERICA AMENDMENT TO DOCUMENTS
- --------------------------------------------------------------------------------
AMENDMENT NO. 2 TO BUSINESS LOAN AGREEMENT
This Amendment No. 2 (the "Amendment") dated as of MARCH 12, 1998, is
between Bank of America National Trust and Savings Association (the "Bank") and
E-Tek Dynamics, Inc. (the "Borrower").
RECITALS
--------
A. The Bank and the Borrower entered into a certain Business Loan
Agreement dated as of September 30, 1997, as previously amended (the
"Agreement").
B. The Bank and the Borrower desire to further amend the Agreement.
AGREEMENT
---------
1. DEFINITIONS. Capitalized terms used but not defined in this Amendment
-----------
shall have the meaning given to them in the Agreement.
2. AMENDMENTS. The Agreement is hereby amended as follows:
----------
2.1 In Paragraph 1.1(a), the amount "Fifteen Million Dollars
($15,000,000)" is substituted for the amount "Ten Million Dollars
($10,000,000)".
2.2 A new Paragraph 9.24 is added to the Agreement which reads in its
entirety as follows:
9.24 QUICK RATIO. To maintain as of the end of each fiscal
quarter a ratio of quick assets to current liabilities of at
least 1.25:1.0.
"Quick assets" means cash, short-term cash investments, net trade
receivables and marketable securities not classified as long-term
investments.
3. EFFECT OF AMENDMENT. Except as provided in this Amendment, all of the
-------------------
terms and conditions of the Agreement shall remain in full force and effect.
This Amendment is executed as of the date stated at the beginning of
this Amendment.
BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION E-TEK DYNAMICS, INC.
X /s/ FLORENCE GONG X /s/ [SIGNATURE]
- ---------------------------------- -----------------------------
BY: FLORENCE GONG, VICE PRESIDENT BY: C.F.O
- --------------------------------------------------------------------------------
-1-
<PAGE>
[LOGO] BANK OF AMERICA AMENDMENT TO DOCUMENTS
- --------------------------------------------------------------------------------
AMENDMENT NO. 3 TO
BUSINESS LOAN AGREEMENT
This Amendment No. 3 (the "Amendment") dated as of _______________, 1998,
is between Bank of America National Trust and Savings Association (the "Bank")
and E-Tek Dynamics, Inc. (the "Borrower").
RECITALS
--------
A. The Bank and the Borrower entered into a certain Business Loan
Agreement dated as of September 30, 1997, as previously amended (the
"Agreement").
B. The Bank and the Borrower desire to further amend the Agreement.
AGREEMENT
---------
1. DEFINITIONS. Capitalized terms used but not defined in this Amendment
-----------
shall have the meaning given to them in the Agreement.
2. AMENDMENTS. The Agreement is hereby amended as follows:
----------
2.1 Paragraph 9.2(b) is amended to read in its entirety as follows:
(b) Within 30 days of the period's end, the Borrower's quarterly
financial statements. These financial statements may be
Borrower prepared.
3. EFFECT OF AMENDMENT. Except as provided in this Amendment, all of the
-------------------
terms and conditions of the Agreement shall remain in full force and effect.
This Amendment is executed as of the date stated at the beginning of
this Amendment.
BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION E-TEK DYNAMICS, INC.
X X /s/ [SIGNATURE]
________________________________ --------------------------------
BY: FLORENCE GONG, VICE PRESIDENT BY:
- --------------------------------------------------------------------------------
-1-
<PAGE>
EXHIBIT 10.22
DESIGN AND CONSTRUCTION CONTRACT
-------------------------------
THIS DESIGN AND CONSTRUCTION CONTRACT ("Agreement") is made and entered
into this 30th day of March, 1998, by and between E-Tek Dynamics, Inc., a
California corporation, ("Owner") and Rudolph and Sletten, Inc., a California
corporation ("Contractor").
1. Contractor agrees, for the consideration and under the terms and
conditions set forth herein, to furnish and transport all necessary design
services, labor, tools, materials, supplies, plans, drawings, blueprints,
specifications, permits and inspections required to perform and completely
finish in a workmanlike manner to the satisfaction and approval of Owner, free
of any and all liens and claims of laborers, artisans, materialmen, suppliers
and subcontractors (collectively, "Subcontractors"), and strictly in conformity
in all respects with all applicable laws, ordinances, rules and regulations, the
work as described in Exhibit A attached hereto (the "Work") at those premises
described as 1865, 1875 and 1885 Lundy Avenue, San Jose, California (the
"Premises"). The Work shall be done and furnished in accordance with the
drawings, descriptions, plans, blueprints and specifications described on
Exhibit A, all of which (including any amendments thereto) shall be subject to
Owner's approval. Contractor shall retain its ownership rights in the Exhibit A
items; however, Owner is granted a perpetual nonexclusive license to use such
Exhibit A items for any purpose, other than to duplicate the Work for another
project. Contractor shall provide Owner upon request with one full copy set of
all Exhibit A items.
2. a. Owner shall be free at all times during the term of this Agreement to
make any additions to, alterations of, deviations from, or deletions of, the
Work ("Changes"), and any such Change(s) shall in no way affect or make void
this Agreement. No Change shall be authorized until Owner signs a Change Order
Form supplied by Contractor. Such form shall specify the proposed Change, its
dollar amount, and any modifications of scheduled completion dates.
b. Any Change(s) that decrease Contractor's (or its agents') cost of the
Work shall be evaluated on a lump-sum basis and such cost shall be deducted from
the Price (as defined in Paragraph 4, below).
c. Any Change(s) that increase Contractor's (or its agents') cost of the
Work shall be evaluated, at Owner's option, on either (i) a lump-sum basis, the
amount thereof to be agreed upon in writing before execution of such Change(s),
or (ii) on a cost-plus basis (i.e., on the basis of Actual Cost, as defined
below, plus 3.304% of the Actual Cost as a Contractors fee (2.6%) and for
liability insurance (0.704%), plus 2% of the design fee (as defined in Exhibit
C) for design/build insurance). Any such proposed Change(s) shall be subject to
Contractor's consent, which shall not be unreasonably withheld. The amount
thereof shall be added to the Price.
3. Contractor shall commence the Work on April 14, 1998, shall perform the
Work as promptly as possible pursuant to the schedule set forth in Exhibit B
attached hereto, and shall complete the entire Work, with the Premises fully
ready for intended use, by no later than November 2, 1998.
4. a. Owner agrees, in full consideration of the performance of this
Agreement by Contractor, to pay Contractor in accordance with the rates, fees,
Guaranteed Maximum Amounts, and other conditions on Exhibit C attached hereto,
subject to additions, deductions and offsets allowed by this Agreement (the
"Price"), in the following manner:
<PAGE>
(i) By the tenth day of each calendar month during the term of this
Agreement, Contractor shall present Owner with a Requisition for Payment
("RFP"), which shall include a schedule of values for all work provided by
or through Contractor, and accepted by Owner, during the preceding month,
along with all supporting information, including paid bills, statements of
account, payroll records and, if requested by Owner, a release of liens
from the Owner and all Subcontractors. Contractor shall also include with
each RFP a Project Cost Status Report. This report and the RFP shall be in
forms approved by Owner.
(ii) Within ten days of receiving and approving the RFP, Owner shall
pay to Contractor ninety percent of the value of the services and material
provided and furnished during such preceding month.
(iii) Any balance of the Price shall be paid to Contractor within
thirty days of Contractor's completion, and Owner's acceptance, of the
Work.
b. For purposes of this Agreement, "Actual Cost" shall mean all verifiable
expenditures for materials, supplies and labor furnished by or through
Contractor, but shall not include any allowance for overhead or general
expenses, such as office expense, cost of equipment, insurance premiums, or
general supervision. Owner shall have reasonable audit rights to inspect and
copy all books and records in Contractor's (and/or its agents') custody,
possession or control to evaluate and verify, among other things, the cost of
the Work. Any such audits shall be at Owner's expense, however, in the event an
audit reveals that the cost of work claimed by Contractor is more than three
percent above Actual Cost, then Contractor shall pay the audit costs.
c. As a condition precedent to Contractor's right to receive any payment
under this Agreement, Contractor shall discharge and release the Premises from
any and all claims or liens, in a form satisfactory to Owner, that may have
accrued in connection with this Agreement; or, at Owner's option, Owner shall
discharge any and all such liens and claims and deduct all costs thereof from
the Price.
d. Owner reserves the right to make payments to Contractor in the form of
checks payable jointly to Contractor and to any of its Subcontractors that might
have the right to assert a claim or lien against the Premises.
5. a. At Owner's option, all Work (including materials), or any part
thereof, that is not reasonably satisfactory to Owner, and/or not done/furnished
in accordance with Exhibit A, shall either be (i) immediately taken down,
removed and replaced by Contractor with work and/or material of a quality
approved by Owner, without any additional compensation to Contractor, or, (ii)
removed by or through Owner, and corrected or replaced as Owner may elect, and
Contractor shall be obligated to pay to Owner all expenses so incurred either,
at Owner's option, by direct payment to Owner or by Owner deducting such
expenses from the Price.
b. Owner shall exercise reasonable care to discover any labor or materials
that are not satisfactory to it, or that are not in accordance with Exhibit A,
and to promptly report the same to Contractor. Notwithstanding the foregoing, in
no event shall Contractor be relieved of responsibility for any consequence of
any unsatisfactory Work or any negligence and/or misconduct of Contractor or its
agents.
<PAGE>
6. Except where covered by any builders' all-risk insurance, Owner will not
in any manner be answerable or accountable for any loss or damage to the Work
(including materials), or any part thereof, before its full completion by
Contractor and acceptance by Owner. Contractor shall at all times keep the job
site and surrounding area clean, safe and orderly, and shall comply with all
health and safety laws, rules and regulations. At the completion of the Work,
the job site will be left by Contractor in a broom-clean condition.
7. Contractor warrants that the Work will be complete, free from faulty
materials and workmanship, and fit for the intended purpose. Upon receiving
notification from Owner, Contractor shall, at Owner's option and without cost to
Owner, promptly remedy, repair or replace to Owner's satisfaction any and all
defects, damages or imperfections appearing in the Work within a period of
twelve months after Contractor's completion, and Owner's acceptance, of the
Work. Should Contractor fail or refuse to honor its warranty, then Owner shall
have the option, by itself or through third parties, to remedy, repair or
replace any defects, damages or imperfections, and Contractor shall be
responsible for the costs and expenses associated therewith.
8. Contractor shall indemnify, defend and save harmless Owner and its
affiliates and agents, and each of them, from and against (i) any and all
claims, damages, expenses and liabilities relating to, among other things,
alleged or actual injury to or death of any persons (including employees and
agents of Contractor and/or Subcontractor(s) and employees, agents, tenants and
invitees of Owner), and/or alleged or actual damage to or destruction of
property, and/or disruption of business, arising out of or relating to the Work,
and (ii) all penalties and fines imposed on account of any violations of any
applicable laws, rules or regulations, and all resulting damages, relating to
this Agreement. Notwithstanding the foregoing, Contractor shall not be liable
for damages directly caused by the presence on the job site of pollutants,
gaseous emissions, asbestos, or hazardous and/or toxic substances, whether
subsurface or otherwise, unless caused by the negligence, omission or misconduct
of Contractor.
9. If Contractor at any time during the progress of the Work refuses or
neglects to supply sufficient services, materials and/or labor to continue with
the Work for more than three days after having been notified in writing by Owner
to furnish them, Owner shall have the option to furnish and provide such
services, materials and labor as are necessary to finish the Work, and the
expense thereof shall be deducted from the Price. If such expense exceeds the
unpaid amount owing to Contractor, then Contractor shall pay to Owner the
difference.
10. Contractor hereby declares that it is engaged in an independent
business, and agrees to perform the Work as an independent contractor and not as
the employee, agent or servant of Owner. Contractor has and hereby retains the
right to exercise full control and supervision of the Work and full control over
the employment, direction, selection, compensation and discharge of all persons
assisting in the Work. Contractor shall maintain continuously during the term of
this Agreement, at its own expense, adequate disability, unemployment and other
insurance, workers' compensation, and similar items for itself and for its
employees, agents and Subcontractors. Contractor shall deliver to E-Tek upon
request certificates of insurance evidencing such coverage. Contractor agrees to
be solely responsible for all matters relating to payment of its employees,
agents and Subcontractors, and for its own acts and those of its employees,
agents and Subcontractors.
11. Contractor hereby warrants that it is licensed by, and in good standing
with, the California Contractors' State License Board.
<PAGE>
12. Contractor shall maintain continuously during the term of this
Agreement, at its own expense, a comprehensive general liability insurance
policy that names E-Tek as a loss payee thereunder in the amount of at least $1
million per occurrence. This policy shall provide for thirty days notice to E-
Tek of the cancellation or material modification thereof. Contractor shall
deliver to E-Tek upon request certificates of insurance evidencing such
coverage.
13. Owner may terminate this Agreement upon written notice to Contractor if
Contractor commits a material breach of this Agreement and fails to cure the
same within five days of its receipt of written notice of such breach. Owner may
terminate this Agreement immediately upon written notice in the event of an
irremediable material breach by Contractor, or upon Contractor's cessation of
business, election to dissolve, dissolution, insolvency, assignment for the
benefit of creditors or filing of bankruptcy, or upon the appointment of a
receiver to Contractor's business
14. Time is of the essence of this Agreement.
15. Each party agrees that any statute, rule or doctrine regarding the
interpretation of contracts against a particular party shall not apply to this
Agreement.
16. As a condition precedent to the formation of this Agreement, and to any
rights and obligations hereunder, consent and approval must be granted from all
applicable government agencies for the proposed Work and to all related
tracings, drawings, plans, blueprints and specifications, and to amendments
thereto.
17. Any dispute, claim or controversy arising from or relating to this
Agreement that the parties cannot settle informally shall be subject to
mediation under the Construction Industry Mediation Rules of the American
Arbitration Association ("AAA"). Mediation shall be initiated by either party
upon written notice, and shall commence within fifteen days thereafter. If the
dispute is not so resolved, then any party may submit the matter to binding
arbitration by, and under the commercial arbitration rules of, the AAA;
provided, that such party must have first attempted in good faith to informally
resolve such dispute. Any such arbitration shall be conducted in San Jose,
California, by one arbitrator selected by the parties. If the parties cannot so
agree, then the AAA shall select the arbitrator. Any controversy of whether an
issue is arbitratable shall be determined by the arbitrator, but such arbitrator
may not limit, expand or otherwise modify the terms of this Agreement. The
arbitrator shall be able to decree any and all relief, subject to the
limitations on liability and other terms provided in this Agreement. The decree
or judgment of an award rendered by the arbitrator shall be conclusive and
binding, and may be entered in any court having jurisdiction. The parties may
engage in reasonable discovery, and the arbitrator may decide all discovery
disputes. The fees and expenses of the arbitrator shall initially be split
evenly between the parties, and each party shall initially bear its own costs in
any arbitration proceeding; provided, that the arbitrator shall award the
prevailing party its reasonable attorneys' fees and costs (including the fees
and expenses of the arbitration) incurred therein. The institution and
maintenance of any civil action for judicial relief or for a provisional or
ancillary remedy shall not constitute a waiver of the right of either party to
submit the dispute to arbitration.
18. If any term or provision of this Agreement shall be held invalid or
unenforceable to any extent, the remainder of this Agreement shall not be
affected and each other term and provision shall be valid to the fullest extent
permitted by law.
19. This Agreement constitutes the entire agreement between the parties
with respect to the subject matter contained herein and supersedes any and all
prior and contemporaneous
<PAGE>
agreements, representations and understandings. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by the
parties. No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provision, whether or not similar, nor
shall any waiver constitute a continuing waiver. No waiver shall be binding
unless executed in writing by the party to be charged.
20. This Agreement shall be binding on and shall inure to the benefit of
the parties and their respective representatives, successors and permitted
assigns; provided, however, that Contractor shall have no right to transfer or
assign any rights or obligations under this Agreement without first obtaining
Owner's written consent. Any attempted assignment in violation of this provision
shall be void.
21. Contractor shall execute and deliver such other and further documents,
and perform such other acts, as are or may become necessary or convenient to
effectuate and carry out the intent and purposes of this Agreement.
22. Owner shall reasonably cooperate with Contractor by providing the
Work's general design objectives, constraints and criteria. Owner shall
designate a representative authorized to act on Owner's behalf with respect to
the Work. To help prevent delays in the Work, Owner or such authorized
representative shall, when required and with reasonable promptness, furnish
information and documents, review documents submitted by Contractor and render
decisions.
23. Any notice required or permitted to be given hereunder shall be in
writing, unless otherwise provided herein, shall be delivered either by
overnight mail or by facsimile, and shall be addressed as follows:
If to Contractor: If to Owner:
Rudolph & Sletten, Inc. E-Tek Dynamics, Inc.
989 E. Hillsdale Blvd. 1885 Lundy Avenue
Suite 100 San Jose, CA 95131
Foster City, CA 94404 Attn.: Legal Department
Attn.: Carlie Hernandez Fax: 408.954.5918
Fax: 650.345.5684
Any notice given as aforesaid shall be deemed to have been effectively
given and received (i) if sent by overnight mail, on the date of such delivery,
or, (ii) if sent by facsimile, on the date of transmission. Either party may
change its address of service by written notice given as provided above.
IN WITNESS WHEREOF, Owner and Contractor have each executed this Agreement
as of the date first above written.
OWNER: CONTRACTOR:
E-Tek Dynamics, Inc. Rudolph and Sletten, Inc.
By: __________________ By: __________________
__________________ __________________
__________________ __________________
[Print Name and Title] [Print Name and Title]
<PAGE>
Exhibit A
---------
Following is a description of the scope of Work. Its scope will be revised by E-
Tek each time a construction design phase reaches 80% drawing completion.
PROJECT DESCRIPTION:
--------------------
Subject to the terms of the Agreement, the Work will include the following.
In general, all finishes, restrooms, HVAC (excluding rooftop equipment)
will be renovated. Reference attached drawings:
1. Renovation of 1865, first floor, approximately 30,000 square feet.
. All work to be performed as part of Phase I.
. Space to include lab and manufacturing areas with a small amount of
administration space.
. Reference WHL Construction Documents dated 5/7/98.
2. Renovation of 1875, first floor, approximately 30,000 square feet.
. Renovation to occur in two phases included in Phase II and III.
Coating area to be constructed while occupied.
. Primary functions are labs, shipping/receiving, materials space, and
a large Cafeteria (no service).
3. Renovation of 1875, second floor, approximately 30,000 square feet.
. Renovation to occur in one phase included in Phase II. Area will be
partially occupied during construction.
. Area includes office and materials area.
4. Renovation of 1885, first floor, approximately 30,000 square feet.
. Renovation will occur in three phases included in Phase I, Phase II, Phase
III and Phase IV
. Area includes manufacturing. Additional HVAC rooftop equipment will be needed
to support additional loads.
. For Coupler/Component area reference WHL Construction Documents dated 5/7/98.
5. Renovation of 1885, second floor, approximately 30,000 square feet.
. Area will be in several phases as sub-tenant move out. Work will be included
in Phase I, Phase II, III and V.
. Area includes offices, materials area and training rooms.
<PAGE>
Exhibit B
---------
The parties hereby incorporate the terms of that certain May 6, 1998
E-Tek Dynamics, Inc. Campus Renovation Master Schedule by Rudolph & Sletten,
Inc., Job No. 2375.
<PAGE>
AMENDMENT TO DESIGN AND CONSTRUCTION CONTRACT
---------------------------------------------
THIS AMENDMENT TO DESIGN AND CONSTRUCTION CONTRACT ("Amendment") is made
and entered into this 15th day of July, 1998, by and between E-Tek Dynamics,
Inc., a California corporation, and Randolph & Sletten, Inc., a California
corporation.
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the parties entered into that March 30, 1998 Design and
Construction Contract ("Agreement"), and now wish to amend the same on the terms
and conditions set forth herein.
NOW, THEREFORE, for valuable consideration, the parties agree as follows.
A G R E E M E N T
- - - - - - - - -
1. Amendments.
-----------
This will confirm that the drawings of the following items of the
Agreement's Exhibit A - Description of the Scope of Work - are eighty percent
or more completed, and that the attached Phase 1 - Guaranteed Maximum Price sets
forth the maximum amounts payable to Contractor for the corresponding
projects/phases.
A. Renovation of 1865, first floor, approximately 30,000 square feet.
. Space to include lab and manufacturing areas with a small amount
of administration space.
. Reference WHL Construction Documents dated 5/07/98 WHL Project
#98132
B. Renovation of 1885, first floor, Coupler/Components area,
approximately 9,000 square feet.
. Area includes manufacturing with small lab support and
gas/chemical area.
. For Coupler/Component area reference WHL Construction Documents
dated 5/7/98 WHL Project #98124.10
C. Renovation of 1885, second floor, WDM area, approximately 4,600
square feet.
. Area includes manufacturing only.
. Reference WHL Construction Drawings dated 4/22/98, WHL project
#98124.0
2. Interpretation; Remainder of Agreement. Capitalized words and terms are
---------------------------------------
used in this Agreement as such words and terms are defined in the Agreement.
Except as expressly provided herein, the parties' respective rights, duties and
obligations under the Agreement are modified and shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties have entered into this Amendment as of the
date first written above.
E-TEK Dynamics, Inc. Rudolph & Sletten, Inc.
By: ___________________ By: ______________________
Tammy Karpol ______________________
Corporate Facilities Manager ______________________
[Print Name and Title]
<PAGE>
EXHIBIT 10.23
JOINT VENTURE AGREEMENT
THIS JOINT VENTURE AGREEMENT ("Agreement") is made and entered into this
3rd day of March, 1998, by and between E-Tek Dynamics, Inc., a California
corporation ("E-Tek"), and Walsin Lihwa Corp., a Taiwanese corporation
("Walsin"). E-Tek and Walsin may hereafter be referred to individually or
collectively as "Shareholder" or "Shareholders."
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, E-Tek is engaged in the business of developing, manufacturing and
marketing fiber optic components and systems for the telecommunications and CATV
industries; and,
WHEREAS, Walsin is a leading manufacturer of wire and cable in Taiwan, with
strong distribution channels throughout Asia; and,
WHEREAS, the parties wish to form, with the financial assistance of
investor-designees as described below, a joint venture whereby a third party
Taiwanese company, limited by shares ("JV"), would be created to, among other
things, develop, manufacture and distribute certain fiber optic products; and,
WHEREAS, in contemplation of forming JV, the parties have entered into a
December 17, 1997 Technical Licensing Agreement ("Licensing Agreement") whereby
JV shall assume all rights and obligations of Walsin as licensee thereunder.
NOW THEREFORE, for good and valuable consideration (including the mutual
covenants contained herein), the sufficiency and receipt of which are hereby
acknowledged, the parties hereto agree as follows:
A G R E E M E N T
- - - - - - - - -
1. Incorporation of Recitals. The parties hereby acknowledge the accuracy
--------------------------
of the foregoing recitals and incorporate each of them by reference in this
Agreement.
2. Formation of Joint Venture Company. Walsin and E-Tek shall promptly
-----------------------------------
form JV, a Taiwanese company limited by shares. The parties shall attempt, but
not be obligated, to incorporate JV in Hsinchu under the Statute for the
Establishment and Administration of a Science-Based Industrial Park and thereby
qualify JV for various incentives provided by the laws of Taiwan. Subject to
governmental approval, attached hereto as Exhibit A is the form of the Articles
of Incorporation of JV. Once approved by the government, they shall become a
part of this Agreement. In the event of any discrepancy between the Articles of
Incorporation and the terms of this Agreement, the terms of this Agreement shall
prevail as between the parties.
3. Purpose. This Agreement has been formed for the limited purposes of
--------
allowing JV to: (i) assume Walsin's rights and obligations under the Licensing
Agreement; and, (ii) develop, manufacture and distribute certain fiber optic
products pursuant to the terms of the business plan ("Business Plan") attached
hereto as Exhibit B, and to engage in such other business practices as the Board
(as defined below) may hereafter decide.
Page 1
<PAGE>
4. Capitalization of JV.
---------------------
a. Capital Structure. At the time of its formation, the authorized
------------------
capital of JV shall be Six Hundred Eighty Million New Taiwan Dollars
(NT$680,000,000). The shares of JV shall all be common, registered shares, each
having a par value of Ten New Taiwan Dollars (NT$10). All shares of JV shall
carry the same rights and privileges and be subject to the same restrictions and
conditions. Unless otherwise required by law, each share shall be entitled to
one vote. If and for so long as JV does not have the minimum number of seven
shareholders required by applicable law, E-Tek shall allocate one JV share to
each person(s) designated by E-Tek until JV has the minimum number of
shareholders required by law.
b. Initial Contributions.
----------------------
(i) The initial paid-in capital of JV shall be Four Hundred
Seventy Six Million New Taiwan Dollars (NT$476,000,000). Upon execution of this
Agreement, E-Tek and its investor-designees shall pledge a total of Two Hundred
Thirty Eight Million New Taiwan Dollars (NT$238,000,000), and Walsin and its
investor-designees shall pledge a total of Two Hundred Thirty Eight Million New
Taiwan Dollars (NT$238,000,000), such sums representing the parties' respective
initial capital contributions to JV. Once these amounts are fully deposited: E-
Tek and its investor-designees shall hold a fifty percent equity interest in JV;
and, Walsin and its investor-designees shall hold a fifty percent equity
interest therein. JV's records shall note the respective stated capital
investments of the parties.
(ii) The parties and their investor-designees shall pay for the
shares of JV stock at par value in cash within ten days of the later of either
the party's timely acceptance of the Business Plan or E-Tek's receipt of notice
that the Taiwanese governmental authorities have approved the proposed partial
capitalization of JV by E-Tek and its investor-designees as foreign investors.
c. Future Issuances of Securities. Each Shareholder and its
-------------------------------
investor-designees shall have preemptive rights to subscribe to future issuances
of JV securities in accordance with Article 267 of Taiwan's Company Law,
irrespective of whether such law is hereafter modified or abolished. This right
does not extend to securities issued in connection with any merger, acquisition,
consolidation or reorganization. Unless the Shareholders hereafter agree in
writing, JV shall not issue, or attempt to issue, to any person or entity any
securities of any kind or any options or other devices to acquire the same, nor
shall either Shareholder be required or permitted to contribute any additional
capital to JV.
d. JV Employee Stock Ownership. The JV shall adopt an equity
----------------------------
participation plan and thereby offer to its employees an opportunity to acquire
equity interests in JV on terms to be established by the Shareholders and/or
Board; provided, however, that no such offer shall ever be made at any time when
JV employees own collectively more than a ten percent equity interest therein
(assuming all options or other devices to acquire equity interests are fully
vested and have been exercised).
e. Investor-Designees. A Shareholder can at any time, including in
-------------------
connection with JV's initial capital contribution contemplated above, substitute
any third party(ies) in its place, in whole or in part, to acquire through
financial investment an equity interest in JV; provided, however, that: (i) any
such investor-designee enters into an agreement with JV and its owners whereby
it agrees to
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transfer restrictions on its interest in JV that are the same as those contained
in this Agreement; and, (ii) the other Shareholder must first provide its
consent to any such investor-designee, which consent shall not be unreasonably
withheld. For purposes of this subparagraph, it shall be deemed reasonable for a
Shareholder to withhold its consent with respect to any investor-designee that
is an actual or potential competitor of such Shareholder.
5. Restrictions on Transfer of Equity Interests.
---------------------------------------------
a. Neither Shareholder (nor its investor-designees) may hereafter
sell or engage in any transaction which results in, or may result in, a change
in the beneficial or record ownership of any JV equity interest held by such
Shareholder or its investor-designees, including without limitation a voluntary
or involuntary sale, assignment, transfer, pledge, hypothecation, encumbrance,
disposal, loan, gift, attachment or levy. Any such transfer or attempted
transfer in contravention of this Agreement shall be void and ineffective.
b. The restrictions on transfer set forth in subparagraphs 5.a.,
5.d., and 5.e. shall not apply to: (i) transfers made by operation of law
(including in connection with a merger, acquisition, consolidation or
reorganization of a Shareholder); or, (ii) transfers made to a Shareholder
and/or its investor-designee by any of its other investor-designees (unless such
transferring investor-designee has eighty percent or more of its stock owned or
controlled by Walsin).
c. Notwithstanding the provisions of subparagraphs 5.d. and 5.e.,
below, but subject to paragraph 8, below, neither Shareholder, nor any entity
whose stock is at least eighty percent owned or controlled by Walsin, shall
transfer, or attempt to transfer, any equity interest that they individually
hold in JV at anytime before March 1, 2000.
d. Before there can be a valid sale of any equity interest in JV,
the Shareholder who either owns, or whose investor-designee(s) owns, the
interest (the "Selling Shareholder") shall deliver to the other Shareholder
satisfactory proof of a bona fide offer by a third party along with a written
notice ("Notice") stating the identity of the third party, the precise amount of
equity interest proposed to be transferred, and the price and other terms of
such proposed sale. If the other Shareholder (or its investor-designees) desire
to acquire all or part of such equity interest, then the other Shareholder
shall, no later than thirty days after delivery of the Notice, deliver to the
Selling Shareholder a written offer to purchase specifying the amount of equity
interest proposed to be acquired. If the other Shareholder (or its investor-
designees) propose to purchase all of the equity interest specified in the
Notice, then such sale shall be made at the price and on the terms specified in
said Notice. Any purchases by the other Shareholder or its investor-designees of
less than all of the equity interest described in the Notice shall be made at
pro rata prices based on the amount specified in the Notice.
e. If the other Shareholder (or its investor-designees) fail to
offer to purchase all of the equity interest described in the Notice by the end
of the thirty-day period, then the Selling Shareholder or its investor-designees
may sell the remaining shares referred to in the Notice to the listed third-
party offeror, provided, that: (i) the sale is completed no later than forty-
five days after the date the Notice was originally tendered to the other
Shareholder and at a pro rata price no lower than, and on terms no more
favorable to the third-party purchaser than, those specified in such Notice;
and, (ii) any such third-party purchaser enters into an agreement with JV and
its owners
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whereby it receives preemptive rights as described in subparagraph 4.c., above,
and agrees to transfer restrictions on its interest in JV that are the same as
those contained in this Agreement
f. If JV is required to register as a "public status company" under
Article 156 of the Taiwanese company law to issue shares to the public, or if JV
otherwise becomes subject to regulation under the Taiwanese Securities Exchange
Law or any other applicable laws relating to share issuance or distribution,
shareholder eligibility, the exercise and/or enjoyment of shareholder rights, or
other areas which may affect the parties' respective rights with respect to the
ownership or management of JV, then each party shall cause such registration,
issuance, and/or subjection to be structured, and shall otherwise act and cause
JV to act, so as to preserve, to the maximum extent possible, the terms of this
Agreement, both in letter and in spirit.
6. Management of JV.
-----------------
a. Board of Directors.
-------------------
(i) The affairs of JV shall be managed by or through a board
("Board") of five directors, three of whom shall be nominated tri-annually by E-
Tek and two of whom shall be nominated tri-annually by Walsin. E-Tek and Walsin
each irrevocably agree to vote all of their respective equity interest in JV,
and to cause the voting of their respective investor-designees' equity interest
in JV, for the election and maintenance in office of the persons so nominated.
In the event that, between regular nominations, either E-Tek or Walsin wishes to
replace any or all of its nominees on the Board, the other Shareholder shall
join in all necessary steps, acts and proceedings, including causing the voting
of its, and its investor-designees,' equity interest in JV, to facilitate the
removal of such nominee(s) and the election of replacement board member(s), who
shall be selected by the Shareholder hereto whose nominee(s) shall have been so
removed.
(ii) The chairman of the Board, who shall be nominated by
Walsin and shall at all times also serve as a director, shall be appointed for
tri-annual terms and shall, if present, preside at meetings of the Board and of
the JV shareholders. If the chairman is not present, then a director (as set
forth in Exhibit A) shall preside at such meetings. Walsin shall appoint one
Supervisor, who shall serve the JV on tri-annual terms. Except as provided in
this Agreement or in JV's Articles of Incorporation, neither the Chairman nor
the Supervisor shall have any further rights or powers, including the right to
bind, or act on behalf of, JV.
(iii) Nothing contained in this Agreement shall be construed to
bind the members of the Board as to the method or manner of the exercise of
their discretion concerning their management of the affairs of JV.
Notwithstanding the foregoing, neither Walsin nor JV shall ever commit an act,
or fail to take any action, that would impede or restrict E-Tek's ability to
continue to conduct its normal business operations, wherever practiced.
(iv) JV shall indemnify any member of the Board who was or is
a party, or is threatened to be made a party, to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he or she is or was a board member,
against all expenses, including attorneys' fees, judgments, fines and amounts
paid in settlement, actually and reasonably incurred by him or her in connection
with such action, suit of proceeding if he or she acted in good faith and in a
manner he or she reasonably believed to be in, or not opposed to, the best
interests of JV, and, with respect to any criminal action or
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proceeding, had no reasonable cause to believe, and did not believe, that his or
her conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of no contest or its
equivalent, shall not, of itself, create a presumption that the subject board
member did not act in good faith and in a manner which he or she reasonably
believed to be in, or not opposed to, the best interests of JV, and, with
respect to any criminal action or proceeding, had reasonable cause to believe,
and did believe, that his or her conduct was unlawful.
(v) Eighty percent of the authorized number of board members,
whether in person or proxy, constitutes a quorum of the Board for the
transaction of business. All decisions of the Board shall require a simple
majority vote of the number of board members present at such meeting, whether in
person or proxy; provided, however, that on any of the following matters, a
decision of the Board requires an affirmative vote from at least eighty percent
of the board members so present:
i. approving the annual budget;
ii. appointing and removing the President, and setting and
defining the duties and powers of the principal officers;
iii. materially amending the Articles of Incorporation;
iv. changing the capital, debt or equity structure of JV
(including applying for a listing of JV's stock on the over-the-
counter market or securities exchange market);
v. merging JV or selling substantially all of its assets or
business;
vi. commencing voluntary bankruptcy, dissolution or
liquidation proceedings;
vii. deviating from the terms of the Business Plan (which
deviation would include, among other things, establishing a
manufacturing facility in any location other than Taiwan); or,
viii. Executing any agreement with any Shareholder with a value
of over NT$34 Million (other than the Supplier Agreement and
Distributorship Agreement contemplated in Paragraph 26, below).
b. Daily Management. The general manager of JV shall be deemed the
-----------------
president ("President") and shall be appointed and removed by the Board. The
duties and responsibilities of this officer shall be to administer the day-to-
day affairs of JV in the ordinary course of its business, subject to the
ultimate direction and control of the Board. Among other matters, the President
shall have general supervision, direction and control of the business and
affairs of JV and of its employees and agents, including the obligation to
employ, discharge and prescribe the duties and compensation of all employees and
agents of JV, and the obligation to supervise all administrative and production
functions of the company, including such areas as accounting, inventory control,
purchasing, corporate maintenance, quality assurance, product testing, equipment
maintenance, customer service, shipping, manufacturing and marketing. The
President shall be authorized to sign all contracts, documents and instruments
in writing in the name of JV, subject to such limitations and restrictions as
the Board may hereafter establish.
c. Ownership Control. Unless Taiwanese company law requires a higher
number, a quorum of a meeting of the JV owners shall consist of the holders,
appearing personally or through proxy, of a simple majority of the then-
outstanding equity interest of such company. Subject to Taiwanese company law,
all actions of JV that are required or permitted to be performed by its
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<PAGE>
owners must receive the affirmative vote of the holders of a simple majority of
the then-outstanding equity interest of JV.
7. Books and Records. Proper books and records of account shall be kept
------------------
by JV, and shall be freely accessible to representatives of both E-Tek and
Walsin at all reasonable times. JV shall promptly deliver copies of all such
books and records to E-Tek and Walsin upon request. In addition, within the
first ten days of every calendar month, JV shall prepare a financial statement
detailing all pertinent activities and events of the preceding month, and
provide E-Tek and Walsin with copies of the same within five days thereof. At
the end of each year, JV shall prepare an audited balance sheet setting forth
its financial position as of the end of that year and an audited statement of
operations (income and expenses) for such year. A certified copy of the same
shall be delivered to Walsin and E-Tek as soon as it is available. JV's auditors
shall be appointed by the Board, and shall be independent and of national
standing.
8. Forced Sale: Dissolution.
-------------------------
a. Notwithstanding any other provision in this Agreement, a
Shareholder may, upon or during the occurrence of any the following situations,
force a sale and purchase of JV stock in accordance with subparagraphs 8.b. and
8.c., below:
(i) The members of the Board are divided and unable to agree on
the management of JV's affairs, and as a result of such deadlock, JV's business
cannot be conducted advantageously or there is a risk that its property or
business may be impaired;
(ii) There is internal dissension between JV's shareholders, and
they are so deadlocked that it is impairing JV's ability to conduct business;
(iii) Those in control of JV have committed or knowingly
countenanced persistent and pervasive fraud, mismanagement or abuse of
authority, have persistently acted unfairly toward any shareholder(s), or have
wasted or misapplied JV's property;
(iv) Liquidation is reasonably necessary for the protection of
the rights or interests of the complaining shareholder; or,
(v) JV is unable to pay its debts as they fall due.
b. Subject to subparagraph 8.a., above, a Shareholder ("Optionee")
may deliver a written notice to the other Shareholder ("Optionor") with a price-
per-share at which Optionee would be willing, at Optionor's election, to either
sell to Optionor no less than all JV stock held by Optionee and its investor-
designees ("Optionee Stock"), or, purchase (or have purchased through investor-
designees) no less than all JV stock held by Optionor and its investor-designees
("Optionor Stock"). If the Optionor (or its investor-designees) desire to either
purchase or sell the applicable lot of JV stock at the offered price-per-share,
then the Optionor shall, no later than thirty days after delivery of the
Optionee's notice, deliver to the Optionee a written statement, specifying
acceptance of either the sale or purchase.
c. If Optionor (including its investor-designees) fails to accept
within the thirty-day period the offer to purchase or sell the applicable lot of
JV stock, then the Optionee (or its investor-
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<PAGE>
designees) shall be entitled, at Optionee's election and upon written notice
delivered to Optionor within fifteen days from the expiration of such thirty-day
period, to either purchase the Optionor's Stock, or sell to Optionor the
Optionee's Stock, at the price-per-share first offered by Optionee in its
original notice.
d. The parties shall take all reasonable steps to promptly
consummate any sale or purchase of stock contemplated in subparagraphs 8.b. or
8.c., above. If, instead, neither party (nor its investor-designees) elects to
make such a sale or purchase, then within sixty days from the delivery of
Optionee's original notice, each Shareholder shall join in all necessary steps,
acts and proceedings to facilitate the initiation and full prosecution of
dissolving, liquidating and winding-up JV and its business.
e. In the event that JV shall take steps to dissolve for any reason
whatsoever, then:
(i) a full and general account of its assets, liabilities and
accounts shall at once be taken. Subject to the provisions of subparagraph
8.e.(ii), below, such assets may be sold and converted into cash as soon as
possible, and all debts and other amounts due JV collected. The proceeds thereof
shall thereupon be applied, in descending order, to discharge the debts and
liabilities of JV and the expenses of liquidation, to repay to each equity owner
a pro rata amount of the stated capital contributions respectively made, and, to
divide the surplus, if any, among the owners according to each owner's then-
current equity interest therein; and,
(ii) JV shall immediately and without further consideration grant
to each Shareholder a perpetual, nonexclusive right (including sublicense and
have-made rights) in and to any and all patents, patent applications, all
divisions, continuations and continuations-in-part of such patent applications,
all patents issuing on any of the foregoing applications, all re-issues of any
of the foregoing patents, all foreign counterparts to any of the foregoing
patent applications and patents, and all copyrights, know-how, technical
information, processes, trade secrets and any and all other intellectual
property rights held by or in the name of JV (excluding only the intellectual
property license granted to JV under the Licensing Agreement, which shall, by
its own terms, automatically terminate upon dissolution of JV). All information,
whether in tangible form or otherwise, relating to such JV intellectual property
rights shall be transferred immediately to each Shareholder.
9. Technology Licensing: Training. Pursuant to the terms of the Licensing
------------------------------
Agreement, E-Tek shall perform certain training and installation services and
grant to JV, as assignee to Walsin's rights and duties thereunder, a limited
license to certain technology to develop, manufacture and sell certain fiber
optic products. In consideration therefor, JV, as Walsin's successor thereto,
shall pay to E-Tek the sum of Seven Million US Dollars.
10. Publicity. Nothing in this Agreement shall be construed as conferring
----------
upon JV or its agents any right to include in advertising, packaging or other
commercial activity relating to any product it manufactures or sells, any
reference to E-Tek, its trade names, trade marks or service marks in any manner
whatsoever, including a manner which would indicate that any such product is in
any way certified or produced, in whole or in part, by E-Tek. Walsin and JV each
agree that, unless otherwise first agreed by E-Tek in writing, they shall not
use E-Tek's name, likeness or other identifying factor in connection with any
effort to sell or otherwise promote JV or its products.
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<PAGE>
11. Confidentiality. The parties hereby incorporate the terms of their
----------------
September 2, 1997 Mutual Confidentiality Agreement ("MCA") as if fully set forth
herein. Moreover, JV shall, effective upon its incorporation, be deemed a
signatory to the MCA, and shall be afforded all the rights and duties thereunder
with respect to Confidential Information (as defined therein) disclosed to or
received from the other parties, or either of them.
12. Indemnities. Except as otherwise expressly provided herein, each party
------------
shall indemnify, defend and hold harmless each of the other parties against and
in respect of any and all claims, demands, losses, costs, expenses, obligations,
liabilities, damages, recoveries and deficiencies that both or either of the
other parties shall incur or suffer by reason of any breach of any
representation, warranty or other term of this Agreement by the indemnifying
party.
13. Attorneys' Fees. If any legal action is brought for the enforcement of
----------------
this Agreement, or because of an alleged dispute, breach, default or
misrepresentation in connection with any of the provisions of this Agreement,
the prevailing party shall be entitled to recover reasonable attorneys' fees and
other costs incurred in that action, in addition to any other relief to which
that party may be entitled.
14. Binding Arbitration.
--------------------
a. If any dispute whatsoever arises relating to this Agreement, the
parties shall attempt in good faith to promptly and informally resolve the same.
If the dispute is not so resolved, then any party may submit the matter to
arbitration in accordance with the provisions of subparagraphs 14.b.-g., below;
provided, that, as a condition to invoking arbitration, such party must have
first attempted in good faith to informally resolve such dispute.
b. Subject to the conditions of subparagraph 14.a., above, and at
the option of either party, any and all disputes and controversies whether of
law or fact and of any nature whatsoever relating to this Agreement shall be
decided through binding arbitration. If E-Tek initiates the arbitration, then
such arbitration shall be conducted in Taipei, Taiwan in accordance with the
rules of the Commercial Arbitration Association of Taiwan. If Walsin initiates
the arbitration, then such arbitration shall be conducted in San Jose,
California in accordance with the rules of the American Arbitration Association.
c. The arbitrators shall be selected as follows. In the event the
parties agree on one arbitrator, such arbitrator shall conduct the arbitration.
In the event the parties do not so agree, then each party shall select an
arbitrator, and the two arbitrators so selected shall select the third
arbitrator. If a party fails or refuses to select an arbitrator, then the other
party's selected arbitrator shall solely arbitrate the dispute. If the two
arbitrators selected by the parties fail or refuse to select a third arbitrator,
then either party may request the applicable arbitration association to make
such selection.
d. Any controversy concerning whether an issue is arbitratable shall
be determined by the arbitrator(s), but such arbitrator(s) may not limit, expand
or otherwise modify the terms of this Agreement. The parties, their
representatives, other participants and the arbitrator(s) shall, unless
otherwise required by applicable law or ordinance, hold the existence, content,
and result of the arbitration in confidence. The arbitrator(s), who shall act by
majority vote, shall be able to decree any and all relief of an equitable or
legal nature, subject to the limitations on liability provided in
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this Agreement. The decree or judgment of an award rendered by the arbitrator(s)
shall be conclusive and binding, and may be entered in any court having
jurisdiction thereof.
e. The arbitrator(s) shall give effect to the applicable statutes of
limitations in determining any claim.
f. The fees and expenses of the arbitrator(s) shall initially be
split evenly between the parties, and each party shall initially bear its own
costs in any arbitration proceeding; provided, however, that the arbitrator(s)
shall award the prevailing party its reasonable attorneys' fees and costs
(including the fees and expenses of the arbitrator(s)) incurred therein.
g. The institution and maintenance of any civil action for judicial
relief or for a provisional or ancillary remedy shall not constitute a waiver of
the right of any party to submit the dispute to arbitration if any other party
contests such action.
15. Governing Law. With respect to any claim, action or proceeding dealing
--------------
solely with the dissolution, liquidation or corporate governance of JV, this
Agreement shall be governed by and construed in accordance with the laws of
Taiwan. With respect to any other claim, action or proceeding arising from or
relating to this Agreement, this Agreement shall be governed by and construed in
accordance with the laws of the State of California (excluding laws and
principles relating to the conflict of laws), as if made, executed and performed
within this State.
16. Non-Competition.
----------------
a. Walsin represents that, during the term of this Agreement,
neither Walsin nor any of its affiliates shall, directly or indirectly, engage
in any business in competition with JV, or invest in, operate, license to,
participate in, or otherwise support a company or other enterprise which engages
in any business in competition with JV, unless E-Tek first provides its written
consent thereto. For purposes of this subparagraph, an affiliate of Walsin shall
be defined as any entity that owns more than fifty percent of the voting
securities of Walsin, or any entity in which Walsin owns more than fifty percent
of such entity's voting securities. The foregoing representation shall not apply
to business activities in the People's Republic of China conducted by Walsin
affiliates who are principally located in such country, provided that Walsin
informs E-Tek within a reasonable time of any such activities that are
competitive with JV's.
b. During the term of this Agreement, E-Tek shall not establish a
manufacturing facility in Taiwan that would compete with JV, unless Walsin first
provides its written consent thereto.
17. Severability. If any term or provision of this Agreement shall be held
-------------
invalid or unenforceable to any extent, the remainder of this Agreement shall
not be affected and each other term and provision shall be valid to the fullest
extent permitted by law.
18. Headings. The paragraph and subparagraph headings contained in this
---------
Agreement are for reference only, and shall not be construed as substantive
parts of the Agreement.
19. Entire Agreement; Modification; Waiver. This Agreement constitutes the
---------------------------------------
entire agreement between the parties with respect to the subject matter
contained herein and supersedes all prior and contemporaneous agreements,
representations and understandings of the parties. No
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<PAGE>
supplement, modification or amendment of this Agreement shall be binding unless
executed in writing by all the parties. No waiver of any of the provisions of
this Agreement shall be deemed or shall constitute a waiver of any other
provision, whether or not similar, nor shall any waiver constitute a continuing
waiver. No waiver shall be binding unless executed in writing by the party to be
charged.
20. Binding Effect. This Agreement shall be binding on and shall inure to
---------------
the benefit of the parties hereto and their respective representatives,
successors and assigns.
21. Counterparts. This Agreement may be executed in counterparts, each of
-------------
which shall constitute an original and all of which shall be one and the same
instrument.
22. Time of the Essence. Time is of the essence in the performance of each
--------------------
of the parties' respective obligations contained in this Agreement.
23. Survival Of Provisions. The respective rights, duties and obligations
-----------------------
of the parties pursuant to paragraphs 6.a.(iii), 7, and 10 through 14,
inclusive, among others, shall survive any expiration or termination of this
Agreement.
24. Force Majeure. Neither party shall be liable, or be deemed to be in
--------------
breach of this Agreement, for any delay or failure in performance under this
Agreement or interruption of service resulting from acts of God, civil or
military authority, acts of the public enemy, war, riots, civil disturbances,
insurrections, accidents, fire, explosions, earthquakes, floods, the elements,
strikes, labor disputes, shortages of suitable parts, materials or labor, or,
any other cause or causes beyond such party's reasonable control.
25. Representation By Counsel. Each party to this Agreement represents
--------------------------
that it has had an opportunity to be represented by counsel of its own choosing
in the review and execution of the same, that it has carefully and fully read
this Agreement, that it is entering into the same voluntarily and without
duress, and that any statute, rule or doctrine regarding the interpretation of
contracts against a particular party, including California Civil Code Section
1654, shall not apply to this Agreement.
26. Conditions Precedent.
---------------------
a. This Agreement and all rights and obligations hereunder are
subject to the satisfaction of the following conditions precedent:
(i) E-Tek and Walsin shall have agreed upon the Business Plan,
and shall have attached the same to this Agreement as Exhibit B.
(ii) Walsin shall have assigned completely to JV, and JV shall
have accepted from Walsin, all of Walsin's rights, licenses, duties and
obligations under the Licensing Agreement, and JV shall have agreed to assume
all the same; it being understood and agreed that no licenses or rights under
the Licensing Agreement shall thereafter remain in Walsin.
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<PAGE>
(iii) E-Tek and Walsin shall have entered into a supply agreement
whereby, among other things, E-Tek has a right of first refusal with respect to
products manufactured by Walsin.
(iv) Walsin shall have assigned completely to JV, and JV shall
have accepted from Walsin, all of Walsin's rights, duties and obligations under
the aforesaid supply agreement, and JV shall have agreed to assume all the same;
it being understood and agreed that no rights under said agreement would
thereafter remain in Walsin.
(v) E-Tek shall have entered into a distributorship agreement
with either Walsin, or an affiliate or designee thereof that is acceptable to E-
Tek, to develop demand for and sell certain of E-Tek's products nonexclusively
in the People's Republic of China and, after January 1, 1999, exclusively in
Taiwan.
(vi) All governmental approvals that are necessary for the
formation of JV and all related agreements (including the Taiwanese governmental
approval of E-Tek and its investor-designees as foreign investors) shall have
been obtained, and such approvals shall not be conditioned upon, or materially
alter or affect, this Agreement, JV or any related agreement.
b. All of the foregoing conditions precedent must occur by June 18,
1998, (except for items 26.a.(iii) and (v), which must occur by March 3, 1998,
and item 26.a(i) which must occur by March 13, 1998) or else this Agreement
becomes null and void. The parties shall engage in good faith discussions to
attempt to satisfy the foregoing conditions precedent; however, neither party is
obligated to conclude any agreement(s) or the Business Plan, or to continue any
discussions. No obligations shall arise under this Agreement unless and until
the Business Plan is finalized by the stated due date to the satisfaction of
each party.
27. Amendment to Licensing Agreement. The payment schedule of Article III
--------------------------------
of the Agreement is hereby amended as follows: The License Fee of Seven
Million US Dollars (minus any mandatory withholding taxes) shall be payable in
full immediately upon receipt by JV of any Taiwanese governmental approvals of
tax-exempt status of such fee, but in no event shall such fee be paid any later
than three months from the date E-Tek submits its initial capital contribution
to JV, as contemplated in subparagraph 4.b.(ii), above. Also, the license
granted to Walsin under the PATENTS (as defined in the Licensing Agreement) to
make LICENSED PRODUCTS (as defined in the Licensing Agreement) on a nonexclusive
basis in Taiwan, and the license granted to Walsin under the Information (as
defined in the Licensing Agreement) to use the Information on a nonexclusive
basis in Taiwan in connection with Walsin's efforts to design, test, manufacture
and assemble LICENSED PRODUCTS, are hereby expanded to an exclusive basis in
Taiwan, and only in Taiwan, and only for the term of this Joint Venture
Agreement. Thirdly, the license granted to Walsin under the PATENTS and
Information to offer for sale and sell any resulting LICENSED PRODUCTS on a
nonexclusive basis, and only in the Pacific Rim Countries (as defined in the
Licensing Agreement) is hereby modified such that Walsin can offer for sale and
sell any resulting Erbium-Doped Fiber Amplifiers on a worldwide, nonexclusive
basis. Except as so provided, the Licensing Agreement, and all rights and duties
therein, remain in full force and effect. E-Tek shall also explore, without any
obligation, the possibility of expanding the sales territory for LICENSED
PRODUCTS.
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<PAGE>
28. Term and Termination. This Agreement shall continue in full force and
--------------------
effect for five years from the above date of this Agreement, unless sooner
terminated in accordance with the following:
a. This Agreement shall terminate at such time as the competent
governmental authority in charge of securities has approved the listing of JV's
shares of stock or the trading of such shares on the over-the-counter market or
securities market.
b. Either party may terminate this Agreement upon written notice to
the other party if such other party breaches any material term, warranty or
condition of this Agreement and fails to cure the same within thirty days of its
receipt of written notice of such breach. Notwithstanding the foregoing, this
Agreement may be terminated by the nondefaulting party immediately upon written
notice, in the event of an irremediable breach of a material term, warranty or
condition by the other party.
c. Either party may terminate this Agreement immediately: upon the
other party's cessation of business (excluding mergers, acquisitions,
consolidations or reorganizations), election to dissolve, dissolution,
insolvency, inability to pay debts as they become due, or general assignment for
the benefit of creditors; or, upon the appointment of a receiver or filing of
any bankruptcy petition, whether voluntary or involuntary, on behalf of such
other party.
29. Further Assurances. Each party hereby agrees that it will execute and
------------------
deliver such other and further documents as are or may become necessary or
convenient to effectuate and carry out the intent and purposes of this
Agreement.
30. Governing Language. English is the governing language of this
------------------
Agreement and of any arbitration proceeding or legal action.
Page 12
<PAGE>
31. Notices. Any notice required or permitted to be given hereunder shall
--------
be in writing, unless otherwise provided herein, shall be delivered either by
overnight mail or by facsimile, and shall be addressed as follows:
If to E-Tek: If to Walsin:
E-Tek Dynamics, Inc. Walsin Lihwa Corp.
1885 Lundy Avenue 12th Floor, 117, Section 3
San Jose, CA 95131 Ming Sheng East Road
USA Taipei, Taiwan
Attn.: Legal Department Attn.: Legal Department
Fax 408.432.8550 Fax 886.2.2514.7533
Any notice given as aforesaid shall be deemed to have been effectively
given and received (i) if sent by overnight mail, on the date of such delivery,
or, (ii) if sent by facsimile, on the date of transmission. Each party may
change its respective address of service or facsimile number by written notice
given as provided above.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first above written.
E-Tek Dynamics, Inc. Walsin Lihwa Corp.
By: /s/ Michael J. Fitzpatrick By: /s/ Yu-Chi Chiao
------------------------------ ----------------------------
Michael J. Fitzpatrick Yu-Chi Chiao
President and CEO President
Page 13
<PAGE>
EXHIBIT 10.24
E-TEK DYNAMICS, INC.
DISTRIBUTORSHIP AGREEMENT
-------------------------
THIS DISTRIBUTORSHIP AGREEMENT ("Agreement") is made and entered into this
3rd day of March, 1998, by and between E-TEK Dynamics, Inc., a California
corporation ("Company") and Walsin Lihwa Corp., a Taiwanese corporation
("Distributor").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, Company engineers, designs and manufactures certain fiber optic
components, devices and related systems, instruments and equipment; and,
WHEREAS, Distributor possesses the appropriate facilities and ability to
promote the sale and use of products manufactured by Company, and is desirous of
developing demand for and selling such products in the territory hereafter
described; and,
WHEREAS, Company wishes to appoint Distributor to develop demand for and
sell certain of Company's products in such territory on the terms and conditions
set forth herein.
NOW, THEREFORE, for good and valuable consideration, including the mutual
promises and representations contained herein, the parties hereto agree as
follows.
A G R E E M E N T
1. Incorporation of Recitals. The parties hereby acknowledge the accuracy
-------------------------
of the foregoing recitals and incorporate each of them by reference in this
Agreement.
2. Definitions.
-----------
a. Products. "Product(s)" shall mean such of Company's devices,
--------
components, systems, instruments and/or equipment that are manufactured for
sale, except for those items, if any, that are listed on Exhibit A, attached
hereto. Products may be deleted from, or, upon three months' notice, added to,
Exhibit A by Company, without liability or obligation, from time to time in its
sole discretion. Company shall provide three months' notice before discontinuing
the production and/or sale of any of its products.
b. Exclusive Territory. "Exclusive Territory" shall mean those
-------------------
countries or geographic areas, if any, identified as such on Exhibit B attached
hereto.
c. Nonexclusive Territory. "Nonexclusive Territory" shall mean those
----------------------
countries or geographic areas, if any, identified as such on Exhibit B attached
hereto.
d. Territory. "Territory" shall mean all those countries or
---------
geographic areas identified on Exhibit B attached hereto.
Page 1
<PAGE>
3. Appointment And Authority.
-------------------------
a. Appointment. Subject to the terms and conditions contained
-----------
herein, Company hereby appoints Distributor as a distributor of Company's
Product(s) in the Territory, and only in the Territory, and Distributor hereby
accepts such appointment; provided, that Distributor's appointment and right to
distribute Products in Taiwan shall not be effective until after January 1,
1999. Company agrees to sell Product(s) to Distributor, and Distributor agrees
to purchase the same from Company for resale, under the terms and conditions of
this Agreement.
b. Exclusive Territory. Distributor shall not, without first
--------------------
obtaining Company's written consent, market or sell Products in the Exclusive
Territory to the entities or classes of entities identified in Exhibit C
attached hereto, as well as to their respective parents, subsidiaries,
divisions, affiliates and successors (collectively, the "Excluded Customers").
Company shall have the right, from time to time in its discretion upon sixty
days' written notice, to designate additional entities as Excluded Customers on
Exhibit C. In the event that any additional entity is so hereafter designated,
then Company shall remit to Distributor a payment equal to ten percent (10%) of
the net revenues received by Company for any sales of Products made to such
entity within twelve months following the effective date of such designation.
Except as so expressly provided, Company shall owe no compensation or other
remuneration to Distributor for sales of Products by Company or third parties to
any Excluded Customers.
c. Nonexclusive Territory. Company reserves the right, without any
----------------------
compensation or other remuneration owing to Distributor, to sell the Products in
the Nonexclusive Territory on its own behalf and/or appoint third parties to
sell, or assist in the sale of, Products in the Nonexclusive Territory.
d. Competing Products. Distributor hereby agrees to refrain from
------------------
representing, promoting, selling or offering for sale during the term of this
Agreement, either directly or indirectly (such as through an entity that
controls, is controlled by, or is under common control with, the Distributor),
any goods, articles or product lines which compete with the Products.
Notwithstanding the foregoing, Distributor shall be entitled to sell any such
competing products to: such entities that are Excluded Customers at the time of
such sale; or, to any entity located outside of the Exclusive Territory,
provided that such entity does not control, is not controlled by, or is not
under common control with, any entity (other than an Excluded Customer) within
the Exclusive Territory.
e. Best Efforts. Distributor shall use its best efforts to enact and
------------
carry out a merchandising policy designed to preserve the goodwill that is
presently associated with the name and reputation of Company and the Products.
Company agrees to use reasonable efforts to fill orders placed by Distributor;
provided, that the parties acknowledges that lead time will vary according to
manufacturing and other conditions and that all delivery dates announced by
Company are estimates only.
4. Relationship of Parties.
-----------------------
a. Independent Contractor. The relationship of Company and
----------------------
Distributor is that of independent contractors, and nothing contained in this
Agreement or otherwise is to be construed to (i) give either party the power to
direct or control the day-to-day activities of the other, (ii) constitute the
parties as partners, joint venturers, co-owners or otherwise as participants in
a joint or common
Page 2
<PAGE>
undertaking, or (iii) allow Distributor to create or assume any obligation on
behalf of Company for any purpose whatsoever. All financial obligations
associated with or related to Distributor's business are the sole responsibility
of Distributor.
b. Distributor's Agreements With Its Customers. All sales and other
--------------------------------------------
agreements between Distributor and its customers are Distributor's exclusively,
and shall have no effect on the respective obligations of Company and
Distributor under this Agreement. Subject to the rights of the Distributor under
this Agreement, Distributor shall be solely responsible for, and shall indemnify
Company and hold Company harmless from, any and all claims, damages and lawsuits
arising out of the acts of Distributor, its employees and/or its agents.
5. Good Standing: Due Execution. The Company is a corporation duly
-----------------------------
organized, validly existing and in good standing under the laws of the State of
California, U.S.A. Distributor is a business entity duly organized, validly
existing and in good standing under the laws of Taiwan. Each party hereto has
the requisite power to enter into and carry out its respective obligations under
the Agreement. This Agreement has been duly authorized by each of the parties
and, when executed, will become a valid and binding obligation upon each of
them. Neither the execution of this Agreement, nor the consummation of the
transactions contemplated hereunder, will violate or constitute a default under
any agreement or instrument to which Distributor is a party.
6. Prices.
-------
a. Price. The purchase prices to Distributor for the Products will
------
be Company's then-current distributor prices therefor (the "Purchase Price").
The difference between the Purchase Price and Distributor's selling price (which
shall be determined in Distributor's sole discretion) shall be Distributor's
sole remuneration for sales of the Products. Company has the right from time to
time to adjust the Purchase Prices of the Products; provided, that Company shall
use reasonable commercial efforts to attempt to continually reduce the pricing
of the Products. Any such change shall not affect orders by Distributor that
were accepted by Company before such price change was made. Company shall not be
liable to Distributor or to Distributor's customers for any adjustments in the
Purchase Prices.
b. Taxes, Duties And Other Charges. The Purchase Price does not
--------------------------------
include any governmental taxes or other charges, does not include customs
duties, import-export license fees or other import-export charges, and does not
include any other fees, costs or charges imposed by any governmental authority.
Distributor shall bear all such taxes, duties, fees and other charges. When
Company has the legal right or obligation to collect any such costs, the
appropriate amount shall be added to Distributor's invoice and paid by
Distributor. Distributor shall provide Company with any valid exemption
certificates with respect to taxes, duties or other charges that are authorized
by any applicable governmental authority.
7. Payment Terms.
--------------
a. Payment. Distributor shall tender to Company any and all payments
--------
required to be made within thirty days following the date of the invoice for the
Products shipped. Company may, from time to time in its discretion, require
Distributor to submit a deposit or other satisfactory assurance of payment prior
to or at the time of Company's acceptance of any order for the Products. All
payments by Distributor shall be made in U.S. dollars and shall be effected by
check or wire transfer. Company may,
Page 3
<PAGE>
at Company's option, delay shipments of Products to Distributor if Distributor
is in default in the performance of any obligation to Company, whether contained
in this Agreement or otherwise.
b. Security Interest. Until the Purchase Price is received by
------------------
Company, Company shall retain a security interest in the underlying Products
delivered and the right to immediate possession thereof. The taking of such
possession shall be without prejudice to any other remedy available to Company.
Distributor shall, from time to time, take any act and execute and deliver any
documents reasonably requested by Company to transfer, create, perfect,
preserve, protect and/or enforce this security interest.
8. Acceptance of Orders. Company shall not be bound by any order for the
---------------------
Products placed by Distributor until such order has been accepted by Company.
Upon Company's acceptance, such order shall constitute a binding commitment by
Distributor to purchase and tender payment for the Products in accordance with
the terms and conditions of this Agreement. Except as may be expressly assented
to in writing by the parties, nothing contained in Distributor's order or in any
other document or correspondence by Distributor shall in any way modify, or add
to, the terms and conditions of purchase provided herein.
9. Delivery of Products. Delivery of all Products shall be F.O.B. point
---------------------
of shipment, and title to and risk of loss of or damage to the Products shall
pass to Distributor upon Company's delivery thereof to the carrier. Such
delivery shall constitute due delivery of the Products to Distributor. The
prices stated herein do not include shipping, handling, or transportation
(including insurance) costs, which shall all be borne by Distributor. Any and
all shipping dates shall be approximate. All Products shall be free from any
third-party liens or encumbrances, and Distributor shall receive good and
marketable title at the time of delivery.
10. Inspection: Return of Products.
-------------------------------
a. Inspection. Within thirty days after a shipment of Products has
-----------
been delivered to Distributor, Distributor shall provide Company with written
notice of any Products thereof which are nonconforming, and such notice shall
specify the details of the nonconformity. Distributor shall not reject any
shipment unreasonably. Company shall have the right following any rightful
rejection of nonconforming Products to substitute conforming Products within a
reasonable period of time after Company's receipt of the aforesaid notice from
Distributor.
b. Return of Products. Distributor shall not be permitted to return
-------------------
any Products for credit or otherwise without first obtaining: (i) Company's
written approval to return such Products (which approval shall not be
unreasonably withheld); and (ii) a return material authorization ("RMA") number
issued by Company. If Company agrees to accept the return of such Products,
Distributor shall bear all costs and expenses of returning the same, and shall
assume all risk of loss thereof until the Products are received at Company's
premises; provided, that if the returned Products are nonconforming or defective
(within the warranty period), then Company shall immediately reimburse
Distributor for such costs and expenses so incurred. If any Products are
returned to Company other than because they are nonconforming or defective
(within the warranty period), then Distributor shall immediately remit to
Company a restocking fee in the amount of twenty percent of the original invoice
price or applicable portion thereof, which shall include the Purchase Price or
applicable portion thereof plus all related costs and expenses incurred by
Company in delivering the Products to Distributor. In
Page 4
<PAGE>
any event, any and all returned Products must be received by Company in an
unused condition and otherwise in a condition for resale as new merchandise.
11. Warranty. Company warrants for a period of twelve months from the date
---------
Distributor receives the Products that the same will be free from defects in
materials and workmanship and shall conform to the applicable specifications
that have been previously agreed to by Company. This warranty is subject to
proper installation, operation and maintenance of the Products, and shall not
apply to any Products which have been damaged after delivery to Distributor, or
misused, altered, disassembled or serviced by any person other than Company.
Distributor must obtain an RMA number from Company for the defective or
nonconforming Products, and return such Products to Company, freight prepaid,
within thirty days of receipt of the RMA number, with a detailed statement
describing the alleged defects or non-conformities. Company's sole obligation
under this warranty is, at Company's option, for any such defect or
nonconformity that was present at the time of delivery to Distributor, to repair
or replace the same or refund to Distributor the Purchase Price or applicable
portion thereof. Replacement Products shall be warranted as set forth above.
Defective or nonconforming Products that are repaired or serviced by Company
shall be warranted as provided in this section for either the remainder of the
original warranty period or ninety days after such Products are re-delivered to
Distributor, whichever is later. Company makes no warranties with respect to
items not manufactured by Company and, to the extent lawful, assigns to
Distributor any manufacturer's warranties attached to such items. EXCEPT AS
EXPRESSLY STATED ABOVE, COMPANY DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED,
INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE.
12. Additional Obligations of Distributor.
--------------------------------------
a. Forecasts. To assist Company in planning and scheduling,
----------
Distributor shall, from time to time or as reasonably requested by Company,
provide Company with a non-binding forecast showing projected orders for
Products and intended shipment dates. Such forecasts shall be based upon
Distributor's best judgment of future sales and/or purchases within the
Territory.
b. Expenses. Distributor shall be solely responsible for any and all
---------
costs and expenses incurred by Distributor in the performance of its obligations
hereunder.
c. Marketing Efforts. At all times during the term of this
------------------
Agreement, Distributor shall:
(i) pursue aggressive sales policies and otherwise use best
efforts to realize the maximum sales potential for Products in the Territory;
(ii) develop a marketing plan to determine which entities in the
Territory are in need of the Products, and conduct promotional activities
(including advertising, attendance at trade shows, and similar efforts) geared
toward educating such entities of Company's Products, their functionality and
their advantages over competitive products;
(iii) promptly take all necessary steps to become a competent
source for technical information and answer, to the best of its ability,
questions concerning the Products' use and compatibility with other products;
and,
Page 5
<PAGE>
(iv) provide and maintain adequate sales facilities, appoint
technical and customer support personnel, and maintain a sufficient inventory of
Products to meet reasonably anticipated demand therefore.
d. Representations. Distributor shall not make any false or
----------------
misleading representations to its customers or others regarding Company or the
Products. Distributor shall not make any representations, warranties or
guarantees with respect to the specifications, features or capabilities of the
Products that are not consistent with Company's documentation accompanying the
Products or Company's literature describing the Products, including warranties
and disclaimers.
e. Export Requirements. Distributor acknowledges that the transfer
--------------------
of technology to any foreign national wherever located may be deemed an export
and, as such, may be impermissible without a license from the U.S. Department of
Commerce. Distributor further acknowledges that U.S. Export Regulations prohibit
the export or re-export of certain products and technology to certain countries
and end users. Distributor warrants that it will comply in all respects with all
applicable U.S. export and re-export restrictions and requirements for each of
the Products shipped.
f. Installation and Servicing of Products.
---------------------------------------
(i) Distributor shall provide adequate assistance to its
customers in connection with the installation of the Products.
(ii) Distributor shall be responsible for the adequate servicing
of any and all Products sold to its customers. Such customers who contact
Company directly shall generally be referred to Distributor.
(iii) At mutually agreeable times, Company may send its
representatives to Distributor's facilities to provide technical assistance and
training to Distributor. Also at mutually agreeable times, Distributor may send
its employees or representatives to Company's facilities to receive training by
Company. In either event, the traveling party shall be solely responsible for
all costs and expenses relating to the travel, lodging and meals of its
employees and agents.
13. Sales Literature. Company shall provide Distributor with marketing and
-----------------
technical information concerning the Products, and reasonable quantities of
brochures, instructional material, advertising literature and other Product
data.
14. Confidentiality. The parties hereby incorporate the terms of their
----------------
September 2, 1997 Mutual Confidentiality Agreement as if fully set forth herein.
In addition, Distributor acknowledges that Company has received and may
hereafter receive from third parties their proprietary information subject to a
duty on Company's part to maintain the confidentiality of such information and
to use it only for certain limited purposes. Distributor agrees that it owes
Company and any such third party, during the term this Agreement and thereafter,
a duty to hold all such information in the strictest confidence and not to
disclose it or any portion thereof to any person, firm, corporation or other
entity, or make use of such information in any way without Company's and third
party's prior written consent.
Page 6
<PAGE>
15. Term and Termination.
---------------------
a. Term and Termination. This Agreement shall continue in full force
---------------------
and effect from the effective date hereof until terminated in accordance with
the following:
(i) Either party may terminate this Agreement for convenience upon
sixty days prior written notice to the other party; provided, that: (i) Company
cannot terminate this Agreement for convenience within six months of the
Agreement's effective date; and, (ii) neither party can terminate for
convenience that portion of this Agreement relating to the distribution of
Company's products in Taiwan until after the termination (for any reason) of
that certain March 3, 1998 E-Tek/Walsin Joint Venture Agreement.
(ii) Either party may terminate this Agreement upon written notice to
the other party if such other party breaches any material term, warranty or
condition of this Agreement and fails to cure the same within thirty days of its
receipt of written notice of such breach. Notwithstanding the foregoing, this
Agreement may be terminated by the non-defaulting party immediately upon
written notice, in the event of an irremediable breach of a material term,
warranty or condition by the other party.
(iii) Either party may terminate this Agreement immediately: upon the
other party's cessation of business, election to dissolve, dissolution,
insolvency, inability to pay debts as they become due, or general assignment for
the benefit of creditors; upon the appointment of a receiver or filing of any
bankruptcy petition, whether voluntary or involuntary, on behalf of such other
party; or, if the other party merges into or is acquired by any third party, or
sells substantially all of its assets.
b. Return of Materials. Immediately upon the termination of this
--------------------
Agreement for any reason, Distributor shall discontinue holding itself out as an
authorized distributor of Company. All trademarks, trade names, patents,
copyrights, designs, drawings, formulas or other data, photographs, samples,
literature and sales aids of every kind shall remain the property of Company,
and shall be returned to Company at Distributor's expense within fifteen days of
the Agreement's termination.
c. Non-Liability of Company. In the event of termination of this
-------------------------
Agreement for any reason, Company shall not be liable to Distributor for
compensation, indemnification, reimbursement or damages on account of the loss
of customers, prospective profits on anticipated sales or on account of
expenditures, inventory, investments, leases or commitments made in connection
with this Agreement or in connection with the business or goodwill of
Distributor. Termination of this Agreement shall not, however, relieve either
party of obligations incurred prior to termination.
16. Trademarks; Intellectual Property Rights.
-----------------------------------------
a. During the term of this Agreement, Distributor shall have the
right to indicate to the public that it is an authorized distributor of the
Products in the Territory under the trademarks and trade names that Company may
adopt from time to time. Without the prior written consent of Company,
Distributor shall not remove or alter any trademark or trade name applied to the
Products.
b. Company asserts all right, title and interest in and to the
product lines that include the Products, and in and to all of Company's patents,
trademarks, trade names, inventions, copyrights, know-how, trade secrets and all
other intellectual property rights. Distributor does not acquire by virtue
Page 7
<PAGE>
of this Agreement or otherwise any right, title or interest in or to Company's
intellectual property rights, other than the limited right during the term of
this Agreement to use such property rights to the extent expressly set forth
herein and only for the purposes herein set forth. Upon termination of this
Agreement for any reason such authorization shall immediately cease.
c. Distributor shall promptly notify Company of any and all actual
or suspected infringements, imitations, illegal uses or misuses of Company's
trademarks or other intellectual property rights that may come to Distributor's
attention, and to assist Company with the protection of such rights.
17. Infringement Indemnification. Company shall indemnify Distributor
-----------------------------
against any liabilities arising from the infringement of any intellectual
property rights of any third party(ies) due to the sale to Distributor of the
Products where such liabilities were the result of infringement on Company's
part; provided that: Distributor notifies Company immediately of any such claim;
Company shall have the right to exercise full control of the defense thereof;
Distributor fully cooperates with such defense; such obligation to indemnify
will cover only those claims that relate directly to the Products as originally
manufactured by Company, and not to any claims that relate in whole or in part
to any correction, modification or addition thereto that is made by anyone other
than Company, or to any specification(s), technology or devices supplied by any
third party; and, Distributor shall not have breached any of the representations
or warranties, or failed to have performed any of the obligations, contained
herein. Company shall have the right to procure a license from any person
claiming or likely to claim infringement, or to modify the Products to avoid
such a claim, and any such actions or related actions by Company shall not be
deemed to constitute a breach of this Agreement. THE FOREGOING IS COMPANY'S
EXCLUSIVE OBLIGATION AND LIABILITY WITH RESPECT TO ANY CLAIMS OR ACTIONS ARISING
FROM COMPANY'S ACTUAL OR ALLEGED INFRINGEMENT OF ANY INTELLECTUAL PROPERTY
RIGHTS OF ANY THIRD PARTY. COMPANY EXPRESSLY DISCLAIMS ANY OTHER WARRANTIES,
WHETHER EXPRESS OR IMPLIED, RELATING TO CLAIMS THAT THE PRODUCTS, OR ANY OF
THEM, INFRINGE ANY INTELLECTUAL PROPERTY RIGHTS.
18. Limitation of Liability. IN NO EVENT SHALL COMPANY HAVE ANY LIABILITY
------------------------
TO DISTRIBUTOR UNDER ANY CAUSE OF ACTION FOR ANY SPECIAL, INDIRECT OR
CONSEQUENTIAL DAMAGES (INCLUDING WITHOUT LIMITATION DAMAGES FOR LOSS OF PROFITS)
THAT RELATE IN ANY WAY WHATSOEVER TO THIS AGREEMENT, WHETHER OR NOT COMPANY HAS
BEEN ADVISED OF THE POSSIBILITY OF ANY SUCH DAMAGES. THESE LIMITATIONS SHALL
APPLY NOTWITHSTANDING THE FAILURE OF THE ESSENTIAL PURPOSE OF ANY LIMITED
REMEDY.
19. Notices. Any notice required or permitted to be given hereunder shall
--------
be in writing, unless otherwise provided herein, shall be delivered either by
overnight mail or by facsimile, and shall be addressed as follows:
If to Company: If to Distributor:
E-Tek Dynamics, Inc. Walsin Lihwa Corp.
1885 Lundy Avenue 12th Floor, 117, Section 3
San Jose, CA 95131 Ming Sheng East Road
USA Taipei, Taiwan
Fax 408.432.8550 Fax 886.2.2514.7533
Page 8
<PAGE>
Any notice given as aforesaid shall be deemed to have been effectively
given and received (i) if sent by overnight mail, on the date of such delivery,
or, (ii) if sent by facsimile, on the date of transmission. Each party may
change its respective address of service or facsimile number by written notice
given as provided above.
20. Force Majeure. Company shall not be deemed in breach hereof, and shall
--------------
not be liable for, any delay or default in delivery of any Products if such
delay or default is due in whole or in part to any cause(s) beyond Company's
reasonable control. In such an event, Company shall have such additional time
within which to perform as may be reasonably necessary under the circumstances.
21. Construction of Agreement. Each party agrees that any statute, rule or
--------------------------
doctrine regarding the interpretation of contracts against a particular party,
including California Civil Code Section 1654, shall not apply to this Agreement.
22. Arbitration. Any and all disputes, claims or controversies, whether of
------------
law or fact and of any nature whatsoever, arising from, respecting, or relating
to, this Agreement shall be decided through binding arbitration. If E-Tek
initiates the arbitration, then such arbitration shall be conducted in Taipei,
Taiwan in accordance with the rules of the Commercial Arbitration Association of
Taiwan. If Walsin initiates the arbitration, then such arbitration shall be
conducted in San Jose, California in accordance with the rules of the American
Arbitration Association. Any controversy concerning whether an issue is
arbitratable shall be determined by the arbitrator, but such arbitrator may not
limit, expand or otherwise modify the terms of this Agreement. The parties,
their respective representatives, and the arbitrator shall, unless otherwise
required by applicable law or ordinance, hold the existence, content, and result
of the arbitration in confidence. The arbitrator shall be able to decree any and
all relief of an equitable or legal nature, subject to the limitations on
liability provided in this Agreement. The decree or judgment of an award
rendered by the arbitrator shall be conclusive and binding, and may be entered
in any court having jurisdiction thereof. The parties may engage in discovery,
and the arbitrator may decide all discovery disputes, in accordance with
California Code of Civil Procedure Section 1283.05, or its replacement. The
arbitrator shall give effect to the applicable statutes of limitations in
determining any claim. The fees and expenses of the arbitrator shall initially
be split evenly between the parties, and each party shall initially bear its own
costs in any arbitration proceeding; provided, however, that the arbitrator
shall award the prevailing party its reasonable attorneys' fees and costs
(including the fees and expenses of the arbitrator) incurred therein. The
institution and maintenance of any civil action for judicial relief or for a
provisional or ancillary remedy shall not constitute a waiver of the right of
either party to submit the dispute to arbitration.
23. Attorneys' Fees. If any legal action is brought for the enforcement of
----------------
this Agreement, or because of an alleged dispute, breach, default or
misrepresentation in connection with any of the provisions of this Agreement,
the prevailing party shall be entitled to recover reasonable attorneys' fees and
other costs incurred in that action, in addition to any other relief to which
that party may be entitled.
24. Governing Law. This Agreement shall be governed by and construed in
--------------
accordance with the laws of the State of New York (excluding laws and principles
relating to the conflict of laws), as if made, executed and performed within
that State.
Page 9
<PAGE>
25. Severability. If any term or provision of this Agreement shall be held
-------------
invalid or unenforceable to any extent, the remainder of this Agreement shall
not be affected and each other term and provision shall be valid to the fullest
extent permitted by law.
26. Headings. The paragraph and subparagraph headings contained in this
---------
Agreement are for reference only, and shall not be construed as substantive
parts of the Agreement.
27. Entire Agreement: Modification; Waiver. This Agreement constitutes the
---------------------------------------
entire agreement between the parties with respect to the subject matter
contained herein and supersedes any and all prior and contemporaneous
agreements, representations and understandings. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by the
parties. No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provision, whether or not similar, nor
shall any waiver constitute a continuing waiver. No waiver shall be binding
unless executed in writing by the party to be charged.
28. Binding Effect; Assignment. This Agreement shall be binding on and
---------------------------
shall inure to the benefit of the parties and their respective representatives,
successors and permitted assigns; provided, however, that no party shall have
the right to transfer or assign any rights or obligations under this Agreement
without first obtaining the other party's written consent. Any attempted
assignment in violation of this provision shall be void. Notwithstanding the
foregoing. Distributor must fully assign its rights and obligations hereunder to
a third-party Taiwanese company, that is contemplated to be formed by Company
and Distributor ("JV"), immediately upon such JV's incorporation.
29. Counterparts. This Agreement may be executed in counterparts, each of
-------------
which shall constitute an original and all of which shall be one and the same
instrument.
30. Further Assurances. Each party agrees to execute and deliver such
-------------------
other and further documents, and perform such other and further acts, as are or
may become necessary or convenient to effectuate and carry out the intent and
purposes of this Agreement.
31. Survival Of Provisions. The respective rights, duties and obligations
-----------------------
of the parties pursuant to paragraphs 14, 15, 18, 22-24, and 32, inclusive,
among others, shall survive any expiration or termination of this Agreement.
32. Indemnities. Subject to the provisions of paragraph 18, above, and to
------------
limitations of liability expressly set forth herein, each party hereto shall
indemnify, defend and hold harmless the other party against and in respect of
any and all claims, demands, losses, costs, expenses, obligations, liabilities,
damages, recoveries and deficiencies that the other party shall incur or suffer
by reason of any breach of this Agreement by the indemnifying party.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
COMPANY: DISTRIBUTOR:
E-Tek Dynamics, Inc. Walsin Lihwa Corp.
By: /s/ Michael J. Fitpatrick By: /s/ Yu-Chi Chiao
---------------------------- --------------------------
Michael J. Fitzpatrick Yu-Chi Chiao
President and CEO President
Page 10
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EXHIBIT 10.25
SUPPLY AGREEMENT
----------------
THIS SUPPLY AGREEMENT ("Agreement") is made and entered into this 3rd day
of March, 1998, by and between E-Tek Dynamics, Inc., a California corporation
("E-Tek"), and Walsin Lihwa Corporation ("Walsin").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, Walsin is a leading manufacturer of wire and cable in Taiwan, with
strong distribution channels throughout Asia; and,
WHEREAS, E-Tek manufactures fiber optic components and equipment for the
telecommunications and CATV industries, and engages in related R&D; and,
WHEREAS, the parties wish to form a joint venture whereby a third party
Taiwanese company, limited by shares ("JV"), would be created to, among other
things: (i) develop, manufacture and distribute certain fiber optic products;
and, (ii) assume all rights and obligations of Walsin under this Agreement; and,
WHEREAS, in contemplation of forming JV, the parties have entered into a
December 17, 1997 Technical Licensing Agreement ("Licensing Agreement") whereby
JV shall assume all rights and obligations of Walsin as licensee thereunder.
WHEREAS, the parties wish to create a relationship whereby E-Tek shall
purchase from JV (as successor to Walsin) certain of JV's products on the terms
and conditions set forth below.
NOW THEREFORE, for good and valuable consideration, the sufficiency and
receipt of which are hereby acknowledged, the parties hereto agree as follows:
A G R E E M E N T
- - - - - - - - -
1. Supply Orders.
--------------
a. "Supply(ies)" as used herein shall refer to any and all fiber
optic products described in Exhibit A hereto, and to any and all other items,
that are manufactured by Walsin and hereafter ordered by and sold to E-Tek
pursuant to the terms hereof.
b. During the term of this Agreement, E-Tek shall provide Walsin
monthly with forecasts setting forth the quantity and types of Supplies E-Tek
anticipates it will consume during a rolling twelve-month period. These
forecasts will be estimates only, and will not constitute purchase commitments,
except that the quantity of Supplies on any such forecast planned for delivery
within the applicable manufacturing lead time shall be considered firm purchase
obligations. Otherwise, obligations of E-Tek to purchase Supplies will be
established only through purchase orders ("Orders").
c. Throughout the term of this Agreement, E-Tek shall periodically
submit Orders to Walsin for the proposed sale and purchase of certain Supplies;
provided, that nothing herein shall obligate E-Tek to order any Supplies. Each
Order shall specify the type(s) and quantity(ies) of
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requested Supplies, along with the applicable specifications, and the delivery
date(s) and destination point(s) thereof. An Order may also provide that the
E-Tek name and logo shall be marked on such ordered Supplies. The terms and
conditions of this Agreement shall be incorporated into each and every Order. In
the event of any conflict, differences or inconsistencies between the terms and
conditions of this Agreement and those of any order, quotation, acknowledgment
or any other related document, the terms and conditions of this Agreement shall
govern.
d. No Order shall bind Walsin unless hereafter accepted by Walsin;
provided, that Walsin shall not unreasonably withhold any such acceptance. Any
acceptance or rejection by Walsin of any Order shall be communicated to E-Tek
within five business days of Walsin's receipt of such Order; otherwise, such
Order shall be deemed fully accepted by Walsin.
e. Walsin shall use reasonable commercial efforts to promptly pass
all E-Tek qualification tests for Supplies, and to thereafter produce as many
Supplies as it is capable of manufacturing. Walsin hereby grants to E-Tek a
right of first refusal over any and all other entities (including Walsin) with
respect to Walsin's capacity to manufacture products and fill purchase orders.
E-Tek shall be entitled to exercise such right, if at all, upon its submission
to Walsin of every other monthly forecast, but in no event more than six times
per year, measured from the date E-Tek first exercises such right hereunder.
Should E-Tek ever fail to exercise its first-refusal rights, then Walsin's
exclusive remedy shall be the right to make such uses of its products and
manufacturing capacity as Walsin sees fit.
f. Walsin shall continue to produce the Supplies and make the same
available for sale to E-Tek for at least twelve months from the date Walsin
passes the respective qualification tests. Thereafter, Walsin must provide E-Tek
with at least six months' prior written notice before unilaterally discontinuing
or reducing the production, and/or sale to E-Tek, of any Supplies.
2. Prices.
-------
a. The prices for the Supplies shall be subject to good faith
negotiations and agreement between the parties, and shall be reviewed
semiannually. Walsin shall use reasonable commercial efforts to continually
reduce the unit pricing and discount pricing of the Supplies.
b. E-Tek shall be allowed the full benefit of any and all lower
prices contained in any other agreement that may hereafter be entered into by
Walsin for the sale of Supplies to similar customers in similar quantities as
provided hereunder. Walsin shall notify E-Tek immediately of any such lower
prices, and shall make the same available to E-Tek for as long as such prices
are made available to such other similar customers.
c. E-Tek agrees to pay for all state and local sales and use taxes
imposed by the sale to E-Tek of the Supplies. Wherever applicable, such
liabilities may be added to the invoice as a separate charge or invoiced
separately. E-Tek shall, upon written request of Walsin, provide applicable
sales tax exemption certificates.
3. Payment. Original invoices shall be issued by Walsin to E-Tek upon
-------
delivery of the underlying Supplies. E-Tek shall pay the full amount stated
thereon within thirty days net in United States dollars. Notwithstanding the
foregoing, in the event E-Tek in good faith disputes the contents of any invoice
received from Walsin, E-Tek shall promptly notify Walsin of the same and submit
a
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<PAGE>
detailed statement of its position, along with any supporting documentation.
Payment on any disputed invoice, or applicable portion thereof, shall be
deferred until such dispute is resolved.
4. Delivery; Acceptance.
---------------------
a. Delivery of Supplies shall be C.I.F. E-Tek's premises to a carrier
selected by Walsin. Title to the Supplies shall pass to E-Tek upon delivery to
E-Tek's premises. Walsin is responsible for, and assumes all risk of loss of or
damage to, the Supplies, from any cause, until delivery to E-Tek's premises.
b. Deliveries are to be made both in the quantities and at the times
specified in the underlying Order. All Supplies shall be free from any third
party liens or encumbrances, and E-Tek shall receive good and marketable title
at the time of delivery.
c. Upon receipt of any Supplies hereunder, E-Tek shall promptly
inspect the same. Within thirty days of such receipt, E-Tek shall provide
written notice to Walsin as to whether it accepts or rejects such Supplies in
whole or in part. No Supplies shall be rejected by E-Tek unreasonably.
d. E-Tek may, without penalty, extend the scheduled delivery date of
any Order (and, hence, the corresponding invoice) for a period of up to thirty
additional days; provided, that E-Tek shall have notified Walsin in writing of
such extension no later than fifteen days prior to the original scheduled
delivery date.
5. Configuration Control.
----------------------
a. For purposes of this section, "Modify" shall mean to change,
alter, enhance, upgrade or revise. "Modification" shall refer to the change,
alteration, enhancement, upgrade or revision.
b. Walsin shall not Modify the specifications of any Supply without
the prior written approval of E-Tek.
c. E-Tek may request from time to time that Walsin Modify the
specifications of any Supply. If the implementation of any such Modification
would increase Walsin's obligations hereunder, then Walsin and E-Tek shall in
good faith agree on terms under which Walsin would incorporate the same.
6. Term and Termination.
---------------------
a. The initial term of this Agreement shall commence as of the date
hereof, and shall continue until December 31, 2002. This Agreement may
thereafter be renewed for successive periods of one year each upon the written
consent of the parties consummated at least thirty (30) days prior to the
expiration of the then-current period.
b. Notwithstanding the foregoing, this Agreement shall be terminable
or terminate, as the case may be, prior to the expiration of the initial period
or any renewals thereof, if and when any of the following events occurs:
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<PAGE>
i. Either party may terminate this Agreement upon written notice to
the other party if such other party breaches any material term or condition of
this Agreement and fails to cure the same within sixty (60) days of receipt of
written notice by the nonbreaching party specifying such breach.
ii. Either party may terminate this Agreement by written notice upon
any party's cessation of business, election to dissolve, dissolution,
insolvency, inability to pay debts as they become due, general assignment for
the benefit of creditors, or, upon the filing of any bankruptcy petition,
whether voluntary or involuntary, on behalf of any such party.
7. Patent Warranty and Indemnity.
-----------------------------
a. Walsin warrants that the sale, use, manufacture, integration
and/or lease of the Supplies shall not infringe any patent rights or other
intellectual property rights of any third party (excluding Supplies manufactured
solely under the Patents or Information licensed by E-Tek under the Licensing
Agreement).
b. Walsin shall indemnify and hold E-Tek, its directors,
shareholders, officers, employees, attorneys, agents, subsidiaries and
affiliates (the "Indemnitees") harmless from and against any loss, cost,
liability or expense (including reasonable attorneys' fees) relating to any
claim (excluding only claims made solely against the Patents or Information
licensed by E-Tek under the Licensing Agreement) that the sale, use,
manufacture, integration and/or lease of the Supplies infringes any patent
rights or other intellectual property rights of any third party. The Indemnitee
receiving any such claim shall notify Walsin. Walsin shall be permitted, at
Walsin's expense, to participate in the defense thereof with counsel of Walsin's
own choosing. The Indemnitees shall provide reasonable assistance to Walsin in
the defense of any such claim.
8. Product Warranties. Walsin warrants to E-Tek, for the shorter of either
------------------
eighteen months from the date of delivery of a Supply to E-Tek or twelve months
from the date E-Tek's customer receives a Supply, that such Supply will be free
from defects in materials, design and workmanship, and shall conform to the
applicable specifications as agreed by E-Tek. This warranty is subject to proper
installation, operation and maintenance of the Supplies, and shall not apply to
any Supplies which have been damaged after delivery to E-Tek, or misused,
altered, disassembled or serviced by any person other than Walsin. Warranty
claims shall be made in writing. Walsin's obligation under this warranty is, at
E-Tek's option, to repair, replace or correct any such defect or nonconformity,
or to remove the Supply and refund the purchase price. Any defective or
nonconforming Supply or parts thereof shall be shipped to Walsin's principal
offices with freight and insurance prepaid by Walsin. Replacement Supplies shall
be warranted as set forth above. Defective or nonconforming Supplies that are
repaired or serviced by Walsin shall be warranted as provided in this section
for either the remainder of the original warranty period or ninety days after
such Supplies are redelivered to E-Tek, whichever is later. Walsin makes no
warranties with respect to items not manufactured by Walsin and, to the extent
lawful, assigns to E-Tek any manufacturer's warranties attached to such items.
EXCEPT AS EXPRESSLY STATED ABOVE, WALSIN DISCLAIMS ALL WARRANTIES, EXPRESS OR
IMPLIED, INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE.
9. Limitation of Liability. IN NO EVENT SHALL WALSIN HAVE ANY LIABILITY TO
-----------------------
E-TEK UNDER ANY CAUSE OF ACTION FOR ANY SPECIAL, INDIRECT OR
Page 4
<PAGE>
CONSEQUENTIAL DAMAGES (INCLUDING WITHOUT LIMITATION DAMAGES FOR LOSS OF PROFITS)
THAT RELATE IN ANY WAY WHATSOEVER TO THIS AGREEMENT, WHETHER OR NOT WALSIN HAS
BEEN ADVISED OF THE POSSIBILITY OF ANY SUCH DAMAGES. THESE LIMITATIONS SHALL
APPLY NOTWITHSTANDING THE FAILURE OF THE ESSENTIAL PURPOSE OF ANY LIMITED
REMEDY.
10. Notices. Any notice required or permitted to be given hereunder shall
--------
be in writing, unless otherwise provided herein, shall be delivered either by
overnight mail or by facsimile, and shall be addressed as follows:
If to Walsin: If to E-Tek:
Walsin Lihwa Corporation E-Tek Dynamics, Inc.
12th Floor 1885 Lundy Avenue
117 Section 3 San Jose, CA 95131
Ming Sheng East Road Fax: 408.432.8550
Taipei, Taiwan
Fax: 886.2.514.1653
Any notice given as aforesaid shall be deemed to have been effectively
given and received (i) if sent by overnight mail, on the date of such delivery,
or, (ii) if sent by facsimile, on the date of transmission. Either party may
change its respective address of service or facsimile number by written notice
given as provided above.
11. Relationship of Parties. Walsin and E-Tek are separate and distinct
-----------------------
entities, and nothing contained in this Agreement, nor the performance of
anything contemplated hereby, shall be deemed or construed to constitute such
parties as partners, joint venturers, co-owners or otherwise as participants in
a joint or common undertaking.
12. Indemnities. Walsin and E-Tek shall each indemnify, defend and hold
-----------
harmless the other against and in respect of any and all claims, demands,
losses, costs, expenses, obligations, liabilities, damages, recoveries and
deficiencies that such other party shall incur or suffer by reason of any breach
of any representation, warranty or other term of this Agreement by the
indemnifying party.
13. Construction of Agreement. Walsin and E-Tek each agree that any
-------------------------
statute, rule or doctrine regarding the interpretation of contracts against a
particular party, including California Civil Code Section 1654, shall not apply
to this Agreement.
14. Attorneys' Fees. If any legal action is brought for the enforcement of
----------------
this Agreement, or because of an alleged dispute, breach, default or
misrepresentation in connection with any of the provisions of this Agreement,
the prevailing party shall be entitled to recover reasonable attorneys' fees and
other costs incurred in that action, in addition to any other relief to which
that party may be entitled.
15. Arbitration. Any and all disputes, claims or controversies, whether of
------------
law or fact and of any nature whatsoever, arising from, respecting, or relating
to, this Agreement shall be decided through binding arbitration. If E-Tek
initiates the arbitration, then such arbitration shall be conducted in Taipei,
Taiwan in accordance with the rules of the Commercial Arbitration Association
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<PAGE>
of Taiwan. If Walsin initiates the arbitration, then such arbitration shall be
conducted in San Jose, California in accordance with the rules of the American
Arbitration Association. Any controversy concerning whether an issue is
arbitratable shall be determined by the arbitrator, but such arbitrator may not
limit, expand or otherwise modify the terms of this Agreement. The parties,
their respective representatives, and the arbitrator shall, unless otherwise
required by applicable law or ordinance, hold the existence, content, and result
of the arbitration in confidence. The arbitrator shall be able to decree any and
all relief of an equitable or legal nature, subject to the limitations on
liability provided in this Agreement. The decree or judgment of an award
rendered by the arbitrator shall be conclusive and binding, and may be entered
in any court having jurisdiction thereof. The parties may engage in discovery,
and the arbitrator may decide all discovery disputes. The arbitrator shall give
effect to the applicable statutes of limitations in determining any claim. The
fees and expenses of the arbitrator shall initially be split evenly between the
parties, and each party shall initially bear its own costs in any arbitration
proceeding; provided, however, that the arbitrator shall award the prevailing
party its reasonable attorneys' fees and costs (including the fees and expenses
of the arbitrator) incurred therein. The institution and maintenance of any
civil action for judicial relief or for a provisional or ancillary remedy shall
not constitute a waiver of the right of either party to submit the dispute to
arbitration.
16. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of New York (excluding laws and principles
relating to the conflict of laws), as if made, executed and performed within
that State.
17. Confidentiality.
----------------
a. "Confidential Information" as used herein shall mean all
confidential information of one party ("Discloser") that has been, is, or may
hereafter be, disclosed to or obtained by the other party ("Recipient"), and
shall include but not be limited to Discloser's (i) business, development and
marketing plans and/or proposals, (ii) customer lists, (iii) prices (except
where publicly disclosed) and pricing strategies, (iv) research, (v) training
methods, (vi) inventions, processes and specifications, (vii) compilations of
information (including without limitation studies, records, reports, drawings,
memoranda, drafts and any other related information), (viii) trade secrets and
any and all other proprietary information whether embodied in Discloser's
products or otherwise, and, (ix) any and all other ideas, concepts, strategies,
suggestions and recommendations relating without limitation to any of the
foregoing or to any products or services offered or developed, or to be
developed or proposed to be developed by Discloser. Recipient acknowledges and
agrees that Discloser is the owner of all such Confidential Information, any and
all copies thereof, and any and all copyrights, trade secrets, patents,
trademarks, and other intellectual property rights therein or associated
therewith.
b. To come within the protections of this Agreement, any information
or data of Discloser (i) must be reasonably believed by Discloser to contain
Confidential Information at the time of disclosure; (ii) if in writing, must be
stamped "Confidential" or contain some other similar designation at the time of
disclosure; or, (iii) if disclosed orally or if embodied in any component or
device, must be identified as constituting Confidential Information at the time
of disclosure, and such identification must thereafter be confirmed in a writing
sent to Recipient within ten business days of such disclosure.
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c. For a period of five (5) years following disclosure to it of any
of Discloser's Confidential Information, Recipient shall not, without first
obtaining Discloser's written consent, (i) disclose such Confidential
Information or any portion thereof to any person, firm, corporation or other
entity, (ii) attempt to or assist others to develop, produce, market or sell any
product based on or utilizing such Confidential Information, (iii) make any
other use of such Confidential Information in any way or for any purpose, or,
(iv) reverse engineer, decompile or disassemble any of Discloser's products, or
any portion thereof.
d. Recipient agrees that all Confidential Information disclosed by
Discloser to Recipient in tangible form is and shall remain Discloser's
property, shall not be copied by Recipient without Discloser's prior written
consent, and shall be returned to Discloser (along with any copies) immediately
upon request therefor or upon the termination of this Agreement, whichever is
first to occur.
e. Notwithstanding any other provision in this Paragraph, Recipient
will not be liable under this Agreement for the disclosure of any of Discloser's
Confidential Information if such Confidential Information (i) is already known
to Recipient at the time of its disclosure without any wrongful conduct on
Recipient's part, (ii) is or becomes publicly known other than through a breach
by Recipient of any agreement with Discloser, (iii) is received by Recipient
from a third party if that third party has not violated the terms of any
agreement or understanding with Discloser, or (iv) is required to be disclosed
by law and Recipient has taken all reasonable steps to protect the
confidentiality of such Confidential Information.
f. Recipient acknowledges that a remedy at law for any breach of this
Paragraph would not be adequate relief, and therefore agrees that Discloser
shall be entitled to injunctive relief in case of any such breach or threatened
breach by Recipient.
g. Notwithstanding any other provision hereof, the parties agree that
no license, by implication or otherwise, is granted under this Agreement or
through any disclosure contemplated hereby.
18. Severability. If any term or provision of this Agreement shall be held
-------------
invalid or unenforceable to any extent, the remainder of this Agreement shall
not be affected and each other term and provision shall be valid to the fullest
extent permitted by law.
19. Headings. The paragraph headings contained in this Agreement are for
--------
reference only, and shall not be construed as substantive parts of the
Agreement.
20. Entire Agreement: Modification: Waiver. This Agreement constitutes the
--------------------------------------
entire agreement between the parties with respect to the subject matter
contained herein and supersedes any and all prior and contemporaneous
agreements, representations and understandings. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by the
parties. No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provision, whether or not similar, nor
shall any waiver constitute a continuing waiver. No waiver shall be binding
unless executed in writing by the party to be charged.
21. Binding Effect: Assignment. This Agreement shall be binding on and
---------------------------
shall inure to the benefit of the parties and their respective representatives,
successors and permitted assigns:
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<PAGE>
provided, however, that, except for transfers made by operation of law, or as
provided in subparagraph 26.a.(iii), no party shall have the right to transfer
or assign any rights or obligations under this Agreement without first obtaining
the other party's written consent. Any attempted assignment in violation of this
provision shall be void.
22. Counterparts. This Agreement may be executed in counterparts, each of
------------
which shall constitute an original and all of which shall be one and the same
instrument.
23. Further Assurances. Each party agrees to execute and deliver such
-------------------
other and further documents, and perform such other and further acts, as are or
may become necessary or convenient to effectuate and carry out the intent and
purposes of this Agreement.
24. Survival Of Provisions. The respective rights, duties and obligations
----------------------
of the parties pursuant to paragraphs 7, 8, 12, 14-17, and 26, among others,
shall survive any expiration or termination of this Agreement.
25. Time of Essence. Time shall be of the essence of this Agreement.
---------------
26. Conditions Precedent.
---------------------
a. This Agreement and all rights and obligations hereunder are
subject to the satisfaction of the following conditions precedent:
(i) E-Tek and Walsin shall have agreed upon the Business
Plan (as defined in the JV agreement between the parties).
(ii) Walsin shall have assigned completely to JV, and JV
shall have accepted from Walsin, all of Walsin's rights, licenses, duties and
obligations under the Licensing Agreement, and JV shall have agreed to assume
all the same; it being understood and agreed that no licenses or rights under
the Licensing Agreement shall thereafter remain in Walsin.
(iii) Walsin shall have assigned completely to JV, and JV
shall have accepted from Walsin, all of Walsin's rights, duties and obligations
under this Agreement, and JV shall have agreed to assume all the same; it being
understood and agreed that no rights under this Agreement shall thereafter
remain in Walsin.
(iv) E-Tek shall have entered into a distributorship
agreement with either Walsin, or an affiliate or designee thereof that is
acceptable to E-Tek, to develop demand for and sell certain of E-Tek's products
nonexclusively in the People's Republic of China and, after January 1, 1999,
exclusively in Taiwan.
(v) All governmental approvals that are necessary for the
formation of JV and all related agreements (including the Taiwanese governmental
approval of E-Tek and its investor-designees as foreign investors) shall have
been obtained, and such approvals shall not be conditioned upon, or materially
alter or affect, this Agreement, JV or any related agreement.
b. All of the foregoing conditions precedent must occur by June 18,
1998, (except for item 26.a.(iv), which must occur by March 3, 1998, and item
26.a.(i) which must occur by March
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13, 1998) or else this Agreement becomes null and void. The parties shall engage
in good faith discussions to attempt to satisfy the foregoing conditions
precedent; however, neither party is obligated to conclude the Business Plan or
any agreement(s) relating to the proposed formation of the JV, or to continue
any discussions. No obligations shall arise under this Agreement unless and
until the Business Plan is finalized by the stated due date to the satisfaction
of each party.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
WALSIN LIHWA CORPORATION E-TEK DYNAMICS, INC.
By: /s/ Yu-Chi Chiao By: /s/ Michael J. Fitzpatrick
------------------------- ---------------------------
Yu-Chi Chiao, Michael J. Fitzpatrick
President President and CEO
Page 9
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EXHIBIT 10.26
MUTUAL CONFIDENTIALITY AGREEMENT
--------------------------------
THIS MUTUAL CONFIDENTIALITY AGREEMENT ("Agreement") is made and entered
into this 2nd day of September, 1997, by and between E-Tek Dynamics, Inc., a
California corporation ("E-Tek") and Walsin Lihwa Corp.
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, E-Tek is engaged in the business of, among other things,
manufacturing fiber optic components and equipment for the telecommunications
market, and in related research and development efforts; and,
WHEREAS, each party desires to evaluate and explore the other party's
products, operations and procedures to help decide whether to consummate
possible business transactions and/or relationships between themselves; and,
WHEREAS, pursuant thereto, the parties wish to disclose to each other
certain of their respective Confidential Information (as hereinafter defined),
and to provide for the protection and confidentiality of the same.
NOW THEREFORE, for good and valuable consideration (including the mutual
covenants contained herein), the sufficiency and receipt of which are hereby
acknowledged, the parties hereto agree as follows:
A G R E E M E N T
- - - - - - - - -
1. Confidential Information.
-------------------------
a. "Confidential Information" as used herein shall mean all
confidential information of one party (the "Discloser") that has been, is, or
may hereafter be, disclosed to or obtained by the other party (the "Recipient"),
and shall include but not be limited to all of the Discloser's (i) business,
development and marketing plans and/or proposals, (ii) customer lists and
customer relationships, (iii) prices (except where publicly disclosed by the
Discloser) and pricing strategies, (iv) past, present and future research, (v)
training methods, (vi) inventions, processes and specifications, (vii)
compilations of information (including without limitation studies, records,
reports, drawings, memoranda, drafts and any other related information), (viii)
trade secrets and any and all other proprietary information whether embodied in
the Discloser's products or otherwise, and, (ix) any and all other ideas,
concepts, strategies, suggestions and recommendations relating without
limitation to any of the foregoing or to any products or services offered or
developed, or to be developed or proposed to be developed by the Discloser.
Recipient acknowledges and agrees that the Discloser is the owner of all such
Confidential Information, any and all copies thereof, and any and all
copyrights, trade secrets, patents, trademarks, and other intellectual or
industrial property rights therein or associated therewith.
1
<PAGE>
b. To come within the protections of this Agreement, any information
or data of the Discloser (i) must be reasonably believed by the Discloser to
contain Confidential Information at the time of disclosure; (ii) if in writing,
must be stamped "Confidential" or contain some other similar designation at the
time of disclosure; or, (iii) if disclosed orally or if embodied in any
component or device, must be identified as constituting Confidential Information
at the time of disclosure, and such identification must thereafter be confirmed
in a writing sent to the Recipient within ten business days of such disclosure.
c. Recipient agrees that for a period of five (5) years following
disclosure to it of any of the Discloser's Confidential Information, Recipient
shall not, without first obtaining the Discloser's written consent, (i) disclose
such Confidential Information or any portion thereof to any person, firm,
corporation or other entity, (ii) attempt to or assist others to develop,
produce, market or sell any product based on or utilizing such Confidential
Information, (iii) make any other use of such Confidential Information in any
way or for any purpose, or, (iv) reverse engineer, decompile or disassemble any
of the Discloser's products, or any portion thereof.
d. Recipient agrees that all Confidential Information disclosed by
the Discloser to Recipient in tangible form is and shall remain the Discloser's
property, shall not be copied by Recipient without the Discloser's prior written
consent, and shall be returned to the Discloser (along with any copies)
immediately upon request therefor or upon the termination of this Agreement,
whichever is first to occur.
e. Notwithstanding any other provision in this Paragraph 1, Recipient
will not be liable under this Agreement for the disclosure of any of the
Discloser's Confidential Information if Recipient proves by a preponderance of
the evidence that such Confidential Information (i) is already known to
Recipient at the time of its disclosure without any wrongful conduct on
Recipient's part, (ii) is or becomes publicly known other than through a breach
by Recipient of this Agreement, (iii) is received by Recipient from a third
party if that third party has not violated the terms of any agreement or
understanding with the Discloser, or (iv) is required to be disclosed by law and
Recipient has taken all reasonable steps to protect the confidentiality of such
Confidential Information. In addition, Recipient agrees that, before making any
disclosure of Confidential Information not previously approved in writing by the
Discloser in reliance upon any of the foregoing exceptions, Recipient will first
give the Discloser at least ten (10) business days' written notice specifying
the applicable exception(s) and the circumstances giving rise thereto.
f. Recipient acknowledges that a remedy at law for any breach of this
Paragraph 1 would not be adequate relief, and therefore agrees that the
Discloser shall be entitled to injunctive relief in case of any such breach or
threatened breach by Recipient.
2. Attorneys' Fees. If any legal action is brought for the enforcement of
---------------
this Agreement, or because of an alleged dispute, breach, default or
misrepresentation in connection with any of the provisions of this Agreement,
the successful or prevailing party
2
<PAGE>
shall be entitled to recover reasonable attorneys' fees and other costs incurred
in that action, in addition to any other relief to which that party may be
entitled.
3. Indemnities. Each party hereto shall indemnify, defend and hold
-----------
harmless the other party against and in respect of any and all claims, demands,
losses, costs, expenses, obligations, liabilities, damages, recoveries and
deficiencies that the other party shall incur or suffer by reason of any breach
of this Agreement by the indemnifying party.
4. Choice of Law. This Agreement shall be governed by and construed in
--------------
accordance with the laws of the State of California (excluding laws and
principles relating to the conflict of laws), as such laws apply to agreements
that were to be fully performed in California. Each party agrees that any legal
or equitable action brought in connection with this Agreement shall be heard and
determined on its merits in the Superior Court of California, County of Santa
Clara or in the U.S. District Court, Northern District of California, as
appropriate, and for that purpose, irrevocably submits itself to the venue and
jurisdiction of such courts.
5. Severability. If any term or provision of this Agreement shall be held
-------------
invalid or unenforceable to any extent, the remainder of this Agreement shall
not be affected and each other term and provision of this Agreement shall be
valid to the fullest extent permitted by law.
6. Entire Agreement. This Agreement constitutes the entire agreement
-----------------
between the parties with respect to the subject matter hereof, and supersedes
all prior and contemporaneous agreements, representations and understandings of
the parties. No supplement, modification or amendment of this Agreement shall be
binding unless executed in writing by both parties. No waiver of any of the
provisions of this Agreement shall be deemed or shall constitute a waiver of any
other provision, whether or not similar, nor shall any waiver constitute a
continuing waiver. No waiver shall be binding unless executed in writing by the
party to be charged.
7. Binding Effect. This Agreement shall be binding on and shall inure to
---------------
the benefit of the parties hereto and their respective heirs, legal
representatives, successors and assigns.
8. Counterparts. This Agreement may be executed in counterparts, each of
-------------
which shall constitute an original and all of which shall be considered one and
the same instrument.
3
<PAGE>
9. No License. Notwithstanding any other provision hereof, the parties
-----------
agree that no license, by implication or otherwise, is granted under this
Agreement or through any disclosure contemplated hereby.
IN WITNESS WHEREOF, the parties have duly executed this Agreement effective
as of the date first written above.
E-TEK DYNAMICS, INC. WALSIN LIHWA CORP.
By: /s/ Theresa Stone Pan, By: /s/ Rice S. T. Liu
----------------------- ---------------------
Theresa Stone Pan, RICE S. T. LIU
---------------------
President DEPUTY CHIEF ENG.
---------------------
[Print Name and Title]
4
<PAGE>
EXHIBIT 10.27
TECHNICAL LICENSING AGREEMENT
ON
FIBER OPTIC PRODUCTS
THIS AGREEMENT, made and entered into on December 17, 1997, by and between
E-TEK DYNAMICS, INC., a California corporation, with its principal place of
business at 1885 Lundy Avenue, San Jose, California, USA ("E-TEK") and WALSIN
LIHWA CORPORATION, a corporation organized and existing under the laws of the
Republic of China, with its principal place of business at 12th Floor, 117,
Section 3, Ming Sheng East Road, Taipei, Taiwan ("WALSIN"). Any term that is in
capital letters and listed in the attached Appendix A shall have the meaning set
forth therein.
WITNESSETH:
WHEREAS, E-TEK is engaged in the development, manufacture and sale of fiber
optic products; and,
WHEREAS, E-TEK has acquired and possesses technical knowledge, information,
experience, know-how and data concerning the manufacture of such products; and,
WHEREAS, WALSIN desires to be licensed under PATENTS, and to be granted
rights to use the PATENT INFORMATION and TECHNICAL INFORMATION (collectively,
"Information") in connection with the design and manufacture of LICENSED
PRODUCTS; and,
WHEREAS, E-TEK is willing to grant such licenses and rights on the terms
and conditions provided hereunder; and,
WHEREAS, the Parties are contemplating entering into a written agreement to
form under Taiwanese laws a third-party company limited by shares ("JV") that
would, among other things: (i) manufacture and sell LICENSED PRODUCTS with the
use of the PATENTS and the Information; and, (ii) assume all rights and
obligations of WALSIN under this Agreement.
NOW, THEREFORE, for good and valuable consideration, the sufficiency and
receipt of which are hereby acknowledged, the parties agree as follows:
ARTICLE I
GRANT OF LICENSES AND RIGHTS
1.1. (a) Subject to the provisions of Articles III and VIII, E-TEK grants to
WALSIN under the PATENTS personal and nontransferable (except as otherwise
provided in Section 8.1(b)) licenses: (i) to make LICENSED PRODUCTS on a
nonexclusive basis in Taiwan and in the People's Republic of China ("PRC"), and
only in Taiwan and the PRC; and, (ii) to use, offer for sale and sell the
LICENSED PRODUCTS on a nonexclusive basis, and only in the following countries:
Japan, PRC, Indonesia, Malaysia, Philippines, Taiwan, North Korea, South Korea,
Singapore, Thailand, Vietnam, Australia and New Zealand (collectively, the
"Pacific Rim Countries"). The foregoing licenses do not include any sublicensing
or have-made rights, nor the right to make, have made, use, sell, offer for sale
or import devices other than
Page 1
<PAGE>
LICENSED PRODUCTS. No license or right is granted herein to any E-TEK patents
not included in the PATENTS.
(b) All licenses granted in Section 1.1(a) under the PATENTS shall
continue until terminated pursuant to Article VII or until the PATENTS expire,
whichever is first to occur.
1.2. (a) Subject to the provisions of Articles III and VIII, E-TEK also grants
to WALSIN a personal and nontransferable (except as otherwise provided in
Section 8.1(b)) license under the Information: (i) to use the Information on a
nonexclusive basis in Taiwan and in the PRC, and only in Taiwan and the PRC, in
connection with WALSIN's efforts to design, test, manufacture and assemble
LICENSED PRODUCTS; and, (ii) to use, offer for sale and sell any resulting
LICENSED PRODUCTS on a nonexclusive basis, and only in the Pacific Rim
Countries. The foregoing license does not include any sublicensing or have-made
rights, nor the right to use the Information for any purpose other than the
design, manufacture, test and assembly of LICENSED PRODUCTS.
1.3. The Information may be disclosed to WALSIN's raw material suppliers solely
for their use to help WALSIN manufacture and assemble LICENSED PRODUCTS,
provided that: (i) before disclosing any such Information, WALSIN must first
disclose to E-TEK the identity of such supplier and enter into a confidentiality
agreement with such supplier with terms substantially similar to those contained
in the template agreement attached hereto as Exhibit C; and, (ii) WALSIN must
diligently initiate and fully prosecute legal action against any supplier
suspected of breaching any such confidentiality agreement, where such breach is
causing, or likely to cause, any adverse consequences to WALSIN or E-TEK.
1.4. During the first twenty-one months of this Agreement after the date first
set forth above, each party shall provide to the other party, promptly and free
of charge, any revisions to the Information. WALSIN's rights to any such
revisions provided by E-TEK shall be as set forth in Section 1.2, above. E-TEK's
rights to any such revisions provided by WALSIN shall be as follows: WALSIN
hereby grants to E-TEK an irrevocable, perpetual, nonexclusive license under
such Information to make, have made, use, offer for sale, sell, import and
sublicense E-TEK's products. Neither party shall have any other obligation to
provide other improvements to the PATENTS or Information to the other party.
ARTICLE II
FURNISHING OF INFORMATION AND SERVICES
2.1. Subject to the provisions of Articles III and VIII, E-TEK shall furnish two
copies, in the English language, of the Information to WALSIN, to the extent
such information exists in tangible form, and in accordance with the estimated
technology licensing schedule on the attached Appendix B.
2.2. Engineers and/or technicians dispatched by WALSIN shall be given the
opportunity, at the request of WALSIN, to receive a reasonable amount of
theoretical and practical training at E-TEK's facilities to help facilitate the
licensing of Information. Any such training shall be given in the English
language or, at E-TEK's option, in the Mandarin language. The training shall be
adequate to ensure that qualified WALSIN engineers and technicians can
manufacture, at E-TEK's facilities, samples of the LICENSED PRODUCTS that meet
or exceed E-TEK's
Page 2
<PAGE>
current standards. WALSIN shall be solely responsible for all costs and expenses
relating to the travel, lodging and meals of its employees and agents.
2.3. During the term of this Agreement, E-TEK shall provide reasonable
assistance to promote WALSIN's efforts to set up manufacturing facilities in
Taiwan for LICENSED PRODUCTS and design, test, manufacture and assemble LICENSED
PRODUCTS. WALSIN shall pay, and be solely responsible for, all costs and
expenses relating to such assistance by E-TEK, including the transportation,
lodging and meals of the E-TEK employees and agents, and excluding only the
salaries of such E-TEK employees and agents.
2.4. WALSIN acknowledges that (i) the Information provides data solely on E-
TEK's LICENSED PRODUCTS; (ii) such Information does not constitute
specifications for LICENSED PRODUCTS; and, (iii) WALSIN shall be solely
responsible for designing and manufacturing LICENSED PRODUCTS.
2.5. WALSIN shall not re-export any technical data received from E-TEK, nor does
it intend to ship, directly or indirectly, any Information or any products
derived directly therefrom, except as may be specifically authorized by United
States law under U.S. Department of Commerce export control regulations. E-TEK
shall assist WALSIN in these efforts by providing WALSIN with a brief indication
on what E-TEK believes are general areas of concern on this issue; it being
understood by the parties that any such indication is neither legal advice nor a
legal opinion, and that WALSIN shall be solely responsible for fulfilling its
obligations under this section.
ARTICLE III
PAYMENT AND TAXES
3.1. (a) In consideration for E-TEK's performance under this Agreement, WALSIN
shall pay to E-TEK, by wire transfer of immediately available funds to an
account(s) designated by E-TEK, the sum of Seven Million Dollars, in lawful
money of the United States (US$7,000,000) (the "License Fee"), which shall be
payable in accordance with the following: thirty percent of the License Fee
shall be payable immediately upon receipt by WALSIN of any Taiwanese
governmental approvals of tax-exempt status of the License Fee, but in no event
any later than one hundred twenty days from the above date of this Agreement;
payment of the remaining seventy percent of the License Fee shall be made at
such time and in such increments as is hereafter agreed by the parties, but in
any event, such balance shall be paid in full within twenty-one months of the
above date of this Agreement, and in no more than three installments. The
License Fee shall be net of any Taiwanese taxes and similar liabilities,
including withholding taxes. WALSIN shall pay, reimburse E-TEK for, and hold E-
TEK harmless from, any and all such liabilities.
(b) Time is of the essence with respect to WALSIN's payment of the License
Fee. Any scheduled payment that is not made in full when due shall have a one
and one-half percent (1.5%) per month late payment charge assessed against any
unpaid balance thereof from the stated due date until the actual date of
payment. If such rate exceeds the maximum legal rate, then the legal rate shall
instead apply. E-TEK reserves the right to withhold its performance hereunder
during any period when outstanding payments payable by WALSIN become or remain
past due.
Page 3
<PAGE>
ARTICLE IV
DISCLAIMER AND LIMITED WARRANTY
4.1. Nothing contained in this Agreement shall be construed as, with respect to
E-TEK:
(i) requiring the securing of any patent or the maintaining of
any patent in force;
(ii) a warranty or representation as to the validity or scope of
any PATENT;
(iii) a warranty or representation that any design, manufacture,
sale, use or importation will be free from infringement of patents or other
intellectual property rights of any third party (other than the warranty
set forth in Section 4.2., below);
(iv) an agreement to bring or prosecute actions or suits against
third parties for infringement;
(v) conferring any right to use, in advertising, publicity or
otherwise, any name, trade name, trademark, service mark, or any
contraction, abbreviation or simulation thereof;
(vi) an obligation to furnish any information or service, except
as provided in Article II;
(vii) conferring by implication, estoppel or otherwise any license
or other right under any patent or other intellectual property, except as
expressly granted herein;
(viii) any arrangement or understanding to make any purchase, lease,
examination or test of, or give any approval with respect to, any product
(including LICENSED PRODUCTS) or any service; or,
(ix) any obligation to make any determination as to the
applicability of any PATENT to any product (including LICENSED PRODUCTS).
4.2. (a) E-TEK warrants and represents that there are no commitments or
restrictions which shall limit the licenses and rights which are purported to be
granted to WALSIN hereunder, and that, to the best of its knowledge, neither the
Patents nor the Information infringe any third party's intellectual property
rights as of the above date of this Agreement.
(b) E-TEK makes no representations, extends no warranties of any kind
other than those specified in Section 4.2(a), and assumes no responsibility or
liability whatsoever with respect to the (i) design, manufacture, assembly,
testing, sale, use or importation of any LICENSED PRODUCT or any portion
thereof; or, (ii) use or sufficiency of the Information. WALSIN accepts all such
Information "As Is."
(c) E-TEK's failure to meet any obligation hereunder due to the assignment
of title to any invention or patent, or the granting of any licenses, to the
United States government or any agency or designee thereof pursuant to a statute
or regulation of, or contract with, such government or agency, shall not
constitute a breach of this Agreement.
(d) EXCEPT FOR THE WARRANTIES SPECIFIED IN SECTION 4.2(a), E-TEK MAKES NO
WARRANTIES, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO: THE IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, AND,
WARRANTIES AGAINST INFRINGEMENT OF PATENTS OR OTHER INTELLECTUAL PROPERTY
RIGHTS.
Page 4
<PAGE>
(e) E-TEK'S LIABILITY UNDER THIS AGREEMENT, IF ANY, SHALL BE LIMITED TO
THE PORTION OF THE LICENSE FEE ACTUALLY RECEIVED. IN NO EVENT SHALL E-TEK HAVE
ANY LIABILITY TO WALSIN UNDER ANY CAUSE OF ACTION FOR ANY SPECIAL, INDIRECT,
CONSEQUENTIAL OR PUNITIVE DAMAGES (INCLUDING WITHOUT LIMITATION DAMAGES FOR LOSS
OF PROFITS) THAT RELATE IN ANY WAY WHATSOEVER TO THIS AGREEMENT, HOWEVER CAUSED
AND UNDER ANY THEORY OF LIABILITY (INCLUDING NEGLIGENCE), WHETHER OR NOT E-TEK
HAS BEEN ADVISED OF THE POSSIBILITY OF ANY SUCH DAMAGES. THESE LIMITATIONS SHALL
APPLY NOTWITHSTANDING THE FAILURE OF THE ESSENTIAL PURPOSE OF ANY LIMITED
REMEDY.
ARTICLE V
PATENT MARKING
5.1. WALSIN shall mark all LICENSED PRODUCTS made, sold or put into use with the
applicable numbers of the PATENTS. If it is impractical to so mark such
products, then WALSIN shall so mark the packages or containers in which the
products are distributed.
ARTICLE VI
CONFIDENTIALITY
6.1. To the extent it does not conflict with the terms of this Agreement,
Section 1 of the parties' September 2, 1997 Mutual Confidentiality Agreement
("MCA") is hereby incorporated into this Agreement as if fully set forth herein.
All Information shall be deemed to constitute, and be treated as, "Confidential
Information," as that term is defined in the MCA.
ARTICLE VII
TERMINATION
7.1. Unless terminated pursuant to Section 7.2., below, this Agreement, and all
licenses and rights granted to WALSIN hereunder, shall continue indefinitely.
7.2. This Agreement, and all licenses and rights granted to WALSIN hereunder,
shall, at E-TEK's option, terminate immediately if:
(a) WALSIN files for bankruptcy, becomes insolvent or makes an
assignment for the benefit of its creditors, or if WALSIN's business is
placed in the hands of a receiver, assignee or trustee for the benefit of
creditors (or the equivalent of the foregoing under the laws of Taiwan);
(b) WALSIN fails to pay in full any portion of the License Fee
(including any applicable late charges) within thirty days of the stated
due date; or,
(c) either party commits a material breach of this Agreement (other
than the non-payment by WALSIN of the License Fee) and cannot cure the
same, or fails to cure the same within thirty (30) days of receiving
written notice from the other party of such breach.
(d) the JV dissolves, liquidates or unwinds.
Page 5
<PAGE>
7.3. Upon termination, for any reason, of this Agreement or the licenses and
rights granted to WALSIN hereunder, WALSIN shall immediately cease all uses of
the inventions of the PATENTS and all use of the Information, and shall promptly
destroy all such information and all copies thereof.
7.4. Termination of this Agreement or the licenses and rights granted to WALSIN
hereunder shall not relieve either party from any obligations that arose prior
to such termination. The termination rights provided herein are in addition to
all other rights and remedies available to the parties.
ARTICLE VIII
CONDITIONS PRECEDENT
8.1. This Agreement and all rights and obligations hereunder are subject to the
satisfaction of the following conditions precedent:
(a) E-TEK and WALSIN shall have entered into a written agreement to form
the JV for the purpose of, among other things, manufacturing and selling
LICENSED PRODUCTS with the use of the PATENTS and the Information.
(b) WALSIN shall have assigned completely to the JV, and the JV shall have
accepted from WALSIN, all of WALSIN's rights, licenses, duties and obligations
under this Agreement, and the JV shall have agreed to assume all the same; it
being understood and agreed that no licenses or rights shall thereafter remain
in WALSIN.
(c) E-TEK and the JV shall have entered into a supplier agreement whereby,
among other things, E-TEK has a right of first refusal with respect to products
manufactured by the JV.
(d) E-TEK shall have entered into a distributorship agreement with either
WALSIN, or an affiliate or designee thereof that is acceptable to E-TEK, to
develop demand for and sell certain of E-TEK's products in the PRC.
(e) All governmental approvals that are necessary or desirable for the
formation of the JV and all related agreements shall have been obtained, and
such approvals shall not be conditioned upon, or materially alter or affect,
this Agreement, the JV or any related agreement.
(f) Exhibits A through C of this Agreement shall have been finalized and
incorporated herein.
8.2. All of the foregoing conditions precedent must occur within ninety days of
the above date of this Agreement, or else this Agreement becomes null and void.
The parties shall engage in good faith discussions to attempt to satisfy the
foregoing conditions precedent; however, neither party is obligated to conclude
any agreement(s) or continue any discussions.
ARTICLE IX
ASSIGNMENT
9.1. Except as provided in Section 8.1(b), neither this Agreement nor any
licenses, rights, duties or obligations hereunder shall be assignable or
transferable (by merger, operation of law, purchase or otherwise) by WALSIN
without the prior written consent of E-TEK, which can be withheld in E-TEK's
discretion.
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<PAGE>
ARTICLE X
GENERAL
10.1. There may be countries in which WALSIN may have, as a consequence of this
Agreement, rights against infringers of the PATENTS licensed hereunder. WALSIN
hereby waives any such right it may have by reason of the infringement or
alleged infringement of any such PATENTS.
10.2. There may be countries in which the owner of an invention is entitled to
compensation, damages or other monetary award for another's unlicensed
manufacture, sale, use or importation involving such invention prior to the date
of issuance of a patent for such invention but on or after a certain earlier
date, referred to as the invention's protection commencement date. For purposes
of this Agreement, an invention which has a protection commencement date in any
such country shall be deemed to have had a patent issued therefor in such
country on such date.
10.3. WALSIN shall not, without E-TEK's prior written consent: (i) use in
advertising, publicity, packing, labeling or otherwise any trade name,
trademark, service mark, symbol or any other identification or any abbreviation,
contraction or simulation thereof owned or used by E-TEK to identify its
products or services; or, (b) represent that any product or service produced in
whole or in part by the use of any Information is a product or service of E-TEK
or is made in accordance with or uses any information or documentation of E-TEK.
10.4. Each party acknowledges that any breach of this Agreement may give rise
to irreparable injury to the other party that would not be adequately
compensable in damages, and therefore agrees that, in addition to any other
remedies, such other party will be entitled to seek injunctive relief for any
such breach or threatened breach by the first party.
10.5. Neither party shall be liable to the other party, nor shall a party be
deemed to be in breach of this Agreement, for any delay or failure in
performance or interruption of service resulting from acts of God, civil or
military authority, acts of the public enemy, war, riots, accidents, fire,
explosions, earthquakes, floods, the elements, strikes, labor disputes,
shortages of labor, or, any other cause or causes beyond such party's reasonable
control.
10.6. If any term or provision of this Agreement shall be held invalid or
unenforceable to any extent, the remainder of this Agreement shall not be
affected and each other term and provision shall be valid to the fullest extent
permitted by law. This Agreement constitutes the entire agreement between the
parties with respect to the subject matter contained herein and supersedes all
prior and contemporaneous agreements, representations and understandings of the
parties. No supplement, modification or amendment of this Agreement shall be
binding unless executed in writing by the parties. No waiver of any of the
provisions hereof shall constitute a waiver of any other provision, whether or
not similar, nor shall any waiver constitute a continuing waiver. No waiver
shall be binding unless executed in writing by the party to be charged. Any
statute, rule or doctrine regarding the interpretation of contracts against a
particular party shall not apply to this Agreement.
10.7. This Agreement shall be governed by the laws of the State of California
(excluding laws and principles relating to the conflict of laws), as if made,
executed and performed within
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<PAGE>
this State. Any action brought in connection with this Agreement shall be heard
and determined on its merits exclusively in San Jose, California in the federal
or state courts, as appropriate.
10.8. If any action is brought for the enforcement of this Agreement, or because
of an alleged dispute, breach, default or misrepresentation in connection with
any of the provisions hereof, the prevailing party shall be entitled to recover
reasonable attorneys' fees and other costs incurred in that action, in addition
to any other relief to which that party may be entitled.
10.9. (a) If any dispute whatsoever arises relating to this Agreement, the
parties shall attempt in good faith to promptly and informally resolve the same.
If the dispute is not so resolved, then any party may submit the matter to
arbitration in accordance with the provisions of Sections 10.9.(b)-(g)., below;
provided, that, as a condition to invoking arbitration, such party must have
first attempted in good faith to informally resolve such dispute.
(b) Subject to the conditions of Section 10.9(a), above, and at the option
of either party, any and all disputes and controversies whether of law or fact
and of any nature whatsoever relating to this Agreement shall be decided through
binding arbitration by the American Arbitration Association ("AAA") in
accordance with the rules and regulations of such association.
(c) The arbitrators shall be selected as follows. In the event the parties
agree on one arbitrator, the arbitration shall be conducted by such arbitrator.
In the event the parties do not so agree, then each party shall select an
arbitrator, and the two arbitrators so selected shall select the third
arbitrator. If a party fails or refuses to select an arbitrator, then the other
party's selected arbitrator shall solely arbitrate the dispute. If the two
arbitrators selected by the parties fail or refuse to select a third arbitrator,
then either party may request the AAA to make such selection.
(d) Arbitration shall be held in San Jose, CA, USA, and shall take place
under the purview of the San Francisco, CA offices of the AAA. Any controversy
concerning whether an issue is arbitratable shall be determined by the
arbitrator(s), but such arbitrator(s) may not limit, expand or otherwise modify
the terms of this Agreement. The parties, their representatives, other
participants and the arbitrator(s) shall hold the existence, content, and result
of the arbitration in confidence. The arbitrator(s), who shall act by majority
vote, shall be able to decree any and all relief of an equitable or legal
nature, subject to the limitations on liability provided in this Agreement. The
decree or judgment of an award rendered by the arbitrator(s) shall be conclusive
and binding, and may be entered in any court having jurisdiction thereof.
(e) The arbitrator(s) shall give effect to the applicable statutes of
limitations in determining any claim.
(f) The fees and expenses of the arbitrator(s) shall initially be split
evenly between the parties, and each party shall initially bear its own costs in
any arbitration proceeding; provided, however, that the arbitrator(s) shall
award the prevailing party its reasonable attorneys' fees and costs (including
the fees and expenses of the arbitrator(s)) incurred therein.
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<PAGE>
(g) The institution and maintenance of any civil action for judicial
relief or for a provisional or ancillary remedy shall not constitute a waiver of
the right of any party to submit the dispute to arbitration if any other party
contests such action.
10.10. The respective rights, duties and obligations of the parties pursuant to
Articles IV, VI and X shall survive any expiration or termination of this
Agreement.
10.11. English is the governing language of this Agreement and of any
arbitration proceeding or legal action.
IN WITNESS WHEREOF, the parties have made and entered into this Agreement
as of the date first above written.
E-TEK DYNAMICS, INC. WALSIN LIHWA CORP.
By: /s/ Michael J. Fitzpatrick By: /s/ Yu-Chi Chiao
----------------------------- ----------------------------
Michael J. Fitzpatrick Yu-Chi Chiao
President and CEO President
Page 9
<PAGE>
EXHIBIT 11.1
E-TEK DYNAMICS, INC.
STATEMENT OF COMPUTATION OF NET INCOME PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share data) for fiscal years
ended June 30, 1994 and June 30, 1995. (For fiscal years ended June 30, 1996
through June 30, 1998, see page F-9 of this Registration Statement.)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------
1994 1995
------------- -------------
<S> <C> <C>
NUMERATOR:
Net income $ 1,930 $ 7,706
Preferred Stock accretion ----------- -----------
Net income available to Common Stockholders (Basic) 1,930 7,706
Preferred Stock accretion -- -
Net income available to Common Stockholders and assumed conversion (Diluted) $ 1,930 $ 7,706
=========== ===========
DENOMINATOR:
Denominator for basic earnings per share - weighted average shares 50,000,000 50,000,000
Effect of dilutive securities
Common Stock options -- --
Unvested Common Stock subject to repurchase -- --
Mandatorily Redeemable Convertible Preferred Stock -- --
----------- -----------
Denominator for dilutive earnings per share - adjusted weighted average shares and
assumed conversions 50,000,000 50,000,000
=========== ===========
Basic earnings per share $ 0.04 $ 0.15
=========== ===========
Diluted earnings per share $ 0.04 $ 0.15
=========== ===========
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated July 28, 1998, except
as to Note 12 which is as of August 14, 1998, relating to the consolidated
financial statements of E-Tek Dynamics, Inc. which appear in such Prospectus.
We also consent to the references to us under the headings "Expert" and
"Selected Financial Data" in such Prospectus. However, it should be noted that
PricewaterhouseCoopers LLP has not prepared or certified such "Selected
Financial Data."
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
San Jose, California
August 18, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF E-TEK DYNAMICS, INC. AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS AND
REGISTRATION STATEMENTS ON FORM S-1
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 21,918
<SECURITIES> 0
<RECEIVABLES> 20,358
<ALLOWANCES> (5,895)
<INVENTORY> 6,909
<CURRENT-ASSETS> 58,506
<PP&E> 41,389
<DEPRECIATION> (10,517)
<TOTAL-ASSETS> 89,378
<CURRENT-LIABILITIES> 24,924
<BONDS> 10,251
125,144
0
<COMMON> 19,468
<OTHER-SE> (93,966)
<TOTAL-LIABILITY-AND-EQUITY> 89,378
<SALES> 106,924
<TOTAL-REVENUES> 106,924
<CGS> 49,063
<TOTAL-COSTS> 49,063
<OTHER-EXPENSES> 28,199
<LOSS-PROVISION> 245
<INTEREST-EXPENSE> 988
<INCOME-PRETAX> 30,066
<INCOME-TAX> 12,142
<INCOME-CONTINUING> 17,924
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,924
<EPS-PRIMARY> 0.39
<EPS-DILUTED> 0.32
</TABLE>
<PAGE>
Exhibit 99.1
CONSENT
I hereby consent to the use of my name and the description of my
intention to accept an offer to rejoin the Board of Directors of E-Tek Dynamics,
Inc. (the "Company") under the heading "Management -- Executive Officers and
Directors" in the Company's Registration Statement on Form S-1 to be filed with
the Securities and Exchange Commission on or about August 18, 1998, and any
amendments thereto (including any filing under Rule 462 promulgated under the
Securities Act of 1933, as amended).
/s/ Peter Y. Chung
--------------------------
Peter Y. Chung
August 17, 1998
