SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 18, 1999
E-TEK Dynamics, Inc.
(Exact name of registrant as specified in charter)
DELAWARE 000-25103 59-2337308
(State or other
jurisdiction of (Commission File Number) (IRS Employer
incorporation) Identification No.)
1865 LUNDY AVENUE, SAN JOSE, CALIFORNIA (Address of
principal executive offices)
95131
(Zip Code)
Registrant's telephone number, including area code: (408) 546-5000
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On July 27, 1999, E-TEK Dynamics, Inc. (the "Registrant") announced a
definitive agreement to acquire Kaifa Technology, known officially as SMC Kaifa
(Holdings) Ltd., a British Virgin Islands corporation, ("Kaifa") for shares of
E-TEK common stock and cash with an aggregate value of approximately $40
million.
Kaifa is a developer of fiber optic components including Wavelength
Division Multiplexing (WDM) components and modules, circulators, and isolators.
Kaifa has an engineering and manufacturing center in Sunnyvale, California, and
manufacturing operations in China. The Registrant intends to continue using
Kaifa's equipment and operations and to coordinate them with the operations of
the Registrant.
On August 18, 1999, the Registrant completed the acquisition by purchasing
all of the outstanding shares of Kaifa from its two shareholders, SMC Optics
Communications Corporation and Cylinder Company Limited for an aggregate of
697,000 shares of the Registrant's common stock and approximately $9 million in
cash from the Registrant's working capital.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS
(a) Exhibits.
Exhibit
Number Document
10.32 Agreement by E-TEK Dynamics Group, Inc. to Purchase all Shares
of SMC Kaifa (Holdings) Ltd., dated July 27, 1999
99 Press Release of Registrant, dated July 27, 1999, announcing
Registrant's agreement to acquire Kaifa
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
E-TEK DYNAMICS, INC.
Dated: August 24, 1999
By: /s/ Sanjay Subhedar
Sanjay Subhedar
Senior Vice President, Operations,
Chief Financial Officer and
Secretary
EXHIBIT INDEX
Exhibit
Number Document
10.32 Agreement by E-TEK Dynamics Group, Inc. to Purchase all Shares
of SMC Kaifa (Holdings) Ltd., dated July 27, 199
99 Press Release of Registrant, dated July 27, 1999, announcing
Registrant's agreement to acquire Kaifa
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Share Purchase Agreement
THIS SHARE PURCHASE AGREEMENT (this "Agreement"), made and entered into
this 27th day of July, 1999, by and among (1) E-TEK Dynamics, Inc., a
corporation organized and existing under the laws of the State of Delaware,
U.S.A. ("E-TEK"), (2) E-TEK Dynamics Group, Inc., a corporation organized and
existing under the laws of the State of Delaware, U.S.A. ("Purchaser"); (3) SMC
Optics Communications Corporation, a company incorporated in the British Virgin
Islands ("SMC"), and (4) Cylinder Company Limited, a company incorporated in the
British Virgin Islands ("Cylinder"), (SMC and Cylinder shall be collectively
referred to herein as "Sellers", and each a "Seller").
RECITALS
A. SMC owns 25,474,000 shares and Cylinder owns 19,512,000 shares
(collectively, the "Shares") of the issued and outstanding voting shares
with no par value per share, of SMC KAIFA (Holdings) Ltd., a company
organized and existing under the laws of the British Virgin Islands (the
"Company").
B. The Shares constitute all of the issued and outstanding capital stock of
the Company.
C. It is a key business objective of E-TEK to establish or acquire a
manufacturing facility for the manufacture and production of optical
communications components in the People's Republic of China, and one of
the Acquired Entities, KAIFA PRC, has such a manufacturing facility in the
Shunde, Guangdong Province, People's Republic of China.
D. Purchaser desires to purchase the Shares, and Sellers desire to sell the
Shares upon the terms and the conditions and for the consideration set
forth in this Agreement, and the parties wish to support this transaction
by entering into certain agreements with, and providing certain
representations, warranties and covenants to, each other.
In consideration of the foregoing and the mutual covenants and conditions
set forth herein, the parties hereto, intending to be legally bound, agree as
follows:
AGREEMENT
1. Definitions and Interpretation
1.1 Definitions. For purposes of this Agreement, the following terms shall have
the following meanings:
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"Affiliate" means, with respect to any person, (i) any person
directly or indirectly controlling, controlled by, or under common control with
such person, (ii) any person owning, directly or indirectly, fifty percent (50%)
or more of the outstanding voting interests of such person, or (iii) any
officer, director, general partner, trustee or beneficiary of such person. For
purposes of this definition, the term "controls", "is controlled by", or "is
under common control with" shall mean the possession, direct or indirect, of the
power to direct or cause the direction of the management and policies of a
person through the ownership of voting securities.
"Amended Articles of Association of KAIFA PRC" shall mean the
Amended Articles of Association of KAIFA PRC as a wholly foreign-owned
enterprise, substantially in the form attached in Exhibit F.
"Ancillary Agreements" shall mean the Escrow Agreement, the
Employment Agreements, the Confidentiality and Invention Assignment Agreements,
and any other agreements, certificates and documents annexed hereto as Exhibits
or Schedules or delivered pursuant to this Agreement.
"Applicable Law" shall mean, with respect to any person, all laws,
ordinances, rules, regulations, Orders, injunctions, notices, Approvals or
judgments of any Government Authority which apply to that person, its properties
and/or its business.
"Approvals" shall mean all consents, no-action letters, governmental
licenses, registrations, authorizations, filings, permits and approvals, and all
applications therefor.
"Acquired Entities" shall mean, collectively, the Company, KAIFA USA
and KAIFA PRC, and "Acquired Entity" shall mean each or any one of them.
"1998 Balance Sheet" shall have the meaning set out in
Section 4.3.1.
"Claim" shall have the meaning set out in Section 11.3.2.
"Closing" shall have the meaning set out in Section 3.4.
"Closing Date" shall have the meaning set out in Section 3.4.
"Confidentiality Agreement" shall mean the letter agreement dated
June 11, 1999 entered into by E-TEK, the Company and its Affiliates, as amended.
"Confidentiality and Invention Assignment Agreement" shall mean the
proprietary information and inventions agreement of E-TEK, substantially in the
form of Exhibit C, to be executed by each of the employees of the Acquired
Entities listed on Schedule 2.5.
"Consideration Shares" shall mean all of the E-TEK Common Stock
issued to Sellers and payable as part of the Purchase Consideration under
Section 2.4.
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"Contract" shall mean any agreement, contract, obligation,
commitment, promise, understanding, lease, license, franchise, warranty,
guaranty, mortgage, note, bond, or other instrument or obligation (whether
written or oral and whether express or implied) that is legally binding.
"Employment Agreement" shall have the meaning set out in
Section 2.5.
"Encumbrance" shall mean any charge, claim, mortgage, servitude,
easement, right of way, community or other marital property interest, condition,
equitable interest, lien, option, pledge, security interest, right of first
refusal, or restriction of any kind, including any restriction on use, voting,
transfer, receipt of income, or exercise of any other attribute of ownership.
"Escrow Agent" shall mean the Escrow Agent appointed under the
Escrow Agreement.
"Escrow Agreement" shall mean the Escrow Agreement, substantially in
the form attached as Exhibit A, to be entered into among E-TEK, Purchaser,
Sellers and the Escrow Agent.
"E-TEK Common Stock" shall mean the common stock in the capital of
E-TEK, each share with a par value of US$0.001.
"E-TEK Stock Option Plan" shall mean the E-TEK 1998 Stock Plan,
adopted by E-TEK's shareholders in November, 1998, as amended from time to time.
"Financial Statements" shall have the meaning set forth in
Section 4.3.1.
"Government Authority" shall mean any international, national,
state, federal, provincial, county, municipal, district, or local government
body, or any public administrative or regulatory agency, political subdivision,
commission, board or body, or representative of any of the foregoing, foreign or
domestic, established by any such government or government body.
"Hazardous Materials" shall mean any pollutant, contaminant,
hazardous or toxic waste, material or substance, oil or petroleum product, as
defined in or pursuant to the Resource Conservation and Recovery Act, the
Comprehensive Environmental Response, Compensation, and Liability Act, the Toxic
Substance Control Act, the Superfund Amendments and Reauthorization Act, the
Federal Water Control Act, the Occupational Safety and Health Act, and all other
Applicable Law relating to pollution, safety, health or protection of the
environment, used, produced, discharged or emitted by any Acquired Entity other
than products intended to be sold in the usual and ordinary course of business.
"Holdback" shall mean that portion of the Purchase Consideration
identified in Section 2.4 to be held in escrow pursuant to Section 3.3.
"Intellectual Property Rights" shall mean and include all of the
patents, trademarks, service marks, trade names, corporate names, company names,
fictitious business names, trade secrets, designs, mask work rights, copyrights,
registrations, applications and extensions and all related proprietary rights
used by any Acquired Entity.
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"Investors" shall have the meaning set forth in Section 4.2.4.
"KAIFA PRC" shall mean Shunde SMC Kaifa Optics Communications
Limited, a Sino-foreign cooperative joint venture established under the laws of
the PRC by the Company and Shunde Beijiao Economic Development Company, a PRC
legal person enterprise, with its registered address at Zone No. 9, Beijiao
Economic Industrial Zone, Shunde, PRC.
"KAIFA Shenzhen" shall mean Shenzhen Kaifa Technology Co., Ltd., a
publicly-traded company on the Shenzhen Stock Exchange of the PRC, established
under the laws of the PRC with its registered office at Kaifa Complex, Catian
Road, Futian Industrial District, Shenzhen, PRC.
"KAIFA USA" shall mean U.S.A. KAIFA Technology, Inc., a corporation
organized and existing under the laws of the State of California, U.S.A., which
is a wholly-owned subsidiary of the Company.
"Key Employees" shall mean those key employees of each Acquired
Entity identified as such in Schedule 2.5.
"Latest Balance Sheet" shall have the meaning set forth in
Section 4.3.1.
"Latest Financial Statements" shall have the meaning set forth in
Section 4.3.1.
"Liabilities" shall include liabilities or obligations of any nature
(whether known or unknown and whether absolute, accrued, contingent, or
otherwise, whether due or to become due, and whether or not required to be
reflected on a balance sheet prepared in accordance with generally accepted
accounting principles).
"Loss" shall mean any Liability, loss, damage, claim, demand, fine,
punitive damages, cost, deficiency, obligation, or expense (including any
penalty and any reasonable legal fees and costs) incurred by a party to this
Agreement, whether or not involving a third party claim.
"Malfunction" shall mean the failure without error or delay to: (i)
accurately recognize dates falling before, on or after the year 2000; (ii)
accurately record, store, retrieve and process data input and date information;
(iii) function in a manner which does not create any ambiguity as to century;
and (iv) accurately manage and manipulate single century and multi-century
formulae, including leap year calculations, if the failure causes a material
adverse effect.
"MOFTEC" shall mean the Ministry of Foreign Trade and Economic
Cooperation of the PRC.
"Order" shall mean any writ, award, decision, injunction, judgment,
order, decree, ruling, assessment, or verdict entered, issued, made, or rendered
issued by any Tribunal.
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"Organizational Documents" shall mean any charter, articles, bylaws,
certificate, statement, statutes, or similar document adopted, filed or
registered in connection with the creation, formation, or organization of an
entity, and any Contract among the investors, shareholders, or members of an
entity.
"PRC" shall mean the People's Republic of China (excluding for
purposes of this Agreement, Hong Kong Special Administrative Region, Macau and
Taiwan).
"PRC Lease Agreement" shall mean a lease agreement between Shunde
SMC Multi-Media Products Co., Ltd. and KAIFA PRC containing all of the terms set
forth in Exhibit G, together with such other terms, and in a form acceptable to
E-TEK and Purchaser.
"Purchase Consideration" shall have the meaning set forth in
Section 2.3.
"Purchaser's Counsel" shall mean the San Francisco/Palo Alto offices
of Baker & McKenzie.
"Real Estate" shall mean the real property or premises on which any
Acquired Entity's business has been conducted or is being conducted.
"SAIC" shall mean the State Administration for Industry and
Commerce of the PRC.
"SEC" shall mean the United States Securities and Exchange
Commission.
"SEC Documents" shall have the meaning set forth in Section 6.4.
"Securities Act" shall mean the United States Securities Act of
1933, as amended.
"Securities Exchange Act" shall mean the United States Securities
Exchange Act of 1934, as amended.
"Shares" shall have the meaning set out in paragraph A of the
Recitals.
"SMC Parent" shall mean the parent company of SMC, Shell Electric
Mfg. (Holdings) Company, a company incorporated in Hong Kong with limited
liability.
"SMC Parent Guarantee" shall mean the Guarantee to be executed by
the SMC Parent in favor of Purchaser and E-TEK pursuant to Section 11.1.4,
substantially in the form of Exhibit E.
"Stock Option Plan" shall mean E-TEK's current stock option plan, a
copy of which is attached as Exhibit D.
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"Transfer and Conversion Contract" shall mean the Contract to Assign
Registered Capital and to Convert Cooperative Joint Venture into Wholly
Foreign-Owned Enterprise between Shunde Beijiao Economic Development Company and
the Company with respect to KAIFA PRC, substantially in the form of Exhibit F.
"Tribunal" shall mean (i) any court (including a court of equity);
(ii) any federal, provincial, state, county, municipal or other government or
governmental department, ministry, commission, board, bureau, agency or
instrumentality; (iii) any securities commission, stock exchange or other
regulatory or self-regulatory body; (iv) any board of trade, chamber of commerce
or other business or professional organization or association; (v) any
arbitrator or arbitration tribunal; and (vi) any other tribunal; whether
domestic or foreign.
"United States Dollars" or "US$" shall mean the lawful currency of
the United States of America.
1.2 Other Terms. In this Agreement:
(a) The term "best efforts" shall refer to the efforts that a prudent
person desirous of achieving a result would use in similar circumstances to
ensure that the result is achieved as expeditiously as possible;
(b) With respect to any representation or warranty made to the
"knowledge" of a person, (i) an individual shall be considered to have
knowledge of a fact or other matter, if the individual is actually aware of
such fact or other matter or a prudent individual could be expected to
discover or otherwise become aware of such fact or other matter in the
course of conducting a reasonable investigation concerning the existence of
such fact or other matter, (ii) an entity will be considered to have
"knowledge" of a fact or other matter if any individual who is serving as a
director, senior manager or executive officer, partner, executor, or
trustee of such entity (or in any similar capacity) has, or at any time
had, knowledge of such fact or other matter (as defined in (i)), and (iii)
Sellers shall be considered to have knowledge of any fact or matter known
to an Acquired Entity;
(c) Something would be considered to have a "material adverse effect"
on an Acquired Entity if it (i) materially adversely affects the financial
or other condition or result of operations, assets, Liabilities, equity,
business or prospects of an Acquired Entity, (ii) materially impedes the
ongoing operations of an Acquired Entity, or (iii) significantly adversely
affects a material asset of an Acquired Entity;
(d) The phrase "ordinary course of business" shall refer to the normal
operation of Acquired Entity, consistent with its past practice;
(e) The terms "include" or "including" shall indicate examples of a
foregoing general statement and not a limitation on that general statement.
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(f) The term "person" shall refer to an individual or an entity, and
"entity" shall refer to a corporation, a share company, a limited liability
company, joint venture, partnership, trust, business trust, association or
any other body, foreign or domestic, with legal personality separate from
its shareholders or members, and where the context so permits, their heirs,
executors, administrators, legal representatives, successors and assigns.
(g) A matter would be considered to have been "threatened" if any
demand or statement has been made (whether orally or in writing) or any
notice has been given (whether orally or in writing), or any other event
has occurred or any other circumstances exist, that would lead a prudent
person to conclude that such matter is likely to be asserted, commenced,
taken or otherwise pursued in the future.
1.3 Construction. In this Agreement, unless the context requires otherwise,
references to statutes or statutory provisions shall be construed as references
to those statutes or statutory provisions as replaced, amended, modified or
re-enacted from time to time; words importing the singular include the plural
and vice versa and words importing a gender include every gender; references to
this Agreement or any other agreement referred to herein and therein shall be
construed as references to such document as the same may be amended, or
supplemented from time to time; unless otherwise stated, references to Sections
are to sections of this Agreement and references to Schedules and Exhibits are
to schedules and exhibits to this Agreement. The headings in this Agreement are
inserted for convenience only and are in no way intended to describe, interpret,
define, or limit the scope, extent or intent of this Agreement or any provision
hereof.
2. Agreement of Purchase and Sale; Consideration
2.1 Sale and Purchase of Shares. Subject to the terms and conditions of this
Agreement, each of the Sellers hereby agrees to sell, transfer, assign and
convey to Purchaser at the Closing, and Purchaser hereby agrees to, and E-TEK
hereby agrees to cause Purchaser to, purchase and acquire from each of the
Sellers and pay therefor at the Closing, all of such Seller's rights, title, and
interest in and to the Shares.
2.2 Title. Each Seller shall transfer its Shares to Purchaser hereunder, free
and clear of any and all Encumbrances, except such restrictions on the transfer
of those Shares by Purchaser following the Closing imposed by applicable
securities laws and regulations.
2.3 Consideration. Purchaser hereby agrees to, and E-TEK hereby agrees to
cause Purchaser to, pay to Sellers, as consideration for the Shares: (i) Six
Hundred and Ninety-Seven Thousand (697,000) shares of E-TEK Common Stock; and
(ii) cash in the aggregate amount of Nine Million Ninety-Two Thousand Six
Hundred Thirty-Eight United States Dollars (US$9,092,638) (collectively, the
"Purchase Consideration). The Purchase Consideration for the Shares shall be
allocated to Sellers in proportion to their percentage interest in the Shares,
the exact amount of which shall be as specified in Schedule 2.3.
2.4 Payment. Purchaser shall, and E-TEK hereby agrees to cause Purchaser to,
pay the Purchase Consideration as follows:
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(a) Six Hundred Ninety Seven Thousand (697,000) shares of E-TEK Common
Stock (the "Consideration Shares") shall be issued to Sellers at the
Closing. The number of shares of E-TEK Common Stock to be issued to each
Seller shall be as specified in Schedule 2.3; and
(b) cash in the amount of Nine Million Ninety-Two Thousand Six Hundred
and Thirty-Eight United States Dollars (US$9,092,638), of which (i) Three
Million Ninety-Two Thousand Six Hundred and Thirty-Eight United States
Dollars (US$3,092,638) shall be paid to Sellers at Closing; and (ii) the
remaining Six Million United States Dollars (US$6,000,000) (the "Holdback")
shall, at the Closing, be deposited with the Escrow Agent and held in
escrow pursuant to the terms of Section 3.3 and the Escrow Agreement. The
amount of the Holdback due to each Seller shall be as specified in Schedule
2.3.
2.5 E-TEK Stock Options to Key Employees. Sellers shall use their best efforts
to ensure that each of the Key Employees remains in employment with the
respective Acquired Entity from the date hereof through the Closing and shall,
as of the Closing Date and in accordance with Schedule 2.5, enter into a
mutually acceptable employment agreement with E-TEK or its Affiliate (the
"Employment Agreement"), substantially in the form of Exhibit B. In
consideration of Dr. Vincent Au-Yeung's continued employment with KAIFA USA
and/or E-TEK, E-TEK shall grant to Dr. Vincent Au-Yeung options to purchase
shares under the E-TEK Stock Option Plan over a four (4) year vesting period. In
consideration of Mr. Nicholas W. Yang's continued employment with KAIFA PRC
and/or E-TEK, E-TEK shall grant to Mr. Nicholas W. Yang options to purchase
shares under the E-TEK Stock Option Plan over a four (4) year vesting period. In
addition, in consideration of the continued employment of the employees of KAIFA
USA with KAIFA USA after the Closing, E-TEK shall, as of the Closing Date, grant
to such employees (other than Dr. Vincent S. Au-Yeung) options to purchase up to
an aggregate number of One Hundred Seventy-One Thousand Eight Hundred (171,800)
shares of E-TEK's Common Stock under the E-TEK Stock Option Plan.
2.6 Sellers' Piggyback Registration Rights. At any time within one (1) year
after the Closing Date, Sellers shall have the right to require E-TEK to include
the Consideration Shares in certain registrations of the E-TEK Common Stock in
accordance with the terms and conditions set forth in Schedule 2.6.
3. Escrow Arrangement and Closing
3.1 Appointment of Escrow Agent. Prior to the Closing, the parties hereto
shall have appointed the Escrow Agent pursuant to the Escrow Agreement, for the
purposes of holding the Holdback to be put in escrow pursuant to Sections 2.4
and 3.3 and in accordance with the provisions of the Escrow Agreement.
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3.2 Deliveries of Shares and Purchase Consideration. At least two (2) days
prior to the Closing Date, (i) each of the Sellers shall have delivered to
Purchaser's Counsel the certificates representing all of the Shares owned by
such Seller, together with the instrument or other evidence satisfactory to
Purchaser's Counsel, duly executed in blank, sufficient to transfer to Purchaser
title to the Shares; and (ii) E-TEK shall have delivered to Purchaser's Counsel
the executed certificates representing all of the Consideration Shares that are
to be dated and delivered to Sellers as part of the Purchase Consideration at
the Closing under Section 2.4(a). At the time of the Closing, upon completion of
the blanks in the transfer instrument of the Shares by Purchaser's Counsel,
Purchaser's Counsel shall deliver to Purchaser all such share certificates and
duly executed instrument for transfer of the Shares to Purchaser. At the same
time, Purchaser's Counsel shall date and deliver to Sellers the Consideration
Shares.
3.3 Holdback Escrow Arrangement. At the Closing, Six Million United States
Dollars (US$6,000,000) in cash shall be held in escrow by the Escrow Agent,
subject to the terms and conditions of the Escrow Agreement, to secure and
provide a source of funds for the indemnification obligations of Sellers under
Section 11.1.
3.4 Closing. The consummation of the sale and purchase hereunder ("Closing")
shall be effected at the offices of Purchaser's Counsel at 9:00 a.m. on August
30, 1999 or such other time or place as the parties may agree ("Closing Date").
3.5 Sellers' Closing Obligations. At the Closing, Sellers shall deliver to
Purchaser:
(a) certificates representing all the Shares owned by Sellers, and
instruments or other evidence satisfactory to Purchaser's Counsel
sufficient to transfer to Purchaser title to the Shares free and clear of
all Encumbrances except as provided in Section 2.2, duly executed by
Sellers and delivered in accordance with Section 3.2;
(b) the Employment Agreements, duly executed by the Key Employees;
(c) the Confidentiality and Invention Assignment Agreements, duly
executed by those employees listed on Schedule 3.6;
(d) a certificate executed by a director of each of the Sellers
representing and warranting to Purchaser and E-TEK that each of the
Sellers' representations and warranties in this Agreement was accurate in
all respects as of the date of this Agreement and is accurate in all
respects as of the Closing Date as if made on the Closing Date;
(e) the SMC Parent Guarantee, duly executed by the SMC Parent,
together with either (i) copies of the Memorandum and Articles of
Association of SMC Parent showing that SMC Parent has the power to enter
into the SMC Parent Guarantee, board resolutions of SMC Parent evidencing
the authority of the signatory signing the SMC Parent Guarantee for and on
behalf of the SMC Parent, duly certified by a director of SMC Parent, or
(ii) a legal opinion as to such matters of Hong Kong law satisfactory to
Purchaser's Counsel;
(f) resignation of directors, effective seven (7) days after the
Closing Date, duly signed by each of the directors of the Company, KAIFA
USA, and KAIFA PRC in office immediately prior to the Closing Date;
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(g) written consents from SMC Parent and Shunde SMC Multi-Media
Products Co., Ltd., respectively, consenting to KAIFA PRC's use of the
English and Chinese name of "SMC" throughout the term of operation of KAIFA
PRC (including any extensions thereof).
3.6 Purchaser's Closing Obligations. At the Closing, E-TEK or Purchaser, as
appropriate, shall deliver to Sellers:
(a) Six Hundred Ninety Seven Thousand (697,000) shares of E-TEK Common
Stock issued to Sellers in accordance with Section 2.4(a);
(b) the sum of US$3,092,638 to the Sellers, in accordance with
Schedule 2.3, and the remaining US$6,000,000 to the Escrow Agent by wire
transfer to a trust bank account specified by the Escrow Agent;
(c) a certificate executed by an officer of Purchaser to the effect
that, except as otherwise stated in such certificate, each of Purchaser's
representations and warranties in this Agreement was accurate in all
respects as of the date of this Agreement and is accurate in all respects
as of the Closing Date as if made on the Closing Date;
(d) a certificate executed by an officer of E-TEK to the effect that,
except as otherwise stated in such certificate, each of E-TEK's
representations and warranties in this Agreement was accurate in all
respects as of the date of this Agreement and is accurate in all respects
as of the Closing Date as if made on the Closing Date;
(e) counterparts of the Employment Agreements, duly executed by E-TEK
or its Affiliate as of the Closing, as appropriate;
(f) a counterpart of the Confidentiality and Invention Assignment
Agreements, duly executed by E-TEK or its Affiliate as of the Closing, as
appropriate; and
(g) Checks, in the aggregate amount of Two Hundred Three Thousand
Seven Hundred Fifteen United States Dollars (US$203,715), dated two (2)
days after the Closing Date, payable to the employees of KAIFA USA, as
provided on Schedule 3.6, in consideration for the release of claims with
respect to proposed options, issued by such employees of KAIFA USA pursuant
to Section 9.10.
3.7 Failure to Close. In the event that this Agreement is terminated pursuant
to Section 12, within three (3) business days after the date of termination,
Purchaser's Counsel shall (i) return the Share certificates and their transfer
instruments to Sellers.
4. Representations and Warranties of Sellers
All representations and warranties contained herein shall survive the
Closing as provided in Section 11.4, and none shall merge into any Closing
document. As of the date hereof and as of the Closing Date, each of the Sellers,
jointly and severally (except as otherwise provided in any of the provisions of
this Section 4 below), hereby represents and warrants to Purchaser and E-TEK, as
follows:
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4.1 Power and Authority. Each Seller severally represents as to itself, and
jointly and severally represents as to the Acquired Entities, that it and each
Acquired Entity has the full corporate power and authority to enter into,
execute, deliver, and perform this Agreement and all Ancillary Agreements to
which they are a party. Each Seller severally represents as to itself, and
jointly as to each Acquired Entities that the execution, delivery and
performance of this Agreement and such Ancillary Agreements, and the
consummation of all transactions contemplated herein and therein, have been duly
authorized by all necessary corporate and other actions of such Seller and each
Acquired Entity, as applicable. Each Seller severally represents as to itself,
and jointly as to each Acquired Entities that this Agreement and such Ancillary
Agreements, when executed and delivered by Sellers and/or each Acquired Entity
(as applicable) and, assuming the due authorization, execution and delivery
hereof and thereof by E-TEK and/or Purchaser (as applicable), shall be the valid
and binding obligations of Sellers and/or the Acquired Entities (as applicable),
enforceable against them in accordance with their terms, subject to bankruptcy,
insolvency and other similar laws affecting the rights of creditors generally
and except that the remedies of specific performance, injunction and other forms
of mandatory equitable relief may not be available.
4.2 Status and Qualification; Capitalization
4.2.1
(a) Each Seller severally represents as to itself that: (i) it is duly
organized, validly existing, and in good standing under the laws of the
British Virgin Islands; (ii) it has full corporate authority to own, lease
and operate its properties and businesses, and is in good standing and is
qualified to transact business as a foreign corporation in all
jurisdictions in which the nature of its business or the properties owned
by it require it to qualify to transact business, except for failures to be
so qualified or in good standing that would not, in the aggregate, have a
material adverse effect on the Seller or on the transactions contemplated
hereby.
(b) Each Acquired Entity is duly organized, validly existing, and in
good standing under the laws of its jurisdiction of incorporation. Each
Acquired Entity has full corporate authority to own, lease and operate its
properties and businesses, and is in good standing and is qualified to
transact business as a foreign corporation in all jurisdictions in which
the nature of its business or the properties owned by it require it to
qualify to transact business, except for failures to be so qualified or in
good standing that would not, in the aggregate, have a material adverse
effect on the Acquired Entity or on the transactions contemplated hereby.
Except for KAIFA USA and KAIFA PRC, the Company has no subsidiary, owns no
shares in the capital of any other corporation or interest in any other
entity and has not agreed to acquire any subsidiary or any shares in the
capital of any other corporation or interest in any other entity.
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4.2.2 The Company is an international business company incorporated in
the British Virgin Islands having authorized capital stock consisting of:
80,000,000 shares of voting stock with no par value per share, of which
44,986,000 are issued and outstanding; 80,000,000 shares of non-voting
stock, with no par value per share, none of which is issued and
outstanding. No options have been granted by the Company to acquire shares
of its common stock. Schedule 4.2.2A lists all persons owning shares of any
class of the Company's stock, as well as the amount and nature of stock
held by each such person. Schedules 3.6 and 13.2.7 list all persons to whom
the Company has proposed be, but the Board of Directors of the Company has
not yet, granted options or warrants to acquire any of the Company's
capital stock, as well as the amount of stock covered by each such proposed
option or warrant, and the exercise price therefor. The Shares constitute
one hundred percent (100%) of the issued and outstanding capital stock of
the Company. All of the Shares are validly issued, fully paid and
non-assessable and are owned of record and beneficially by Sellers, free
and clear of any Encumbrances. Except as described in Schedule 4.2.2B,
there are no agreements, arrangements, warrants, calls, options,
convertible rights or other rights (vested or contingent) to acquire any
capital stock of the Company, and no such agreements, arrangements,
warrants, calls, options, convertible rights or other rights (vested or
contingent) to acquire any capital stock of the Company (including the
Shares) will be issued, entered into, or granted prior to the Closing Date
without the prior written approval of Purchaser.
4.2.3 Except as described in Schedules 3.6 and 13.2.7, there are no
agreements, arrangements, warrants, calls, options, convertible rights or
other rights (vested or contingent) to acquire any capital stock of any
Acquired Entity other than the Company, and no such agreements,
arrangements, warrants, calls, options, convertible rights or other rights
(vested or contingent) to acquire any capital stock of any Acquired Entity
other than the Company will be issued, entered into, or granted prior to
the Closing Date without the prior written approval of Purchaser.
4.2.4 KAIFA PRC is a Sino-foreign cooperative joint venture
established under the laws of the PRC, with a manufacturing facility
located at No. 18 San Yue East Road, Beijiao Industrial Park, Beijiao,
Shunde, Guangdong, PRC. The investors of KAIFA PRC (the "Investors") and
their respective percentage interests in the registered capital of KAIFA
PRC as of the date hereof are listed in Schedule 4.2.4. As of the date
hereof, KAIFA PRC has an approved total investment of Seven Hundred
Thousand United States Dollars (US$700,000) and registered capital of Five
Hundred Thousand United States Dollars (US$500,000). All of its registered
capital has been fully paid in and has been duly verified with a capital
verification report issued by Shunde City Certified Public Accountants on
October 9, 1997, a copy of which has been delivered to Purchaser.
4.2.5 Each Seller, severally and not jointly, represents that it has
the absolute right, power and capacity to sell, assign and deliver its
Shares to Purchaser, and has good and marketable title to its Shares, free
and clear of all Encumbrances except as provided in Section 2.2.
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4.3 Financial Condition
4.3.1 Sellers have delivered to Purchaser and E-TEK true and complete
copies of (i) the consolidated balance sheet of the Company and balance
sheet of each of the other Acquired Entities at December 31, 1998 (the
"1998 Balance Sheet"), and the consolidated profit and loss account and
consolidated cash flow statement of the Company, and the statement of
shareholder equity of KAIFA USA, and the statement of income of each
Acquired Entity for the twelve (12) months ended December 31, 1998,
together with the respective report thereon of the certified public
accountants of each Acquired Entity (collectively, the "Financial
Statements"), and (ii) an unaudited balance sheet and either a profit and
loss account or statement of income of each Acquired Entity for the five
(5) months ended May 31, 1999 (the "Latest Financial Statements", said
balance sheet being the "Latest Balance Sheet"), true and complete copies
of the Latest Financial Statements are attached as Schedule 4.3.1. The
Financial Statements and Latest Financial Statements fairly present the
financial condition, assets, liabilities, equity and results of operations
of each Acquired Entity, as applicable, as of their respective dates and
during the respective periods, are correct and complete in all material
respects, and have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
involved. All material assets and liabilities of each Acquired Entity are
reflected on its 1998 Balance Sheet and its Latest Balance Sheet, except
those not required to be set forth in them under applicable generally
accepted accounting principles. Sellers have also delivered to Purchaser an
unaudited balance sheet and either a profit and loss account or a statement
of income of each Acquired Entity for the month ending June 30, 1999 (the
"June 1999 financial statements"). All of the June 1999 financial
statements are true and complete in all material respects, have been
prepared in accordance with generally accepted accounting principles
applied on a consistent basis, and fairly present the financial condition,
assets, liabilities, equity and results of operations of each Acquired
Entity as at June 30, 1999.
4.3.2 Except as indicated on Schedule 4.3.2, each Acquired Entity's
inventories are not obsolete or damaged, are fit for their particular use,
and are not defective, such that they are of a quantity and quality usable
or salable in the ordinary course of the business of such Acquired Entity
for the amounts reflected on its Latest Balance Sheet, subject to changes
in the ordinary course of business and any reserve or provision made
thereto. All inventories reflected on the Latest Financial Statements are
stated at not more than the lower of cost or fair market value thereof,
with adjustments for obsolete, damaged or otherwise not readily marketable
items. Set forth on Schedule 4.3.2 hereto is a complete list of the
addresses of all warehouses or other facilities in which inventories are
located as of the date hereof.
4.3.3 Each Acquired Entity's accounts receivable are valid
receivables, to the knowledge of each Seller and the Acquired Entity are
collectible to the extent of the excess thereof over any reserves set forth
on its Latest Balance Sheet, and to the knowledge of each Seller and the
Acquired Entity, are subject to no defenses, counterclaims or set-offs.
4.4 Absence of Undisclosed Liabilities. None of the Acquired Entities has any
Liabilities which obligate the Acquired Entities to pay in excess of Twenty-Five
Thousand United States Dollars (US$25,000) (including liabilities for taxes and
interest and penalties thereon) except (i) the liabilities set forth on their
respective Latest Financial Statements, (ii) the Liabilities set forth on
Schedule 4.4 hereto, (iii) Liabilities incurred in the ordinary course of
business since May 31, 1999, and (iv) those Liabilities incurred in connection
with the transactions contemplated by this Agreement and the Ancillary
Agreements that do not exceed a total amount of Fifty Thousand United States
Dollars (US$50,000) in the aggregate. To the knowledge of Sellers, there is no
basis for the assertion against any Acquired Entity of any such Liability not
fully reflected in the Latest Financial Statements.
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4.5 Taxes.
4.5.1 Each Acquired Entity has filed with the appropriate Government
Authority all required tax returns, is not in default with respect to any
such filing, is not delinquent in payment of any taxes shown to be due on
any such tax return or claimed to be due by any taxing authority, and has
paid or made on the Latest Balance Sheet adequate provision or reserves for
all taxes (including but not limited to, all income, withholding,
corporate, excise, sales, use and value added taxes, real and personal
property taxes, occupation taxes, payroll and social security taxes, and
interest and penalties) payable by it, or attributable to all periods
ending on or prior to the date of the Latest Balance Sheet. No Acquired
Entity has been given any waiver or extension of any period of limitation
governing the time of assessment or collection of any tax. No deficiency in
any tax payment is claimed by any tax authority for any taxable years of
any Acquired Entity. There are no tax audits currently pending with respect
to any Acquired Entity. To the knowledge of any Seller, there is no basis
for assessment of any deficiency in any income taxes or any other taxes or
governmental charges against any Acquired Entity.
4.5.2 No Acquired Entity is a party to, and is not bound by, any tax
indemnification agreement, tax sharing agreement or tax allocation
agreement with any other person, and no Acquired Entity is responsible for
any tax obligation or Liability of any such other person.
4.5.3 No Acquired Entity has, and has at any time ever had, a taxable
presence or permanent establishment in any country ("foreign country")
other than the country of its incorporation, under the Applicable Laws of
such foreign country or under any Income Tax Treaty between that foreign
country and its country of incorporation.
4.6 Absence of Certain Changes. Except as disclosed on Schedule 4.6, since
December 31, 1998, there has not been:
(a) any material adverse change in the financial condition, assets,
liabilities, equity, operations, business or prospects of any Acquired
Entity;
(b) any Liability incurred by any Acquired Entity other than
Liabilities incurred in the ordinary course of business that in the
aggregate would not have a material adverse effect on the Acquired Entity;
(c) any damage, destruction or loss, whether or not covered by
insurance, materially or adversely affecting any material asset of any
Acquired Entity;
(d) any Encumbrance placed on, or any claim, right or interest of any
third party of any nature whatsoever asserted against, any material asset
of any Acquired Entity;
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(e) any purchase or sale or other disposition, or any agreement or
other arrangement for the purchase or sale or other disposition, of any
material asset of any Acquired Entity other than in the ordinary course of
business of the Acquired Entity, and if in the ordinary course of business,
having a value in excess of Seventy Five Thousand United States Dollars
(US$75,000);
(f) any material change in the compensation or benefits payable or to
become payable by any Acquired Entity to any of its employees or agents or
any new bonus payment or arrangement or employee benefit made to or with
any of them, except as otherwise provided in this Agreement;
(g) any material change with respect to the management or supervisory
personnel of any Acquired Entity;
(h) any dividend declared or paid or any other stockholder payment or
distribution with respect to the Shares or a purchase or redemption of any
of the securities of the Company or the execution of any agreement or
commitment to do so; or
(i) any other event or condition of any character that may have a
material adverse effect on any Acquired Entity.
4.7 Real Property. None of the Acquired Entities own any real property.
Schedule 4.7 sets forth a list and summary description of (i) all of the real
property which is used (identified as such) in the business of each Acquired
Entity, including all land, buildings and other structures and improvements and
fixtures located on such land (collectively, the "Real Property"), and a list of
(ii) all leases, subleases, or other agreements that allow the use or occupancy
of the Real Property, or any portion thereof, or that give or grant any rights
therein (collectively, the "Real Property Leases"). Each Acquired Entity has
valid and outstanding leasehold interests in all Real Property that it leases
from others and the improvements situated thereon. All such Real Property is in
good repair and operating condition, normal wear and tear and required
maintenance (which has heretofore been regularly performed) excepted, are
suitable and fit for the purposes for which they are currently being used, and
are sufficient to conduct the business of the Acquired Entity as it is presently
conducted. All of the Real Property Leases, true and complete copies of which
(including all amendments and extensions thereto) have been delivered to
Purchaser, are in effect, and no Acquired Entity is in default, and no Acquired
Entity has received any notice of default, under or with respect to any
provision thereof to which it is a party, and to the knowledge of Sellers, no
other party to any thereof is in default or with respect to any provision
thereof. There are no approvals or consents of any person which are required
under the Real Property Leases to consummate the transactions contemplated by
this Agreement. To the knowledge of each Seller and each Acquired Entity, each
Acquired Entity's use and occupation of the relevant Real Property comply in all
material respects with Applicable Law, including zoning regulations and building
codes. To the knowledge of each Seller and the Acquired Entity, the operations
conducted on any of the Real Property, whether now or in the past, do not
violate the real property rights of any person with respect to such property or
with respect to any other property. No Acquired Entity has received any notice
in regard to the foregoing and are not aware of any state of facts or situation
which, with notice or the passage of time or otherwise, would constitute such a
violation.
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4.8 Tangible Personal Property. Each Acquired Entity has good and marketable
title to all of the tangible personal property which it owns, as reflected on
its Latest Balance Sheet and Schedule 4.8A (except as sold or otherwise disposed
of or acquired in the ordinary course of business or otherwise consistent with
this Agreement). All machinery, equipment, furniture and fixtures, and computer
hardware and software used by each Acquired Entity are in good operating
condition and repair, normal wear and tear and required maintenance (which has
heretofore been regularly performed) excepted, and are suitable and fit for the
purposes for which they are currently being used.
4.9 Intellectual Property.
4.9.1 Schedule 4.9.1A contains an accurate and complete list all
registered and licensed Intellectual Property Rights, specifying in each
case whether such Intellectual Property Rights are owned or used under
license, as well as specifying whether the relevant Acquired Entity acts as
licensor of any such Intellectual Property Rights. All license agreements
and all other instruments relating to licenses of any Intellectual Property
Rights are described in Schedule 4.9.1A, and true and complete copies
thereof have been provided to Purchaser. All such license agreements are in
full force and effect, and to the Sellers' knowledge, there is no default,
and no notice of default has been received by any Seller or Acquired
Entity, under any such license agreement described in Schedule 4.9.1A. None
of the Intellectual Property Rights have been held or stipulated to be
invalid in any litigation which has been concluded, and the validity of the
Intellectual Property Rights has not been questioned, to the Sellers'
knowledge, in any litigation currently pending or threatened. To the
Sellers' knowledge, each Acquired Entity owns or possesses all Intellectual
Property Rights necessary to manufacture and sell its products, has not
transferred any such Intellectual Property Rights to any other person, and,
to the Sellers' knowledge, such manufacture and sale does not infringe any
rights of any other person except as provided in Schedule 4.9.1B. No
Acquired Entity has received any notice of conflict thereof with the
asserted rights of any other person, and the Acquired Entity has the right
to bring an action for any infringement of any of the Intellectual Property
Rights owned by the Acquired Entity or licensed to the Acquired Entity
exclusively. KAIFA PRC has the lawful right to use both the English and
Chinese words of "Kaifa" in its company name and in its business and shall
continue to have such lawful right after the consummation of the
transactions contemplated by this Agreement and the Ancillary Agreements.
4.9.2 Each Acquired Entity has exercised reasonable care, consistent
with prevailing industry standards in the optical communications industry,
to prevent the infringement of any intellectual property rights of any
other person in the design, development, manufacture, sale and use of such
Acquired Entity's products, including obtaining appropriate representations
and warranties as to non-infringement and non-disclosure of such
intellectual property rights from all employees, consultants and
contractors of such Acquired Entity. All current and former employees of
each Acquired Entity hired after July 1, 1995 have effectively assigned to
that Acquired Entity all rights, title and interests in and to all
inventions, discoveries and developments, and all intellectual property
rights therein, conceived, discovered and/or developed in the course of
their employment by that Acquired Entity, and to the knowledge of Sellers
and the Acquired Entities, no current employees of any Acquired Entities is
pursuing such inventions, discoveries and developments, and any
intellectual property rights therein, independently outside the Acquired
Entities.
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4.10 Contracts. Except for Contracts as are covered by Sections 4.17
or 4.18 or are listed in Schedules 4.7, 4.9, 4.10 or 4.20, there is no
Contract:
(a) extending for a period of time longer than 12 months;
(b) involving expenditures or receipts by an Acquired Entity in excess
of Seventy-Five Thousand United States Dollars (US $75,000);
(c) relating to the borrowing of money or guarantying any obligation
for borrowed money or otherwise, other than endorsements for collection;
(d) with any insider or any Affiliate;
(e) prohibiting or substantially restricting the Acquired Entity from
freely engaging in business in any part of the world;
(f) with a sales agent or representative, dealer, or distributor; or
(g) any other contract, commitment or lease outside of the usual and
ordinary course of business.
Sellers and the Acquired Entities have no knowledge or information or reason to
believe that the course of dealing between the Acquired Entities with KAIFA
Shenzhen, including the terms of the contract manufacturing arrangement between
KAIFA USA and KAIFA Shenzhen, will change or terminate upon the consummation of
the transactions contemplated by this Agreement and the Ancillary Agreements.
4.11 Books and Records; Accuracy
4.11.1......The minute and record books of each Acquired Entity
contain in all material respects complete and accurate minutes of all
meetings of, and copies of all articles of association or by-laws and
resolutions passed by, the directors and shareholders/investors of the
Acquired Entity since its incorporation; all such meetings were duly called
and held and all such articles of association or by-laws and resolutions
were duly passed or enacted. The share certificate books, registers of
shareholders, registers of transfers, registers of directors, registers of
holders of debt instruments and other corporate registers of the each
Acquired Entity comply with the provisions of Applicable Laws and are
complete and accurate in all material respects. Except as disclosed in
Schedule 4.11.1, no Acquired Entity is a party to or bound by or subject to
any shareholder or investor agreement or unanimous shareholder or investor
agreement governing the affairs of the Acquired Entity or the
relationships, rights and duties of its shareholders or investors.
4.11.2......The books and records, accounting, financial and
otherwise, of the each Acquired Entity fairly and correctly set out and
disclose in all material respects the financial position of the Acquired
Entity as at the date hereof and all material financial transactions of the
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Acquired Entity have been accurately recorded in such books and records on
a consistent basis and in conformity with generally accepted accounting
principles. Except as disclosed in the Schedule 4.11.2, all records,
systems, controls, data or information relating to each Acquired Entity or
its business (including any digital, electronic, mechanical, photographic
or other technological process or device whether computerized or not) are
in the full possession and control of and are owned exclusively by such
Acquired Entity.
4.12 Compliance with Applicable Law and Approvals.
4.12.1......Each Acquired Entity holds all of the Approvals required
by Applicable Law to own any and all of its material assets, and to operate
its business as that business is now conducted. Schedule 4.12.1A contains a
complete and accurate list of all such Approvals, as well as all export
licenses that are held by KAIFA PRC. The consummation of the transactions
contemplated by the Ancillary Agreements will not cause the revocation or
termination of any such Approval or export licenses and, to the knowledge
of the Sellers and the Acquired Entities, will not require the consent of
any Government Authority or third party which is not obtained on or before
the Closing. Except as specified on Schedule 4.12.1A, all Approvals and
export licenses of KAIFA PRC are renewable in the ordinary course of
business and subject to their respective expiration dates, will remain in
full force and effect following the Closing pursuant to this Agreement. To
the Seller's knowledge, without having conducted any internal or external
environmental inspection except for those listed in Schedule 4.12.2B, each
Acquired Entity is conducting, and has conducted, its business in
compliance with all Applicable Laws and Approvals, including environmental
laws and regulations, and has received no notice that it is in material
breach of any such Applicable Law or Approval. Without limiting the
generality of this Section 4.12.1, KAIFA USA has obtained all licenses and
other authorizations, and all letters of assurance, required under the
export control laws and regulations of the United States for the export of
any commodities, software or technology to any person located outside of
the United States, and for the disclosure of any software or technology to
any employee or other person who is not a citizen or permanent resident of
the United States. KAIFA USA has not hired persons it knows to be
"unauthorized aliens" within the meaning of Section 274A, subsection (h)(3)
of the United States Immigration and Naturalization Act, as amended, and
corresponding regulations, and has complied in good faith with the employer
verification requirements of Section 274A, subsection (b) of the United
States Immigration and Naturalization Act, as amended, and corresponding
regulations. Schedule 4.12.1B contains a complete and accurate list of all
employees of KAIFA USA who are authorized to work in the United States on
H1B visas.
4.12.2......Schedule 4.12.2A contains, to the Sellers' knowledge, an
accurate and complete list of all Hazardous Materials that each Acquired
Entity has processed, stored, disposed, transported, handled, emitted,
discharged, or released, whether on or off the Real Estate, and to the
Sellers' knowledge, any and all Hazardous Materials listed on Schedule
4.12.2A have been processed, stored, disposed, transported, handled,
emitted, discharged, or released in conformance with all Applicable Law.
None of the Acquired Entities has received any notice of violation from any
Government Authorities. Sellers and the Acquired Entities have no knowledge
or information or reason to believe that any Hazardous Materials, tanks,
containers, cylinders, drums or cans were buried on the Real Estate by an
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Acquired Entity or any other party during or preceding the Acquired
Entity's ownership or leasing of any Real Estate. Except as listed on
Schedule 4.12.2B, no internal or external environmental audit reports have
been prepared by or for any Acquired Entity.
4.12.3......No Acquired Entity has received any sexual harassment
complaint or claim and, to the knowledge of the Sellers and the Acquired
Entities, there are no facts or circumstances existing that are likely to
give rise to any such complaint or claim.
4.13 No Conflict. Except for the Approvals and third party consents as set
forth in Schedule 4.13, neither the execution and delivery of this Agreement nor
the execution and delivery of the Ancillary Agreements, the certificates and
documents delivered hereunder or thereunder, nor the consummation of the
transactions contemplated hereby or thereby, by Sellers and the Acquired
Entities will (i) conflict with or violate any provision of Organizational
Documents of any Seller or any Acquired Entity, (ii) conflict with or violate
any Applicable Laws, Orders, or Approvals applicable to Sellers or any Acquired
Entity or their businesses or by which any of their assets is affected, or (iii)
conflict with or result in any material breach of or constitute a material
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination or cancellation of,
or accelerate the performance required by or maturity of, or result in the
creation of any Encumbrance on any of Sellers' or any Acquired Entity's assets
pursuant to any of the terms, conditions or provisions of any Contract to which
any Seller or any Acquired Entity is a party or by which any of their assets is
affected. Except as set forth in Schedule 4.13 or pursuant to the terms of this
Agreement, (a) neither Sellers nor any Acquired Entity is required to submit any
notice, declaration, report or other filing or registration with any Government
Authority, except for those which an Acquired Entity may be required to make
subsequent to the Closing as a result of the contemplated acquisition of the
Shares by Purchaser, and (b) no Approvals are required to be obtained or made by
Sellers or any Acquired Entity, in connection with the execution, delivery or
performance by Sellers and the Acquired Entities of this Agreement, the
Ancillary Agreements to which they are a party or the consummation of the
transactions contemplated hereby or thereby.
4.14 No Encumbrances. Except as set forth on the Latest Financial Statements
or in Schedules 4.8 or 4.14, each Acquired Entity has good title to all of its
assets which it owns, free and clear of any and all Encumbrances.
4.15 No Defaults. Each Acquired Entity has performed, or has taken all actions
reasonably necessary to enable it to perform when due, all material obligations
under all Contracts and Approvals, all of which are in full force and effect,
and there has not occurred any material default or other event which with the
lapse of time or giving of notice or both may become a material default under
any such Contract or Approval.
4.16 Litigation. Except as set forth on Schedule 4.16, no Acquired Entity is
subject to any Order, and there are no claims, actions, suits or proceedings
pending or, to the Sellers' knowledge, threatened by or against any Acquired
Entity or affecting any Acquired Entity or assets of any Acquired Entity in any
Tribunal, except any litigation in which no Acquired Entity is a party.
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4.17 Employee and Labor Matters. To each Seller's knowledge, no key employees
or group of employees, plans to terminate his, her or their employment with any
Acquired Entity. No Acquired Entity is a party to any collective bargaining or
union agreement. Each Acquired Entity is in compliance in all material respects
with all Applicable Law respecting employment and employment practices, terms
and conditions of employment, and wages and hours. Since its incorporation, no
Acquired Entity has experienced any significant union organization attempts and
no material work stoppage due to any labor disagreement with respect to its
business. There is no unfair labor practice charge or complaint against any
Acquired Entity pending or, to the Sellers' knowledge, threatened, in any
Tribunal. There is no labor strike, request for representation, slowdown or
stoppage actually pending or threatened against or affecting any Acquired
Entity.
4.18 Employee Benefits.
4.18.1......The Acquired Entities have no employment, consulting,
agency, commission, retirement, severance pay, non-competition,
profit-sharing, deferred compensation or pension agreements or plans, or
related practice, whether written or oral, formal or informal, other than
as identified in Section 2.7, or on Schedule 4.18 or on Schedule 4.10 (true
and complete copies of which have been delivered to Purchaser, including
reasonably detailed summaries of any unwritten plans, arrangements or
practices). All obligations of each Acquired Entity, whether arising by
operation of law, by contract or by past custom, for payments by it with
respect to unemployment compensation benefits, pension and retirement
benefits, social security benefits, cash-valued benefits such as accrued
vacation, sabbatical and sick leave, or other benefits for such Acquired
Entity's employees, including but not limited to, those set forth on
Schedule 4.18, in respect of periods prior to the Closing Date have been
paid in full, or adequate provision therefor has been made.
4.18.2......Except as expressly provided in the agreements or plans
set forth on, or otherwise disclosed on, Schedule 4.18, no Acquired Entity
is required, whether by Contract or, to the Sellers' knowledge, under
Applicable Law, to make any severance or termination pay or other similar
payment upon termination of the employment of any employee of an Acquired
Entity.
4.18.3......None of the Acquired Entities maintain, contribute to or
have any Liability under any funded or unfunded medical, health or life
insurance plan or arrangement for present or future retirees or present or
future terminated employees except as required under applicable labor,
labor protection, health, insurance laws, and the Acquired Entity's
insurance policies, as listed in Schedule 4.23.
4.19 Sufficient Assets. The assets identified in this Agreement and/or on the
Latest Balance Sheet constitute all of the tangible and intangible rights and
assets necessary for the conduct of, or used or held by the Acquired Entities in
connection with, their business and operations as they are presently being
conducted.
4.20 Customers, Distributors and Suppliers. Schedule 4.20 contains an accurate
and complete list of all distributors, representatives and agents of each
Acquired Entity and a description of the terms of their relationships with such
Acquired Entity and an accurate and complete list of all other persons to whom
the Acquired Entity sold goods or services in the six (6)
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months ended as of the date of this Agreement and by whom the Acquired Entity
has been paid or who have committed to pay the Acquired Entity Twenty Thousand
United States Dollars (US$20,000) or more since the beginning of said period.
Schedule 4.20 contains an accurate and complete list of all persons who provided
goods or services to each Acquired Entity in the six (6) months ended as of the
date of this Agreement to which the Acquired Entity has paid or is committed to
pay Twenty Thousand United States Dollars (US$20,000) or more since the
beginning of said period. Each Acquired Entity's relations with the foregoing
persons are normal, and there are no disputes between the Acquired Entity and
any of such persons pending or, to the Sellers' knowledge, threatened. True and
complete copies of all material Contracts as determined by E-TEK with all of the
foregoing persons have been delivered to Purchaser and E-TEK and are in full
force and effect in accordance with their terms, and there are no defaults or
allegations or claims of default thereunder on the part of the Acquired Entity.
4.21 Related Party Transactions. Except as set forth in Schedule 4.21 or as
contemplated by this Agreement, no Seller, or officer or director of either
Seller or an Affiliate of either Seller, and no officer, or director of any
Acquired Entity has any interest in any of the assets used or held by such or
other Acquired Entity in the conduct of its business or operations or is a party
to any Contract with such or Acquired Entity or affecting any Acquired Entity's
business or operations.
4.22 Directors; Officers; Banks; and Powers of Attorney. Schedule 4.22 is an
accurate and complete list showing: (a) the names of all of directors and
officers of each Acquired Entity; (b) the name of each bank in which an Acquired
Entity has an account or safety deposit box, and the names of all persons
authorized to draw thereon or to have access thereto; and (c) the names of all
persons holding powers of attorney from each Acquired Entity together with a
summary statement of the terms thereof.
4.23 Insurance. Schedule 4.23 sets forth all existing insurance policies
(including details as to the names of the insurance carriers and amounts and
scopes of insurance) held by each Acquired Entity relating to its business. Each
such insurance policy is in full force and effect and cannot be canceled or
terminated except on at least thirty (30) days' prior written notice to the
Acquired Entity. All claims arising under such insurance policies and all
premiums that are due and payable thereunder have been paid in full.
4.24 Software and Product - Year 2000 Compliance.
4.24.1......Except as disclosed in Schedule 4.24.1, to the Sellers'
knowledge, all of the software, computer hardware, and computer equipment
(including embedded chips) owned or used by any Acquired Entity, and any
product or service provided or sold by any Acquired Entity, which performs
or is or may be required to perform functions involving dates or the
computation of dates, or containing date related data, has the programming,
design and performance capabilities to ensure that:
(a) it will not suffer any Malfunction; and
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(b) it will not be materially and adversely affected by, nor require
material changes in inputting or operating practices nor produce invalid or
incorrect output or results, nor cause any abnormal ending scenario or
suffer any diminution in functionality or performance as a result of the
date change at the end of the twentieth century or the input, processing,
storage or use of dates up to and including December 31, 2001.
4.24.2......Except as disclosed in Schedule 4.24.2, all date-related
data stored electronically by any Acquired Entity is in such form that its
input, processing, storage or use by any Acquired Entity will not, directly
or indirectly, to the Sellers' knowledge, cause any Malfunction in any
software, computer hardware or computer equipment.
4.25 KAIFA PRC's Approvals. Without limiting the generality of the
representations and warranties relating to each Acquired Entity under this
Section 4, KAIFA PRC has obtained all necessary Approvals from MOFTEC and SAIC
and/or their local agencies for its establishment and registration as a
Sino-foreign cooperative joint venture in the PRC. KAIFA PRC has obtained all
required Approvals from MOFTEC and SAIC and/or their local agencies in
accordance with Applicable Laws of the PRC for its total amount of investment
and registered capital. KAIFA PRC does not have any branch or facility other
than the manufacturing facility located in Shunde, Guangdong, PRC. KAIFA PRC has
all the required Approvals, including registration with the PRC customs, for the
conduct of its business in the research, development, production and sale of
high technology products and optical communications spare parts and components
specified in its business license and other Organizational Documents.
4.26 Issuance of Consideration Shares - Compliance with Securities Laws.
4.26.1......Each Seller acknowledges that the Consideration Shares
issued by E-TEK pursuant to this Agreement have not been registered under
the Securities Act or any state securities laws because E-TEK will issue
the Consideration Shares in reliance on the exemption set forth in Section
4(2) of the Securities Act and in reliance on Regulation D thereunder. For
purposes of subscribing for the Consideration Shares to be so issued by
E-TEK, each Seller represents and warrants to E-TEK that:
(a) Investment Experience. Such Seller is an investor in securities of
companies in the development stage and acknowledges that it is able to fend
for itself, can bear the economic risk of its investment, and has such
knowledge and experience in financial and business matters that it is
capable of evaluating the merits and risks of investment in the
Consideration Shares.
(b) Purchase Entirely for Own Account. The Consideration Shares to be
received by such Seller as part of the Purchase Consideration will be
acquired for investment for such Seller's own account, not as a nominee or
agent, and not with a view to the resale or distribution of any part
thereof, and that such Seller has no present intention of selling, granting
any participation in, or otherwise distributing the same. By executing this
Agreement, such Seller further represents that such Seller does not have
any contract, undertaking, agreement or arrangement with any person to
sell, transfer or grant participations to such person or to any third
person, with respect to any of the Consideration Shares.
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(c) Disclosure of Information. Such Seller believes it has received
all the information it considers necessary or appropriate for deciding
whether to acquire the Consideration Shares. Such Seller further represents
that it has had an opportunity to ask questions and receive answers from
E-TEK regarding the terms and conditions of the offering of the
Consideration Shares and the business, properties, prospects and financial
condition of E-TEK.
(d) Accredited Seller. Such Seller is an "accredited investor" within
the meaning of SEC Rule 501 of Regulation D, as presently in effect.
(e) Restricted Securities. Such Seller represents that if it shall
sell or transfer any of the Consideration Shares (or any securities issued
in substitution, reclassification or recapitalization thereof), it shall do
so in full compliance with all applicable federal, state or foreign
securities laws. Without limiting the generality of the preceding sentence,
such Seller understands that the Consideration Shares it is acquiring are
characterized as "restricted securities" under the federal securities laws
inasmuch as they are being acquired from E-TEK in a transaction not
involving a public offering and that under such laws and applicable
regulations such securities may be resold without registration under the
Securities Act, only in certain limited circumstances. In this regard, such
Seller represents that it is familiar with SEC Rule 144, as presently in
effect, and understands the resale limitations imposed thereby and by the
Securities Act.
4.26.2......Further Limitations on Disposition. Without in any way
limiting the representations set forth above, such Seller further agrees
not to make any disposition of all or any portion of the Consideration
Shares unless and until the transferee has agreed in writing for the
benefit of E-TEK to be bound by this Section 4.26 and Schedule 2.6, and:
(a) There is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition is
made in accordance with such registration statement; or
(b) (i) Such Seller shall have notified E-TEK of the proposed
disposition and shall have furnished E-TEK with a detailed statement of the
circumstances surrounding the proposed disposition, and (ii) if reasonably
requested by E-TEK, such Seller shall have furnished E-TEK with an opinion
of counsel, reasonably satisfactory to E-TEK that such disposition will not
require registration of such Consideration Shares under the Securities Act.
It is agreed that E-TEK will not require opinions of counsel for
transactions made pursuant to Rule 144 except in unusual circumstances.
4.26.3......Restrictive Legends. It is understood that the
certificates evidencing the Consideration Shares may bear one or all of the
following legends:
(a) "These securities have not been registered under the Securities
Act of 1933, as amended. They may not be sold, offered for sale, pledged or
hypothecated in the absence of a registration statement in effect with
respect to the securities under such Act or an opinion of counsel
satisfactory to E-TEK that such registration is not required or unless sold
pursuant to Rule 144 of such Act."
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(b) Any legend required by the laws of the State of California.
4.27 Asset and Sale Thresholds. The Company is a "foreign issuer" within the
meaning of the United States Hart-Scott-Rodino Act and its implementing
regulations, including 16 C.F.R. Part 801.1(e). The Company, including all
entities controlled by it, holds assets in the United States having an aggregate
book value of less than Fifteen Million United States Dollars (US$15,000,000),
as reflected in its most recent regularly prepared balance sheet, and the
Company, including all entities controlled by it, has made sales in or into the
United States of less than Twenty-Five Million United States Dollars
(US$25,000,000) in its fiscal year ended December 31,1998.
4.28 Disclosure. No representation or warranty by Sellers in this Agreement,
and no certificate or statement furnished or to be furnished to Purchaser
pursuant to this Agreement or in connection with the transactions contemplated
hereby, when taken together, contains or shall contain any untrue statement of
material fact, or omits or shall omit to state a material fact necessary in
order to make the statements contained herein and therein not misleading. There
is no fact known to a Seller which would have a material adverse effect on any
Acquired Entity which has not been set forth in this Agreement or other
information or material provided in writing by any Acquired Entity or Sellers to
Purchaser and E-TEK.
4.29 Reliance. The representations and warranties in this Section 4 are made
by Sellers with the knowledge and expectation that E-TEK and Purchaser are
placing reliance thereon in entering into this Agreement.
4.30 No Further Representations. Except as specifically made in this
Agreement, in any Ancillary Agreements or other certificates and instruments
delivered pursuant to this Agreement, Sellers make no further representations
and warranties whatsoever.
5. Representations and Warranties of Purchaser
As of the date hereof and as of the Closing Date, Purchaser represents and
warrants to Sellers as follows:
5.1 Organization. Purchaser is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware, U.S.A.
5.2 Power and Authority. Purchaser has the necessary corporate power and
authority to enter into this Agreement, to purchase the Shares from Sellers as
herein contemplated and to perform its other obligations hereunder. The
execution and delivery of this Agreement and the Ancillary Agreements to which
it is a party and the completion of the transactions herein and therein
contemplated have been duly and validly authorized by all necessary corporate
action on behalf of Purchaser. This Agreement and the Ancillary Agreements to
which it is a party, when executed and delivered by Purchaser and, assuming the
due authorization, execution and delivery hereof and thereof by
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Sellers and any other parties thereto, shall be a valid and binding obligation
of Purchaser enforceable against Purchaser in accordance with their terms,
subject to bankruptcy, insolvency and other similar laws affecting the rights of
creditors generally and except that the remedies of specific performance,
injunction and other forms of mandatory equitable relief may not be available.
5.3 No Conflict. Except for the Approvals and third party consents as set
forth in Schedule 5.3, neither the execution and delivery of this Agreement nor
the execution and delivery of the Ancillary Agreements, the certificates and
documents delivered hereunder or thereunder, nor the consummation of the
transactions contemplated hereby or thereby, by Purchaser will (i) conflict with
or violate any provision of the Articles of Incorporation or Bylaws of
Purchaser, (ii) conflict with or violate any Applicable Laws, Orders, or
Approvals applicable to Purchaser or its business or by which any of its assets
is affected, or (iii) conflict with or result in any material breach of or
constitute a material default (or an event which with notice or lapse of time or
both would become a default) under, or give to others any rights of termination
or cancellation of, or accelerate the performance required by or maturity of, or
result in the creation of any Encumbrance on any of Purchaser's assets pursuant
to any of the terms, conditions or provisions of any Contract to which Purchaser
is a party or by which any of its assets is affected. Except as set forth in
Schedule 5.3, (a) Purchaser is not required to submit any notice, declaration,
report or other filing or registration with any Government Authority, except for
those which Purchaser may be required to make subsequent to the Closing as a
result of the contemplated acquisition of the Shares by Purchaser, and (b) no
Approvals are required to be obtained or made by Purchaser, in connection with
the execution, delivery or performance by Purchaser of this Agreement, the
Ancillary Agreements to which it is a party or the consummation of the
transactions contemplated hereby or thereby.
5.4 United States Person. Purchaser is a "United States person" within the
meaning of 16 C.F.R. Part 801.1(e).
5.5 Disclosure. No representation or warranty by Purchaser in this Agreement,
and no certificate or written statement furnished or to be furnished to Seller
pursuant to this Agreement or in connection with the transactions contemplated
hereby, when taken together, contains or shall contain any untrue statement of
material fact, or omits or shall omit to state a material fact necessary in
order to make the statements contained herein and therein not misleading.
5.6 Reliance. The representations and warranties in this Section 5 are made by
Purchaser with the knowledge and expectation that Sellers are placing reliance
thereon in entering into this Agreement.
5.7 No Further Representations. Except as specifically provided in this
Section 5, Purchaser makes no further representations or warranties whatsoever.
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6. Representations and Warranties of E-TEK
As of the date hereof and as of the Closing Date, E-TEK represents and
warrants to each of the Sellers as follows:
6.1 Organization and Authority of E-TEK; Authorization. E-TEK is a corporation
duly incorporated and existing under the laws of the State of Delaware, U.S.A.
and has the necessary corporate power and authority to enter into this Agreement
and to perform its obligations hereunder. The execution and delivery of this
Agreement and the Ancillary Agreements to which it is a party, and the
completion of the transactions herein and therein contemplated, have been duly
and validly authorized by all necessary corporate action on behalf of E-TEK.
This Agreement and the Ancillary Agreements to which it is a party, when
executed and delivered by E-TEK and, assuming the due authorization, execution
and delivery hereof and thereof by Sellers and any other parties thereto, shall
be a valid and binding obligation of E-TEK enforceable against E-TEK in
accordance with their terms, subject to bankruptcy, insolvency and other similar
laws affecting the rights of creditors generally and except that the remedies of
specific performance, injunction and other forms of mandatory equitable relief
may not be available.
6.2 Capital Structure.
6.2.1 The authorized stock of E-TEK consists of 300,000,000 shares of
Common Stock, $0.001 par value, of which 61,424,128 shares were issued and
outstanding as of April 2, 1999, and 25,000,000 shares of undesignated
Preferred Stock, $0.01 par value, of which no shares were issued and
outstanding as of April 2, 1999. All such shares have been duly authorized,
and all such issued and outstanding shares have been validly issued, are
fully paid and non-assessable and are free of any Encumbrances other than
any Encumbrances created by or imposed upon the holders thereof.
6.2.2 The E-TEK Common Stock to be issued to Sellers at the Closing as
Consideration Shares are duly authorized, and when issued pursuant to this
Agreement will be validly issued, fully paid, non-assessable, free and
clear of any and all Encumbrances (other than restrictions on transfer
imposed by applicable securities laws) and based upon the representations
of Sellers contained in Section 4.25 will be issued in reliance of the
exemption set forth in Section 4(2) of the Securities Act and in reliance
on Regulation D thereunder and available for resale under the provisions of
Rule 144 issued under the Securities Act.
6.3 No Conflict, etc. Except for the Approvals and third party consents as set
forth in Schedule 6.3, neither the execution and delivery of this Agreement nor
the execution and delivery of the Ancillary Agreements, the certificates and
documents delivered hereunder or thereunder, nor the consummation of the
transactions contemplated hereby or thereby, by E-TEK will (i) conflict with or
violate any provision of the Articles of Incorporation or Bylaws of E-TEK, (ii)
conflict with or violate any Applicable Laws, Orders, or Approvals applicable to
E-TEK or its business or by which any of its assets is affected, or (iii)
conflict with or result in
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any material breach of or constitute a material default (or an event which with
notice or lapse of time or both would become a default) under, or give to others
any rights of termination or cancellation of, or accelerate the performance
required by or maturity of, or result in the creation of any Encumbrance on any
of E-TEK's assets pursuant to any of the terms, conditions or provisions of any
Contract to which E-TEK is a party or by which any of its assets is affected.
Except as set forth in Schedule 6.3, (a) E-TEK is not required to submit any
notice, declaration, report or other filing or registration with any Government
Authority, except for those which E-TEK may be required to make subsequent to
the Closing as a result of the contemplated acquisition of the Shares by
Purchaser, and (b) no Approvals are required to be obtained or made by E-TEK, in
connection with the execution, delivery or performance by E-TEK of this
Agreement, the Ancillary Agreements to which it is a party or the consummation
of the transactions contemplated hereby or thereby.
6.4 SEC Documents; E-TEK Financial Statements. E-TEK has furnished Sellers
with a true and complete copy of its Form S-1 effective December 1, 1998, its
Form 10-Q for the quarter ended January 1, 1999, its Form 10-Q for the quarter
ended April 2, 1999, its form 8-K effective May 27, 1999, and its form 8-K
effective July 7, 1999, which are all the documents (other than preliminary
material) that E-TEK was required to file with the SEC pursuant to the
Securities Exchange Act since December 1, 1998 and prior to the Closing Date.
E-TEK will have furnished Sellers with true and complete copies of any
additional documents required to be filed with the SEC by E-TEK prior to the
Closing (collectively, the "SEC Documents"). As of their respective filing
dates, the SEC Documents complied in all material respects with the requirements
of the Securities Exchange Act, and none of the SEC Documents contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements made therein, in light
of the circumstances in which they were made, not misleading, except to the
extent corrected by a subsequently filed SEC Document. To the knowledge of
E-TEK, there are no facts or circumstances that exist which would obligate E-TEK
to report such facts or circumstances on a Form 8-K pursuant to the Securities
Exchange Act. The financial statements of E-TEK, including the notes thereto,
included in the SEC Documents (the "E-TEK Financial Statements") are complete
and accurate in all material respects, comply as to form in all material
respects with applicable accounting requirements and with the published rules
and regulations of the SEC with respect thereto, and have been prepared in
accordance with U.S. generally accepted accounting principles applied on a basis
consistent throughout the periods indicated and consistent with each other
(except as may be indicated in the notes thereto or, in the case of unaudited
statements, as permitted by Form 10-Q of the SEC). The E-TEK Financial
Statements fairly present the consolidated financial condition and operating
results of E-TEK at the dates and during the periods indicated therein (subject,
in the case of unaudited statements, to normal, year-end adjustments, which will
not be material in the aggregate). There has been no change in E-TEK accounting
policies except as described in the notes to the E-TEK Financial Statements.
E-TEK has no material obligations other than (i) those set forth in the E-TEK
Financial Statements and (ii) those not required to be set forth in the E-TEK
Financial Statements under generally accepted accounting principles. E-TEK is in
compliance in all material respects with applicable NASDAQ listing standards.
6.5 Disclosure. None of the representations or warranties made by E-TEK
herein, nor any statement made in any list or other statement separately
certified by E-TEK, Exhibit or certificate furnished pursuant to this Agreement
or the SEC Documents, when all such documents are read together in their
entirety, contains or will contain any untrue statement of a material fact at
the Closing, or omits or will omit to state any material fact necessary in order
to make the statements contained herein or therein, in the light of the
circumstances under which made, not misleading; provided, however, that E-TEK
has informed Sellers that E-TEK is contemplating a secondary offering of the
E-TEK Common Stock within forty-five (45) days of the date of this Agreement.
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6.6 Reliance. The representations and warranties in this Section 6 are made by
E-TEK with the knowledge and expectation that Sellers are placing reliance
thereon in entering into this Agreement.
6.7 No Further Representations. Except as specifically provided in this
Section 6, E-TEK makes no further representations or warranties whatsoever.
7. Covenants of Sellers Prior to Closing
7.1 Continued Conduct of Business. Between the date hereof and the Closing
Date, Sellers shall cause each Acquired Entity to:
(a) conduct its business only in the ordinary course of business;
(b) refrain from amending the Organizational Documents of the Acquired
Entity, except as may be first approved in writing by Purchaser and except
as contemplated by Section 9.9.1;
(c) refrain from making any material change in the Acquired Entity's
accounting practices or procedures;
(d) except with the prior written consent of Purchaser, refrain from
(i) making any purchases, sales or transfers of any material assets of the
Acquired Entity, other than in the ordinary course of business; (ii) other
than in the ordinary course of business, entering into any leases,
contracts or commitments that would be required to be disclosed under this
Agreement; (iii) mortgaging, pledging, subjecting to lien or otherwise
encumbering any material assets of the Acquired Entity; (iv) borrowing or
loaning any funds, other than in the ordinary course of business; (v)
terminating or permitting to terminate any material Approval or Contract,
(vi) waiving or permitting to terminate any material right or franchise of
the Acquired Entity, other than in the ordinary course of business of the
Acquired Entity; or (vii) canceling or settling any account receivable for
less than the full amount thereof;
(e) except with the prior written consent of Purchaser, refrain from
incurring any Liabilities other than those in the ordinary course of
business of the Acquired Entity;
(f) except as specifically contemplated by this Agreement or with the
prior written consent of Purchaser, refrain from making any change in the
compensation or benefits payable or to become payable to any employees of
the Acquired Entity or making any new bonus payment or arrangement or
benefit to or with any of them.
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(g) except with the prior written consent of Purchaser, refrain from
making any capital expenditures in excess of One Hundred Thousand United
States Dollars (US $100,000) in the aggregate;
(h) except as specifically provided for in this Agreement, refrain
from changing the number of authorized or issued shares of capital stock of
any Acquired Entity, from declaring, setting aside or paying any dividend
or other distribution with respect to the Shares, or from directly or
indirectly redeeming, purchasing or otherwise acquiring any additional
shares of capital stock of the Company or effecting a split,
reclassification or other change in or of any capital stock of Company;
(i) maintain at all times in full force and effect all insurance
policies now in force as described in Schedule 4.23;
(j) use its best efforts to preserve the business organization of each
Acquired Entity intact, to preserve and maintain all Intellectual Property
Rights, to keep available the services of the present officers and
employees of the Acquired Entity and to make no changes therein, and to
preserve the goodwill of all suppliers, customers, licensors, distributors,
sales representatives and others having business relations with the
Acquired Entity;
(k) maintain at all times in full force and effect all Approvals; and
(l) conduct the Acquired Entity's business and operations in
accordance with Applicable Law.
7.2 Access to Records. Purchaser's representatives, attorneys and accountants
have had, prior to the date hereof, and shall continue to have, reasonable
access to all records and files, audits and properties of each Acquired Entity,
as well as all information relating to taxes, commitments, contracts, titles and
financial condition of, or otherwise pertaining to, each Acquired Entity. From
the date hereof, Sellers agree to cause each Acquired Entity's accountants to
cooperate with E-TEK, Purchaser and their respective accountants in making
available all financial information concerning each Acquired Entity as is
reasonably requested, and E-TEK, Purchaser and their respective accountants
shall have reasonable access to all working papers pertaining to examinations of
each Acquired Entity, or preparation of its reports, by its accountants. The
parties acknowledge the terms and conditions of the Confidentiality Agreement
and agree to be bound by its terms as if they were parties thereto.
7.3 Action by Sellers. Sellers shall use their best efforts to cause each of
the conditions set forth in Section 9 to be fulfilled on or prior to the Closing
Date.
7.4 No Shop. During the term of this Agreement and prior to the Closing,
Sellers shall not, directly or indirectly, solicit, initiate or participate in
any way in discussions or negotiations with, or provide any information or
assistance to, any person (other than Purchaser) concerning any sale or other
disposition of the Shares or any of the material assets of any Acquired Entity
or assist or participate in, facilitate, negotiate or encourage any offer,
effort or attempt by any other person to do or seek any of the foregoing.
Sellers shall promptly communicate to Purchaser the terms of any offer, proposal
or contract which it may receive with respect to any such transaction.
7.5 Manufacturing Agreement with KAIFA Shenzhen. Sellers shall use their best
efforts to cause KAIFA Shenzhen to enter into a contract manufacturing agreement
with KAIFA USA to exclusively manufacture certain products of KAIFA USA in a
form acceptable to E-TEK and Purchaser.
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7.6 PRC Lease Agreement. Sellers shall use their best efforts to cause Shunde
SMC Multi-Media Products Co., Ltd. to enter into the PRC Lease Agreement.
7.7 [INTENTIONALLY OMITTED]
7.8 KAIFA PRC's Loans. Between the date hereof and the Closing Date, Sellers
shall cause KAIFA PRC to refrain from borrowing any additional loans, except for
loans borrowed for working capital purpose only from Shunde SMC Multi-Media
Products Co., Ltd. which shall not be in excess of US$24,000 or its equivalent
in Renminbi per month and the aggregate of any loans so borrowed between the
date hereof and the Closing Date shall not exceed US$72,000 or its equivalent in
Renminbi.
8. Covenants of E-TEK and Purchaser Prior to Closing
8.1 Action by Purchaser. Purchaser and E-TEK shall use their best efforts to
cause each of the conditions set forth in Section 10 to be fulfilled on or prior
to the Closing Date.
9. Conditions Precedent to Purchaser's and E-TEK's Obligation to Close
All obligations of Purchaser and E-TEK hereunder to be performed on the
Closing Date are subject to, and conditioned upon, the fulfillment of each of
the following conditions on or before the Closing Date unless waived by
Purchaser and E-TEK in their sole discretion:
9.1 Accuracy of Representation of Warranties. The representations and
warranties of Sellers, as set forth in this Agreement, shall be true, correct
and complete on the Closing Date with the same force and effect as if made at
and as of such date, and Purchaser shall be furnished with a certificate signed
by Sellers to this effect.
9.2 Sellers' Performance. Sellers shall have performed or complied with all of
the terms, covenants and conditions of this Agreement to be performed or
complied with by Sellers at or prior to the Closing Date, and Purchaser shall be
furnished with a certificate of Sellers to this effect.
9.3 No Prohibition. No Order of any Tribunal shall have been issued, and no
action or proceeding shall be pending or threatened by any person, or any
Tribunal to enjoin, restrict or prohibit:
(a) the sale and purchase of the Shares contemplated hereby; or
(b) the right of Purchaser to own the Shares; or
(c) the right of Purchaser to conduct the business or operations of
the Company and the other Acquired Entities.
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9.4 No Adverse Change. No material assets of any Acquired Entity shall have
been stolen or damaged or destroyed by fire, storm or other casualty so as to
prevent the resumption of normal business operations by the Acquired Entity
within fifteen (15) days after such occurrence, and there shall have occurred no
event or events having a material adverse effect on any Acquired Entity, whether
or not in the ordinary course of business.
9.5 Legal Opinions. Sellers shall have delivered or caused to be delivered
to Purchaser:
(a) a legal opinion of Harney Westwood & Riegels, dated the Closing
Date, with respect to each of the Sellers, the Company and the laws of the
British Virgin Islands, in a form satisfactory to Purchaser's Counsel;
(b) a legal opinion of the Law Offices of Guangdong International
Commerce, dated the Closing Date, with respect to the laws of the PRC, in a
form satisfactory to Purchaser's Counsel; and
(c) a legal opinion of Preston Gates & Ellis LLP, dated the Closing
Date, with respect to the laws of California, in a form satisfactory to
Purchaser's Counsel.
9.6 Approvals and Consents
(a) Sellers shall have received any and all Approvals, and shall have
obtained all consents and acknowledgments, including those referred to in
Section 4.13 and Schedule 4.13, as may be required in connection with the
completion of the transactions herein contemplated.
(b) Purchaser shall have received any and all Approvals necessary to
lawfully own and operate the Company and its business and that of the other
Acquired Entities.
(c) Purchaser shall have received copies, certified as true and
complete by a director of the relevant company, of:
(i) the resolutions of the shareholders and the board of directors of
each of the Sellers approving the transaction contemplated in this
Agreement and the Ancillary Agreements to which each of the Sellers is a
party, and authorizing the execution, delivery and performance of this
Agreement and such Ancillary Agreements;
(ii) the resolutions of the shareholders and directors of the Company
approving the transactions contemplated in this Agreement and the Ancillary
Agreements to which the Company is a party, and authorizing the execution
and delivery of such Ancillary Agreements and the performance of the
transactions contemplated in this Agreement and such Ancillary Agreements;
and
(iii) the resolutions of the board of directors of KAIFA USA and KAIFA
PRC, respectively, approving the transaction contemplated in the Ancillary
Agreements to which KAIFA USA or KAIFA PRC, as appropriate, is a party, and
authorizing the execution, delivery and performance of such Ancillary
Agreements.
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9.7 Execution of Escrow Agreement. Purchaser and E-TEK shall have received
counterparts of the Escrow Agreement, duly executed by Sellers and the Escrow
Agent.
9.8 Delivery of Shares and Transfer Instrument. Sellers shall have delivered
to the Purchaser's Counsel all certificates representing all of the Shares and
instrument for transfer thereof executed in blank in accordance with the
provisions of Section 3.2.
9.9 KAIFA PRC. Sellers shall have caused the following to happen with respect
to KAIFA PRC:
9.9.1 Conversion of Status and Increase of Capital.
(a) An application shall have been made to the original examination
and approval authority of KAIFA PRC for the approval of (i) assignment of
five percent (5%) of the registered capital of KAIFA PRC from its Chinese
investor to the Company and the conversion of the status of KAIFA PRC from
a Sino-foreign cooperative joint venture to a wholly foreign-owned
enterprise, solely invested by the Company, by the submission of the
Transfer and Conversion Contract duly executed by the parties thereto, and
(ii) the increase of the total investment and the registered capital of
KAIFA PRC to US$10,700,000 and US$5,500,000 respectively by the submission
of the Amended Articles of Association of KAIFA PRC duly executed by the
Company, together with the unanimous board resolution of KAIFA PRC
approving and authorizing the above and other documents as required by the
examination and approval authority; and
(b) All necessary Approvals from MOFTEC and/or its local agencies and
a new business license of KAIFA PRC issued by the SAIC and/or its local
agencies with respect to the assignment of the registered capital, the
change of status of KAIFA PRC, the increase of registered capital and total
investment of KAIFA PRC and the Amended Articles of Association of KAIFA
PRC referred to in Section 9.9.1 shall have been obtained prior to the
Closing, and copies of which shall have been delivered to Purchaser and
E-TEK.
9.9.2 Extension of Factory Lease. The lease of the existing
manufacturing facilities of KAIFA PRC between KAIFA PRC and Shunde SMC
Multi-Media Products Co., Ltd. dated July 29, 1997 (the "current lease")
shall be extended for a term ending on the effective date of the PRC Lease
Agreement on terms no less favorable to KAIFA PRC than those set forth in
the current lease.
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9.10 Release of Claims of Directors and Employees. Sellers shall have caused
to be delivered to Purchaser and E-TEK a document in a form satisfactory to
E-TEK, signed by each of the directors and employees of the Company and KAIFA
USA listed on Schedules 3.6 and 13.2.7, releasing E-TEK, the Company, KAIFA USA
and all Affiliates thereof from any and all obligations and liabilities arising
from or relating to the proposed grant of stock options by the Company or KAIFA
USA. In addition, with respect to each of the employees of KAIFA USA listed on
Schedule 3.6, such document shall include: (i) an acknowledgment of receipt by
such officer or employee of the payment provided for in Section 3.6(g) and
Schedule 3.6 as payment in full for any and all options to acquire shares of the
Company and/or KAIFA USA proposed to be granted by the Company or KAIFA USA, as
the case may be, to such employee; and (ii) confirmation that such employee has
no right, title or interest whatsoever in the capital stock of the Company or
KAIFA USA.
9.11 Release of SMC Parent's Security Interests (i) SMC Parent shall have
executed a release with respect to the security interest over the assets of
KAIFA USA granted to it pursuant to the Security Agreement dated October 8, 1998
between KAIFA USA and SMC Parent; and (ii) a UCC-2 termination statement shall
have been executed by SMC Parent and delivered to Purchaser, in a form suitable
for filing with each of the offices at which a UCC-1 financing statement was
filed with respect to such security interest.
9.12 Due Diligence. Purchaser shall be satisfied with all due diligence
disclosures which were not made available for review prior to the signing of
this Agreement.
9.13 Schedule of KAIFA PRC's Loans and Return of Security Deposits. Sellers
shall have delivered to Purchaser a schedule containing a complete and accurate
list of all the Renminbi loans borrowed by KAIFA PRC from Shunde SMC Multi-Media
Products Co., Ltd. that are outstanding as of the Closing Date. Upon the
delivery by E-TEK of the guarantee described in Section 10.8, Sellers shall have
caused SMC Parent and/or its Affiliates to release to the Company all deposits
securing such loans held by SMC Parent and/or its Affiliates.
9.14 Purchaser's Option. In the event that any condition referred to in this
Section 9 to be performed or complied with at or prior to the Closing Date shall
not have been so performed or complied with, Purchaser and E-TEK may jointly,
without limiting any other right that Purchaser and E-TEK may have, at their
sole option, either:
(a) terminate this Agreement by notice to Sellers pursuant to, and
subject to the cure provisions of, Section 12.2; or
(b) waive compliance with any such term, covenant or condition in
whole or in part.
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10. Conditions Precedent to Sellers' Obligation to Close
All obligations of Sellers hereunder to be performed on the Closing Date are
subject to, and conditioned upon, the fulfillment of each of the following
conditions on or before the Closing Date unless waived by Sellers, in their sole
discretion:
10.1 Accuracy of Representations and Warranties. The representations and
warranties of Purchaser and E-TEK set forth in Sections 5 and 6 respectively
shall be true, correct and complete at the Closing Date with the same force and
effect as if made at and as of such date, and Sellers shall be furnished with a
certificate of an officer of Purchaser and an officer of E-TEK to that effect.
10.2 Purchaser's and E-TEK's Performance. Purchaser and E-TEK shall have
performed or complied with all of the terms, covenants and conditions of this
Agreement to be performed or complied with by Purchaser and E-TEK at or prior to
the Closing Date, and Sellers shall be furnished with a certificate of an
officer of Purchaser and E-TEK to that effect.
10.3 No Prohibition. No Order of any Tribunal shall have been issued, and no
action or proceeding shall be pending or threatened by any person, or any
Government Authority to enjoin, restrict, or prohibit the sale and purchase of
the Shares contemplated hereby.
10.4 Approvals, Consents and Opinion.
(a) Purchaser and E-TEK shall have received any and all Approvals, and
shall have obtained all consents and acknowledgments, including those
referred to in Sections 5.3 and 6.3, Schedule 5.3 and Schedule 6.3, as may
be required in connection with the completion of the transactions herein
contemplated.
(b) Sellers shall have received copies, certified as true and complete
by an officer of the relevant company, of:
(i) the written approval of Summit Partners, LP, E-TEK's major
shareholder, with respect to terms and conditions of the registration
rights granted to Sellers as provided in Section 2.6 and Schedule 2.6;
(ii) the resolutions of the board of directors of E-TEK approving the
transaction contemplated in this Agreement and the Ancillary Agreements to
which E-TEK is a party, and authorizing the execution, delivery and
performance of this Agreement and such Ancillary Agreements; and
(iii) the resolutions of the shareholders and directors of Purchaser
approving the transactions contemplated in this Agreement and the Ancillary
Agreements to which Purchaser is a party, and authorizing the execution,
delivery and performance of this Agreement and such Ancillary Agreements.
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(c) Purchaser and E-TEK shall have delivered or caused to be delivered
to Sellers:
(i) a legal opinion of the General Counsel of E-TEK, dated the Closing
Date, with respect to E-TEK's due authorization, the execution and delivery
of, and the performance of the transactions contemplated in, this Agreement
and the Ancillary Agreements to which it is a party; in a form satisfactory
to Preston Gates & Ellis LLP; and
(ii) a legal opinion of Baker & McKenzie, dated the Closing Date, with
respect to Purchaser, E-TEK and the General Corporation Law of the State of
Delaware and the laws of California, in a form satisfactory to Preston
Gates & Ellis LLP.
10.5 Execution of Escrow Agreement. Sellers shall have received counterparts
of the Escrow Agreement, duly executed by Purchaser, E-TEK and the Escrow Agent.
10.6 Delivery of Purchase Consideration. Purchaser and E-TEK shall have
delivered the Purchase Consideration to Purchaser's Counsel and the Escrow Agent
in accordance with the provisions of Section 3.2.
10.7 Release of SMC Parent's Existing Guarantee. SMC Parent shall have been
fully and completely released from all obligations arising from and related to
the Continuing Guarantee dated September 4, 1998 in favor of Bank of America
National Trust and Savings Association. SMC Parent shall have provided E-TEK,
Purchaser and KAIFA USA with commercially reasonable assistance in securing the
continued availability of the existing banking facilities from the Bank of
America National Trust and Savings Association to KAIFA USA.
10.8 E-TEK's Guarantee of KAIFA PRC's Loans. Subject to Section 7.8, E-TEK
shall have delivered a guarantee in favor of Shunde SMC Multi-Media Products
Co., Ltd. whereby E-TEK guarantees the repayment of all the loans of KAIFA PRC
as set out in the schedule delivered pursuant to Section 9.13, and upon E-TEK's
delivery of such guarantee, the Company shall have received all deposits
securing such loans held by SMC Parent and/or its Affiliates.
10.9 Sellers' Option. In case any condition referred to in this Section 10 to
be performed or complied with at or prior to the Closing Date shall not have
been so performed or complied with, Sellers may, without limiting any other
right that Sellers may have, at their sole option, either:
(a) terminate this Agreement by notice to Purchaser and E-TEK pursuant
to, and subject to the cure provisions of, Section 12.3; or
(b) waive compliance with any such term, covenant or condition in
whole or in part.
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11. Indemnification
11.1 Indemnification by Sellers.
11.1.1......Each of the Sellers, jointly and severally (except as
specifically provided herein), shall indemnify, defend, save and hold
Purchaser and E-TEK harmless from and against any Loss arising out of,
resulting from, or attributable to:
(a) any breach of any representation or warranty by Sellers contained
herein or in any document delivered hereunder (severally for those
representations and warranties that are made herein by such Seller
severally and not jointly);
(b) any breach of any covenant or agreement by Sellers to be performed
on or prior to the Closing Date (severally as to the execution and delivery
of Ancillary Agreements by each of them, and as to the delivery of their
respective Shares);
(c) any Loss of an Acquired Entity of any nature whatsoever, whether
accrued, absolute, contingent, known or unknown, liquidated or
unliquidated, existing at or arising out of any facts or circumstances
existing at, or any events occurring on, or prior to, the Closing, to the
extent that such Loss is both (i) not reflected or reserved against in the
Latest Balance Sheet of such Acquired Entity, (ii) not covered or
inadequately covered by insurance, and (iii) arising from or relating to:
(1) any taxes imposed on any Acquired Entity or its assets for any
period prior to the Closing Date;
(2) any products produced by any Acquired Entity prior to the Closing
Date or any services performed by any Acquired Entity prior to the Closing
Date;
(3) any injuries to, or the contraction of any diseases or health
conditions by, any person resulting from exposure to any Hazardous
Materials prior to the Closing Date without regard to when such injuries,
diseases or conditions are first manifested;
(4) the generation, processing, treatment, handling, storage or
disposal of or contamination (including any presence, spill, seep, leak,
emission, discharge, escape, migration, release or threat of release of any
Hazardous Materials) by any Hazardous Materials, whether on or off any Real
Estate at any time prior to the Closing Date, including costs and penalties
incurred in the investigation, monitoring, cleanup or correction of any
such event or condition; and
(5) any pollution or other damage or injury to the environment,
whether on or off any Real Estate, which arises out of events occurring or
conditions existing prior to the Closing Date, including costs and
penalties incurred in the investigation, monitoring, cleanup or correction
of any such event or condition; and
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(d) any and all legal or administrative actions, suits, proceedings,
demands or Orders, costs and expenses incidental to any of the matters set
forth in this Section 11.1.1.
(e) any Loss (including any fine, sanction or penalty imposed by any
tax or foreign exchange authorities or any other Government Authorities or
Tribunals) of E-TEK or any Affiliate of E-TEK arising from, attributable
to, or suffered or incurred in connection with the structuring of the lease
contemplated in the PRC Lease Agreement such that a portion of the
consideration for the use of the premises subject to the lease is paid
outside of the PRC in foreign currency pursuant to a facility management
agreement as described in Exhibit G.
11.1.2......The obligation of each of the Sellers to indemnify
Purchaser and E-TEK as set forth in Section 11.1.1 shall be subject to the
following limitations:
(a) in respect of any breach of any representation or warranty of the
Sellers, shall be subject to the limitation periods provided in Section
11.4, after which time if no Claims have been made against a Seller with
respect to a breach of any representation or warranty, that Seller shall
have no further liability hereunder with respect to the representation or
warranty;
(b) the obligation of Sellers to provide indemnification to Claims
arising from that party's fraudulent acts shall expire as provided by
applicable law;
(c) subject to the provisions of Section 11.1.2(f), the
indemnification obligation of Sellers pursuant to Section 11.1.1(c)(1)
shall be limited to the applicable statute of limitations; the
indemnification obligation of Sellers pursuant to Sections 11.1.1(c)(2)
through (5) shall be limited to three (3) years after the Closing Date; and
the indemnification obligation of Sellers pursuant to Section 11.1.1(e)
shall be limited to a period equal to the term of the PRC Lease Agreement.
(d) if a Claim for indemnification is made prior to the termination of
the Sellers' indemnification obligations as provided in Section 11.1.2(a),
(b) or (c), such termination shall not affect or in any way impair the
rights of the Indemnitee to indemnification in respect of the particular
matter as to which the Claim is made, whether or not the amount of
indemnification to which the Indemnitee is entitled in respect of such
matter shall have been determined prior to such termination;
(e) not be applicable to indemnify Purchaser and E-TEK until the
aggregate of all Losses arising out of Claims sustained by Purchaser and
E-TEK, taken as a whole, exceeds a base of US$100,000 whereupon the full
amount of such Claims (including such initial US$100,000) shall be
recoverable;
(f) the maximum aggregate liability of Sellers under Section 11.1
shall not exceed (i) Eight Million United States Dollars (US$8,000,000) in
the aggregate (the "General Indemnification Limitation") with respect to
Claims other than those set out in (ii) and (iii) below, (ii) Twenty-Four
Million United States Dollars (US$24,000,000) in the aggregate (inclusive
of any Claims made against the General Indemnification Limitation) with
respect to Claims made by Purchaser and E-TEK (a) with respect to any
breach of any representation or warranty contained in Sections 4.2.2.
4.2.3, 4.2.4, 4.5, 4.9.2, 4.12.2, 4.12.3 and 4.26; (b) arising or related
to matters set forth in Section 11.1.1(c)(1) through (5); and (c) under
Section 11.1.1(d) which arise or are asserted within one (1) year after the
Closing Date, and (iii) the aggregate amount of the Purchase Consideration
with respect to Claims relating to any breach of any representation or
warranty contained in Section 4.2.5; and
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(g) EXCEPT FOR THE OBLIGATION TO INDEMNIFY PURCHASER AND E-TEK FOR ALL
DAMAGES ARISING OR RELATING TO THE BREACH OF ANY OF THE REPRESENTATIONS AND
WARRANTIES SET FORTH IN SECTIONS 4.2.2, 4.2.3, 4.2.4, 4.2.5, 4.5, 4.9.2,
4.12.2, 4.12.3 and 4.26 UNDER NO OTHER CIRCUMSTANCES SHALL SELLERS BE
LIABLE FOR ANY INDIRECT, SPECIAL, CONSEQUENTIAL OR INCIDENTAL DAMAGES
ARISING HEREUNDER OR RELATING HERETO, EVEN IF SELLERS HAVE BEEN PLACED ON
NOTICE OF THE POSSIBILITY OF SUCH DAMAGES.
11.1.3......SMC Parent Guarantee. SMC shall cause SMC Parent to
guarantee the indemnification obligations of SMC under this Section 11.1,
in favor of Purchaser and E-TEK, and shall cause SMC Parent to execute and
deliver the SMC Parent Guarantee to Purchaser and E-TEK at the Closing.
11.2 Indemnification by Purchaser and E-TEK.
11.2.1......Purchaser and E-TEK, jointly and severally, shall
indemnify, defend, save and hold Sellers harmless from and against any Loss
arising out of, resulting from or attributable to:
(a) any breach of any representation or warranty by Purchaser or E-TEK
contained herein or in any document delivered hereunder;
(b) any breach of any covenant or agreement by Purchaser or E-TEK
contained herein to be performed on or prior to the Closing Date;
(c) any Loss of any Acquired Entity with respect to the conduct of its
business on and after the Closing Date, arising out of, or resulting from,
or attributable to:
(1) any taxes imposed on any Acquired Entity or its assets on or after
the Closing Date that is not attributable to the business or operations of
such Acquired Entity prior to the Closing Date;
(2) any products produced by any Acquired Entity on or after the
Closing Date or any services performed by any Acquired Entity on or after
the Closing Date;
(3) any injuries to, or the contraction of any diseases or health
conditions by, any person resulting from exposure to Hazardous Materials on
or after the Closing Date that is not attributable to conditions existing
prior to the Closing Date;
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(4) the generation, processing, treatment, handling, storage or
disposal of or contamination by (including any presence, spill, seep, leak,
emission, discharge, escape, migration, release or threat of release of any
Hazardous Materials) any Hazardous Materials, whether on or off the Real
Estate or other premises from which any Acquired Entity's business shall be
conducted on or after the Closing Date and that is not attributable to
conditions existing prior to the Closing Date, including costs and
penalties incurred in the investigation, monitoring, cleanup or correction
of any such event; and
(5) any pollution or other damage or injury to the environment,
whether on or off the Real Estate or other premises from which any Acquired
Entity's business shall be conducted, occurring on or after the Closing
Date and not attributable to conditions existing prior to the Closing Date,
including costs and penalties incurred in the investigation, monitoring,
cleanup or correction of any such event;
(d) any Loss of SMC Parent resulting from E-TEK's failure to perform
E-TEK's obligations under any guarantee provided by E-TEK to Bank of
America National Trust and Savings Association in substitution of the
Continuing Guarantee dated September 4, 1998 described in Section 10.7 to
secure the continued availability of the existing banking facilities of
KAIFA USA referred to in Section 10.7; and
(e) any and all legal or administrative actions, suits, proceedings,
demands or Orders, costs and expenses incidental to any of the matters set
forth in this Section 11.2.1.
11.2.2......The obligation of each of Purchaser and E-TEK to indemnify
each of the Sellers as set forth in Sections 11.2.1 shall be subject to the
following limitations:
(a) in respect of any breach of any representation or warranty of the
E-TEK or Purchaser, shall be subject to the limitation periods provided in
Section 11.4, after which time if no claims have been made against E-TEK or
Purchaser with respect to a breach of any representation or warranty, E-TEK
or Purchaser shall have no further liability hereunder with respect to the
representation or warranty;
(b) the obligation of E-TEK and Purchaser to provide indemnification
to Claims arising from that party's fraudulent acts shall expire as
provided by applicable law;
(c) subject to the provisions of Section 11.2.2(f), the
indemnification obligation of Purchaser and E-TEK pursuant to Section
11.2.1(c)(1) shall be limited to the applicable statute of limitations; and
the indemnification obligation of Purchaser and E-TEK pursuant to Sections
11.2.1(c)(2) through (5) shall be limited to three (3) years after the
Closing Date.
(d) if a Claim for indemnification is made prior to the termination of
the indemnification obligations of E-TEK and Purchaser as provided in
Section 11.2.2(a), (b) or (c), such termination shall not affect or in any
way impair the rights of the Indemnitee to indemnification in respect of
the particular matter as to which the Claim is made, whether or not the
amount of indemnification to which the Indemnitee is entitled in respect of
such matter shall have been determined prior to such termination;
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(e) not be applicable to indemnify Sellers until the aggregate of all
Losses arising out of Claims sustained by Sellers, taken as a whole,
exceeds a base of US$100,000 whereupon the full amount of such Claims
(including such initial US$100,000) shall be recoverable;
(f) the maximum aggregate liability of E-TEK and Purchaser under
Section 11.2 shall not exceed (i) Eight Million United States Dollars
(US$8,000,000) in the aggregate (the "E-TEK General Indemnification
Limitation") with respect to Claims other than those set out in (ii) below,
and (ii) Twenty-Four Million United States Dollars (US$24,000,000) in the
aggregate (inclusive of any Claims made against the E-TEK General
Indemnification Limitation) with respect to Claims made by Sellers (a) with
respect to any breach of any representation or warranty contained in
Sections 6.2 and 6.4; (b) arising or related to matters set forth in
Section 11.2.1(c)(1) through (5); and (c) under Section 11.2.1(e) which
arise or are asserted within one (1) year after the Closing Date;
(g) UNDER NO CIRCUMSTANCES SHALL PURCHASER OR E-TEK BE LIABLE FOR ANY
INDIRECT, SPECIAL, CONSEQUENTIAL OR INCIDENTAL DAMAGES ARISING HEREUNDER OR
RELATING HERETO, EVEN IF PURCHASER OR E-TEK HAS BEEN PLACED ON NOTICE OF
THE POSSIBILITY OF SUCH DAMAGES.
11.3 Indemnification Procedures.
11.3.1......For the purposes of this Section 11.3, the term
"Indemnitee" shall refer to the person or persons entitled, or claiming to
be entitled, to be indemnified, pursuant to the provisions of Section 11.1
or 11.2. The term "Indemnitor" shall refer to the person or persons having
the obligation to indemnify pursuant to such provisions.
11.3.2......An Indemnitee shall promptly give the Indemnitor written
notice of any matter or fact which an Indemnitee has determined has given
rise to a right or claim of indemnification under this Agreement (a
"Claim"), stating the amount of the Loss, if known, and method of
computation thereof, all with reasonable particularity and containing a
reference to the provisions of this Agreement in respect of which such
right of indemnification is claimed or arises. If an Indemnitee shall
receive notice of any claim by a third party which is or may be subject to
indemnification (a "Third Party Claim"), the Indemnitee shall give the
Indemnitor prompt written notice of such Third Party Claim, and shall
permit the Indemnitor, at its option, to control the investigation,
defense, settlement and discharge of such Third Party Claim by counsel of
its own choice and at its expense. If, however, the Indemnitor acknowledges
in writing its obligation to indemnify the Indemnitee hereunder against all
Losses that may result from such Third Party Claim (subject to the
limitations set forth herein), then the Indemnitor shall be entitled, at
its option, to assume and control the investigation, defense, settlement
and discharge of such Third Party Claim at its expense and through counsel
of its choice. In the event that the Indemnitor exercises its right to
undertake the investigation, defense, settlement and discharge of any such
Third Party Claim, the Indemnitee shall cooperate with the Indemnitor in
such investigation, defense, settlement and discharge, and shall make
available to the Indemnitor, at the Indemnitor's expense, all witnesses,
pertinent records, materials and information in its possession or under its
control relating thereto as is reasonably required by the Indemnitor.
Similarly, in the event the Indemnitee is, directly or indirectly,
conducting the investigation, defense, settlement and discharge against any
such Third Party Claim, the Indemnitor shall cooperate with the Indemnitee
in such investigation, defense, settlement and discharge, and shall make
available to the Indemnitee all such witnesses, records, materials and
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information in its possession or under its control relating thereto as is
reasonably required by the Indemnitee. No such Third Party Claim may be
settled by the Indemnitor without the written consent of the Indemnitee,
unless the settlement involves only the payment of money by the Indemnitor.
No Third Party Claim which is being defended in good faith by the
Indemnitor shall be settled by the Indemnitee without the written consent
of the Indemnitor.
11.4 Survival of Representations and Warranties. The representations,
warranties, covenants and agreements of Sellers, Purchaser and E-TEK shall
survive the Closing and the consummation of the transactions contemplated by
this Agreement and shall continue until eighteen (18) months from the Closing
Date, at which time all representations and warranties shall expire; provided,
however, that the representations, warranties and covenants in Sections 4.2.2,
4.2.3, 4.2.4, 4.2.5, 4.5, 4.9.2, 4.12.2, 4.12.3 and 4.26 shall continue for
three (3) years after the Closing Date.
11.5 General Provisions on Indemnification.
11.5.1......Except for breaches of this Agreement resulting from fraud
or intentional misrepresentation, the indemnification provisions contained
in this Section 11 shall be the exclusive post-closing remedy for damages
available to an Indemnitee with respect to the matters specified in Section
11.1 and Section 11.2, but specific performance and injunctive relief, but
not rescission, shall be available with respect to breaches of covenants or
agreements by or on behalf of an Indemnitor contained in this Agreement.
11.5.2......Losses shall be determined after taking into account (i)
the amount of any tax benefit or tax detriment inuring to the Indemnitee or
any of its Affiliates arising from the facts and circumstances giving rise
to such Loss and (ii) any insurance proceeds received by an Indemnitee or
its Affiliates from a nonaffiliated insurance company on account of such
Losses (after taking into account any costs incurred in obtaining such
proceeds and any increase, determined in the reasonable judgment of the
Indemnitee and confirmed by insurance company, in insurance premiums as a
result of a claim with respect to such proceeds.
11.5.3......The amount of any Loss arising from the breach of any
representation, warranty, covenant or agreement containing a materiality
qualification shall be the entire amount of such Loss incurred by the
Indemnitee and not just that portion of the Loss that exceeds the relevant
level of materiality.
11.5.4......In the event that E-TEK and/or Purchaser is subject to any
Loss for which E-TEK or Purchaser, as the case may be, is entitled to
indemnification from Sellers under Sections 11.1.1 and 11.1.2, E-TEK or
Purchaser, as the case may be, may give notice of such Loss, and may submit
a Claim for indemnification under the Escrow Agreement. Subject to Section
11.1.2(g), the submission of a Claim by E-TEK or Purchaser under the Escrow
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Agreement shall not be deemed to constitute an election of remedies, or
limit E-TEK's or Purchaser's right to indemnification as provided in
Sections 11.1.1 and 11.1.2, or limit or impair E-TEK's or Purchaser's
rights with respect to the enforcement of any other remedies that may be
available to E-TEK or Purchaser.
12. Termination
12.1 Mutual Agreement. This Agreement may be terminated at any time prior to
the Closing by the written consent of E-TEK, Purchaser and Sellers.
12.2 Termination by E-TEK or Purchaser. Prior to the Closing, this Agreement
may be terminated by E-TEK and Purchaser, acting jointly, by means of written
notice to Sellers, if there has been a material breach by Sellers of any
representation, warranty, covenant or agreement set forth in this Agreement or
any Ancillary Agreement which would cause a failure of any of the conditions set
forth in Section 9.1 or 9.2 and which breach has not been cured within thirty
(30) business days following receipt by Sellers of notice of such breach.
12.3 Termination by the Sellers. Prior to the Closing, this Agreement may be
terminated by Sellers acting jointly, by means of written notice to E-TEK and
Purchaser, if there has been a material breach by E-TEK or Purchaser of any
representation, warranty, covenant or agreement set forth in this Agreement or
any Ancillary Agreement which would cause a failure of any of the conditions set
forth in Sections 10.1 or 10.2 and which breach has not been cured within thirty
(30) business days following receipt by E-TEK and Purchaser of notice of such
breach.
12.4 Outside Date. This Agreement may be terminated by E-TEK and Purchaser
acting jointly, or by Sellers acting jointly, by means of written notice if the
Closing does not occur on or prior to September 30, 1999, as such date may be
extended by the cure periods provided in Sections 12.2 and 12.3 or by mutual
agreement of the parties, unless the failure of the Closing to occur by such
date shall be due to the act or failure to act of the party seeking to
terminate.
12.5 Effect of Termination.
12.5.1......In the event of termination of this Agreement by either
the Sellers or E-TEK/Purchaser as provided in this Section 12, this
Agreement shall forthwith become void and have no effect, and there shall
be no liability or obligation on the part of E-TEK, Purchaser, Sellers, or
their respective officers or directors, except that (i) the provisions of
Sections 12.5.2, 13.1, 13.2.3, 13.10, 13.11 and 13.12, and the
Confidentiality Agreement between the parties shall survive any such
termination and abandonment and (ii) no party shall be released or relieved
from any liability arising from the willful breach by such party prior to
termination of any of its representations, warranties, covenants or
agreements as set forth in this Agreement.
12.5.2......In the event that the termination of this Agreement by
either the Sellers or E-TEK/Purchaser as provided in this Section 12 is by
reason of a breach of any representation, warranty, covenant or agreement
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by the other party (a "breaching party"), the breaching party shall be
liable to the non-breaching party for all direct damages, including costs
and expenses, suffered or incurred by the non-breaching party as a result
of the breach and/or the termination of this Agreement.
13. Miscellaneous.
13.1 Brokerage. E-TEK, Purchaser and Sellers each represent and warrant to the
other party that they have retained no broker or other person entitled to any
commission, finder's fee, or other like payment with respect to the transactions
contemplated herein. KAIFA USA has agreed to pay an investment banking fee to
Broadview International, LLC pursuant to that certain agreement between KAIFA
USA and Broadview International, LLC dated June 11, 1999. Within two (2) days
after the Closing Date, E-TEK and Purchaser shall cause KAIFA USA to pay to
Broadview International, LLC the sum of Six Hundred Four Thousand Four Hundred
and Twenty-Two United States Dollars (US$604,422) as payment in full of all
obligations of E-TEK, Purchaser, Sellers, the Company and all Acquired Entities
with respect to the brokerage commission or investment banking fee payable to
Broadview International, LLC with respect to the transactions contemplated in
this Agreement.
13.2 Post-Closing Covenants.
13.2.1......Subject to the occurrence of the Closing, for a period of
three (3) years following the Closing, neither Seller nor any Affiliate of
either of the Sellers (excluding any Affiliate of either Seller who has
entered into the Employment Agreements, in which case, the provisions of
the Employment Agreements on this subject matter shall govern) shall engage
in, or acquire more than one percent (1%) of the shares or other equity
interest of any person that is engaged in, any business activities which
are directly competitive with the business activities or operations of any
Acquired Entity, as such business activities or operations were conducted
by that Acquired Entity immediately prior to the Closing Date in any
country in the world. Ownership of no more than five percent (5%) of the
outstanding voting stock of a corporation whose securities are listed on an
internationally recognized securities exchange, whether domestic or
foreign, or quoted daily in the over-the-counter listings of The Wall
Street Journal shall not constitute a violation of this Section 13.2.1.
13.2.2......For a period of four (4) years following the Closing,
neither Seller, any Affiliate of either of the Sellers, or any officer,
director or employee of either of the Sellers or any Affiliate thereof
(excluding any former officer, director or employee of such Affiliates)
shall, directly or indirectly, recruit or solicit for employment any
employee of any Acquired Entity, without the prior written authorization of
Purchaser and E-TEK; provided, however, that nothing in this Section 13.2.2
shall prohibit either Seller, or any Affiliate of either Seller, from
employing any current or former employee of an Acquired Entity who responds
to an advertisement or generally-directed recruiting effort that does not
involve solicitation of such employee of an Acquired Entity by that Seller
or Affiliate of Seller.
13.2.3......For a period of one (1) year following the termination of
this Agreement without the occurrence of the Closing, (i) neither Seller,
any Affiliate of either of the Sellers, or any officer, director or
employee of either of the Sellers or any Affiliate thereof (excluding any
former officer, director or employee of such Affiliates) shall, directly or
indirectly, recruit or solicit for employment any employee of E-TEK or
Purchaser, without the prior written authorization of E-TEK and Purchaser;
and (ii) neither E-TEK, Purchaser, any Affiliate of E-TEK, or any officer,
director or employee of E-TEK (excluding any former officer, director or
employee of such Affiliates), Purchaser or any Affiliate of E-TEK shall,
directly or indirectly, recruit or solicit for employment any employee of
either Seller or any Affiliate thereof, without the prior written
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authorization of that Seller; provided, however, that nothing in this
Section 13.2.3 shall prohibit either Seller, or any Affiliate of either
Seller, from employing any current or former employee of E-TEK or Purchaser
who responds to an advertisement or generally-directed recruiting effort
that does not involve solicitation of such employee of E-TEK or Purchaser
by that Seller or Affiliate of Seller, or prohibit E-TEK, Purchaser or any
Affiliate of E-TEK from employing any current or former employee of either
Seller or any Affiliate thereof who responds to an advertisement or
generally-directed recruiting effort that does not involve solicitation of
such employee of that Seller or Affiliate thereof by E-TEK, Purchaser or
that Affiliate of E-TEK.
13.2.4......PRC Lease Agreement. Sellers shall cause Shunde SMC
Multi-Media Products Co., Ltd. to enter into the PRC Lease Agreement with
KAIFA PRC within sixty (60) days after the Closing.
13.2.5......Repayment of Loans. Within one hundred and twenty (120)
days after the Closing Date, KAIFA PRC shall pay off all the loans borrowed
by it from Shunde SMC Multi-Media Products Co., Ltd., as described on the
schedule delivered by Sellers pursuant to Section 9.13 and Sellers shall
simultaneously cause the full release of E-TEK's guaranty of such loans
delivered under Section 10.12 and/or any other security granted to secure
such loans.
13.2.6......Manufacturing Agreement with KAIFA Shenzhen. Sellers shall
cause KAIFA Shenzhen to enter into a contract manufacturing agreement with
KAIFA USA to exclusively manufacture certain products of KAIFA USA in a
form acceptable to E-TEK and Purchaser within sixty (60) days after the
Closing.
13.2.7......Payments to Directors of the Company. Seven (7) days after
the Closing Date, upon the effectiveness of the resignations of the
directors of the Company and KAIFA USA, as provided in Section 3.5(f) of
this Agreement, E-TEK shall make payments to such directors, by wire
transfer, in the aggregate amount of Two Million Forty-Six Thousand Eight
Hundred and Fourteen United States Dollars (US$2,046,814); in consideration
for: (i) each such director releasing E-TEK, Purchaser, the Company and
KAIFA USA from any and all obligations and liabilities arising from or
relating to the proposed grant of stock options by the Company or KAIFA USA
to such director as specified on Schedule 13.2.7; (ii) confirmation that
such director has no right, title or interest in the capital stock of the
Company or KAIFA USA; and (iii) the resignation by such director as a
director of the Company or KAIFA USA, as the case may be.
13.2.8......Retention Payments to KAIFA USA Employees. Except as
specified on Schedule 13.2.8, on the first anniversary date of the Closing
Date, E-TEK shall pay, or shall cause KAIFA USA to pay, to those employees
of KAIFA USA as of the Closing Date who remain employees of KAIFA USA,
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E-TEK or an Affiliate of E-TEK as of such first anniversary date, retention
bonuses in the aggregate amount of One Hundred Forty-Two Thousand United
States Dollars (US$142,000). The payments to be made to individual
employees of KAIFA USA under this Section 13.2.8 shall be as provided in
Schedule 13.2.8; provided, however, that except as specified on Schedule
13.2.8 no employee of KAIFA USA listed in that Schedule 13.2.8 shall be
entitled to receive any retention bonus payment under this Section 13.2.8
unless that employee remains continuously employed by KAIFA USA, E-TEK or
an Affiliate of E-TEK between the Closing Date and the first anniversary
thereof. In the event that the total amount of retention bonuses actually
paid by E-TEK or an Affiliate of E-TEK under this Section 13.2.8 is less
than One Hundred and Forty-Two Thousand United States Dollars (US$142,000),
E-TEK shall pay, or shall cause Purchaser or such other E-TEK Affiliate to
pay to the Sellers, in proportion to their respective percentage interest
in the Company, as specified on Schedule 2.3 hereto, an amount equal to the
difference between the aggregate amount of all such retention bonuses
actually paid and One Hundred and Forty-Two Thousand United States Dollars
(US$142,000).
13.3 Assignment. The respective rights and obligations of Purchaser, E-TEK and
Sellers under this Agreement may not be assigned or delegated by E-TEK,
Purchaser or Sellers without the prior written consent of the other parties;
provided, however, that E-TEK and/or Purchaser may assign this Agreement in
whole or in part following the Closing to any of their Affiliates, in which
event all the rights and powers of E-TEK and/or Purchaser and all remedies
available to E-TEK and/or Purchaser hereunder shall extend to, and be
enforceable by, such Affiliate of E-TEK or Purchaser, as applicable, and
appropriate changes shall be made in all appropriate documents and in applicable
parts of this Agreement, but no such assignment shall release E-TEK or Purchaser
from its obligations hereunder. Nothing herein expressed or implied shall confer
upon any person, other than the parties hereto or their respective successors,
assigns, heirs and legal representatives, any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
13.4 Notices.
13.4.1......All notices, reports and other communications between the
parties hereunder shall be in writing and shall be sent by registered air
mail, postage prepaid and return receipt requested, by international air
courier, or by facsimile, with a confirmation copy sent by registered air
mail or international air courier within twenty-four (24) hours after the
time and date of facsimile transmission, addressed as follows:
If to E-TEK:
E-TEK Dynamics, Inc.
1865 Lundy Avenue
San Jose, California 95131
Attention: General Counsel
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With a copy to, which
shall not constitute
notice to:
Baker & McKenzie
Two Embarcadero Center, Twenty-Fourth Floor
San Francisco, California 94111-3909
Attention: John F. McKenzie, Esq.
If to Purchaser, or to the Company after the Closing, to:
E-TEK Dynamics Group, Inc.
1865 Lundy Avenue
San Jose, California 95131
Attention: General Counsel
If to Sellers, or to the Company prior to the Closing, to:
SMC Optics Communications Corporation
c/o Shell Electric Mfg. (Holdings) Co.
Shell Industrial Building
12 Lee Chung Street
Chai Wan, HONG KONG
Attention: Billy Yung
Cylinder Company Limited
Craigmuir Chamber, P.O. Box 71
Road Town, Tortola
British Virgin Islands
Attention: Mr. Au-Ieong
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SMC Kaifa (Holdings) Ltd.
c/o Shell Electric Mfg. (Holdings) Co.
Shell Industrial Building
12 Lee Chung Street
Chai Wan, HONG KONG
Attention: Billy Yung
AND
SMC Kaifa (Holdings) Ltd.
c/o KAIFA Technology, Inc.
388 Oakmead Parkway
Sunnyvale, CA 94086
Attention: Vincent S. Au-Yeung
With a copy to, which
shall not constitute
notice to:
Preston Gates & Ellis, LLP
One Maritime Plaza, Suite 2400
San Francisco, CA 94111
Attention: Lawrence B. Low, Esq.
or to such other address as a party may from time to time designate by
notice to the other.
13.4.2......All notices, reports and other communications given in
accordance with this Section 13.4 shall be deemed received: (i) if sent by
registered air mail, seven (7) days after the date of mailing; (ii) if sent
by international air courier, two (2) days after the date of dispatch; and
(iii) if sent by facsimile, twenty-four (24) hours after the date and time
of transmission.
13.5 Costs. All costs and expenses incurred by Sellers in connection with this
Agreement and the preparation for Closing, and the Closing hereunder, shall be
paid by the Sellers and not by the Company; provided, however, if the Closing
takes place, E-TEK shall pay, or shall cause KAIFA USA to pay, all legal,
accounting and other professional service fees incurred by Sellers, the Company
and/or KAIFA USA in connection with the transactions contemplated in this
Agreement, in an amount not to exceed One Hundred Eighty Thousand Four Hundred
United States Dollars (US$180,400). The expenses of Purchaser and E-TEK in
connection with this Agreement and the preparation for Closing, and the Closing
hereunder, including professional fees and costs of its attorneys and
accountants, shall be paid by Purchaser and E-TEK.
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13.6 Public Announcement and Non-Disclosure. E-TEK may, at its reasonable
discretion, determine the timing for the release, and the contents of, any
public announcements of this Agreement and/or the transactions contemplated
herein or in the Ancillary Agreements, provided that E-TEK shall give to Sellers
an opportunity to review a copy of such announcement prior to the making of such
public announcements. Sellers shall not make any such public announcement
without the prior written authorization of E-TEK and Purchaser. Sellers shall
not disclose the terms of this Agreement to any person except as provided in the
preceding sentence.
13.7 Incorporation by Reference. The Schedules, Exhibits, certificates and
other documents attached hereto or referred to herein are deemed to be a part of
this Agreement and are incorporated herein by reference.
13.8 Entire Agreement and Amendments. This Agreement, together with the
Exhibits attached hereto and all other agreements referred to herein, set forth
the entire agreement between and among the parties relating to the subject
matter hereof and supersede all prior agreements, understandings and
communications, whether oral or written. This Agreement may not be modified,
amended or terminated except by written agreement of the parties.
13.9 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
13.10 Governing Law. This Agreement shall be governed by, and interpreted, in
accordance with the law of the State of California, U.S.A., excluding its
conflicts of laws rules.
13.11 Dispute Resolution. Any dispute relating to the validity, performance,
construction or interpretation of this Agreement that cannot be resolved
amicably between the parties shall be submitted to the exclusive jurisdiction of
the courts, including the United States District Courts, in Santa Clara County,
California. Each party hereto, including each of the Sellers, hereby irrevocably
consents to the personal jurisdiction of the courts, including the United States
District Courts, for the resolution of all disputes under this Agreement.
13.12 Attorneys' Fees. In the event that a party to this Agreement commences
any legal action under Section 13.11 in order to enforce any of its rights
hereunder, or to recover damages for any breach or default by the other party or
parties hereto of any of its (their) obligations hereunder, the prevailing party
in any such legal action shall be entitled to recover from the other party all
of its costs and expenses incurred in connection with such legal action,
including reasonable attorneys' fees.
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IN WITNESS WHEREOF, the parties have caused this Share Purchase Agreement to be
executed by their duly authorized representatives on the day and year first
above written.
E-TEK Dynamics, Inc. E-TEK Dynamics Group, Inc.
By: _/s/ Michael J. Fitzpatrick By: /s/ Michael J. Fitzpatrick
Name: Michael J. Fitzpatrick Name: Michael J. Fitzpatrick
Title: President and Chief Title: President
Executive Officer
SMC Optics Communications Corporation Cylinder Company Limited
By: /s/ Billy Yung By: /s/ Vincent S. Au-Yeung
Name: Billy Yung Name: Vincent S. Au-Yeung
Title: Director Title: Director
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EXHIBITS
Exhibit A Form of the Escrow Agreement
Exhibit B Form of the Employment Agreements
Exhibit C Form of the Confidentiality and Invention Assignment Agreement
Exhibit D Copy of the Stock Option Plan
Exhibit E Form of SMC Parent Guarantee
Exhibit F Form of Transfer and Conversion Contract, together with the
Amended Articles of Association exhibited thereto
Exhibit G Terms of the PRC Lease Agreement
[E-TEK Dynamics Logo]
FOR IMMEDIATE RELEASE
Investor Relations Hot Line
(408) 546-5500
Alison Reynders
Investor Relations Manager
(408) 546-4608
E-TEK Dynamics to Acquire Kaifa Technology
San Jose, California, July 27, 1999 -- E-TEK Dynamics, Inc. (Nasdaq: ETEK) today
announced a definitive agreement to acquire privately-held Kaifa Technology of
Sunnyvale, California. Kaifa is a developer of fiber optic components including
Wavelength Division Multiplexing (WDM) components and modules, circulators, and
isolators.
Under the terms of the agreement, shares of E-TEK common stock and cash with an
aggregate value of approximately $40 million will be exchanged for all
outstanding shares of Kaifa. The transaction is subject to various closing
conditions.
Kaifa produces a broad range of fiber optic components for use in long haul,
metro and cable market applications. In addition to the engineering and
manufacturing center in Sunnyvale, Kaifa has manufacturing operations in China.
Kaifa will broaden E-TEK's product line to include components such as a low cost
circulator and a free space isolator, and increase E-TEK's DWDM component and
module capacity.
"As we have stated, execution on our strategic, long term goals includes the
pursuit of complementary acquisitions, such as Kaifa. By leveraging Kaifa's
strengths, E-TEK expects to have a broader product line, more diversified market
coverage, access to a larger customer base and significant offshore
manufacturing capabilities. We believe that our customers will benefit from our
improved ability to provide a broader range of low cost components and modules,"
said Michael Fitzpatrick, E-TEK's Chairman and Chief Executive Officer.
"We are excited to align our technological and manufacturing expertise with a
market leader that can offer scale and scope. We believe that succeeding in new
markets, such as metro, cable and access applications, requires the marketing
and sales network, and the resources to increase capacity, that E-TEK provides.
Together we can more aggressively pursue the growth opportunities in these
markets," said Dr. Vincent Au-Yeung, President of Kaifa.
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Kaifa Technology was founded in 1985 and employs 175 people. Dr. Vincent
Au-Yeung will be General Manager and Vice President of the Kaifa business unit
reporting to Sanjay Subhedar, E-TEK's Senior Vice President of Operations and
Chief Financial Officer.
About E-TEK Dynamics
E-TEK Dynamics, Inc. (Nasdaq: ETEK), headquartered in San Jose, is a leader in
the design and manufacturing of high quality passive components and modules for
fiber optic systems. E-TEK's wavelength division multiplexers ("WDMs") are
designed to increase the bandwidth capacity of new and existing fiber optic
networks. Other E-TEK components, including isolators, couplers and integrated
optics, are critical in enabling optical communications systems. These products
are utilized in terrestrial and submarine long-haul fiber-optic networks as well
as in emerging short-haul markets, such as metropolitan area networks. More
information on E-TEK is available at www.e-tek.com. For further information
regarding Kaifa Technology, please visit their web site at
http://www.kaifatechnology.com
Forward Looking Statements
This press release may contain forward-looking statements that involve risks and
uncertainties. These statements may differ materially from actual future events
or results. Readers are referred to the documents filed by E-TEK Dynamics with
the SEC, specifically the Quarterly Report on Form 10-Q for the period ended
April 2, 1999, and the Registration Statement on Form S-1 filed on July 27,
1999, which identify important risk factors that could cause actual results to
differ from those contained in the forward-looking statements, including
dependence on a limited number of major customers, complexity of introducing new
products, dependence on a limited number of suppliers, risks from international
operations, rapid technological change, increasing competition, continued
industry consolidation and potential fluctuations in quarterly and annual
results.
E-TEK Dynamics, E-TEK, and "Enabling Next-Generation Optical Networks" are
trademarks of E-TEK Dynamics, Inc.
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