Joint Venture Agreement

EXHIBIT 10.23





JOINT VENTURE AGREEMENT



THIS JOINT VENTURE AGREEMENT ("Agreement") is made and entered into this 3rd day of March, 1998, by and between E-Tek Dynamics, Inc., a California corporation ("E-Tek"), and Walsin Lihwa Corp., a Taiwanese corporation ("Walsin"). E-Tek and Walsin may hereafter be referred to individually or collectively as "Shareholder" or "Shareholders."



W I T N E S S E T H

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WHEREAS, E-Tek is engaged in the business of developing, manufacturing and marketing fiber optic components and systems for the telecommunications and CATV industries; and,



WHEREAS, Walsin is a leading manufacturer of wire and cable in Taiwan, with strong distribution channels throughout Asia; and,



WHEREAS, the parties wish to form, with the financial assistance of investor-designees as described below, a joint venture whereby a third party Taiwanese company, limited by shares ("JV"), would be created to, among other things, develop, manufacture and distribute certain fiber optic products; and,



WHEREAS, in contemplation of forming JV, the parties have entered into a December 17, 1997 Technical Licensing Agreement ("Licensing Agreement") whereby JV shall assume all rights and obligations of Walsin as licensee thereunder.



NOW THEREFORE, for good and valuable consideration (including the mutual covenants contained herein), the sufficiency and receipt of which are hereby acknowledged, the parties hereto agree as follows:



A G R E E M E N T

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1. Incorporation of Recitals. The parties hereby acknowledge the accuracy

-------------------------- of the foregoing recitals and incorporate each of them by reference in this Agreement.



2. Formation of Joint Venture Company. Walsin and E-Tek shall promptly

----------------------------------- form JV, a Taiwanese company limited by shares. The parties shall attempt, but not be obligated, to incorporate JV in Hsinchu under the Statute for the Establishment and Administration of a Science-Based Industrial Park and thereby qualify JV for various incentives provided by the laws of Taiwan. Subject to governmental approval, attached hereto as Exhibit A is the form of the Articles of Incorporation of JV. Once approved by the government, they shall become a part of this Agreement. In the event of any discrepancy between the Articles of Incorporation and the terms of this Agreement, the terms of this Agreement shall prevail as between the parties.



3. Purpose. This Agreement has been formed for the limited purposes of

-------- allowing JV to: (i) assume Walsin's rights and obligations under the Licensing Agreement; and, (ii) develop, manufacture and distribute certain fiber optic products pursuant to the terms of the business plan ("Business Plan") attached hereto as Exhibit B, and to engage in such other business practices as the Board (as defined below) may hereafter decide.





4. Capitalization of JV.

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a. Capital Structure. At the time of its formation, the authorized

------------------ capital of JV shall be Six Hundred Eighty Million New Taiwan Dollars (NT$680,000,000). The shares of JV shall all be common, registered shares, each having a par value of Ten New Taiwan Dollars (NT$10). All shares of JV shall carry the same rights and privileges and be subject to the same restrictions and conditions. Unless otherwise required by law, each share shall be entitled to one vote. If and for so long as JV does not have the minimum number of seven shareholders required by applicable law, E-Tek shall allocate one JV share to each person(s) designated by E-Tek until JV has the minimum number of shareholders required by law.



b. Initial Contributions.

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(i) The initial paid-in capital of JV shall be Four Hundred Seventy Six Million New Taiwan Dollars (NT$476,000,000). Upon execution of this Agreement, E-Tek and its investor-designees shall pledge a total of Two Hundred Thirty Eight Million New Taiwan Dollars (NT$238,000,000), and Walsin and its investor-designees shall pledge a total of Two Hundred Thirty Eight Million New Taiwan Dollars (NT$238,000,000), such sums representing the parties' respective initial capital contributions to JV. Once these amounts are fully deposited: E- Tek and its investor-designees shall hold a fifty percent equity interest in JV; and, Walsin and its investor-designees shall hold a fifty percent equity interest therein. JV's records shall note the respective stated capital investments of the parties.



(ii) The parties and their investor-designees shall pay for the shares of JV stock at par value in cash within ten days of the later of either the party's timely acceptance of the Business Plan or E-Tek's receipt of notice that the Taiwanese governmental authorities have approved the proposed partial capitalization of JV by E-Tek and its investor-designees as foreign investors.



c. Future Issuances of Securities. Each Shareholder and its

------------------------------- investor-designees shall have preemptive rights to subscribe to future issuances of JV securities in accordance with Article 267 of Taiwan's Company Law, irrespective of whether such law is hereafter modified or abolished. This right does not extend to securities issued in connection with any merger, acquisition, consolidation or reorganization. Unless the Shareholders hereafter agree in writing, JV shall not issue, or attempt to issue, to any person or entity any securities of any kind or any options or other devices to acquire the same, nor shall either Shareholder be required or permitted to contribute any additional capital to JV.



d. JV Employee Stock Ownership. The JV shall adopt an equity

---------------------------- participation plan and thereby offer to its employees an opportunity to acquire equity interests in JV on terms to be established by the Shareholders and/or Board; provided, however, that no such offer shall ever be made at any time when JV employees own collectively more than a ten percent equity interest therein (assuming all options or other devices to acquire equity interests are fully vested and have been exercised).



e. Investor-Designees. A Shareholder can at any time, including in

------------------- connection with JV's initial capital contribution contemplated above, substitute any third party(ies) in its place, in whole or in part, to acquire through financial investment an equity interest in JV; provided, however, that: (i) any such investor-designee enters into an agreement with JV and its owners whereby it agrees to



transfer restrictions on its interest in JV that are the same as those contained in this Agreement; and, (ii) the other Shareholder must first provide its consent to any such investor-designee, which consent shall not be unreasonably withheld. For purposes of this subparagraph, it shall be deemed reasonable for a Shareholder to withhold its consent with respect to any investor-designee that is an actual or potential competitor of such Shareholder.



5. Restrictions on Transfer of Equity Interests.

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a. Neither Shareholder (nor its investor-designees) may hereafter sell or engage in any transaction which results in, or may result in, a change in the beneficial or record ownership of any JV equity interest held by such Shareholder or its investor-designees, including without limitation a voluntary or involuntary sale, assignment, transfer, pledge, hypothecation, encumbrance, disposal, loan, gift, attachment or levy. Any such transfer or attempted transfer in contravention of this Agreement shall be void and ineffective.



b. The restrictions on transfer set forth in subparagraphs 5.a., 5.d., and 5.e. shall not apply to: (i) transfers made by operation of law (including in connection with a merger, acquisition, consolidation or reorganization of a Shareholder); or, (ii) transfers made to a Shareholder and/or its investor-designee by any of its other investor-designees (unless such transferring investor-designee has eighty percent or more of its stock owned or controlled by Walsin).



c. Notwithstanding the provisions of subparagraphs 5.d. and 5.e., below, but subject to paragraph 8, below, neither Shareholder, nor any entity whose stock is at least eighty percent owned or controlled by Walsin, shall transfer, or attempt to transfer, any equity interest that they individually hold in JV at anytime before March 1, 2000.



d. Before there can be a valid sale of any equity interest in JV, the Shareholder who either owns, or whose investor-designee(s) owns, the interest (the "Selling Shareholder") shall deliver to the other Shareholder satisfactory proof of a bona fide offer by a third party along with a written notice ("Notice") stating the identity of the third party, the precise amount of equity interest proposed to be transferred, and the price and other terms of such proposed sale. If the other Shareholder (or its investor-designees) desire to acquire all or part of such equity interest, then the other Shareholder shall, no later than thirty days after delivery of the Notice, deliver to the Selling Shareholder a written offer to purchase specifying the amount of equity interest proposed to be acquired. If the other Shareholder (or its investor- designees) propose to purchase all of the equity interest specified in the Notice, then such sale shall be made at the price and on the terms specified in said Notice. Any purchases by the other Shareholder or its investor-designees of less than all of the equity interest described in the Notice shall be made at pro rata prices based on the amount specified in the Notice.



e. If the other Shareholder (or its investor-designees) fail to offer to purchase all of the equity interest described in the Notice by the end of the thirty-day period, then the Selling Shareholder or its investor-designees may sell the remaining shares referred to in the Notice to the listed third- party offeror, provided, that: (i) the sale is completed no later than forty- five days after the date the Notice was originally tendered to the other Shareholder and at a pro rata price no lower than, and on terms no more favorable to the third-party purchaser than, those specified in such Notice; and, (ii) any such third-party purchaser enters into an agreement with JV and its owners



whereby it receives preemptive rights as described in subparagraph 4.c., above, and agrees to transfer restrictions on its interest in JV that are the same as those contained in this Agreement



f. If JV is required to register as a "public status company" under Article 156 of the Taiwanese company law to issue shares to the public, or if JV otherwise becomes subject to regulation under the Taiwanese Securities Exchange Law or any other applicable laws relating to share issuance or distribution, shareholder eligibility, the exercise and/or enjoyment of shareholder rights, or other areas which may affect the parties' respective rights with respect to the ownership or management of JV, then each party shall cause such registration, issuance, and/or subjection to be structured, and shall otherwise act and cause JV to act, so as to preserve, to the maximum extent possible, the terms of this Agreement, both in letter and in spirit.



6. Management of JV.

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a. Board of Directors.

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(i) The affairs of JV shall be managed by or through a board ("Board") of five directors, three of whom shall be nominated tri-annually by E- Tek and two of whom shall be nominated tri-annually by Walsin. E-Tek and Walsin each irrevocably agree to vote all of their respective equity interest in JV, and to cause the voting of their respective investor-designees' equity interest in JV, for the election and maintenance in office of the persons so nominated. In the event that, between regular nominations, either E-Tek or Walsin wishes to replace any or all of its nominees on the Board, the other Shareholder shall join in all necessary steps, acts and proceedings, including causing the voting of its, and its investor-designees,' equity interest in JV, to facilitate the removal of such nominee(s) and the election of replacement board member(s), who shall be selected by the Shareholder hereto whose nominee(s) shall have been so removed.



(ii) The chairman of the Board, who shall be nominated by Walsin and shall at all times also serve as a director, shall be appointed for tri-annual terms and shall, if present, preside at meetings of the Board and of the JV shareholders. If the chairman is not present, then a director (as set forth in Exhibit A) shall preside at such meetings. Walsin shall appoint one Supervisor, who shall serve the JV on tri-annual terms. Except as provided in this Agreement or in JV's Articles of Incorporation, neither the Chairman nor the Supervisor shall have any further rights or powers, including the right to bind, or act on behalf of, JV.



(iii) Nothing contained in this Agreement shall be construed to bind the members of the Board as to the method or manner of the exercise of their discretion concerning their management of the affairs of JV. Notwithstanding the foregoing, neither Walsin nor JV shall ever commit an act, or fail to take any action, that would impede or restrict E-Tek's ability to continue to conduct its normal business operations, wherever practiced.



(iv) JV shall indemnify any member of the Board who was or is a party, or is threatened to be made a party, to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he or she is or was a board member, against all expenses, including attorneys' fees, judgments, fines and amounts paid in settlement, actually and reaso ...