Escrow And Stock Pledge Agreement

EXECUTION COPY


ESCROW AND STOCK PLEDGE AGREEMENT


THIS ESCROW AND STOCK PLEDGE AGREEMENT (this "Agreement"), dated as of April 26, 2000, is entered into between MRV Communications, Inc., a Delaware corporation (the "Secured Party") and those certain Selling Shareholders listed on Schedule A hereto represented by Keh-shium Liu (individually, a "Pledgor" and collectively, the "Pledgors"), and the law firm of Baker & McKenzie, Taipei office having David T. Liou as its representative ("Escrow Agent"), with reference to the following:


WHEREAS, the Pledgors have purchased and will collectively beneficially own Five Hundred Fourteen Thousand, Two Hundred and Eighty Six (514,286) shares of the common stock of the Secured Party (the "MRV Shares") pursuant to that certain Stock Purchase Agreement (the "Stock Purchase Agreement"), dated April 26, 2000, by and among Quantum Optech Inc., a corporation organized and existing under the laws of the Republic of China ("QOI"), the Secured Party, and certain shareholders of QOI;


WHEREAS, in connection with such purchase of MRV Shares and pursuant to the Stock Purchase Agreement, the Pledgors made certain representations, warranties and covenants to Secured Party and incurred certain indemnification obligations with respect to Secured Party;


WHEREAS, as a condition for the Secured Party to enter into and to consummate the transactions contemplated by the Stock Purchase Agreement, the Pledgors desire to place the MRV Shares in escrow and pledge, grant, transfer, and assign to the Secured Party a security interest in the Collateral (as hereinafter defined) to secure the Secured Obligations (as hereinafter defined), as provided herein.


NOW, THEREFORE, in consideration of the mutual promises, covenants, representations, and warranties set forth herein and for other good and valuable consideration, the parties hereto agree as follows:


1. Definitions and Construction.


(a) Definitions. All initially capitalized terms used herein and not otherwise defined herein shall have the meaning ascribed thereto in the Stock Purchase Agreement. As used in this Agreement:


"Escrow Agent" shall have the meaning ascribed thereto in Section 2 of this Agreement.


"Agreement" shall mean this Escrow and Stock Pledge Agreement.


"Collateral" shall mean the Pledged Shares and the Proceeds, collectively.


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"Lien" shall mean any lien, mortgage, pledge, assignment (including any assignment of rights to receive payments of money), security interest, charge, or encumbrance of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof, or any agreement to give any security interest).


"Pledged Shares" shall mean all of the shares described in the recitals to this Agreement and any other shares identified as Pledged Shares on Schedule A attached hereto (or any addendum thereto) in an amount totaling 171,429 shares.


"Pledgor" shall have the meaning ascribed thereto in the preamble to this Agreement.


"Proceeds" shall mean all proceeds (including proceeds of proceeds) of the Pledged Shares including all: (a) rights, benefits, distributions, premiums, profits, dividends, interest, instruments, documents of title, accounts, contract rights, inventory, equipment, general intangibles, deposit accounts, chattel paper, and other property, from time to time received, receivable, or otherwise distributed in respect of or in exchange for, or as a replacement of or a substitution for, any of the Pledged Shares or proceeds thereof (including any stock, or other securities or instruments, excluding cash, issued after any recapitalization, readjustment, reclassification, merger or consolidation with respect to the Secured Party and any claims against financial intermediaries under Section 8-313(2) of the California Commercial Code (the "Code") or otherwise); (b) "proceeds," as such term is used in Section 9-306 of the Code; (c) proceeds of any insurance, indemnity, warranty, or guaranty (including guaranties of delivery) payable from time to time with respect to any of the Pledged Shares or proceeds thereof; (d) payments, excluding cash, (in any form whatsoever) made or due and payable to the Pledgors or any individual Pledgor from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Pledged Shares or proceeds thereof; and (e) other amounts from time to time paid or payable, excluding cash, under or in connection with any of the Pledged Shares or proceeds thereof.


"Secured Obligations" shall mean all liabilities, obligations, or undertakings owing by the Pledgors or any individual Pledgor to the Secured Party of any kind or description arising out of or outstanding under, advanced or issued pursuant to, or evidenced by this Agreement or Section 10 of the Stock Purchase Agreement, irrespective of whether for the payment of money, whether direct or indirect, absolute or contingent, due or to become due, voluntary or involuntary, whether now existing or hereafter arising, and including all interest (including interest that accrues after the filing of a case under the Bankruptcy Code) and any and all costs, fees (including attorneys fees), and expenses which the Pledgors are required to pay pursuant to any of the foregoing, by law, or otherwise.


"Secured Party" shall have the meaning ascribed thereto in the preamble to this Agreement, together with its successors or assigns.


"Securities Act" shall have the meaning ascribed thereto in Section 9(c) of this Agreement.


"Stock Purchase Agreement" shall have the meaning ascribed thereto in the recitals to this Agreement.


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(b) Construction.


(i) Unless the context of this Agreement clearly requires otherwise, references to the plural include the singular and to the singular include the plural, the part includes the whole, the term "including" is not limiting, and the term "or" has, except where otherwise indicated, the inclusive meaning represented by the phrase "and/or." The words "hereof," "herein," "hereby," "hereunder," and other similar terms in this Agreement refer to this Agreement as a whole and not exclusively to any particular provision of this Agreement. Article, section, subsection, exhibit, and schedule references are to this Agreement unless otherwise specified. All of the exhibits or schedules attached to this Agreement shall be deemed incorporated herein by reference. Any reference to this Agreement or to the Stock Purchase Agreement includes any and all alterations, amendments, restatements, extensions, modifications, renewals, or supplements thereto or thereof, as applicable.


(ii) Neither this Agreement nor any uncertainty or ambiguity herein shall be construed or resolved against the Secured Party or the Pledgors, whether under any rule of construction or otherwise. On the contrary, this Agreement has been reviewed by the parties and their respective counsel and shall be construed and interpreted according to the ordinary meaning of the words used so as to fairly accomplish the purposes and intentions of the parties hereto.


(iii) In the event of any direct conflict between the express terms and provisions of this Agreement and of the Stock Purchase Agreement, the terms and provisions of the Stock Purchase Agreement shall control.


2. Escrow. At the Closing, MRV shall transfer the Escrowed Shares to the Selling Shareholders and then the Selling Shareholders shall deliver the Escrowed Shares directly to the law firm of Baker and McKenzie, Taipei Office having David T. Liou as the representative (the "Escrow Agent"). The Pledgor and the Secured Party agree that the Escrow Agent shall act according to the sole instruction given by the Secured Party in accordance with the Stock Purchase Agreement and this Agreement. The Escrow Agent agrees to keep the Escrowed Shares in a security vault or safe deposit box, and will act with respect to such Escrowed Shares pursuant to the terms of this Agreement and the Stock Purchase Agreement.


3. Pledge. As security for the prompt payment and performance of the Secured Obligations in full by the Pledgors when due (including amounts that would become due but for the operation of the provisions of the Bankruptcy Code), the Pledgors hereby pledge, grant, transfer, and assign to the Secured Party a security interest in all of the Pledgors' right, title, and interest in and to the Collateral. The Pledgors will deliver to the Escrow Agent a Power of Attorney and a Stock Assignment, as attached in the Schedules C and D hereof, respectively, upon execution of this Agreement.


4. Delivery and Registration of Collateral.


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(a) All certificates or instruments representing or evidencing the Collateral shall be promptly delivered by the Pledgors to the Escrow Agent, as the Secured Party's sole and exclusive agent, who shall hold such certificates or instruments and the shares represented thereby for the sole and exclusive benefit of the Secured Party. Such certificates or instruments shall be in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to the Secured Party.


(b) In the event the that Secured Party becomes entitled to payment pursuant to Section 10 of the Stock Purchase Agreement, the Secured Party shall have the unilateral right to cause the Escrow Agent to transfer to the Secured Party in the name of the Secured Party or any of its nominees any or all of the Collateral. In addition, the Secured Party shall have the right at any time to exchange certificates or instruments representing or evidencing the Collateral for certificates or instruments of smaller or larger denominations.


(c) Any and all Collateral (including dividends, interest, and other distributions, excluding cash) at any time received or held by the Pledgors shall be so received or held in trust for the Secured Party, shall be segregated from other funds and property of the Pledgor and shall be forthwith delivered to the Escrow Agent in the same form as so received or held, with any necessary endorsements.


(d) If at any time and from time to time any Collateral consists of an uncertificated security or a security in book entry form, then the Pledgors shall immediately cause the Secured Party's security interest thereon to be perfected in accordance with applicable law.


(e) The Escrow Agent may take any action, including without limitation the transfer of title and possession of the Collateral to MRV, not specified in this Agreement upon receipt by the Escrow Agent of MRV's instruction to deal with the situations relating to, including without limitation, any disputes among the parties in connection with the Stock Purchase Agreement and this Agreement or claims by any third party directly or indirectly, formally or informally, filed, occurred or made known to MRV or the Escrow Agent.


5. Voting Rights and Dividends.


(a) The Escrow Agent shall have the exclusive right to exercise any and all voting and other consensual rights pertaining to the Collateral or any part thereof based upon the Secured Party's reasonable instructions and in accordance with this Agreement and the Stock Purchase Agreement and shall be entitled to receive and retain in escrow any dividends or distributions, excluding cash, paid with respect to the Collateral.


(b) In the event that the Escrow Agent shall deliver the Collateral to the Secured Party, all rights of the Escrow Agent to exercise the voting and other consensual rights or receive and retain dividends or distributions, excluding cash, that it would otherwise be entitled to exercise or receive and retain, as applicable pursuant to Section 5(a) hereof, shall cease, and all such rights shall thereupon become vested in the Secured Party, who shall thereupon have


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the sole right to exercise such voting or other consensual rights and to receive and retain such dividends and distributions, excluding cash. The Pledgors shall execute and deliver (or cause to be executed and delivered) to the Secured Party all such proxies and other instruments as the Secured Party may reasonably request for the purpose of enabling the Secured Party to exercise the voting and other rights which it is entitled to exercise and to receive the dividends and distributions that it is entitled to receive and retain pursuant to the preceding sentence.


6. Representations and Warranties. The Pledgors represent, warrant, and covenant as follows:


(a) The Pledgors have taken all steps it deems necessary or appropriate to be informed on a continuing basis of changes or potential changes affecting the Collateral (including rights of conversion and exchange, rights to subscribe, payment of dividends, reorganizations or recapitalization, tender offers and voting rights), and the Pledgors agree that the Secured Party, in its capacity as the Secured Party only, shall have no responsibility or liability for informing the Pledgors of any such changes or potential changes or for ...