SHARE PURCHASE AGREEMENT
DATED AS OF NOVEMBER 29, 2001
AMONG
DECISION SYSTEMS ISRAEL LTD.
DATA SYSTEMS & SOFTWARE INC.
ENDAN IT SOLUTIONS LTD.
KARDAN COMMUNICATIONS LTD.
▇▇▇▇▇▇▇▇ INVESTMENTS LTD.
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ (NOY)
AND
ADV. ▇▇▇▇▇ ▇▇▇▇▇▇▇, AS TRUSTEE FOR ▇▇▇▇ ▇▇▇▇▇
--------------------------------------------------------------------------------
SHARE PURCHASE AGREEMENT
This Share Purchase Agreement (this "Agreement") is made and entered into
this 29th day of November, 2001, by and among Data Systems & Software Inc., a
Delaware corporation ("DSSI"), Decision Systems Israel Ltd., a company organized
under the laws of Israel and a wholly owned subsidiary of DSSI ("DSI"), Endan IT
Solutions Ltd., a company under the laws of Israel ("Endan"), Kardan
Communications Ltd., a company organized under the laws of Israel ("Kardan"),
▇▇▇▇▇▇▇▇ Investments Ltd., a company organized under the laws of Israel, ID No.
▇▇▇▇▇▇▇▇▇ ("▇▇▇▇▇▇▇▇ Investments"), ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ("Noy"), and Adv. ▇▇▇▇▇
▇▇▇▇▇▇▇ as trustee for the benefit of ▇▇▇▇ ▇▇▇▇▇ ("▇▇▇▇▇") (Kardan, ▇▇▇▇▇▇▇▇
Investments and Givon, are each, individually, a "Shareholder" and collectively
the "Shareholders").
WHEREAS, each of the Shareholders owns the number of the issued ordinary
shares of Endan, nominal value NIS 1.00 per share (collectively, the "Shares"),
set opposite its name in Schedule 3.2 hereto, which Shares in the aggregate
represent all of the issued and outstanding shares of Endan;
WHEREAS, the Shareholders desire to sell 594 Shares to DSI in consideration
for (i) $500,000 in cash (the "Cash Consideration"), and (ii) such number of
shares of Common Stock of DSSI, par value $0.01 each, that is equal to $2.25
million divided by the Market Price (as defined below) (the "DSSI Shares");
WHEREAS, the Shareholders desire to sell the remaining 437 Shares to DSI in
consideration for the issuance by DSI to the Shareholders of 3,668,912 Ordinary
Shares (the "DSI Shares"), such that DSI shall after such sale own 100% of the
issued and outstanding Shares;
WHEREAS, to assist DSI in its purchase of the Shares, DSSI has agreed to
(i) repay certain of its existing indebtedness to DSI, and (ii) extend a
shareholders loan to DSI in the amount of $2.75 million less the amount of such
existing indebtedness, through the transfer or issuance to DSI of the DSSI
Shares and the Cash Consideration; and
WHEREAS, DSSI desires to extend an additional shareholder loan to DSI in
the amount of $1 million for the purpose of providing Endan with a loan at
Closing in the amount of $1 million which Endan will use to repay certain of its
indebtedness to Kardan.
NOW, THEREFORE, in consideration of the foregoing recitals and
representations, warranties and covenants herein set forth, the parties hereto
agree as follows:
ARTICLE I
Definitions
1.1. Defined Terms. As used in this Agreement, the terms listed in this
Section 1.1 shall have the following meanings:
"2001 DSI Stock Option Plan" Shall have the meaning ascribed to such
term in Section 2.3 hereof;
"Act" Shall mean the United States Securities
Act of 1933, as amended;
"Additional Amount" Shall have the meaning ascribed to such
term in Section 10.5 hereof;
"Additional Shares" Shall have the meaning ascribed to such
term in Section 10.6 hereof;
"Affiliate" Shall mean, with respect to any
specified person: (i) any other person
directly or indirectly controlling,
controlled by or under common control
with such specified person; (ii) any
other person that owns, directly or
indirectly, 50% or more of such
specified person's capital stock, or
(iii) any other person 50% or more of
the voting stock of which is
beneficially owned or held directly or
indirectly by such specified person. For
the purposes of this definition,
"control" when used with respect to any
specified person means the power to
direct the management and policies of
such person, directly or indirectly,
whether through ownership of voting
securities, by contract or otherwise;
and the terms "controlling" and
"controlled" have meanings correlative
to the foregoing;
"Agreement" Shall have the meaning ascribed to such
term in the Recitals ;
"Annual Budget" Shall have the meaning ascribed to such
term in Section 10.2.3 hereof;
"Bank" Shall have the meaning ascribed to such
term in Section 10.14 hereof;
"Bring Along Sale" Shall have the meaning ascribed to such
term in Section 10.8 hereof;
"Business Day" Sunday to Thursday, inclusive, with the
exception of holidays and official days
of rest in the State of Israel;
"Buyer" Shall have the respective meanings
ascribed to such term in Sections 10.6
and 10.8 hereof, as applicable;
"Cash Consideration" Shall have the meaning ascribed to such
term in the Recitals;
"Closing Date" Shall have the meaning ascribed to such
term in Section 3.5 hereof;
"Closing" Shall have the meaning ascribed to such
term in Section 3.5 hereof;
"Common Stock" Shall mean the Common Stock of DSSI,
with par value of $0.01 per share;
"Constitutional Documents" Shall mean, with respect to an Israeli
company, such company's Memorandum of
Association (if any) and Articles of
Association and with respect to a
Delaware corporation, such corporation's
Certificate of Incorporation and
By-Laws, in each case, including all the
amendments thereto;
2
"Copyrights" Shall have the meaning ascribed to such
term in Section 5.11.1 hereof;
"Co-Sale Shares" Shall have the meaning ascribed to such
term in Section 10.7.1 hereof;
"Co-Seller" Shall have the meaning ascribed to such
term in Section 10.7 hereof;
"Current Loan" Shall have the meaning ascribed to such
term in Section 10.14 hereof;
"Dividends Committee" Shall have the meaning ascribed to such
term in Section 10.4 hereof;
"Dollar(s)" or "$" Shall mean United States Dollar(s);
"DSI" Shall mean Decision Systems Israel Ltd.;
"DSI Amended Articles" Shall have the meaning ascribed to such
term in Section 2.1 hereof;
"DSI Balance Sheet" Shall have the meaning ascribed to such
term in Section 6.4.1 hereof;
"DSI Balance Sheet Date" Shall have the meaning ascribed to such
term in Section 6.4.1 hereof;
"DSI Disclosure Schedule" Shall mean Schedule 6 attached hereto;
"DSI-Endan Shareholders Shall have the meaning ascribed to such
Loan Agreement" term in Section 3.6 hereof;
"DSI's Financial Statements" Shall have the meaning ascribed to such
term in Section 6.4.1 hereof;
"DSI Permits" Shall have the meaning ascribed to such
term in Section 6.10 hereof;
"DSI Securities" Shall have the meaning ascribed to such
term in Section 6.2 hereof;
"DSI Shares" Shall have the meaning ascribed to such
term in the Recitals;
"DSI Subsidiaries" Shall mean DSI subsidiaries as listed in
the DSI Disclosure Schedule;
"DSSI" Shall mean Data Systems & Software Inc.
"DSSI-DSI Shareholders Shall have the meaning ascribed to such
Loan Agreement" term in Section 3.3 hereof;
"DSI Maximum Damages" Shall have the meaning ascribed to such
term in Section 12.3 hereof;
"DSSI Reserved Shares" Shall have the meaning ascribed to such
term in Section 7.2.1 hereof;
"DSSI SEC Reports" Shall have the meaning ascribed to such
term in Section 7.4 hereof;
"DSSI Securities" Shall have the meaning ascribed to such
term in Section 7.2.1 hereof;
"DSSI Shares" Shall have the meaning ascribed to such
term in the Recitals;
"Employment Agreement" Shall have the meaning ascribed to such
term in Section 8.3.8 hereof;
"Endan" Shall mean Endan IT Solutions Ltd.;
3
"Endan Disclosure Schedule" Shall mean Schedule 5 attached hereto;
"Endan Financial Statements" Shall have the meaning ascribed to such
term in Section 5.3.1 hereof;
"Endan Permits" Shall have the meaning ascribed to such
term in Section 5.9 hereof;
"Endan Securities" Shall have the meaning ascribed to such
term in Section 5.2.1 hereof;
"Endan Warrantors" Shall have the meaning ascribed to such
term in Article 5 hereof;
"Final Date" Shall mean December 31, 2001;
"Givon" Shall have the meaning ascribed to such
term in the preamble hereto;
"Governmental Entity" Shall mean any court or tribunal, or
administrative, governmental or
regulatory body, agency or authority
either in Israel or abroad with
jurisdiction or regulatory authority
over the relevant party hereto;
"Inbound License Agreements" Shall have the meaning ascribed to such
term in Section 5.14.4 hereof;
"Indebtedness" Shall have the meaning ascribed to such
term in Section 5.7.1 hereof;
"Insurance Policies" Shall have the meaning ascribed to such
term in Section 5.15 hereof;
"Intellectual Property" or "IP" Shall have the meaning ascribed to such
term in Section 5.14.1 hereof;
"IPO" Shall have the meaning ascribed to such
term in Section 10.3 hereof;
"Kardan" Shall mean Kardan Communications Ltd.
"Kardan Director" Shall have the meaning ascribed to such
term in Section 10.3 hereof;
"Liens" Shall mean all mortgages, liens,
pledges, charges, security interests,
third party rights or other claims or
encumbrances of any kind whatsoever;
"Market Price" Shall mean the average closing price of
the Common Stock on the NASDAQ National
Market during the 60 trading days
preceding the day immediately preceding
the Closing Date;
"Material Adverse Effect" Shall have the meaning ascribed to such
term in Section 5.1.2 below;
"Minimum Damages" Shall have the meaning ascribed to such
term in Section 12.2 hereof;
"▇▇▇▇▇▇▇▇ Investments" Shall mean ▇▇▇▇▇▇▇▇ Investments Ltd.;
"New Securities" Shall have the meaning ascribed to such
term in Section 10.5 hereof;
"NIS" Shall mean New Israeli Shekels;
"Noy" Shall mean ▇▇▇▇▇ ▇▇▇▇▇▇▇▇;
"Offer" Shall have the meaning ascribed to such
term in Section 10.6 hereof;
"Offered Shares" Shall have the meaning ascribed to such
term in Section 10.6 hereof;
"Offeree" Shall have the meaning ascribed to such
term in Section 10.5 hereof;
"Option" Shall have the meaning ascribed to such
term in Section 2.3 hereof;
4
"Ordinary Shares" Shall mean the ordinary shares of DSI,
NIS 1.00 par value each;
"Outbound License Agreements" Shall have the meaning ascribed to such
term in Section 5.14.4 hereof;
"Owned Software" Shall have the meaning ascribed to such
term in Section 5.14.10 hereof;
"Party", "Parties" Shall mean a party or the parties
hereto;
"Patents" Shall have the meaning ascribed to such
term in Section 5.14.1 hereof;
"Permitted Transferee" Shall have the meaning ascribed to such
term in Section 10.6 hereof;
"Person" Shall mean an individual, corporation,
partnership, joint venture, trust or
unincorporated organization;
"Pre-Ruling" Shall have the meaning ascribed to such
term in Section 9.2.6 hereof;
"Preferred Shares" Shall have the meaning ascribed to such
term in Section 2.1 hereof.
"Proportional Share" Shall have the meaning ascribed to such
term in Section 10.6 hereto;
"Pro Rata Share" Shall have the meaning ascribed to such
term in Section 10.5 hereto;
"Receivables" Shall have the meaning ascribed to such
term in Section 5.7.2 hereof;
"Registration Rights Agreement" Shall mean Exhibit 3.5 attached hereto;
"Rights Notice" Shall have the meaning ascribed to such
term in Section 10.5 hereof;
"Scheduled Contract" Shall have the respective meanings
ascribed to such term in Sections 5.12.3
and 6.13.3 hereof, as applicable;
"SEC" Shall mean the United States Securities
and Exchange Commission;
"Seller" Shall have the meaning ascribed to such
term in Section 10.6 hereof;
"Shareholder" or "Shareholders" Shall mean each of Kardan, ▇▇▇▇▇▇▇▇
Investments and Givon, individually or
collectively;
"Shareholders Maximum Damages" Shall have the meaning ascribed to such
term in Section 12.2 hereof;
"Shares" Shall have the meaning ascribed to such
term in the Recitals hereto;
"Software Products" Shall have the meaning ascribed to such
term in Section 5.14.11 hereof;
"Subsidiaries" Shall mean Endan's subsidiaries as
listed in the Endan Disclosure Schedule;
"Trade Secrets" Shall have the meaning ascribed to such
term in Section 5.14.1 hereof;
"Trademarks" Shall have the meaning ascribed to such
term in Section 5.14.1 hereof;
"Transaction Documents" Shall mean each of this Agreement, the
Registration Rights Agreement, the
DSSI-DSI Shareholder Loan Agreement, the
DSI-Endan Shareholder Loan Agreement,
and all other documents entered into or
delivered in connection herewith or
therewith, contemplated hereby or
thereby, or ancillary hereto or thereto;
and
"Transactions" Shall have the meaning ascribed to such
term in Section 5.1.1 hereof;
"Transfer" Shall have the meaning ascribed to such
term in Section 4.8 hereof;
5
"U.S. Exchange Act" Shall mean the U.S. Securities Exchange
Act of 1934 as amended.
ARTICLE II
Transactions To Be Effected Prior to the Closing Date
Subject to the terms and conditions set forth in this Agreement, the parties
agree that prior to the Closing Date (as defined below), the following
transactions shall have been consummated:
2.1. Amendment to the Articles of Association. The Articles of Association of
DSI shall be amended in the form of Exhibit 2.1 attached hereto (the
"DSI Amended Articles"), to provide for, among other things, the
authorization of a new class of preferred shares, each having a nominal
value of NIS 1.00 (the "Preferred Shares"), and having the rights,
restrictions, privileges and preferences as set forth in the DSI Amended
Articles. 2.2. Authorization and Issuance of Preferred Shares. DSI shall
authorize the issuance of, and then issue, 100 Preferred Shares to DSSI.
2.3. DSI Stock Option Plan. DSI shall adopt a stock option plan (the "2001
DSI Stock Option Plan"), reserving for issuance thereunder an amount
equal to 5% of the issued Ordinary Shares of the Company as of
immediately following the Closing, and shall, promptly after the Closing
(as defined below), issue a stock option thereunder (the "Option") to
▇▇▇▇▇ ▇▇▇▇▇▇, pursuant to a stock option agreement substantially in the
form of Exhibit 2.3B, for such number of Ordinary Shares which shall
represent 0.67% of the outstanding Ordinary Shares immediately after the
consummation of the transactions contemplated hereby and assuming
issuance of the Ordinary Shares reserved under the 2001 DSI Stock Option
Plan, at an exercise price reflecting a DSI valuation of $6.7 million,
in exchange for cancellation of his existing stock option in Endan.
ARTICLE III
Transactions to be Effected on the Closing Date
3.1. Closing; Closing Date. The closing of the transactions contemplated
hereby (the "Closing") shall take place at the offices of Eitan, Pearl,
▇▇▇▇▇▇ & ▇▇▇▇▇-▇▇▇▇▇, ▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇, at the earliest time
practicable after fulfillment or waiver of all the conditions to Closing
hereunder, or at such other time as shall be determined by the parties
hereto but no later than the Final Date (the "Closing Date"). All of the
transactions to occur at the Closing shall occur simultaneously and no
transaction shall be deemed to have been completed or any document
delivered until all such transactions have been completed and all
required documents delivered.
3.2. Purchase of Shares from Shareholders. On the terms and subject to the
conditions set forth herein, at the Closing, each Shareholder shall
sell, transfer, convey, assign and deliver to DSI, and DSI shall
purchase, acquire and accept from each Shareholder, all the Shares owned
by such Shareholder in accordance with the table set forth as Schedule
3.2 hereto) free and clear of any covenants, conditions, restrictions,
voting
6
trust arrangements or Liens, options or adverse claims or rights
whatsoever. At the Closing, Endan shall deliver to DSI certificates
representing the Shares owned by each Shareholder accompanied by duly
signed share transfer deeds dated as of the Closing Date, together with
evidence of recordation of DSI as the owner of the Shares in the
membership registry of Endan and a duly completed notice of such
transfer to the Israeli Registrar of Companies in form acceptable for
immediate filing therewith.
3.3. DSSI-DSI Shareholders Loan. On or prior to the Closing Date, DSSI and
DSI shall execute and deliver a shareholder loan and stock purchase
agreement, in the form of Exhibit 3.3 hereto (the "DSSI-DSI Shareholder
Loan Agreement"), whereby DSSI shall (i) repay certain of its existing
indebtedness to DSI in the amount of $2.39 million by agreeing to issue
the DSSI Shares to the Shareholders on behalf of DSI and paying $140,000
in cash to DSI and (ii) extend a shareholder loan of $1,360,000 to DSI.
At the Closing, DSSI shall deliver, on behalf of DSI, the DSSI Shares to
the Shareholders and transfer to DSI $1,500,000 in immediately available
funds, as contemplated in the DSSI-DSI Shareholder Loan Agreement.
3.4. Consideration for Shares. In consideration for the sale of the Shares,
DSI shall at the Closing pay or deliver to each of the Shareholders, (i)
a portion of the Cash Consideration, in the amount set forth opposite
such Shareholder's name on Schedule 3.2, which shall be paid by wire
transfer in accordance with written instructions provided by such
Shareholder, banker's check, or such other form of payment as is
mutually agreed by DSI and such Shareholder; (ii) a certificate
registered in the name of such Shareholder representing such percentage
of the DSSI Shares (rounded to the nearest whole share) as set forth
opposite such Shareholder's name on Schedule 3.2; and (iii) a validly
executed share certificate registered in the name of such Shareholder
representing the number of DSI Shares set forth opposite such
Shareholder's name on Schedule 3.2, which, when aggregated with the DSI
Shares issued to the other Shareholders shall constitute 32% of the
issued and outstanding Ordinary Shares of DSI on a fully diluted basis
but disregarding any Ordinary Shares issuable upon the conversion of the
Preferred Shares or upon exercise of the Option, in accordance with the
capitalization table of DSI attached hereto as Schedule 3.4, together
with evidence of the recordation of the DSI Shares in the membership
registry of DSI and a duly completed notice of such issuance to the
Israeli Registrar of Companies in form acceptable for immediate filing
therewith.
3.5. Registration Rights. At the Closing, DSSI and the Shareholders shall
execute and deliver a registration rights agreement, substantially in
the form of Exhibit 3.5 hereto (the "Registration Rights Agreement"),
whereby (i) DSSI shall agree to use its best efforts to a file a
registration statement covering the DSSI Shares within 30 days from the
Closing Date and to effect a registration within 120 days after the
Closing Date, and (ii) the Shareholders shall agree to be bound by
certain lock-up restrictions, all as set forth in the Registration
Rights Agreement.
3.6. DSI-Endan Shareholders Loan. At the Closing, DSI and Endan shall execute
and deliver a shareholders loan agreement, substantially in the form of
Exhibit 3.6 hereto (the "DSI-Endan Shareholder Loan Agreement"),
pursuant to which DSI shall extend a loan of $1 million to Endan as
provided for therein, and Endan shall use the proceeds of such
shareholders loan to repay certain indebtedness to Kardan in the amount
of $1 million.
7
3.7. Appointment of Directors. Kardan and ▇▇▇▇▇▇▇▇ Investments will each
appoint one director to the Board of Directors of DSI and DSSI shall
appoint three directors to the Board of Directors of DSI, in each case
in accordance with Section 10.1 hereof.
ARTICLE IV
Representations and Warranties of the Shareholders
Regarding the Shares
Each Shareholder hereby individually represents and warrants, severally
with respect to itself, to DSI and DSSI, that:
4.1. Such Shareholder has good and marketable title to the Shares which are
to be transferred to DSI by such Shareholder pursuant hereto, free and
clear of any and all covenants, conditions, restrictions, voting trust
arrangements or Liens, options or adverse claims or rights whatsoever;
4.2. Such Shareholder has the full right, power and authority to enter into
this Agreement and to transfer, convey and sell to DSI at the Closing
the Shares to be sold to DSI by such Shareholder hereunder and upon
consummation of the purchase contemplated hereby, DSI will acquire from
such Shareholder good and marketable title to the Shares to be sold to
it by such Shareholder, free and clear of all covenants, conditions,
restrictions, voting trust arrangements or Liens, options or adverse
claims or rights whatsoever;
4.3. Such Shareholder is not a party to, subject to or bound by any agreement
or judgment, order, writ, prohibition, injunction or decree of any court
or other governmental body which would prevent the execution or delivery
of this Agreement or the other Transaction Document to which such
Shareholder is a party by such Shareholder, or the transfer, conveyance
and sale of the Shares to be sold by such Shareholder to DSI pursuant to
the terms hereof;
4.4. This Agreement and the other Transaction Documents, when executed and
delivered by such Shareholder shall constitute the valid and legally
binding obligations of such Shareholder, legally enforceable against
such Shareholder in accordance with their respective terms, subject to
any applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws now or hereafter in effect relating to creditors' rights
generally or to general principles of equity. No filing with or notice
to and no permit, authorization, consent or approval of any Governmental
Entity is necessary for the execution and delivery by such Shareholder
of this Agreement or any of the other Transaction Documents to which
such Shareholder is a party or the consummation by such Shareholder of
the Transactions, except for filings by or on behalf of Givon in
accordance with Section 102 of the Israeli Income Tax Ordinance (New
Version).
4.5. No broker or finder has acted for such Shareholder in connection with
this Agreement or the transactions contemplated hereby, and no broker or
finder is entitled to any brokerage or finder's fees or other
commissions in respect of such transactions based
8
in any way on agreements, arrangements or understandings made by or on
behalf of such Shareholder.
4.6. Each Shareholder hereby waives any rights of first refusal, co-sale or
otherwise, affecting the Shares to be sold to DSI by such Shareholder,
whether set out in the Articles of Association of Endan or otherwise,
and no other parties hold such rights.
4.7. There are no securities outstanding which are convertible into or
exercisable or exchangeable for the Shares, and there are no outstanding
options, rights, contracts, understandings, warrants, subscriptions,
conversion rights or other agreements or commitments pursuant to which
such Shareholder may be required to transfer, sell or otherwise dispose
of any of the Shares.
4.8. Such Shareholder is acquiring the DSSI Shares for investment for such
Shareholder's own account and not with a view to, or for resale in
connection with, the distribution or other disposition thereof. Such
Shareholder agrees that he will not, directly or indirectly, offer,
transfer, sell, assign, pledge, hypothecate or otherwise dispose of
(each a "Transfer") any of the DSSI Shares unless such Transfer complies
with the provisions of the Registration Rights Agreement.
4.9. Such Shareholder is either (a) not a "U.S. Person" as that term is
defined in Rule 902 (k) of Regulation S under the Act or (b) an
"Accredited Investor" (as that term is defined in Rule 501 of Regulation
D under the Act) and by reason of such Shareholder's business and
financial experience, such Shareholder has such knowledge,
sophistication and experience in business and financial matters as to be
capable of evaluating the merits and risks of the prospective investment
in the DSSI Shares and making an informed investment decision with
respect thereto. Such Shareholder is able to bear the economic risk of
his investment in the DSSI Shares and is able to afford a complete loss
of such investment; and (without derogating from any representations
made by DSSI hereunder) such Shareholder has made an independent
investigation of DSSI to the extent he/it saw fit and relied upon such
Shareholder's own analyses as he/it saw fit in determining to purchase
the DSSI Shares.
4.10. Such Shareholder acknowledges that the DSSI Shares have not been
registered under the Act or the securities laws of any state or other
jurisdiction and cannot be Transferred unless the DSSI Shares are
subsequently registered under the Act and any applicable state laws or
an exemption from such registration is available and, in each case, such
Shareholder has complied with the Registration Rights Agreement.
4.11. Neither this Agreement nor any certificates made or delivered by such
Shareholder in connection herewith contains any untrue statement of a
material fact with respect to such Shareholder or omits to state a
material fact necessary to make the statements herein or therein with
respect to such Shareholder not misleading, in view of the circumstances
in which they were made. To the best knowledge of such Shareholder,
there is no material fact or information relating to such Shareholder,
material to the Transactions, that has not been disclosed to DSI or DSSI
in writing by such Shareholder.
9
ARTICLE V
Representations and Warranties
Of the Endan Warrantors Regarding Endan
Each of Kardan, ▇▇▇▇▇▇▇▇ Investments and Noy (the "Endan Warrantors")
hereby represent and warrant severally to DSI and DSSI, subject to the
exceptions set forth in the Endan Disclosure Schedule attached hereto as
Schedule 5 (the "Endan Disclosure Schedule"), which exceptions shall apply to
any and all representations and warranties set forth herein (provided that no
such exceptions shall apply to Sections 5.1.1 (first two sentences), 5.2, 5.4
and 5.19), that:
5.1. Organization and Qualification; Subsidiaries; Investments.
5.1.1 Each of Endan and the Subsidiaries is duly organized and validly
existing under the laws of Israel and have all requisite power
and authority to own, lease and operate their properties and to
carry on their businesses as now being conducted. Endan has all
requisite power and authority to execute and deliver this
Agreement and the other Transaction Documents and to consummate
the transactions contemplated hereby and thereby (hereinafter,
the "Transactions"). Endan has heretofore delivered to DSI
accurate and complete copies of its Constitutional Documents and
the Constitutional Documents of the Subsidiaries, as currently
in effect. Other than as set forth on the Endan Disclosure
Schedule, Endan has no subsidiaries and has no equity
investments, ownership or partnership interests in any other
Person.
5.1.2 Each of Endan and the Subsidiaries is duly qualified or licensed
and in good standing to do business in each jurisdiction in
which the property owned, leased or operated by them or the
nature of the business conducted by them makes such
qualification or licensing necessary, except in such
jurisdictions where the failure to be so duly qualified or
licensed and in good standing would not, individually or in the
aggregate, have a Material Adverse Effect on Endan and the
Subsidiaries, individually and taken as a whole. The term
"Material Adverse Effect", with respect to any Person, means any
circumstance, change in, or effect on such Person (i) that is,
or is reasonably likely in the future to be, materially adverse
to the operations, assets or liabilities (including contingent
liabilities), earnings or results of operations, the business
(financial or otherwise) or prospects of such Person or (ii)
that would reasonably be expected to prevent or materially delay
or impair the ability of such Person (or, in the case of Endan,
of the Shareholders and Noy) to consummate the transactions
contemplated hereby; provided, however, that such term shall not
include any circumstance or change related to general economic
conditions; and provided, further, that in the case of DSSI,
such term shall also not include any circumstance or change
related to (A) securities markets generally or (B) fluctuations
in the price of DSSI Common Stock unrelated to any event that
would otherwise constitute a Material Adverse Effect on DSSI.
10
5.2. Capitalization of Endan and its Subsidiaries.
5.2.1 The authorized capitalization of Endan and each of the
Subsidiaries, the number of shares of each class of Endan and
each of the Subsidiaries which are issued (and which, with
respect to shares of Endan, collectively constitute the Shares)
and the holders of such shares are set forth in the Endan
Disclosure Schedule. All of the Shares have been validly issued
and are fully paid, non-assessable and free of preemptive
rights. As of the date hereof, other than the shares subject to
the option of ▇▇▇▇▇ ▇▇▇▇▇▇, no shares of Endan are reserved for
issuance and are issuable upon or otherwise deliverable in
connection with the exercise of outstanding share options issued
pursuant to options agreements to which Endan is a party. As of
the date hereof, there are no outstanding Endan share options
other than the option of ▇▇▇▇▇ ▇▇▇▇▇▇. The outstanding Endan
share options are owned of record by those persons, in the
amounts, at the exercise price and on the vesting schedule, all
as set forth in the Endan Disclosure Schedule. Except as set
forth above, there are outstanding (i) no shares or other voting
securities of Endan, (ii) no securities of Endan convertible
into or exchangeable or exercisable for shares of Endan, (iii)
no options or other rights to acquire shares from Endan, and no
obligations of Endan to issue, any shares, capital stock or
securities convertible into or exchangeable or exercisable for
shares of Endan and (iv) no equity equivalent interests in the
ownership or earnings of Endan or other similar rights
(collectively "Endan Securities"). As of the date hereof, there
are no outstanding rights or obligations of Endan to repurchase,
redeem or otherwise acquire any Endan Securities and there are
no shareholder agreements, voting trusts or other agreements or
understandings to which Endan or any Shareholder is a party or
by which it is bound relating to the voting or registration of
any shares of Endan.
5.2.2 All of the outstanding shares of the Subsidiaries are owned by
Endan, directly, free and clear of any Lien or any other
limitation or restriction (including any restriction on the
right to vote or sell the same except as may be provided as a
matter of law).
5.2.3 No share certificates representing the Shares have ever been
issued and the ownership of the Shares is evidenced solely by
recordation in the membership registry of Endan.
5.3. Financial Statements.
5.3.1 Endan has delivered to DSI copies of Endan's financial
statements (hereinafter collectively called the "Endan Financial
Statements"), attached hereto as Section 5.3 of the Endan
Disclosure Schedule, which have been prepared in all material
respects in accordance with Israeli generally accepted
accounting principles, consistently applied and maintained
throughout the periods indicated and fairly present the
consolidated financial condition of Endan as of the dates
thereof and the results of its operations for the periods
covered thereby (subject to normal year-end adjustments) as
follows: (i) unaudited consolidated statement of operations and
balance sheet for the nine month period ending September 30,
2001, and (ii) audited consolidated balance
11
sheets of Endan as at December 31, 2000 and the related
consolidated statements of operations for the year ended
December 31, 2000, accompanied by the audit opinions thereon of
Luboshitz, Kasierer & Co., Endan's independent public
accountants. The consolidated balance sheets of Endan at
December 31, 2000 and September 30, 2001 are referred to herein,
collectively, as the "Endan Balance Sheet" and September 30,
2001 is referred to herein as the "Endan Balance Sheet Date".
Except as set forth in the Endan Financial Statements or in the
Endan Disclosure Schedule, the statements of operations included
therein do not contain any items of special or nonrecurring
revenue or any other income not earned in the ordinary course of
business except as expressly specified therein, and the interim
financial statements include all adjustments, which consist only
of normal recurring accruals, necessary for a fair presentation.
All inventories of raw materials, work-in-process and finished
goods set forth and reflected in Endan Balance Sheet, as well as
any inventory Endan has directed any of its manufacturing
subcontractors to procure and manufacture on Endan's behalf,
were acquired in the ordinary course of business consistent with
past practice. All such inventories consist of a quality and
quantity usable and saleable (free of any material defect or
deficiency) in the ordinary course of business, consistent with
past practice, except for slow-moving, damaged or obsolete items
and materials of below standard quality, all of which have been
written down to net realizable value or in respect of which
adequate reserves have been provided, in each case as fully
reflected in Endan Balance Sheet.
5.4. Authorization; Consents and Approvals; No Violations. All corporate
action on the part of Endan necessary for authorization, execution,
delivery, and performance of all of Endan's obligations under this
Agreement and the other Transaction Documents to which Endan is a party
shall have been taken, and Endan has delivered to DSI and DSSI duly
adopted resolutions of its Board of Directors and of the Shareholders
authorizing the same. This Agreement and the other Transaction
Documents, when executed and delivered by or on behalf of Endan, shall
constitute the valid and legally binding obligations of Endan, legally
enforceable against Endan in accordance with their respective terms. No
filing with or notice to and no permit, authorization, consent or
approval of any Governmental Entity is necessary for the execution and
delivery by Endan of this Agreement or any of the other Transaction
Documents to which Endan is a party or the consummation by the
Shareholders, by Noy or by Endan of the Transactions. Neither the
execution, delivery and performance of this Agreement or any of the
other Transaction Documents to which any Shareholder, Noy or Endan is a
party nor the consummation by the Shareholders, by Noy or by Endan of
the Transactions will (i) conflict with or result in any breach of any
provision of the Constitutional Documents of Endan or of the
Subsidiaries, (ii) result in a violation or breach of or constitute
(with or without due notice or lapse of time or both) a default (or give
rise to any right of termination, amendment, cancellation or
acceleration or Lien) under any note, bond, mortgage, indenture, lease,
license, contract, agreement or other instrument or obligation to which
Endan, the Subsidiaries or any Shareholder is a party or by which any of
them or any of their respective properties or assets may be bound or
(iii) violate any order, writ, injunction, decree, law, statute, rule or
12
regulation applicable to Endan, the Subsidiaries or any of the
Shareholders or any of their respective properties or assets.
5.5. No Default. Except as set forth in the Endan Disclosure Schedule,
neither Endan nor the Subsidiaries is in breach, default or violation
(and no event has occurred that with notice or the lapse of time or both
would constitute a breach, default or violation) of any term, condition
or provision of (i) their Constitutional Documents, (ii) any note, bond,
mortgage, indenture, or license or other material, contract, agreement
or instrument or obligation to which they are a party or by which they
or any of their properties or assets may be bound or (iii) any order,
writ, injunction, decree, law, statute, rule or regulation applicable to
Endan or the Subsidiaries or any of their properties or assets.
5.6. No Undisclosed Liabilities; Absence of Changes. Except as and to the
extent set forth in the Endan Disclosure Schedule or as and to the
extent expressly set forth or provided for or reserved against in Endan
Balance Sheet, neither Endan nor the Subsidiaries have any liabilities
or obligations of any nature, whether or not accrued, contingent or
otherwise, that would be required by Israeli generally accepted
accounting principles to be reflected on a balance sheet of Endan
(including the notes thereto), other than liabilities and obligations
which, individually or in the aggregate, will not have a Material
Adverse Effect on Endan. Except as and to the extent set forth in the
Endan Disclosure Schedule, since the Endan Balance Sheet Date, there
have been no events, changes or effects with respect to Endan or the
Subsidiaries that have had or would reasonably be expected to have a
Material Adverse Effect on Endan. Without limiting the generality of the
foregoing, except as and to the extent as set forth in the Endan
Disclosure Schedule, since the Endan Balance Sheet Date, each of Endan
and the Subsidiaries have conducted their businesses in all material
respects only in, and have not engaged in any material transaction other
than according to, the ordinary and usual course of such businesses
consistent with past practices, and there has not been any (i) material
adverse change in the financial condition, properties, business, results
of operations or prospects of Endan or the Subsidiaries; (ii) damage,
destruction or other casualty loss with respect to any material asset or
property owned, leased or otherwise used by Endan or the Subsidiaries
and which is not covered by insurance; (iii) declaration, setting aside
or payment of any dividend or other distribution in respect of any
shares of Endan or any repurchase, redemption or other acquisition by
Endan of any outstanding shares or other securities of, or other
ownership interests in Endan; (iv) amendment of any material term of any
outstanding security of Endan; (v) incurrence, assumption or guarantee
by Endan or the Subsidiaries of any indebtedness for borrowed money
other than in the ordinary course of business and in amounts and on
terms consistent with past practices (but in all events not exceeding
$15,000 or the equivalent thereof in the aggregate); (vi) creation or
assumption by any of Endan or the Subsidiaries of any Lien on any
material asset other than in the ordinary course of business consistent
with past practices (not exceeding $15,000 or the equivalent thereof in
the aggregate with respect to the Indebtedness underlying such Liens);
(vii) loan, advance or capital contributions made by Endan or the
Subsidiaries to, or investment in, any Person other than (x) loans or
advances to employees in connection with business-related travel, (y)
loans made to employees consistent with past practices that are not in
the aggregate in excess of $15,000 or the equivalent thereof, and (z)
loans, advances or capital contributions to or investments by Endan in
the Subsidiaries, and in each case made in the ordinary course of
business consistent with past practices;
13
(viii) transaction or commitment made, or any contract or agreement
entered into, by Endan or the Subsidiaries relating to their assets or
business (including the acquisition or disposition of any assets) or any
relinquishment by Endan or the Subsidiaries of any contract, agreement
or other right, in any case, material to Endan or the Subsidiaries,
taken as a whole, other than transactions and commitments in the
ordinary course of business consistent with past practices and those
contemplated by this Agreement; or (ix) change by Endan in its
accounting principles, practices or methods. Since the Endan Balance
Sheet Date, except for increases in the ordinary course of business
consistent with past practices, there has not been any increase in the
compensation payable or that could become payable by Endan or the
Subsidiaries to (a) officers of Endan or the Subsidiaries or (b) any
employee of Endan or the Subsidiaries whose annual cash compensation is
the equivalent of $70,000 or more.
5.7. Indebtedness; Bank Accounts; Receivables; Customers.
5.7.1 The Endan Disclosure Schedule provides accurate and complete
information (including amount and name of payee) with respect to
all Indebtedness of Endan or the Subsidiaries. For purposes
hereof, "Indebtedness" of any person means all items of
indebtedness of such person for borrowed money and purchase
money indebtedness, including without limitation capitalized
lease obligations, which in accordance with generally accepted
accounting principles, would be included in determining
liabilities as shown on the liability side of the balance sheet
of such person as of the date as of which indebtedness is to be
determined, and also includes all contingent obligations.
5.7.2. Except as set forth in the Endan Disclosure Schedule, all
existing accounts receivable, notes receivable and other
receivables of Endan and the Subsidiaries (collectively,
"Receivables") (including those Receivables reflected on Endan
Balance Sheet that have not yet been collected and those
Receivables that have arisen since the Endan Balance Sheet Date
and have not yet been collected) (i) represent valid obligations
of customers of Endan or the Subsidiaries arising from bona fide
transactions entered into in the ordinary course of business,
and (ii) have been collected or are current and will be
collected by Endan or the Subsidiaries (without any counterclaim
or set-off) within ninety (90) days after the date due or, with
respect to those Receivables already more than 90 days past due,
45 days after the Closing Date, in each case net of an allowance
for doubtful accounts not to exceed amounts reserved for on
Endan Balance Sheet.
5.7.3 Neither Endan nor the Subsidiaries has received any notice or
other communication indicating that any customer (a) intends or
expects to cease dealing with Endan or the Subsidiaries or to
effect a material reduction in the volume of business transacted
by such person with Endan or the Subsidiaries below historic
levels or (b) intends to claim that any of the services
performed for it by Endan or the Subsidiaries prior to the date
hereof was sub-standard or deficient.
14
5.7.4 Except as disclosed in the Endan Disclosure Schedule, no
customer of Endan or the Subsidiaries has a right of refund or
set off from Endan or the Subsidiaries.
5.8. Litigation. Except as disclosed in the Endan Disclosure Schedule, there
is no suit, claim, action, proceeding or investigation pending or, to
the knowledge of Endan, threatened against Endan or the Subsidiaries or
any of their respective properties or assets, or against any of their
respective officers, directors or employees (in their capacity as such),
before any Governmental Entity. Neither Endan nor the Subsidiaries is
subject to any outstanding order, writ, injunction or decree. Endan
shall provide DSI an audit letter from its auditors or a letter from its
counsel to this effect prior to the Closing.
5.9. Compliance with Applicable Law.
Endan and the Subsidiaries hold all permits, licenses, variances,
exemptions, orders and approvals of all Governmental Entities necessary
for the lawful conduct of their respective businesses (the "Endan
Permits"), except for failures to hold such permits, licenses,
variances, exemptions, orders and approvals that would not be reasonably
expected to, individually or in the aggregate, have a Material Adverse
Effect on Endan. Endan and the Subsidiaries are in compliance with the
terms of the Endan Permits, except where the failure so to comply would
not, individually or in the aggregate, have a Material Adverse Effect on
Endan. The businesses of Endan and the Subsidiaries are not being
conducted in violation of any applicable law, ordinance or regulation
the violation which could reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect on Endan. No investigation
or review by any Governmental Entity with respect to Endan or the
Subsidiaries is pending or, to the knowledge of Endan, threatened, nor,
to the knowledge of Endan, has any Governmental Entity indicated an
intention to conduct the same, except as set forth in the Endan
Disclosure Schedule.
5.10. Title to Properties; Absence of Liens and Encumbrances.
5.10.1 Neither Endan nor the Subsidiaries owns any fee interest in any
real property nor has it ever owned any fee interest in any real
property. The Endan Disclosure Schedule sets forth a list of all
real property currently leased by Endan or the Subsidiaries, the
name of the lessor and the date of the lease and each amendment
thereto. All such current real property leases are in full force
and effect, are valid and effective in accordance with their
respective terms, and there is not, under any of such leases,
any existing material default or event of default (or event
which with notice or lapse of time, or both, would constitute a
default) by or with respect to Endan or the Subsidiaries, or to
the Endan Warrantors' knowledge, by or with respect to any third
party. Complete and correct copies of such leases in effect on
the date hereof have been delivered to DSI.
5.10.2 Endan and the Subsidiaries have good and valid title to or, in
the case of leased properties and assets, valid leasehold
interests in, all of their material properties and material
assets, whether tangible or intangible (including Intellectual
Property), real, personal and mixed, free and clear of any Liens
15
except as reflected in the Financial Statements or in the Endan
Disclosure Schedule.
5.11. Employee Benefit Plans; Labor Matters.
5.11.1 The Endan Disclosure Schedule sets forth a list as of the Endan
Balance Sheet Date of (i) all directors, officers or employees
of Endan or the Subsidiaries and correctly reflects the current
salary and any other compensation payable to such directors,
officers or employees (including compensation payable pursuant
to bonus, deferred compensation or commission arrangements or in
connection with any manager's insurance, education fund and
health fund), and such employee's employer, date of employment
and position; (ii) all agreements with consultants who are
individuals obligating Endan or the Subsidiaries to make annual
cash payments in an amount exceeding $15,000 or the equivalent
thereof; (iii) all severance agreements, programs and policies
of Endan or the Subsidiaries with or relating to their employees
except such programs and policies required to be maintained by
law; and (iv) all plans, programs, agreements and other
arrangements of Endan or the Subsidiaries with or relating to
their employees that contain change in control provisions. Endan
has made available to DSI copies (or descriptions in detail
reasonably satisfactory to DSI) of all such agreements, plans,
programs and other arrangements.
5.11.2 Neither Endan nor the Subsidiaries is a party to any collective
labor agreement or any other contract or arrangement with any
trade union or other body representing any of its employees
other than as set forth in the Endan Disclosure Schedule, and
neither Endan nor the Subsidiaries has recognized or received a
demand for recognition from any collective bargaining
representative with respect to any of its or their employees.
Other than as set forth in the Endan Disclosure Schedule,
neither Endan nor the Subsidiaries is subject to, nor do
employees of any such corporation benefit from, any extension
orders (tzavei harchava) or any contract, arrangement,
understanding or custom with respect to employment (including,
without limitation, termination thereof). Other than as
expressly set forth in the Endan Disclosure Schedule, neither
Endan nor the Subsidiaries has any custom with respect to
termination of employment.
5.11.3 Except for the employment agreements listed in the Endan
Disclosure Schedule, there are no contracts or arrangements
between Endan or the Subsidiaries and any of its directors,
officers, executives or employees which cannot be terminated by
such corporation by three months notice or less without giving
rise to a claim for damages or compensation (except for
statutory severance pay).
5.11.4 Other than as set forth in the Endan Disclosure Schedule, there
is no outstanding claim or complaint (including, without
limitation, any claim resulting from a bonus arrangement), other
than claims and complaints demanding solely pecuniary damage in
an aggregate amount of less than
16
$15,000, against Endan or the Subsidiaries by any person who is
now or has been an officer or employee of such company..
5.11.5 There is no labor strike, slowdown or stoppage pending (or, to
the best knowledge of Endan, any labor strike or stoppage
threatened or contemplated) against or affecting Endan or the
Subsidiaries, and there have been no disputes between Endan or
the Subsidiaries and any number or category of employees and
there are no present circumstances which are reasonably likely
to give rise to any such dispute.
5.11.6 The severance pay (Pitzuie Piturin) due to the employees of
Endan and the Subsidiaries is fully funded or provided for in
accordance with Israeli GAAP, all liabilities of Endan or the
Subsidiaries in connection with their respective employees were
adequately accrued in the Financial Statements and, other than
as set forth in the Endan Disclosure Schedule, Endan is not
aware of any circumstance whereby any employee might demand
(whether legally entitled to or not) any claim for compensation
on termination of employment beyond the statutory severance pay
to which such employee is entitled. All obligations of Endan or
the Subsidiaries with respect to statutorily required severance
payments have been fully satisfied or have been funded by
contributions to appropriate insurance funds or otherwise
provided for in the Endan Financial Statements or disclosed in
the notes thereto.
5.11.7 All amounts which Endan or the Subsidiaries are legally or
contractually required to either (i) deduct from their
employees' salaries and/or transfer to such employees' pension
or provident, life insurance, incapacity insurance, continuing
education fund or otherwise or (ii) withhold from their
employees' salaries and pay to any government, governmental
agency or instrumentality thereof as required by the Israeli
Income Tax Ordinance [New Version] or otherwise have, in each
case, been duly deducted, withheld and paid, and neither Endan
nor the Subsidiaries has any outstanding obligation to make any
such transfer or provision.
5.11.8 Each of Endan and the Subsidiaries is in compliance in all
material respects with all applicable legal requirements and
contracts relating to employment, employment practices, wages,
bonuses and terms and conditions of employment, including
employee compensation matters.
5.11.9 Each of Endan and the Subsidiaries has good labor relations, and
Endan has no knowledge of any facts indicating that (i) the
consummation of the transactions contemplated hereunder will
have a material adverse effect on the labor relations of Endan
or the Subsidiaries, or (ii) any of the employees of Endan or
the Subsidiaries intends to terminate his or her employment with
such company.
5.11.10 Except as disclosed in the Endan Disclosure Schedule, neither
the execution, delivery or performance of this Agreement of the
other Transaction Documents nor the consummation of the
Transactions will result in any bonus, golden parachute,
severance or other payment or obligation to any current or
former employee or director of any of Endan or the Subsidiaries,
or materially increase the benefits payable or provided to any
current or former employee or
17
director of any of Endan or the Subsidiaries, or result in any
acceleration of the time of payment, provision or vesting of any
such benefits. Without limiting the generality of the foregoing,
the consummation of the Transactions will not result in the
acceleration of vesting of any unvested options outstanding
under any option plan or other incentive plan of any of Endan or
the Subsidiaries.
5.12. Agreements, Scheduled Contracts and Commitments.
5.12.1 Scheduled Contracts. Except as set forth in the Endan Disclosure
Schedule, neither Endan nor the Subsidiaries has, is a party to
or is bound by:
(i) any collective bargaining agreements;
(ii) any agreements or arrangements that contain any severance pay or
post-employment liabilities or obligations in excess of those
required by law;
(iii) any bonus, deferred compensation, sales compensation plan,
pension, profit sharing or retirement plans, or any other
employee benefit plans or arrangements or agreements to change
any such plans whether written or oral;
(iv) any employment or consulting agreement with an employee or
individual consultant, or any consulting or sales agreement
under which a firm or other organization provides services to
Endan or the Subsidiaries in any case involving aggregate
payments in excess of $15,000 or the equivalent thereof in one
year;
(v) any agreement or plan, including any stock option plan, stock
appreciation rights plan or stock purchase plan, any of the
benefits of which will be increased, or the vesting of benefits
of which will be accelerated, by the occurrence of any of the
Transactions or the value of any of the benefits of which will
be calculated on the basis of any of the Transactions ;
(vi) any fidelity or surety bond or completion bond;
(vii) any lease of personal property having a value individually in
excess of $15,000 or the equivalent thereof;
(viii) any agreement of indemnification or guaranty other than as
expressly set forth in the Endan Disclosure Schedule;
(ix) any agreement pursuant to which Endan or the Subsidiaries has
granted, or may grant in the future, to any party a source-code
license or option or other right to use or acquire source-code;
(x) any agreement relating to capital expenditures and involving
future payments in excess of $50,000 or the equivalent thereof;
18
(xi) any agreement relating to the disposition or acquisition of
assets, property or any interest in any business enterprise
outside the ordinary course of Endan's or the Subsidiaries'
business;
(xii) any mortgage, indenture, loan or credit agreement, security
agreement or other agreement or instrument relating to the
borrowing of money or extension of credit, including any
guaranty referred to in clause (viii) of this Section 5.12.1;
(xiii) any purchase order or contract for the purchase of raw materials
or services involving $50,000 or the equivalent thereof or more;
(xiv) any construction contract;
(xv) any distribution, joint marketing or development agreement;
(xvi) any other agreement that involves $50,000 or the equivalent
thereof or more or is not cancelable without penalty upon notice
of thirty (30) days or less;
(xvii) any contract under which Endan or the Subsidiaries provides
services to third parties for which it will receive payments in
excess of $15,000 or the equivalent thereof in a period of 12
consecutive months;
(xviii) any contract that contains a liquidated damages provision for
failure to meet performance or quality milestones; or
(xix) any other material agreement or commitment, whether written or
oral.
5.12.2 Loss Contracts. The Endan Disclosure Schedule identifies all
contracts (whether fixed price or time and materials with a
price cap or other contract having similar effect) under which
Endan or the Subsidiaries provides products or services to a
third party and as to which the cost of performance has exceeded
or is likely to exceed the contract price and also sets forth,
with respect to each such contract, the amount by which such
cost of performance exceeds such contract price. Except as set
forth in the Endan Disclosure Schedule, all contracts under
which Endan or the Subsidiaries provides services to a third
party are capable of being performed at a cost equal to or less
than the contract price.
5.12.3 No Contract Breaches. Except for such alleged breaches,
violations and defaults, and events that would constitute a
breach, violation or default with the lapse of time, giving of
notice, or both, as are all noted in the Endan Disclosure
Schedule, neither Endan nor the Subsidiaries has in any material
respect breached, violated or defaulted under, or received
notice that it has materially breached, violated or defaulted
under, any of the terms or conditions of any agreement, contract
or commitment required to be set forth in the Endan Disclosure
Schedule pursuant to Sections 5.12.1 or 5.12.2 (any such
agreement, contract or commitment, regardless of whether it is
set forth on such schedule, a "Scheduled Contract"). Each
Scheduled Contract is in full force and effect and, except as
otherwise disclosed in the Endan Disclosure Schedule, is not
subject to any default thereunder of which the
19
Endan Warrantors have knowledge by any party obligated to Endan
or the Subsidiaries pursuant thereto.
5.13. Interested Party Transactions. Except as set forth in the Endan
Disclosure Schedule, no member, manager, officer, director or Affiliate
of Endan or the Subsidiaries, has or has had during the past three (3)
years, directly or indirectly, (i) an economic interest of 5% or more in
any Person which has furnished or sold, or furnishes or sells, services
or products that Endan or the Subsidiaries furnishes or sells, or
proposes to furnish or sell, (ii) an economic interest of 5% or more in
any Person that purchases from or sells or furnishes to, Endan or the
Subsidiaries, any goods or services, (iii) a beneficial interest in any
Scheduled Contract or (iv) any contractual or other arrangement with
Endan or the Subsidiaries.
5.14. Intellectual Property.
5.14.1 The Endan Disclosure Schedule sets forth, with respect to the
Intellectual Property owned, in whole or in part, including
jointly with others, by Endan or the Subsidiaries, a complete
and accurate list of all (a) patents and patent applications;
(b) Trademark registrations and applications and material
unregistered Trademarks; and (c) copyright registrations and
applications, indicating for each, the applicable jurisdiction,
registration number (or application number), and date issued (or
date filed). For purposes of this Agreement, "Intellectual
Property" means: trademarks and service marks (whether
registered or unregistered), trade names, designs and general
intangibles of like nature, together with all goodwill related
to the foregoing (collectively, "Trademarks"); patents
(including any continuations, continuations in part, reissue
patents, reexamination certificates and applications for any of
the foregoing) (collectively "Patents"); copyrights (including
any registrations and applications therefor and whether
registered or unregistered) (collectively "Copyrights");
computer software; databases; works of authorship; mask works;
technology; trade secrets and other confidential information,
know-how, proprietary processes, formulae, algorithms, models,
user interfaces, customer lists, inventions, discoveries,
concepts, ideas, techniques, methods, source codes, object
codes, methodologies and, with respect to all of the foregoing,
related confidential data or information (collectively, "Trade
Secrets").
5.14.2 Patents
(i) All Patents are currently in compliance with legal
requirements (including payment of filing, examination,
and maintenance fees and proofs of working or use) other
than any requirement that, if not satisfied, would not
result in a revocation or otherwise materially affect
the enforceability of the Patent in question. The Endan
Disclosure Schedule sets forth a complete and accurate
list of the patents owned, or previously owned, by Endan
or the Subsidiaries.
(ii) No Patent has been or is now involved in any
interference, reissue, reexamination or opposing
proceeding before any Governmental
20
Entity. To Endan's knowledge, no such action has been
threatened within the one-year period prior to the date
of this Agreement.
(iii) There is no patent, patent application, printed
publication or other prior art of any person that
conflicts in any material respect with any Patent.
5.14.3 Trade Secrets.
(i) Endan has taken the steps described in the Endan
Disclosure Schedule to protect Endan's rights in
confidential information and Trade Secrets of Endan.
(ii) Without limiting the generality of Section 5.14.3(i) and
except as would not be materially adverse to Endan or
its business, Endan enforces a policy of requiring each
relevant employee, consultant and contractor to execute
proprietary information, confidentiality and assignment
agreements substantially in Endan's standard forms,
copies of which have been furnished to DSI, and, except
under confidentiality obligations, there has been no
disclosure by Endan or any Subsidiary of material
confidential information or Trade Secrets.
5.14.4 License Agreements. The Endan Disclosure Schedule sets forth a
complete and accurate list of all license agreements granting to
Endan or the Subsidiaries any material right to use or practice
any rights under any Intellectual Property other than office
automation software used generally in Endan's or the
Subsidiaries' operations and other software that is not used in
connection with the design, development, use, maintenance and
support, testing, assembly and manufacture of Endan's or the
Subsidiaries' products and is commercially available on
reasonable terms to any person for a license fee of no more than
$50,000 or the equivalent thereof (collectively, the "Inbound
License Agreements"), indicating for each the title and the
parties thereto and the amount of any future royalty or license
fee payable thereunder. The Endan Disclosure Schedule sets forth
a complete and accurate list of all license agreements under
which Endan or the Subsidiaries licenses software or grants
other rights to use or practice any rights under any
Intellectual Property, excluding licenses with customers that in
the twelve-month period prior to the date hereof have purchased
or licensed products for which the total payments to Endan and
the Subsidiaries did not exceed $50,000 or the equivalent
thereof (collectively, the "Outbound License Agreements"),
indicating for each the title and the parties thereto. There is
no material outstanding or, to the Endan Warrantors' knowledge,
threatened dispute or disagreement with respect to any Inbound
License Agreement or any Outbound License Agreement.
5.14.5 Ownership; Sufficiency of IP Assets. Except as set forth in the
Endan Disclosure Schedule (including the rights of Mr. Shabath
to certain profits in connection with EasyBill), Endan or the
Subsidiaries owns or possesses adequate licenses or other rights
to use, free and clear of Liens, orders and arbitration awards,
all of its Intellectual Property used in and necessary to the
conduct of its business. The Intellectual Property identified in
the Endan Disclosure Schedule, together with Endan's and the
Subsidiaries' unregistered copyrights and Endan's and the
Subsidiaries' rights under the licenses granted
21
to Endan or the Subsidiaries under the Inbound License
Agreements, constitute all the material Intellectual Property
rights used in the operation of Endan's and the Subsidiaries'
businesses as they are currently conducted and are all the
Intellectual Property rights necessary to operate such
businesses after the Closing Date in substantially the same
manner as such businesses have been operated by Endan prior
thereto.
5.14.6 No Infringement by Endan. To the best knowledge of the Endan
Warrantors and Endan, the products used, manufactured, marketed,
sold or licensed by Endan and the Subsidiaries, and all
Intellectual Property used in the conduct of Endan's and the
Subsidiaries' businesses as currently conducted, do not infringe
upon, violate or constitute the unauthorized use of any rights
owned or controlled by any third party, including any
Intellectual Property of any third party.
5.14.7 No Pending or Threatened Infringement Claims. No litigation is
now or, within the three (3) years prior to the date of this
Agreement, was pending and, to Endan's knowledge, no notice or
other claim in writing has been received by Endan within the one
(1) year period prior to the date of this Agreement, (i)
alleging that Endan or the Subsidiaries has engaged in any
activity or conduct that infringes upon, violates, or
constitutes the unauthorized use of the Intellectual Property
rights of any third party or (ii) challenging the ownership,
use, validity or enforceability of any Intellectual Property
owned or exclusively licensed by Endan. Except as specifically
disclosed in the Endan Disclosure Schedules pursuant to this
Section 5.14, no Intellectual Property owned or licensed by
Endan or the Subsidiaries is subject to any outstanding order,
judgment, decree, stipulation or agreement (other than Inbound
License Agreements) restricting the use thereof by Endan or the
Subsidiaries or, in the case of any Intellectual Property
licensed to others, restricting the sale, transfer, assignment
or licensing thereof by Endan or the Subsidiaries to any person.
5.14.8 No Infringement by Third Parties. To the knowledge of the Endan
Warrantors and Endan, no person is misappropriating, infringing,
diluting, or violating any Intellectual Property owned or
exclusively licensed by Endan or the Subsidiaries, and no such
claims have been brought against any person by Endan or the
Subsidiaries.
5.14.9 Assignment; Change of Control. The execution, delivery and
performance by the Shareholders, Noy or Endan of this Agreement,
and the consummation by the Shareholders, Noy or Endan of the
Transactions , will not result in the loss or impairment of, or
give rise to any right of any third party to terminate, any of
Endan's or the Subsidiaries' rights to own any of its
Intellectual Property or their respective rights under the
Inbound License Agreements, nor require the consent of any
Governmental Entity or third party in respect of any such
Intellectual Property.
5.14.10 Software. The Software owned or purported to be owned by Endan
or the Subsidiaries and used in its business ("Owned Software")
was either (i) developed by employees of Endan or the
Subsidiaries within the scope of their employment; (ii)
developed by independent contractors who have assigned
22
their rights to Endan or the Subsidiaries pursuant to written
agreements; or (iii) otherwise acquired by Endan or the
Subsidiaries from a third party. The Owned Software does not
contain any programming code, documentation or other materials
or development environments that embody Intellectual Property
rights of any person other than Endan or the Subsidiaries,
except for such materials or development environments obtained
by Endan or the Subsidiaries from other persons who make such
materials or development environments generally available to all
interested purchasers or end-users on standard commercial terms
or as negotiated between Endan and any such other person. For
purposes hereof, "Software" means any and all (i) computer
programs, including any and all software implementations of
algorithms, models and methodologies, whether in source code or
object code, (ii) databases and compilations, including any and
all data and collections of data, whether machine readable or
otherwise, (iii) descriptions, flow-charts and other work
product used to design, plan, organize and develop any of the
foregoing, and (iv) all documentation, including user manuals
and training materials, relating to any of the foregoing.
5.14.11 Performance of Existing Software Products.. All of (i) the
Software products that are manufactured by Endan or the
Subsidiaries and (ii) any Software products marketed by Endan or
the Subsidiaries as to which Endan or any such Subsidiary
warrants performance to the end user thereof (collectively
"Software Products") listed and described in the Endan
Disclosure Schedule perform in all material respects, free of
significant bugs or programming errors, the functions described
in any protocol or standard applicable to the product, and any
agreed specifications or end user documentation or other
information provided to customers of Endan on which such
customers relied when licensed or otherwise acquired such
products.
5.14.12 Employee Confidentiality Agreements. Except as set forth in the
Endan Disclosure Schedule, all current and former employees and
consultants of Endan or the Subsidiaries have entered into
confidentiality, invention assignment and proprietary
information agreements with Endan or the Subsidiaries in the
form provided to DSI. To the best knowledge of the Endan
Warrantors and Endan, no employee or consultant of Endan or the
Subsidiaries is obligated under any agreement (including
licenses, covenants or commitments of any nature) or subject to
any judgment, decree or order of any court or administrative
agency, or any other restriction that would interfere with the
use of his or her best efforts to carry out his or her duties
for Endan or the Subsidiaries (other than time commitments of
independent contractors to their other clients) or that would
conflict with Endan's or the Subsidiaries' business. The
carrying on of Endan's and the Subsidiaries' business by such
employees and contractors of Endan or the Subsidiaries and the
conduct of Endan's and the Subsidiaries' business as presently
proposed, will not, conflict with or result in a breach of the
terms, conditions or provisions of, or constitute a default
under, any contract, covenant or instrument under which Endan or
the Subsidiaries, or to the best knowledge of the Endan
Warrantors and Endan, any of such employees or consultants, is
now obligated. Except as set forth in the Endan Disclosure
Schedule, it is not necessary to utilize any inventions or any
other Intellectual Property of any
23
employees of or consultants to Endan or the Subsidiaries
acquired prior to their employment by Endan or the Subsidiaries
in order to carry on the business of Endan and the Subsidiaries
as presently conducted. At no time during the conception of or
reduction to practice of any of Intellectual Property owned by
Endan or the Subsidiaries was any developer, inventor or other
contributor to such Intellectual Property operating under any
grants from any Governmental Entity or private source,
performing research sponsored by any Governmental Entity or
private source or subject to any employment agreement or
invention assignment or nondisclosure agreement or other
obligation with any third party that could adversely affect
Endan's or the Subsidiaries' rights in such Intellectual
Property.
5.14.13 Export Restrictions. Neither Endan nor the Subsidiaries has
exported or transmitted Software or other material in connection
with Endan's or the Subsidiaries' business to any country to
which such export or transmission is restricted by any
applicable law, without first having obtained all necessary and
appropriate government licenses or permits.
5.15. Insurance. Each of Endan and the Subsidiaries maintains insurance
policies (the "Insurance Policies") against all risks of a character and
in such amounts as are usually insured against by similarly situated
companies in the same or similar businesses. Each Insurance Policy is in
full force and effect and is valid, outstanding and enforceable, and all
premiums due thereon have been paid in full. None of the Insurance
Policies will terminate or lapse (or be affected in any other materially
adverse manner) by reason of the transactions contemplated by the
Transaction Documents. Each of Endan and the Subsidiaries has complied
with the provisions of each Insurance Policy under which it is the
insured party. No insurer under any Insurance Policy has canceled or
generally disclaimed liability under any such policy or, to the Endan
Warrantors' knowledge, indicated any intent to do so or not to renew any
such policy. All material claims under the Insurance Policies have been
filed in a timely fashion.
5.16. Certain Business Practices. None of Endan, the Subsidiaries or any
directors, officers, agents or employees of Endan or the Subsidiaries
has (i) used any funds for unlawful contributions, gifts, entertainment
or other unlawful expenses related to political activity, (ii) made any
unlawful payment to foreign or domestic government officials or
employees or to foreign or domestic political parties or campaigns or
violated any provision of applicable law, or (iii) made any other
unlawful payment.
5.17. Restrictions on Business Activities. Except as set forth in the Endan
Disclosure Schedule, there is no agreement (non-compete or otherwise),
judgment, injunction, order or decree to which Endan or the Subsidiaries
is a party or otherwise binding upon Endan or the Subsidiaries that has
or is reasonably likely to have the effect of prohibiting or impairing
any business practice of Endan or the Subsidiaries, any acquisition of
property (tangible or intangible) by Endan or the Subsidiaries or the
conduct of business by Endan or the Subsidiaries. Without limiting the
foregoing, except as set forth in the Endan Disclosure Schedule, neither
Endan nor the Subsidiaries has entered into any agreement under which
Endan or any such subsidiary is restricted from selling, licensing or
otherwise distributing any of its
24
products or providing services to any class of customers, in any
geographic area, during any period of time or in any segment of the
market.
5.18. Product and Service Warranties. Complete and accurate copies of the
written warranties and guaranties by Endan or the Subsidiaries currently
in effect with respect to any of its products or services have been
delivered to DSI. There have not been any material deviations from such
warranties and guaranties, and neither Endan, the Subsidiaries nor any
of their respective salesmen, employees, distributors and agents is
authorized to undertake warranty and guaranty obligations to any
customer or to other third parties in excess of such warranties or
guaranties. Except as set forth in the Endan Disclosure Schedule,
neither Endan nor the Subsidiaries has made any oral warranty or
guaranty with respect to any of its products or services.
5.19. Brokers. No broker, finder or investment banker is entitled to any
brokerage finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made
by or on behalf of Endan, Noy or any of the Shareholders.
5.20. Minute Books. The minute books of Endan and the Subsidiaries made
available to DSI are the only minute books of Endan and the Subsidiaries
and contain a reasonably accurate summary of all actions taken at
meetings of the Board of Directors (or committees thereof) or at the
General Meetings of the shareholders of Endan or the Subsidiaries or
actions by written consent since the time of organization of Endan and
the Subsidiaries, respectively.
5.21. Taxes. Endan and the Subsidiaries have accurately prepared and timely
filed all income and payroll tax returns and filings that are required
to be filed by them (the "Tax Returns") and have paid or made provision
for the payment of all amounts due pursuant to such returns. None of the
Tax Returns have been audited by any taxing authority, and neither Endan
nor the Subsidiaries have been advised that any of such Tax Returns will
be so audited, and there are no waivers in effect of the applicable
statute of limitations for any period. No deficiency assessment or
proposed adjustment of income or payroll taxes of Endan and the
Subsidiaries is pending and Endan has no knowledge, after due inquiry,
of any proposed liability for any tax to be imposed on Endan other than
in the ordinary course of business.
5.22. Full Disclosure. Neither this Agreement, the Endan Disclosure Schedule
nor any certificates made or delivered by Endan in connection herewith
contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements herein or therein not
misleading, in view of the circumstances in which they were made. To the
best knowledge of the Endan Warrantors and Endan, there is no material
fact or information relating to the business, prospects, condition
(financial or otherwise), affairs, operations, or assets of Endan that
has not been disclosed to DSI or DSSI in writing by Endan.
25
Article VI
Representations and Warranties of DSI
Each of DSSI and DSI hereby represents and warrants to the Shareholders,
subject to the exceptions set forth in the DSI Disclosure Schedule attached
hereto as Schedule 6 (the "DSI Disclosure Schedule"), which exceptionsshall
apply to any and all representations and warranties set forth herein (provided
that no such exceptions shall apply to Sections 6.1.1 (first two sentences),
6.2, 6.3, 6.5 and 6.20), that:
6.1. Organization and Qualification; Subsidiaries; Investments.
6.1.1 Each of DSI and the DSI Subsidiaries is duly organized and
validly existing under the laws of Israel and has all requisite
power and authority to own, lease and operate their properties
and to carry on their businesses as now being conducted. DSI has
all requisite power and authority to execute and deliver this
Agreement and the other Transaction Documents to which it is a
party and to consummate the Transactions. DSI has heretofore
delivered to the Shareholders accurate and complete copies of
its Constitutional Documents and the Constitutional Documents of
the DSI Subsidiaries as currently in effect. Other than as set
forth on the DSI Disclosure Schedule, DSI has no subsidiaries
and has no equity investments, ownership or partnership
interests in any other Person.
6.1.2 Each of DSI and the DSI Subsidiaries is duly qualified or
licensed and in good standing to do business in each
jurisdiction in which the property owned, leased or operated by
them or the nature of the business conducted by them makes such
qualification or licensing necessary, except in such
jurisdictions where the failure to be so duly qualified or
licensed and in good standing would not, individually or in the
aggregate, have a Material Adverse Effect on DSI and the DSI
Subsidiaries, individually and taken as a whole.
6.2. Capitalization of DSI and the DSI Subsidiaries.
The authorized capital of DSI and each of the DSI Subsidiaries, the
number of issued shares of each class of its capital and the holders of
such shares, both prior to giving effect to the transactions
contemplated at the Closing and after giving effect thereto, are set
forth in the DSI Disclosure Schedule. As of the date hereof (and prior
to giving effect to the transactions contemplated under Section 2.3
hereof), no Ordinary Shares are reserved for issuance and are issuable
upon the exercise of outstanding share options issued pursuant to
options agreements to which DSI is a party and there are no outstanding
DSI share options. Except as set forth above, there are outstanding (i)
no shares or other voting securities of DSI, (ii) no securities of DSI
convertible into or exchangeable or exercisable for shares of DSI, (iii)
no options or other rights to acquire from DSI, and no obligations of
DSI to issue, any shares, capital stock or securities convertible into
or exchangeable or exercisable for shares of DSI and (iv) no equity
equivalent interests in the ownership or earnings of DSI or other
similar rights (collectively "DSI Securities"). As of the date hereof,
there are no outstanding
26
rights or obligations of DSI to repurchase, redeem or otherwise acquire
any DSI Securities and there are no shareholder agreements, voting
trusts or other agreements or understandings to which DSI or any of its
shareholder is a party or by which it is bound relating to the voting or
registration of any shares of DSI. All of the outstanding shares of the
DSI Subsidiaries are owned by DSI, directly, free and clear of any Lien
or any other limitation or restriction (including any restriction on the
right to vote or sell the same except as may be provided as a matter of
law).
6.3. Issuance of DSI Shares.
Upon the issuance of the DSI Shares to the Shareholders in consideration
for the Shares pursuant to Article III of this Agreement, the DSI Shares
shall be validly issued, fully paid, non-assessable, free of preemptive
rights (except as is set forth in the Amended Articles) and of any Liens
or encumbrances, and registered in the name of the respective
Shareholders in the registry of DSI.
6.4. Financial Statements.
6.4.1 DSI has delivered to the Shareholders copies of DSI's financial
statements (hereinafter collectively called the "DSI Financial
Statements"), which have been prepared in all material respects
in accordance with U.S. generally accepted accounting principles
consistently applied and maintained throughout the periods
indicated and fairly present the consolidated financial
condition of DSI as of the dates thereof and the results of its
operations for the periods covered thereby (subject to normal
year-end adjustments) as follows: (i) unaudited consolidated
statement of operations and balance sheet for the nine month
period ending September 30, 2001, and (ii) audited consolidated
balance sheets of DSI as at December 31, 2000 and the related
consolidated statements of operations for the years ended
December 31, 2000, accompanied by the audit opinions thereon of
Somech ▇▇▇▇▇▇▇, DSI's independent public accountants. The
consolidated balance sheets of DSI at December 31, 2000 and
September 30, 2001 are referred to herein, collectively, as the
"DSI Balance Sheet" and September 30, 2001 is referred to herein
as the "DSI Balance Sheet Date".
6.4.2 Except as set forth in the DSI Financial Statements, or in the
DSI Disclosure Schedule, the statements of operations included
therein do not contain any items of special or nonrecurring
revenue or any other income not earned in the ordinary course of
business except as expressly specified therein, and the interim
financial statements include all adjustments, which consist only
of normal recurring accruals, necessary for a fair presentation.
6.5. Authorization; Consents and Approvals; No Violations. All corporate
action on the part of DSI necessary for authorization, execution,
delivery, and performance of all of DSI's obligations under this
Agreement and the other Transaction Documents to which DSI is a party
shall have been taken, and DSI has delivered to the Shareholders duly
adopted resolutions of its Board of Directors and of its Shareholders
authorizing the same. This Agreement and the other Transaction
Documents, when executed and delivered by or on behalf of DSI, shall
constitute the valid and legally binding obligations of DSI, legally
enforceable against DSI in accordance with their respective terms. No
filing with or notice to and no permit, authorization, consent or
27
approval of any Governmental Entity is necessary for the execution and
delivery by DSI of this Agreement or any of the other Transaction
Documents to which DSI is a party or the consummation by DSI of the
Transactions. Neither the execution, delivery and performance of this
Agreement or any of the other Transaction Documents to which DSI is a
party nor the consummation by DSI of the Transactions will (i) conflict
with or result in any breach of any provision of the Constitutional
Documents of DSI or the DSI Subsidiaries, (ii) result in a violation or
breach of or constitute (with or without due notice or lapse of time or
both) a default (or give rise to any right of termination, amendment,
cancellation or acceleration or Lien) under any note, bond, mortgage,
indenture, lease, license, contract, agreement or other instrument or
obligation to which DSI or the DSI Subsidiaries is a party or by which
DSI or any of its properties or assets may be bound or (iii) violate any
order, writ, injunction, decree, law, statute, rule or regulation
applicable to DSI or the DSI Subsidiaries or any of their respective
properties or assets.
6.6. No Default. Except as set forth in the DSI Disclosure Schedule, neither
DSI nor the DSI Subsidiaries is in breach, default or violation (and no
event has occurred that with notice or the lapse of time or both would
constitute a breach, default or violation) of any term, condition or
provision of (i) their Constitutional Documents, (ii) any note, bond,
mortgage, indenture, or license or other material, contract, agreement
or instrument or obligation to which they are a party or by which they
or any of their properties or assets may be bound or (iii) any order,
writ, injunction, decree, law, statute, rule or regulation applicable to
DSI or the DSI Subsidiaries or any of their properties or assets.
6.7. No Undisclosed Liabilities; Absence of Changes. Except as and to the
extent set forth in the DSI Disclosure Schedule or as and to the extent
expressly set forth or provided for or reserved against in DSI Balance
Sheet, neither DSI nor the DSI Subsidiaries have any liabilities or
obligations of any nature, whether or not accrued, contingent or
otherwise, that would be required by U.S. generally accepted accounting
principles to be reflected on a balance sheet of DSI (including the
notes thereto), other than liabilities and obligations which,
individually or in the aggregate, will not have a Material Adverse
Effect on DSI. Except as and to the extent set forth in the DSI
Disclosure Schedule, since the DSI Balance Sheet Date, there have been
no events, changes or effects with respect to DSI and the DSI
Subsidiaries that have had or would reasonably be expected to have a
Material Adverse Effect on DSI. Without limiting the generality of the
foregoing, except as and to the extent as set forth in the DSI
Disclosure Schedule, since the DSI Balance Sheet Date, each of DSI and
the DSI Subsidiaries have conducted their businesses in all material
respects only in, and has not engaged in any material transaction other
than according to, the ordinary and usual course of such businesses
consistent with past practices, and there has not been any (i) material
adverse change in the financial condition, properties, business, results
of operations or prospects of DSI or the DSI Subsidiaries; (ii) damage,
destruction or other casualty loss with respect to any material asset or
property owned, leased or otherwise used by DSI or the DSI Subsidiaries
and which is not covered by insurance; (iii) declaration, setting aside
or payment of any dividend or other distribution in respect of any
shares of DSI or any repurchase, redemption or other acquisition by DSI
of any outstanding shares or other securities of, or other ownership
interests in
28
DSI; (iv) amendment of any material term of any outstanding security of
DSI; (v) incurrence, assumption or guarantee by DSI or the DSI
Subsidiaries of any indebtedness for borrowed money other than in the
ordinary course of business and in amounts and on terms consistent with
past practices (but in all events not exceeding $15,000 or the
equivalent thereof in the aggregate); (vi) creation or assumption by any
of DSI or the DSI Subsidiaries of any Lien on any material asset other
than in the ordinary course of business consistent with past practices
(not exceeding$15,000 or the equivalent thereof in the aggregate with
respect to the Indebtedness underlying such Liens); (vii) loan, advance
or capital contributions made by DSI or the DSI Subsidiaries, or
investment in, any person other than (x) loans or advances to employees
in connection with business-related travel, (y) loans made to employees
consistent with past practices that are not in the aggregate in excess
of $15,000 or the equivalent thereof, and (z) loans, advances or capital
contributions to or investments by DSI in the DSI Subsidiaries, and in
each case made in the ordinary course of business consistent with past
practices; (viii) transaction or commitment made, or any contract or
agreement entered into, by DSI or the DSI Subsidiaries relating to their
assets or business (including the acquisition or disposition of any
assets) or any relinquishment by DSI or the DSI Subsidiaries of any
contract, agreement or other right, in any case, material to DSI or the
DSI Subsidiaries, taken as a whole, other than transactions and
commitments in the ordinary course of business consistent with past
practices and those contemplated by this Agreement; or (ix) change by
DSI in its accounting principles, practices or methods. Since the DSI
Balance Sheet Date, except for increases in the ordinary course of
business consistent with past practices, there has not been any increase
in the compensation payable or that could become payable by DSI or the
DSI Subsidiaries to (a) officers of DSI or the DSI Subsidiaries or (b)
any employee of DSI or the DSI Subsidiaries whose annual cash
compensation is the equivalent of $70,000 or more.
6.8. Indebtedness; Bank Accounts; Receivables; Customers.
6.8.1 The DSI Disclosure Schedule provides accurate and complete
information (including amount and name of payee) with respect to
all Indebtedness of DSI or the DSI Subsidiaries.
6.8.2 Except as set forth in the DSI Disclosure Schedule, all existing
Receivables (including those Receivables reflected on DSI
Balance Sheet that have not yet been collected and those
Receivables that have arisen since DSI Balance Sheet Date and
have not yet been collected) (i) represent valid obligations of
customers of DSI or the DSI Subsidiaries arising from bona fide
transactions entered into in the ordinary course of business,
and (ii) have been collected or are current and will be
collected by DSI or the DSI Subsidiaries (without any
counterclaim or set-off) within ninety (90) days after the date
due or, with respect to those Receivables already more than 90
days past due, 45 days after the Closing Date, in each case net
of an allowance for doubtful accounts not to exceed amounts
reserved for on DSI Balance Sheet.
6.8.3 Neither DSI nor the DSI Subsidiaries has received any notice or
other communication indicating that any customer (a) intends or
expects to cease dealing with DSI or to effect a material
reduction in the volume of business transacted by such person
with DSI or the DSI Subsidiaries below historic
29
levels or (b) intends to claim that any of the services
performed for it by DSI or the DSI Subsidiaries prior to the
date hereof was sub-standard or deficient.
6.8.4 Except as disclosed in the DSI Disclosure Schedule, no customer
of DSI or the DSI Subsidiaries has a right of refund or set off
from DSI or the DSI Subsidiaries.
6.9. Litigation. Except as disclosed in the DSI Disclosure Schedule, there is
no suit, claim, action, proceeding or investigation pending or, to the
knowledge of DSSI and DSI, threatened against DSI or the DSI
Subsidiaries or any of their respective properties or assets, or against
any of their respective officers, directors or employees (in their
capacity as such), before any Governmental Entity. Neither DSI nor the
Subsidiaries is subject to any outstanding order, writ, injunction or
decree. DSI shall provide the Shareholders an audit letter from its
auditors or a letter from its counsel to this effect prior to the
Closing.
6.10. Compliance with Applicable Law. DSI and the DSI Subsidiaries hold all
permits, licenses, variances, exemptions, orders and approvals of all
Governmental Entities necessary for the lawful conduct of its businesses
(the "DSI Permits"), except for failures to hold such permits, licenses,
variances, exemptions, orders and approvals that would not be reasonably
expected to, individually or in the aggregate, have a Material Adverse
Effect on DSI. DSI and the DSI Subsidiaries are in compliance with the
terms of the DSI Permits, except where the failure so to comply would
not, individually or in the aggregate, have a Material Adverse Effect on
DSI. The businesses of DSI and the DSI Subsidiaries are not being
conducted in violation of any applicable law, ordinance or regulation
the violation of which could reasonably be expected, individually or in
the aggregate, to have a Material Adverse Effect on DSI. No
investigation or review by any Governmental Entity with respect to DSI
or the DSI Subsidiaries is pending or, to the knowledge of DSI and DSSI,
threatened, nor, to the knowledge of DSSI and DSI, has any Governmental
Entity indicated an intention to conduct the same, except as set forth
in the DSI Disclosure Schedule.
6.11. Title to Properties; Absence of Liens and Encumbrances.
6.11.1 Neither DSI nor the Subsidiaries owns any fee interest in any
real property. The DSI Disclosure Schedule sets forth a list of
all real property currently leased by DSI or the DSI
Subsidiaries, the name of the lessor and the date of the lease
and each amendment thereto. All such current real property
leases are in full force and effect, are valid and effective in
accordance with their respective terms, and there is not, under
any of such leases, any existing material default or event of
default (or event which with notice or lapse of time, or both,
would constitute a default) by or with respect to DSI or the DSI
Subsidiaries, or to DSI and DSSI's knowledge, by or with respect
to any third party. Complete and correct copies of such leases
in effect on the date hereof have been delivered to the
Shareholders.
6.11.2 DSI and the DSI Subsidiaries have good and valid title to or, in
the case of leased properties and assets, valid leasehold
interests in, all of their material properties and material
assets, whether tangible or intangible (including Intellectual
Property), real, personal and mixed, free and clear of any Liens
30
except as reflected in the Financial Statements or in the DSI
Disclosure Schedule.
6.12. Employee Benefit Plans; Labor Matters.
6.12.1 The DSI Disclosure Schedule sets forth a list as of the DSI
Balance Sheet Date of (i) all directors, officers or employees
of DSI or the DSI Subsidiaries and correctly reflects the
current salary and any other compensation payable to such
directors, officers or employees (including compensation payable
pursuant to bonus, deferred compensation or commission
arrangements or in connection with any manager's insurance,
education fund and health fund), and such employee's employer,
date of employment and position; (ii) all agreements with
consultants who are individuals obligating DSI or the DSI
Subsidiaries to make annual cash payments in an amount exceeding
$15,000 or the equivalent thereof; (iii) all severance
agreements, programs and policies of DSI or the DSI Subsidiaries
with or relating to their employees except such programs and
policies required to be maintained by law; and (iv) all plans,
programs, agreements and other arrangements of DSI or the DSI
Subsidiaries with or relating to their employees that contain
change in control provisions. DSI has made available to the
Shareholders copies (or descriptions in detail reasonably
satisfactory to the Shareholders) of all such agreements, plans,
programs and other arrangements.
6.12.2 Neither DSI nor the DSI Subsidiaries is a party to any
collective labor agreement or any other contract or arrangement
with any trade union or other body representing any of its
employees other than as set forth in the DSI Disclosure
Schedule, and neither DSI nor the DSI Subsidiaries has
recognized or received a demand for recognition from any
collective bargaining representative with respect to any of its
or their employees. Other than as set forth in the DSI
Disclosure Schedule, neither DSI nor the DSI Subsidiaries is
subject to, nor do employees of any such corporation benefit
from, any extension orders (tzavei harchava) or any contract,
arrangement, understanding or custom with respect to employment
(including, without limitation, termination thereof). Other than
as expressly set forth in the DSI Disclosure Schedule, neither
DSI nor the DSI Subsidiaries has any custom with respect to
termination of employment.
6.12.3 Except for the employment agreements listed in the DSI
Disclosure Schedule, there are no contracts or arrangements
between DSI or the DSI Subsidiaries and any of its directors,
officers, executives or employees which cannot be terminated by
such corporation by three months notice or less without giving
rise to a claim for damages or compensation (except for
statutory severance pay).
6.12.4 Other than as set forth in the DSI Disclosure Schedule, there is
no outstanding claim or complaint (including, without
limitation, any claim resulting from a bonus arrangement), other
than claims and complaints demanding solely pecuniary damage in
an aggregate amount less than $15,000, against DSI or
31
the DSI Subsidiaries by any person who is now or has been an
officer or employee of such corporation.
6.12.5 There is no labor strike, slowdown or stoppage pending (or, to
the best knowledge of DSSI and DSI, any labor strike or stoppage
threatened or contemplated) against or affecting DSI or the DSI
Subsidiaries, and there have been no disputes between DSI or the
DSI Subsidiaries and any employees and there are no present
circumstances which are reasonably likely to give rise to any
such dispute.
6.12.6 The severance pay (Pitzuie Piturin) due to the employees of DSI
and the DSI Subsidiaries is fully funded or provided for in
accordance with U.S. GAAP, all liabilities of DSI or the DSI
Subsidiaries in connection with their respective employees were
adequately accrued in the Financial Statements and, other than
as set forth in the DSI Disclosure Schedule, DSI is not aware of
any circumstance whereby any employee might demand (whether
legally entitled to or not) any claim for compensation on
termination of employment beyond the statutory severance pay to
which such employee is entitled. All obligations of DSI or the
DSI Subsidiaries with respect to statutorily required severance
payments have been fully satisfied or have been funded by
contributions to appropriate insurance funds or otherwise
provided for in the DSI Financial Statements or disclosed in the
notes thereto.
6.12.7 All amounts which DSI or the DSI Subsidiaries is legally or
contractually required to either (i) deduct from their
employees' salaries and/or transfer to such employees' pension
or provident, life insurance, incapacity insurance, continuing
education fund or otherwise or (ii) withhold from their
employees' salaries and pay to any government, governmental
agency or instrumentality thereof as required by the Israeli
Income Tax Ordinance [New Version] or otherwise have, in each
case, been duly deducted, withheld and paid, and neither DSI nor
the DSI Subsidiaries has any outstanding obligation to make any
such transfer or provision.
6.12.8 Each of DSI and the DSI Subsidiaries is in compliance in all
material respects with all applicable legal requirements and
contracts relating to employment, employment practices, wages,
bonuses and terms and conditions of employment, including
employee compensation matters.
6.12.9 Each of DSI and the DSI Subsidiaries has good labor relations,
and DSI has no knowledge of any facts indicating that (i) the
consummation of the transactions contemplated hereunder will
have a material adverse effect on the labor relations of DSI or
the DSI Subsidiaries, or (ii) any of the employees of DSI or the
DSI Subsidiaries intends to terminate his or her employment with
such company.
6.12.10 Except as disclosed in the DSI Disclosure Schedule, neither the
execution, delivery or performance of this Agreement nor the
consummation of the transactions contemplated hereunder will
result in any bonus, golden parachute, severance or other
payment or obligation to any current or former employee or
director of any of DSI or the DSI Subsidiaries, or materially
increase the benefits payable or provided to any current or
former employee or
32
director of DSI or the DSI Subsidiaries, or result in any
acceleration of the time of payment, provision or vesting of any
such benefits. Without limiting the generality of the foregoing,
the consummation of the transactions contemplated hereunder will
not result in the acceleration of vesting of any unvested
options outstanding under any option plan or other incentive
plan of any of DSI or the DSI Subsidiaries.
6.13. Agreements, Scheduled Contracts and Commitments.
6.13.1 Scheduled Contracts. Except as set forth in the DSI Disclosure
Schedule, neither DSI nor the DSI Subsidiaries has, is a party
to or is bound by:
(i) any collective bargaining agreements;
(ii) any agreements or arrangements that contain any
severance pay or post-employment liabilities or
obligations in excess of those required by law;
(iii) any bonus, deferred compensation, sales compensation
plan, pension, profit sharing or retirement plans, or
any other employee benefit plans or arrangements or
agreements to change any such plans whether written or
oral;
(iv) any employment or consulting agreement with an employee
or individual consultant, or any consulting or sales
agreement under which a firm or other organization
provides services to DSI or the DSI Subsidiaries in any
case involving aggregate payments in excess of $15,000
or the equivalent thereof in one year;
(v) any agreement or plan, including any stock option plan,
stock appreciation rights plan or stock purchase plan,
any of the benefits of which will be increased, or the
vesting of benefits of which will be accelerated, by the
occurrence of any of the Transactions or the value of
any of the benefits of which will be calculated on the
basis of any of the Transactions;
(vi) any fidelity or surety bond or completion bond;
(vii) any lease of personal property having a value
individually in excess of $15,000 or the equivalent
thereof;
(viii) any agreement of indemnification or guaranty other than
expressly set forth in the DSI Disclosure Schedule;
(ix) any agreement pursuant to which DSI or the DSI
Subsidiaries has granted, or may grant in the future,
any party a source-code license or option or other right
to use or acquire source-code;
(x) any agreement relating to capital expenditures and
involving future payments in excess of$50,000 or the
equivalent thereof;
33
(xi) any agreement relating to the disposition or acquisition
of assets, property or any interest in any business
enterprise outside the ordinary course of DSI or the DSI
Subsidiaries' business;
(xii) any mortgage, indenture, loan or credit agreement,
security agreement or other agreement or instrument
relating to the borrowing of money or extension of
credit, including any guaranty referred to in clause
(viii) of this Section 6.13.1;
(xiii) any purchase order or contract for the purchase of raw
materials or services involving $50,000 or the
equivalent thereof or more;
(xiv) any construction contract;
(xv) any distribution, joint marketing or development
agreement;
(xvi) any other agreement that involves $50,000 or the
equivalent thereof or more or is not cancelable without
penalty upon notice of thirty (30) days or less;
(xvii) any contract under which DSI or the DSI Subsidiaries
provides services to third parties for which it will
receive payments in excess of $15,000 or the equivalent
thereof in a period of 12 consecutive months;
(xviii) any contract that contains a liquidated damages
provision for failure to meet performance or quality
milestones; or
(xix) any other material agreement or commitment, whether
written or oral.
6.13.2 Loss Contracts. The DSI Disclosure Schedule identifies all
contracts (whether fixed price or time and materials with a
price cap or other contract having similar effect) under which
DSI or the DSI Subsidiaries provides products or services to a
third party and as to which the cost of performance has exceeded
or is likely to exceed the contract price and also sets forth,
with respect to each such contract, the amount by which such
cost of performance exceeds such contract price. Except as set
forth in the DSI Disclosure Schedule, all contracts under which
DSI or the DSI Subsidiaries provides services to a third party
are capable of being performed at a cost equal to or less than
the contract price.
6.13.3 No Contract Breaches. Except for such alleged breaches,
violations and defaults, and events that would constitute a
breach, violation or default with the lapse of time, giving of
notice, or both, as are all noted in the DSI Disclosure
Schedule, neither DSI nor the DSI Subsidiaries has in any
material respect breached, violated or defaulted under, or
received notice that it has materially breached, violated or
defaulted under, any of the terms or conditions of any
agreement, contract or commitment required to be set forth in
the DSI Disclosure Schedule pursuant to Sections 6.13.1
or 6.13.2 (any such agreement, contract or commitment,
regardless of whether it is set forth on such schedule, a
"Scheduled Contract"). Each Scheduled Contract is in full force
and effect and, except as otherwise disclosed in the DSI
Disclosure
34
Schedule, is not subject to any default thereunder of which DSI
have knowledge by any party obligated to DSI or the DSI
Subsidiaries pursuant thereto.
6.14. Interested Party Transactions. Except as set forth in the DSI Disclosure
Schedule, no member, manager, officer, director or Affiliate of DSI or
the DSI Subsidiaries, has or has had during the past 3 years, directly
or indirectly, (i) an economic interest of 5% or more in any Person
which has furnished or sold, or furnishes or sells, services or products
that DSI or the DSI Subsidiaries furnishes or sells, or proposes to
furnish or sell, (ii) an economic interest of 5% or more in any Person
that purchases from or sells or furnishes to, DSI or the DSI
Subsidiaries, any goods or services, (iii) a beneficial interest in any
Scheduled Contract or (iv) any contractual or other arrangement with DSI
or the DSI Subsidiaries.
6.15. Intellectual Property.
6.15.1 The DSI Disclosure Schedule sets forth, the Intellectual
Property owned, in whole or in part, including jointly with
others, by DSI or the DSI Subsidiaries, a complete and accurate
list of all (a) patents and patent applications; (b) Trademark
registrations and applications and material unregistered
Trademarks; and (c) copyright registrations and applications,
indicating for each, the applicable jurisdiction, registration
number (or application number), and date issued (or date filed).
6.15.2 Trade Secrets.
(i) DSI has taken the steps described in the DSI Disclosure
Schedule to protect DSI's rights in confidential
information and Trade Secrets of DSI.
(ii) Without limiting the generality of Section 6.15.2(i) and
except as would not be materially adverse to DSI or its
business, DSI enforces a policy of requiring each
relevant employee, consultant and contractor to execute
proprietary information, confidentiality and assignment
agreements substantially in DSI's standard forms, a copy
of which has been furnished to the Shareholders, and,
except under confidentiality obligations, there has been
no disclosure by DSI or the DSI Subsidiaries of material
confidential information or Trade Secrets.
6.15.3 License Agreements. The DSI Disclosure Schedule sets forth a
complete and accurate list of all Inbound License Agreements of
DSI or the DSI Subsidiaries, indicating for each the title and
the parties thereto and the amount of any future royalty or
license fee payable thereunder. The DSI Disclosure Schedule sets
forth a complete and accurate list of all Outbound License
Agreements of DSI or the DSI Subsidiaries, indicating for each
the title and the parties thereto. There is no material
outstanding or, to the knowledge of DSSI and DSI, threatened
dispute or disagreement with respect to any Inbound License
Agreement or any Outbound License Agreement.
35
6.15.4 Ownership; Sufficiency of IP Assets. Except as set forth in the
DSI Disclosure Schedule, DSI or the DSI Subsidiaries owns or
possesses adequate licenses or other rights to use, free and
clear of Liens, orders and arbitration awards, all of its
Intellectual Property used in and necessary to the conduct of
its business. The Intellectual Property identified in the DSI
Disclosure Schedule, together with DSI's and the DSI
Subsidiaries' unregistered copyrights and DSI's and the DSI
Subsidiaries' rights under the licenses granted to DSI or the
DSI Subsidiaries under the Inbound License Agreements,
constitute all the material Intellectual Property rights used in
the operation of DSI's and the DSI Subsidiaries' businesses as
they are currently conducted and are all the Intellectual
Property rights necessary to operate such businesses after the
Closing Date in substantially the same manner as such businesses
have been operated by DSI prior thereto.
6.15.5 No Infringement by DSI. To the best knowledge of DSSI and DSI,
the products used, manufactured, marketed, sold or licensed by
DSI and the DSI Subsidiaries, and all Intellectual Property used
in the conduct of DSI's and the DSI Subsidiaries' businesses as
currently conducted, do not infringe upon, violate or constitute
the unauthorized use of any rights owned or controlled by any
third party, including any Intellectual Property of any third
party.
6.15.6 No Pending or Threatened Infringement Claims. No litigation is
now or, within the three (3) years prior to the date of this
Agreement, was pending and, to DSI's knowledge, no notice or
other claim in writing has been received by DSI within the one
(1) year period prior to the date of this Agreement, (i)
alleging that DSI or the DSI Subsidiaries has engaged in any
activity or conduct that infringes upon, violates, or
constitutes the unauthorized use of the Intellectual Property
rights of any third party or (ii) challenging the ownership,
use, validity or enforceability of any Intellectual Property
owned or exclusively licensed by DSI. Except as specifically
disclosed in the DSI Disclosure Schedule pursuant to this
Section 6.15.6_, no Intellectual Property owned or licensed by
DSI or the DSI Subsidiaries is subject to any outstanding order,
judgment, decree, stipulation or agreement (other than Inbound
License Agreements) restricting the use thereof by DSI or the
DSI Subsidiaries or, in the case of any Intellectual Property
licensed to others, restricting the sale, transfer, assignment
or licensing thereof by DSI or the DSI Subsidiaries to any
person.
6.15.7 No Infringement by Third Parties. To the knowledge of DSI, no
person is misappropriating, infringing, diluting, or violating
any Intellectual Property owned or exclusively licensed by DSI
or the DSI Subsidiaries, and no such claims have been brought
against any person by DSI or the DSI Subsidiaries.
6.15.8 Assignment; Change of Control. The execution, delivery and
performance by DSI of this Agreement, and the consummation by
DSI of the transactions contemplated hereby, will not result in
the loss or impairment of, or give rise to any right of any
third party to terminate, any of DSI's or the DSI Subsidiaries'
rights to own any of its Intellectual Property or its rights
under the License Agreements, nor require the consent of any
Governmental Entity or third party in respect of any such
Intellectual Property.
36
6.15.9 Software. The Owned Software of DSI or the DSI Subsidiaries was
either (i) developed by employees of DSI or the DSI Subsidiaries
within the scope of their employment; (ii) developed by
independent contractors who have assigned their rights to DSI or
the DSI Subsidiaries pursuant to written agreements; or (iii)
otherwise acquired by DSI or the DSI Subsidiaries from a third
party. The Owned Software does not contain any programming code,
documentation or other materials or development environments
that embody Intellectual Property rights of any person other
than DSI or the DSI Subsidiaries, except for such materials or
development environments obtained by DSI or the DSI Subsidiaries
from other persons who make such materials or development
environments generally available to all interested purchasers or
end-users on standard commercial terms or as negotiated between
DSI and any such other person.
6.15.10 Performance of Existing Software Products. All of the Software
Products listed and described in the DSI Disclosure Schedule
perform in all material respects, free of significant bugs or
programming errors, the functions described in any protocol or
standard applicable to the product, and any agreed
specifications or end user documentation or other information
provided to customers of DSI on which such customers relied when
licensing or otherwise acquiring such products.
6.15.11 Employee Confidentiality Agreements. Except as set forth in the
DSI Disclosure Schedule, all employees and consultants of DSI or
the DSI Subsidiaries have entered into confidentiality,
invention assignment and proprietary information agreements with
DSI or the DSI Subsidiaries in the form provided to the
Shareholders. To the best knowledge of DSSI and DSI, no employee
or consultant of DSI or the DSI Subsidiaries is obligated under
any agreement (including licenses, covenants or commitments of
any nature) or subject to any judgment, decree or order of any
court or administrative agency, or any other restriction that
would interfere with the use of his or her best efforts to carry
out his or her duties for DSI or the DSI Subsidiaries (other
than time commitments of independent contractors to their other
clients) or that would conflict with DSI's or the DSI
Subsidiaries' business. The carrying on of DSI's and the DSI
Subsidiaries' business by such employees and contractors of DSI
or the DSI Subsidiaries and the conduct of DSI's and the DSI
Subsidiaries' business as presently proposed, will not, conflict
with or result in a breach of the terms, conditions or
provisions of, or constitute a default under, any contract,
covenant or instrument under which DSI or the DSI Subsidiaries,
or to the knowledge of DSSI and DSI, any of such employees or
consultants, is now obligated. Except as set forth in the DSI
Disclosure Schedule, it is not necessary to utilize any
inventions or any other Intellectual Property of any employees
of or consultants to DSI or the DSI Subsidiaries acquired prior
to their employment by DSI or the DSI Subsidiaries in order to
carry on the business of DSI and the DSI Subsidiaries as
presently conducted. At no time during the conception of or
reduction to practice of any Intellectual Property owned by DSI
or the DSI Subsidiaries was any developer, inventor or other
contributor to such Intellectual Property operating under any
grants from any Governmental Entity or private source,
performing research sponsored by any Governmental Entity or
private source
37
or subject to any employment agreement or invention assignment
or nondisclosure agreement or other obligation with any third
party that could adversely affect DSI's or the DSI Subsidiaries'
rights in such Intellectual Property.
6.15.12 Export Restrictions. Neither DSI nor the DSI Subsidiaries has
exported or transmitted Software or other material in connection
with DSI's or the DSI Subsidiaries' business to any country to
which such export or transmission is restricted by any
applicable law, without first having obtained all necessary and
appropriate government licenses or permits.
6.16. Insurance. Each of DSI and the DSI Subsidiaries maintains Insurance
Policies against all risks of a character and in such amounts as are
usually insured against by similarly situated companies in the same or
similar businesses. Each Insurance Policy is in full force and effect
and is valid, outstanding and enforceable, and all premiums due thereon
have been paid in full. None of the Insurance Policies will terminate or
lapse (or be affected in any other materially adverse manner) by reason
of the transactions contemplated by this Agreement. Each of DSI and the
DSI Subsidiaries has complied with the provisions of each Insurance
Policy under which it is the insured party. No insurer under any
Insurance Policy has canceled or generally disclaimed liability under
any such policy or, to DSI's knowledge, indicated any intent to do so or
not to renew any such policy. All material claims under the Insurance
Policies have been filed in a timely fashion.
6.17. Certain Business Practices. None of DSI, the DSI Subsidiaries or any
directors, officers, agents or employees of DSI or the DSI Subsidiaries
has (i) used any funds for unlawful contributions, gifts, entertainment
or other unlawful expenses related to political activity, (ii) made any
unlawful payment to foreign or domestic government officials or
employees or to foreign or domestic political parties or campaigns or
violated any provision of applicable law, or (iii) made any other
unlawful payment.
6.18. Restrictions on Business Activities. Except as set forth in the DSI
Disclosure Schedule, there is no agreement (non-compete or otherwise),
judgment, injunction, order or decree to which DSI or the DSI
Subsidiaries is a party or otherwise binding upon DSI or the DSI
Subsidiaries that has or is reasonably likely to have the effect of
prohibiting or impairing any business practice of DSI or the DSI
Subsidiaries, any acquisition of property (tangible or intangible) by
DSI or the DSI Subsidiaries or the conduct of business by DSI or the DSI
Subsidiaries. Without limiting the foregoing, except as set forth in the
DSI Disclosure Schedule, neither DSI nor the DSI Subsidiaries has
entered into any agreement under which DSI or any such DSI Subsidiary is
restricted from selling, licensing or otherwise distributing any of its
products or providing services to any class of customers, in any
geographic area, during any period of time or in any segment of the
market.
6.19. Product and Service Warranties. Complete and accurate copies of the
written warranties and guaranties by DSI or the DSI Subsidiaries
currently in effect with respect to any of its products or services have
been delivered to the Shareholders. There have not been any material
deviations from such warranties and guaranties, and neither DSI, the DSI
Subsidiaries nor any of their respective salesmen, employees,
distributors and agents is authorized to undertake warranty and guaranty
obligations to any customer or to other third parties in excess of such
warranties or guaranties.
38
Except as set forth in the DSI Disclosure Schedule, neither DSI nor the
DSI Subsidiaries has made any oral warranty or guaranty with respect to
any of its products or services.
6.20. Brokers. No broker, finder or investment banker is entitled to any
brokerage finder's or other fee or commission from DSI in connection
with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of DSI and DSSI.
6.21. Minute Books. The minute books of DSI and the DSI Subsidiaries made
available to the Shareholders are the only minute books of DSI and the
DSI Subsidiaries and contains a reasonably accurate summary of all
actions taken at meetings of the Board of Directors of DSI or the DSI
Subsidiaries (or committees thereof) or at the General Meetings of the
shareholders of DSI or actions by written consent since the time of
organization of DSI and the DSI Subsidiaries, respectively.
6.22. Taxes. Each of DSI and the DSI Subsidiaries has accurately prepared and
timely filed all Tax Returns and has paid or made provision for the
payment of all amounts due pursuant to such returns. None of the Tax
Returns have been audited by any taxing authority, and neither DSI nor
the DSI Subsidiaries has been advised that any of such Tax Returns will
be so audited, and there are no waivers in effect of the applicable
statute of limitations for any period. No deficiency assessment or
proposed adjustment of income or payroll taxes of DSI and the DSI
Subsidiaries is pending and DSI has no knowledge, after due inquiry, of
any proposed liability for any tax to be imposed on DSI other than in
the ordinary course of business.
6.23. Full Disclosure. Neither this Agreement, the DSI Disclosure Schedule nor
any certificates made or delivered by DSI in connection herewith
contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements herein or therein not
misleading, in view of the circumstances in which they were made. To the
best knowledge of DSSI and DSI, there is no material fact or information
relating to the business, prospects, condition (financial or otherwise),
affairs, operations, or assets of DSI that has not been disclosed to the
Shareholders in writing by DSI.
ARTICLE VII
Representations and Warranties of DSSI
DSSI hereby represents and warrants to the Shareholders as follows:
7.1. Organization.
7.1.1 DSSI is duly organized, validly existing and in good standing
under the laws of Delaware and has all requisite power and
authority to own, lease and operate its properties and to carry
on its businesses as now being conducted.
7.1.2 DSSI is duly qualified or licensed and in good standing to do
business in each jurisdiction in which the property owned,
leased or operated by it or the nature
39
of the business conducted by it makes such qualification or
licensing necessary, except in such jurisdictions where the
failure to be so duly qualified or licensed and in good standing
would not have a Material Adverse Effect on DSSI.
7.2. Capitalization of DSSI and its Subsidiaries.
7.2.1 The authorized capital stock of DSSI consists of 20 million
(20,000,000) shares of Common Stock, of which 8,111,867 shares
of Common Stock were issued and outstanding as of September 30,
2001. All of the outstanding shares of DSSI Common Stock have
been validly issued and are fully paid, nonassessable and free
of preemptive rights. As of September 30, 2001, except in
connection with this Agreement, DSSI has not reserved any shares
of Common Stock for future issuance other than the number of
shares of Common Stock equal to 5% of the current outstanding
shares of Common Stock which have been reserved for future
grants of employee stock options ("DSSI Reserved Shares").
Between September 30, 2001 and the date hereof, no shares of
DSSI's capital stock have been issued, other than (i) pursuant
to the exercise of stock options, warrants and convertible
securities that entitled the holders thereof to purchase DSSI
Reserved Shares; (ii) pursuant to a restricted stock purchase
agreement with an employee of a subsidiary of DSSI; and (iii)
grants of stock options to employees, officers and directors, in
each case made in the ordinary course of business and consistent
with past practice that would entitle the holders thereof to
purchase DSSI Reserved Shares. There are no shareholder
agreements, voting trusts or other agreements or understandings
to which DSSI is a party or by which it is bound relating to the
voting of any shares of capital stock of DSSI. The Certificate
of Incorporation and Bylaws of DSSI filed with the SEC as
exhibits to DSSI's Registration Statement on Form S-1 (SEC File
No. 33-70842 and SEC File No. 33-44027) and DSSI's Current
Report on Form 8-K dated January 10, 1995 have not been amended
as of the date hereof.
7.2.2 DSSI Common Stock constitutes the only class of equity
securities of DSSI or its subsidiaries that is registered or is
required to be registered under the U.S. Exchange Act.
7.2.3 The DSSI Shares to be transferred to the Shareholders under this
Agreement shall, as of the Closing Date, be validly issued,
fully paid, nonassessable and free of preemptive rights of any
stockholders of DSSI.
7.3. Authority Relative to this Agreement. DSSI has all necessary corporate
power and authority to execute and deliver this Agreement and each of
the other Transaction Documents to which it is a party, to perform its
obligations under this Agreement and each of the other Transaction
Documents to which it is a party and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this
Agreement and each of the other Transaction Documents to which DSSI is a
party, and the consummation of the transactions contemplated hereby and
thereby, have been duly and validly authorized by the board of directors
of DSSI, DSSI has
40
delivered to Endan duly adopted resolutions of its Board of Directors
authorizing the same, and no other corporate proceedings on the part of
DSSI are necessary to authorize this Agreement or any of the other
Transaction Documents to which it is a party or to consummate the
transactions contemplated hereby and thereby. This Agreement and each of
the other Transaction Documents to which DSSI is a party have been (in
the case of this Agreement) or shall be (in the case of the other
Transaction Documents) duly and validly executed and delivered by DSSI
and constitute or will constitute, assuming the due authorization,
execution and delivery hereof by the other parties thereto, the valid,
legal and binding agreements of DSSI enforceable against DSSI in
accordance with their respective terms, subject to any applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws now
or hereafter in effect relating to creditors' rights generally or to
general principles of equity.
7.4. SEC Reports; Financial Statements.
7.4.1 DSSI filed with the SEC annual reports on Form 10-K for the year
ended December 31, 2000 and its Quarterly Reports on Form 10-Q
for the quarter ended September 30, 2001 under the U.S. Exchange
Act (the "DSSI SEC Reports"), which complied at the time of
filing in all material respects with all applicable requirements
of the U.S. Exchange Act. None of such DSSI SEC Reports,
including any financial statements or schedules included or
incorporated by reference therein, contained when filed any
untrue statement of a material fact or omitted to state a
material fact required to be stated or incorporated by reference
therein or necessary in order to make the statements therein in
light of the circumstances under which they were made not
misleading, except to the extent superseded by a periodic report
under the U.S. Exchange Act filed subsequently and prior to the
date hereof. The audited and any unaudited consolidated
financial statements of DSSI included in DSSI SEC Reports fairly
present in conformity in all material respects with generally
accepted accounting principles applied on a consistent basis
(except as may be indicated in the notes thereto and except for
the absence of footnotes in the unaudited financial statements),
the consolidated financial position of DSSI and its consolidated
subsidiaries as of the dates thereof and their consolidated
results of operations and changes in financial position for the
periods then ended (subject, in the case of any interim
financial statements, to normal year-end adjustments).
7.4.2 No change in the business, assets, liabilities, condition
(financial or other), or results of operations of DSSI has
occurred between the date of filing of the most recent DSSI SEC
Report filed prior to the date hereof with the SEC that would
cause such DSSI SEC Report, including the financial statements
and schedules included therein, to contain, as of the date
hereof, any untrue statement of a material fact or to omit to
state a material fact that would be required to be stated or
incorporated by reference therein or that would be necessary in
order to make the statements contained therein, as of the date
hereof, not misleading.
41
7.5. Consents and Approvals; No Violations. Except as required for the
registration of the DSSI Shares under the Registration Rights Agreement,
no filing with or notice to, and no permit, authorization, consent or
approval of any Governmental Entity is necessary for the execution and
delivery by DSSI of this Agreement or any of the other Transaction
Documents to which it is a party or the consummation by DSSI of the
transactions contemplated hereby and thereby. Neither the execution,
delivery and performance of this Agreement or any of the other
Transaction Documents to which it is a party by DSSI nor the
consummation by DSSI of the transactions contemplated hereby and thereby
will (i) conflict with or result in any breach of any provision of the
respective Constitutional Documents of DSSI or any of DSSI's
subsidiaries, (ii) result in a violation or breach of or constitute
(with or without due notice or lapse of time or both) a default (or give
rise to any right of termination, amendment, cancellation or
acceleration or Lien) under any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, lease, license, contract,
agreement or other instrument or obligation to which DSSI or any of
DSSI's subsidiaries is a party or by which any of them or any of their
respective properties or assets may be bound or (iii) violate any order,
writ, injunction, decree, law, statute, rule or regulation applicable to
DSSI or any of DSSI's subsidiaries or any of their respective properties
or assets.
7.6. Brokers. No broker, finder or investment banker is entitled to any
brokerage finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made
by or on behalf of DSSI.
7.7. Fluctuations of Share Price. DSSI has no actual knowledge of any pending
or contemplated sale of a significant amount of Common Stock that would
reasonably be expected to cause a downward fluctuation in the price of
the Common Stock; provided, however, that the Shareholders acknowledge
that certain directors and other insiders of DSSI hold significant
portions of the Common Stock and that the sale thereof could cause such
fluctuation.
7.8. Ownership of Ordinary Shares. Other than one Ordinary Share owned by
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇, DSSI owns all the issued and outstanding Ordinary
Shares. The Ordinary Shares owned by DSSI are free and clear of any
Liens or encumbrances.
ARTICLE VIII
Covenants
8.1. Conduct of Business of Endan and DSI. Except as contemplated by this
Agreement, during the period from the date hereof to the Closing Date,
Endan and the Subsidiaries, and DSI and the DSI Subsidiaries, shall
conduct operations only in the ordinary course of business consistent
with past practice, and, to the extent consistent therewith, with no
less diligence and effort than would be applied in the absence of
42
this Agreement, use commercially reasonable efforts to preserve intact
current business organizations, keep available the service of officers
and employees and preserve relationships with customers, suppliers,
distributors, lessors, creditors, employees, contractors and others
having business dealings with them, with the intention that their
goodwill and ongoing businesses shall be unimpaired at the Closing Date.
8.2. No Solicitation or Negotiation. Between the date hereof and the Closing
Date, the Shareholders shall not (nor shall the Shareholders permit
Endan or the Subsidiaries or any of Endan's or the Subsidiaries's
officers, directors, employees, agents, representatives, or affiliates
or cause any person on behalf of the Shareholders to) other than in
accordance with this Agreement, initiate, entertain or encourage any
proposals or offers from, or conduct discussions with or engage in
negotiations with, or provide information to any person relating to, or
execute, consummate or close any possible acquisition of Endan or the
Subsidiaries, whether by way of merger, purchase of shares, purchase of
assets or otherwise. Each Shareholder shall, and it shall cause Endan
and the Subsidiaries to, promptly notify DSI in the event it receives
any proposal or inquiry from a third party concerning a proposed
acquisition of Endan or the Subsidiaries, including the terms and
conditions thereof and the identity of the party submitting such
proposal, and shall advise DSI from time to time of the status and any
material developments concerning the same. Between the date hereof and
the Closing Date, DSSI shall not (nor shall DSSI permit DSI or the DSI
Subsidiaries or any of DSI's or DSSI' officers, directors, employees,
agents, representatives, or affiliates or cause any person on behalf of
DSSI to) other than in accordance with this Agreement, initiate,
entertain or encourage any proposals or offers from, or conduct
discussions with or engage in negotiations with, or provide information
to any person relating to, or execute, consummate or close any possible
acquisition of DSI or the DSI Subsidiaries, whether by way of merger,
purchase of shares, purchase of assets or otherwise. DSSI shall, and it
shall cause DSI and the DSI Subsidiaries to, promptly notify Endan in
the event it receives any proposal or inquiry from a third party
concerning a proposed acquisition of DSI or the DSI Subsidiaries,
including the terms and conditions thereof and the identity of the party
submitting such proposal, and shall advise Endan from time to time of
the status and any material developments concerning the same.
8.3. Certain Filings; Reasonable Efforts. Subject to the terms and conditions
herein provided, each of the parties hereto agrees to use all reasonable
efforts to take or cause to be taken all action and to do or cause to be
done all things reasonably necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
Transactions including (i) obtaining consents of all third parties and
Governmental Entities necessary, proper or advisable or reasonably
required for the consummation of the Transactions; (ii) and executing
any additional instruments necessary to consummate the Transactions.
8.4. Public Announcements. The parties hereto acknowledge that a press
statement describing this transaction has been released to the public.
No Party will, prior to the Closing Date or to the termination of this
Agreement in accordance with Section 11.1 below, make or release any
further statements relating to this transaction without the consent of
the other Parties hereto, which consent shall not be unreasonably
withheld or delayed.
43
8.5. Notification of Certain Matters. Each of the parties hereto shall give
prompt notice to the other parties hereto of (i) the occurrence or
nonoccurrence of any event the occurrence or nonoccurrence of which has
caused or would be likely to cause any representation or warranty of
such party contained in this Agreement to be untrue or inaccurate in any
material respect at or prior to the Closing Date and (ii) any material
failure of such party, as the case may be, to comply with or satisfy in
any material respect any covenant, condition or agreement to be complied
with or satisfied by it hereunder; provided, however, that the delivery
of any notice pursuant to this Section 8.5 shall not cure such breach or
non-compliance or limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
8.6. Additions to and Modification of Disclosure Schedule. Concurrently with
the execution and delivery of this Agreement, Endan shall have delivered
the Endan Disclosure Schedule to DSI and DSSI, and DSI shall have
delivered the DSI Disclosure Schedule to Endan, which in each case
includes all of the information required by the relevant provisions of
this Agreement. In addition, Endan and DSI shall deliver such additions
to or modifications of the Endan Disclosure Schedule or DSI Disclosure
Schedule, respectively, necessary to make the information set forth
therein true, accurate and complete in all material respects as soon as
practicable after such information is available to Endan or DSI,
respectively, after the date of execution and delivery of this
Agreement; provided, however, that such disclosure shall not be deemed
to constitute an exception to its representations and warranties
hereunder, nor limit the rights and remedies of the other Parties hereto
under this Agreement for any breach of such representation and
warranties.
ARTICLE IX
Conditions To Consummation Of The Transactions Contemplated Hereby
9.1. Conditions to Each Party's Obligations to Effect the Transactions. The
respective obligations of each party hereto to consummate the
transactions contemplated hereby are subject to the satisfaction at or
prior to the Closing Date of the following conditions:
9.1.1 no statue, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or
enforced by any court or any Governmental Entity that prohibits,
restrains, enjoins or restricts the consummation of the
transactions contemplated hereby.
9.2. Conditions to the Obligations of the Shareholders. The obligations of
the Shareholders to sell the Shares to DSI are subject to the
satisfaction at or prior to the Closing Date of the following conditions
and the receipt of the following documents:
9.2.1 the representations and warranties of DSSI and DSI contained in
this Agreement shall be true and correct, except to the extent
that the aggregate of all breaches thereof would not have a
Material Adverse Effect on DSSI or DSI, as of the date hereof
and at and as of the Closing Date with the same
44
effect as if made at and as of the Closing Date (except to the
extent such representations and warranties specifically relate
to an earlier date, in which case such representations and
warranties shall be true and correct as of such earlier date
and, in any event, subject to the foregoing Material Adverse
Effect qualification), and at the Closing DSSI and DSI shall
have delivered to the Shareholders a certificate to that effect
executed by an officer of DSSI and DSI, respectively;
9.2.2 each of the material covenants and obligations of DSI and DSSI
to be performed at or before the Closing Date pursuant to the
terms of this Agreement shall have been duly performed in all
material respects at or before the Closing Date and, at the
Closing, DSSI and DSI shall have delivered to the Shareholders a
certificate to that effect executed by an officer of DSSI and
DSI; all the documents to be delivered by DSSI or DSI pursuant
to Article 3 hereof shall be in a form and substance
satisfactory to the Shareholders, and shall have been delivered
to the Shareholders;
9.2.3 the Shareholders shall have received the opinion of legal
counsel to DSI in a form reasonably satisfactory to the
Shareholders;
9.2.4 the Shareholders shall have received the opinion of legal
counsel to DSSI in a form reasonably satisfactory to the
Shareholders;
9.2.5 the consents of any Governmental Entity necessary to consummate
the transactions contemplated hereby and to continue to operate
the businesses of DSI after the Closing Date in all material
respects as they were operated prior thereto and as they are
presently contemplated to be conducted in the future shall have
been given, obtained or complied with, as applicable, and such
consents or approvals shall be in form and substance reasonably
satisfactory to the Shareholders; and
9.2.6 The Israeli tax authorities shall have issued a ruling (the
"Pre-Ruling") to the effect that the receipt of the DSI Shares
by the Shareholders will not be treated as being taxable to the
Shareholders.
9.3. Conditions to the Obligations of DSI and DSSI. The respective
obligations of DSI and DSSI to consummate the transactions contemplated
hereby are subject to the satisfaction at or prior to the Closing Date
of the following conditions and the receipt of the following documents:
9.3.1 the representations and warranties of the Shareholders and of
the Endan Warrantors contained in this Agreement shall be true
and correct, except to the extent that the aggregate of all
breaches thereof would not have a Material Adverse Effect on
Endan, in each case as of the date hereof and at and as of the
Closing Date with the same effect as if made at and as of the
Closing Date (except to the extent such representations and
warranties specifically relate to an earlier date, in which case
such representations and warranties shall be true and correct as
of such earlier date and, in any event, subject to the foregoing
Material Adverse Effect qualification) and, at the Closing, the
Shareholders shall have delivered to DSI certificates to that
effect, executed by the Shareholders;
45
9.3.2 each of the material covenants and obligations of Endan or the
Shareholders to be performed at or before the Closing Date
pursuant to the terms of this Agreement shall have been duly
performed in all material respects at or before the Closing Date
and, at the Closing, the Shareholders shall have delivered to
DSI certificates to that effect, executed by the Shareholders;
all the documents to be delivered by Endan or the Shareholders
pursuant to Article 3 hereof shall be in form and substance
satisfactory to DSI, and shall have been delivered to DSI;
9.3.3 DSI and DSSI shall have received the opinion of legal counsel to
Endan, Kardan and ▇▇▇▇▇▇▇▇ Investments in a form reasonably
satisfactory to DSI and DSSI;
9.3.4 Endan shall have obtained the consent or approval of each person
listed on Schedule 9.3.4 to the transactions contemplated by
this Agreement;
9.3.5 the Board of Directors of Endan appointed by the Shareholders
shall have tendered their resignations from the Board of
Directors;
9.3.6 DSI shall have received an executed Heads of Employment
Agreement by Noy, in the form of Exhibit 9.3.6A hereto (the
"Employment Agreement"), whereby Noy shall agree to be employed
by DSI or Endan as the CEO of DSI for at least two years on
terms not less favorable to Noy on a gross economic basis than
the terms of his employment with Endan, and within thirty (30)
days of the Closing, Noy shall execute; (x) a full employment
agreement conforming with the terms thereof, along with (y) an
executed Non-Compete and Non-Disclosure Agreement in a form
reasonably satisfactory to DSI;
9.3.7 DSI shall have received evidence of cancellation of ▇▇▇▇▇
▇▇▇▇▇▇'▇ stock option agreement with Endan to take effect as of
the Closing; and
9.3.8 The Shareholders shall delivered to DSSI audited financial
statements of Endan for the year ended December 31, 2000 and
reviewed financial statements for the nine month period ended
September 30, 2001, which financial statements shall (a) be
translated to English and contain a footnote with reconciliation
to U.S. generally accepted accounting principles, (b) comply
with Item 17 of Form 20-F and (c) have been audited or reviewed
(as the case may be) by Luboshitz, Kasierer & Co., Endan's
independent public accountants.
ARTICLE X
Covenants of the Parties from and after The Closing Date
10.1. Board of Directors. As of the Closing and thereafter, the Board of
Directors of DSI, Endan and any of their subsidiaries shall each consist
of six (6) directors, who shall be appointed by way of written
appointment as follows: (i) DSSI shall have the right to appoint, remove
from office and replace four (4) directors; (ii) Kardan shall have the
right to appoint, remove from office and replace one (1) director (the
"Kardan Director"); provided, that unless otherwise agreed by the
Chairman of the Board of
46
Directors of DSI, the Kardan Director shall be ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, so long
as he remains an employee of Kardan or its Affiliates; (iii) and
▇▇▇▇▇▇▇▇ Investments shall have the right to appoint, remove from office
and replace one (1) director; provided, that so long as Noy serves as
the Chief Executive Officer of DSI, ▇▇▇▇▇▇▇▇ Investments may not appoint
anyone other than Noy as director; and provided, further, that a Party
shall not have the right to appoint, remove and replace a director under
this Section 9.1 if such Party ceases to own 5% or more of the
outstanding Ordinary Shares.
10.2. Management.
10.2.1 As of the Closing and thereafter, Noy will serve as the Chief
Executive Officer of DSI in accordance with the Employment
Agreement.
10.2.2 From and after the Closing Date, management services to DSI
provided by any of its shareholders shall be (i) purchased at
arm's-length terms as would be standard for similar services
provided between unrelated parties, and (ii) subject to the
reasonable consent of the Kardan Director; provided, however,
that the remuneration provided for under the current arrangement
for management services being provided by DSSI to DSI and any
renewals thereof shall not be subject to this Section 10.2.2 (it
being understood that the mixture of services provided under
such arrangement will be subject to the consent of the Chief
Executive Officer and the Chairman of the Board of Directors).
10.2.3 DSI's annual budget and working plan (the "Annual Budget") shall
be approved by a committee of the Board of Directors of DSI,
consisting of the Chairman of the Board of Directors, the Chief
Financial Officer, the Chief Executive Officer and an appointee
of the Chief Executive Officer.
10.2.4 The Chief Financial Officer, Chief Operations Officer and
Marketing Director of DSI shall be appointed, removed and
replaced by the Chairman of the Board of Directors and the Chief
Executive Officer of DSI.
10.2.5 The Chief Executive Officer of DSI shall be appointed, removed
and replaced by the Board of Directors of DSI, subject to the
consent of the Kardan Director, which consent shall not be
withheld other than for a reasonable cause. The Chairman of the
Board of Directors of DSI shall propose candidates to fill the
office of the Chief Executive Officer.
10.3. Consent Requirement. From and after the Closing Date and until the
earlier of (x) consummation of an initial public offering of the
Ordinary Shares pursuant to an effective registration statement under
the Act or equivalent law of another jurisdiction other than an offering
solely in connection with a stock incentive plan (an "IPO") or (y)
Kardan owns, directly, less than 5% of the outstanding Ordinary Shares,
the following matters, if and when presented to the approval of a
general meeting of DSI shareholders, shall require the consent of Kardan
and, if and when presented to the approval of the Board of Directors of
DSI or to any committee thereof, shall require the consent of the Kardan
Director:
10.3.1 The adoption of any resolution amending the Articles of
Association or Memorandum of Association of DSI;
10.3.2 The issuance of any equity securities of DSI or rights to
acquire such securities, other than (a) the issuance of stock
options to employees, officers,
47
directors or consultants of DSI pursuant to the 2001 DSI Stock
Option Plan or any other incentive plan approved pursuant to
this Section 10.3 or the exercise thereof, (b) the issuance of
incentive warrants to customers of DSI or the exercise thereof,
or (c) the issuance of Ordinary Shares to DSSI upon conversion
of the Preferred Shares in connection with an IPO;
10.3.3 The adoption of new line items in the Annual Budget that did not
appear in the Annual Budget of previous years;
10.3.4 Any transaction with a value of more than $50,000 which is not
in the ordinary course of business of DSI, unless such
transaction is contemplated in the applicable Annual Budget;
10.3.5 Any transaction in which any "Interested Party" (as such term is
defined in the Israeli Companies Law 5759-1999), other than
Kardan, shall have a personal interest, other than (i)
transactions in the ordinary course of business with a value of
less than $100,000 or (ii) transactions not in the ordinary
course of business with a value of less than $10,000;
10.3.6 The appointment, removal or replacement of the auditors of DSI;
10.3.7 The liquidation or winding up of DSI; and
10.3.8 Any of the following matters, provided that such matters are (a)
material to DSI, (b) strategically important to DSI, and (c) of
such nature that would generally be brought to the approval of
the Board of Directors of DSI:
10.3.8.1 Any acquisition, sale, lease, mortgage, pledge or other
disposition of assets of DSI representing 20% or more
of the fair market value of the total assets of DSI;
10.3.8.2 Any merger, consolidation or other form of business
combination of DSI with another Person;
10.3.8.3 The formation of a company or partnership, or the
acquisition of shares or other equity interests in any
Person;
10.3.8.4 Any investment, loan or capital contribution to any
Person other than (x) an investment, loan or capital
contribution to a subsidiary of DSI or (y) loans to
employees of DSI in the ordinary course of business;
10.3.8.5 The entry into any endeavor or project not within the
primary business of DSI; and
10.3.8.6 Withdrawal from any existing line of business.
The limitations described in this Section 10.3 shall apply to the
actions of Endan and any other subsidiary of DSI, and the rights of
Kardan under this Section 10.3 are assignable to the extent permitted by
Section 13.4 hereof.
10.4. Dividend Policy. From and after the Closing Date and prior to the IPO, a
committee of the Board of Directors of DSI, consisting of the Kardan
Director, the director appointed by ▇▇▇▇▇▇▇▇ Investments under Section
9.1 and one of the directors appointed by DSSI (the "Dividends
Committee") shall be empowered to make
48
recommendations with respect to distribution of dividends. Such
recommendations shall be approved by at least a majority of the
Dividends Committee's members. The parties hereto undertake to take all
actions as may be required to cause dividends to be distributed in at
least the amount recommended by the Dividends Committee.
10.5. Preemptive Rights. Commencing immediately following the Closing and
terminating upon the IPO, each of the Parties hereto (each, an
"Offeree") shall, in respect of the Ordinary Shares held by such Party,
have a preemptive right to purchase its pro-rata share (or any part
thereof) of New Securities (as defined below) that DSI may, from time to
time, propose to sell and issue. The pro rata share which each Offeree
may purchase hereunder shall be the ratio of the number of Ordinary
Shares held by such Offeree as of the date of the Rights Notice (as
defined below), to the total number of issued and outstanding Ordinary
Shares as of such date. This preemptive right shall be subject to the
following provisions:
10.5.1 "New Securities" shall mean any Ordinary Shares or preferred
shares of any kind of DSI, whether now or hereafter authorized,
any rights, options, or warrants to subscribe for, purchase or
otherwise acquire said Ordinary Shares or preferred shares, and
any debt securities of DSI that are, or may become, convertible
into said Ordinary Shares or preferred shares; provided,
however, that "New Securities" shall not include (i) securities
offered to the public in the IPO; (ii) securities issued to
employees, officers, directors or consultants of DSI under any
share option plan or share incentive plan duly approved by the
Board of Directors; (iii) securities issued to "strategic
investors" of DSI, which means an investor which is active in
areas related to the DSI business, has annual revenues of at
least $10 million and is a significant customer of DSI, or has
entered into a collaboration agreement or other pre-existing
relationship with DSI which is of strategic value to DSI, as
determined by the Board of Directors of DSI; (iv) Ordinary
Shares or preferred shares issued by DSI in connection with any
stock split, stock dividend, recapitalization, reclassification,
subdivision, combination or similar event; or (v) Ordinary
Shares issued to DSSI upon conversion of the Preferred Shares in
connection with an IPO.
10.5.2 If DSI proposes to issue New Securities, it shall give each of
the Offerees a written notice (the "Rights Notice") of its
intention, describing the New Securities, the price and the
general terms upon which DSI proposes to issue them, and offer
to issue and sell to such Offeree its pro rata share (in this
Section, the "Pro Rata Share") and any additional portion of the
New Securities as such Offeree shall indicate he or it will
purchase or acquire should the other Offerees subscribe for less
then their Pro Rata Share (the "Additional Amount"). Each
Offeree shall have fourteen (14) days from delivery of the
Rights Notice to agree to purchase an amount of New Securities
up to the number described above, for the price and upon the
general terms specified in the Rights Notice, by delivering
written notice to DSI prior to the expiration of the fourteen
days, setting forth the quantity of New Securities that the
Offeree elects to purchase. In the event that the Pro Rata Share
subscribed for by all Offerees are less than the total amount of
New Securities, then each Offeree who has set forth an
Additional Amount shall be entitled to purchase, in addition to
its Pro Rata Share, a pro rata portion of the remaining New
Securities (calculated based on the ratio of the Additional
Amount subscribed for by such Offeree to the total Additional
49
Amounts subscribed for by all Offerees), not to exceed the
Additional Amount set forth by such Offeree.
10.5.3 If the Offerees do not exercise the preemptive right in respect
of all the New Securities, DSI shall have ninety (90) days after
delivery of the Rights Notice to sell the unsold New Securities
at a price and upon general terms equivalent to those specified
in the Rights Notice. If DSI has not sold the New Securities
within said ninety (90) day period, DSI shall not thereafter
issue or sell any New Securities without first offering such
securities to the Offerees in the manner provided above.
10.6. Right of First Refusal. Commencing on the Closing Date and terminating
upon the IPO, any Transfer of Ordinary Shares or rights to acquire
Ordinary Shares, other than a Bring Along Sale under Section 10.8, shall
be subject to the following:
10.6.1 Any Party proposing to Transfer all or any of his Ordinary
Shares or any rights to acquire Ordinary Shares (the "Seller")
shall first offer such Ordinary Shares or rights (the "Offered
Shares") to all the other Parties (the "Buyers"), by sending the
Buyers a written notice (the "Offer"), stating therein the
identity of the Seller and of the proposed transferee(s), the
number of Offered Shares, the consideration per share to be
delivered to the Seller for the proposed transaction, and all
other proposed terms of the transaction. Each Buyer shall have
an option, exercisable for a period of fourteen (14) Business
Days after the Offer is delivered to such Buyer, to purchase, at
a price and upon the other terms specified in the Offer, up to
such portion of the Offered Shares as the aggregate number of
Ordinary Shares then held by that Buyer bears to the total
number of the then issued and outstanding Ordinary Shares (the
"Proportional Share") plus any additional portion of the Offered
Shares as such Buyer shall indicate he or it will purchase or
acquire should the other Buyers subscribe for less than their
Proportional Share (the "Additional Shares"), by giving the
Seller notice to that effect within such fourteen (14) Business
Day period.
10.6.2 If the Proportional Share subscribed for by all Buyers are less
than the total number of Offered Shares, then each Buyer who has
set forth Additional Shares shall be entitled to purchase, in
addition to the Proportional Share subscribed for, a pro rata
portion of the remaining Offered Shares (calculated based on the
ratio of the Additional Shares subscribed for by such Buyer to
the total Additional Shares subscribed for by all Buyers), not
to exceed the Additional Shares set forth by such Buyer.
10.6.3 If the Buyers do not exercise the option to purchase all of the
Offered Shares, then the option to purchase the Offered Shares
shall terminate, and the Seller shall be entitled to Transfer
all (but not less than all) of the Offered Shares to the
proposed transferee(s) identified in the Offer; provided,
however, that in no event shall the Seller Transfer any of the
Offered Shares to any transferee other than such accepting
Buyers or such proposed transferee(s) or Transfer the same on
terms more favorable to the transferee(s) than those stated in
the Offer, and provided further that any of the Offered Shares
not Transferred within ninety (90) days after the expiration of
such fourteen (14) Business Day period shall again be subject to
the provisions of this Section.
50
10.6.4 Notwithstanding the above, in the event that the Seller is any
of the Shareholders, such Seller shall initially offer the
Offered Shares to the other Shareholders, in accordance with the
procedure describe above, mutatis mutandis, and should they fail
to purchase all of the Offered Shares within the time period
specified above, he or it shall then offer the Offered Shares to
the other Parties.
10.6.5 Anything contained herein to the contrary notwithstanding, any
Party may freely Transfer any or all of his shares to (i) such
Party's parent, spouse, child, brother, sister and their
spouses; (ii) any Affiliate of such Party; or (iii) a custodian
or a nominee of such Party for the benefit of such Party (a
"Permitted Transferee"). Any Permitted Transferee shall execute
a document whereby such Permitted Transferee agrees to be bound
by the provisions of this Agreement.
10.7. Co-Sale. Commencing on the Closing Date and terminating upon the IPO, in
the event that DSSI proposes to sell Offered Shares, other than to a
Permitted Transferee, and any Shareholder (hereinafter in this Section,
the "Co-Seller") has not exercised its right of first refusal under
Section 10.6 above, then the Co-Seller shall have the right to demand to
participate in such a sale by DSSI, and the following provisions shall
apply:
10.7.1 The Co-Seller shall provide a written notice to DSSI no later
than fourteen (14) Business Days after the Offer is delivered to
the Co-Seller, informing DSSI that the Co-Seller is not
exercising its right of first refusal under Section 10.6 to this
Agreement, and that the Co-Seller desires to exercise its
co-sale right under Section 9.7 of this Agreement by
participating in the sale of Ordinary Shares by DSSI on the same
terms and conditions as detailed in the Offer, which notice will
indicate the number of Ordinary Shares of the Co-Seller to be
included in the sale by DSSI ("Co-Sale Shares"), provided that
the number of Co-Sale Shares shall not represent a greater
proportion of the Ordinary Shares held by the Co-Seller than the
proportion of the Offered Shares to all Ordinary Shares then
owned by DSSI;
10.7.2 DSSI shall use its best efforts to cause the purchaser
identified in the Offer to purchase the Co-Sale Shares;
10.7.3 In the event that such purchaser does not wish to purchase all
of the Offered Shares and the Co-Sale Shares, then each of DSSI
and the Co-Seller shall be entitled to sell, at the price and on
the terms and conditions set forth in the Offer, a portion of
the shares being sold to the transferee, in the same proportion
as DSSI or Co Seller's ownership of Ordinary Shares of DSI bears
to the aggregate number of Ordinary Shares of DSI owned by DSSI
and the Co Seller;
10.7.4 In the event that the Co-Seller elects to sell less than maximum
number of Co-Sale Shares permitted by this Section 10.7
("Shortfall"), DSSI shall be entitled to sell an additional
number of Ordinary Shares equal to the Shortfall.
10.8. Bring Along. In the event that DSSI shall propose to sell, in one
transaction or a series of related transactions, to any Person or
Persons not including any Permitted Transferee (in this Section, the
"Buyer"), at least 85% of the Ordinary Shares held by it as of the
Closing Date ("Bring Along Sale"), then DSSI shall be entitled, at its
option, to require each shareholder of DSI to include in the Bring Along
Sale up to a
51
pro rata portion of its DSI Shares, calculated based on the ratio of the
shares sold by DSSI to the total number of Ordinary Shares then held by
DSSI, at the same price and upon the same terms and conditions as DSSI
agreed to with respect to its Ordinary Shares (wherein, any
consideration received by DSSI with respect to its Preferred Shares sold
as part of the Bring Along Sale, which is in excess of the amount
payable with respect to such Preferred Shares upon liquidation of DSI in
accordance with the Amended Articles, shall be deemed, for the purposes
of this Section, to have been received with respect to the Ordinary
Shares).
10.9. Reports and Statements. Without derogating from the rights of the
shareholders of DSI under law, from and after the Closing Date and until
the IPO, DSI shall deliver to each shareholder party hereto who holds,
and only so long as it so holds, at least ten percent (10%) of the share
capital of DSI:
10.9.1 Audited annual financial statements, within sixty (60) days from
the end of each fiscal year (provided, that the shareholders
shall not publish or otherwise release such financial statements
prior to the earlier of (i) expiration of ninety (90) days from
the end of such fiscal year or (ii) the date when such financial
statements are being published by DSSI), and unaudited reviewed
quarterly financial statements, within forty-five (45) days from
the end of each fiscal quarter. Such financial statements shall
include a consolidated balance sheet of DSI at the end of such
year or quarter, as the case may be, and statements of income
and statements of cash flow of DSI for such year or quarter, as
the case may be, all in reasonable detail, prepared in
accordance with the format required by the Israeli Securities
Authority, and audited or reviewed, as the case may be, by a
recognized firm of independent certified public accountants;
10.9.2 Monthly records of sales, within fifteen (15) days from the end
of each month;
10.9.3 A report providing details with respect to an event which could
be reasonably expected to have a Material Adverse Effect on DSI,
as soon as possible after the occurrence of such event; and
10.9.4 Any other information reasonably requested by such shareholder,
which shall be necessary in order for such shareholder to
monitor his or its investment in DSI.
10.10. Undertaking. Each of the parties hereto undertakes to comply with the
Pre-Ruling, insomuch as the Pre-Ruling is not more restrictive as to the
interests of such party than are the provisions of Sections 103 or 104
of the Israeli Income Tax Ordinance (New Version), [1961].
10.11. Incidental Registration Rights. At any time following the IPO, in the
event that DSI proposes to register any of its shares or other
securities under the Act, or equivalent law of another jurisdiction, in
connection with an underwritten public offering of such securities
(other than a registration solely for sale of the securities under any
employee benefit plan, a registration effected pursuant to Rule 145
promulgated under the Act, or a registration on any form which does not
include substantially the same information as would be required to be
included in a registration statement covering the sale of the DSI
Shares), DSI shall, at such time, promptly give each Shareholder written
notice of such registration. Upon the written request of any Shareholder
given within twenty (20) days after receipt of such notice from DSI, DSI
shall cause to be included in the registration all of the DSI Shares
that each such Shareholder has requested to be registered, subject to
the following terms and conditions:
52
10.11.1 All Shareholders proposing to distribute their DSI Shares
through such underwriting shall enter into an underwriting
agreement in customary form with the underwriter or underwriters
selected for the underwriting by DSI;
10.11.2 If the managing underwriter advises DSI in writing that in its
opinion the number of securities requested to be included in
such registration would adversely affect the offering, then DSI
may limit the number of shares to be included in such
registration, and the number of shares that may be included in
the registration shall be allocated, first, to DSI, and second,
to each of the shareholders (including the Shareholders)
requesting inclusion of their shares in such registration
statement on a pro rata basis based on the total number of
Ordinary Shares then held by such shareholders, and in the event
that any shareholder would thus be entitled to include more
securities than such shareholder requested to be registered, the
excess shall be allocated among the other requesting
shareholders, pro rata, in the manner described above.
10.12. Referrals of Business Opportunities. From and after the Closing Date,
each of DSSI, Kardan and Noy shall refer by written notice all business
opportunities in Israel in the fields of information technology
projects, integration of IT, software development outsourcing and
software services to DSI. Such notice shall, to the extent possible,
provide background, details and specifications for such opportunities.
Within 21 days after the date it receives such notice from a referring
Party, if DSI fails to give notice to the referring party of its
intention to pursue such business opportunity, such referring Party
shall be entitled to pursue such opportunity itself, provided that such
business does not directly compete with DSI's business as conducted or
proposed to be conducted at that time.
10.13. Consents and Reports of Auditors. From and after the Closing Date,
Kardan and Noy shall use their best efforts to obtain on behalf of DSSI
and/or DSI any required consents or reports of any independent public
auditors who have prepared, reviewed and/or audited any of Endan's
financial statements prior to the Closing Date (including, without
limitation, such consents and reports of Luboshitz, Kasierer & Co.,
Endan's independent public accountants, for the financial statements
delivered to DSSI at the Closing pursuant to Section 9.3.8 hereof).
10.14. Collateral and Guarantees of Loans. For a period of two (2) months from
the Closing Date, Kardan shall keep the collateral provided by it to
Bank Hapoalim (the "Bank") in connection with a loan or line of credit
made to Endan ("Current Loan") in full force and effect, as the same
shall have existed immediately prior to the Closing Date. DSI shall, by
the second month anniversary of the Closing Date, provide sufficient
collateral to the Bank to reduce the portion of the Current Loan covered
by Kardan's collateral to the lesser of (x) U.S.$240,000 and (y) 32% of
the outstanding Current Loan. For the next sixteen (16) months
immediately following such two month period, Kardan shall continue to
provide collateral for the Current Loan, satisfactory to the Bank, which
collateral shall cover a portion of the Current Loan equal to the lesser
of (x) U.S.$240,000 and (y) 32% of the outstanding Current Loan. DSI
shall, by the eighteen month anniversary of the Closing Date, provide
sufficient collateral to the Bank to release the collateral provided by
Kardan hereunder. DSSI hereby undertakes to ensure the performance by
DSI of its obligations under this Section 10.14.
10.15. 2001 Financial Statements. Each of Kardan and ▇▇▇▇▇▇▇▇ Investments shall
provide all necessary assistance to DSI in connection with the
preparation of audited annual
53
financial statements of Endan for the fiscal year ending December 31,
2001, which shall be prepared in all material respects in accordance (x)
with U.S. generally accepted principles or (y) with Israeli generally
accepted accounting principles with a reconciliation footnote to U.S.
generally accepted accounting principles, accompanied by an audit
opinion thereon of Luboshitz, Kasierer & Co., Endan's independent public
accountants, and in compliance in all other respects with Item 17 of SEC
Form 20-F (the "2001 Endan Financial Statements").
ARTICLE XI
Termination
11.1. Termination This Agreement may be terminated and the transactions
contemplated hereby may be abandoned at any time prior to the Closing
Date:
11.1.1 by mutual written consent of DSI, DSSI and the Shareholders;
11.1.2 by any of DSI, DSSI or the Shareholders if (i) any court of
competent jurisdiction or any Governmental Entity shall have
issued a final order, decree or ruling, or taken any other final
action, restraining, enjoining or otherwise prohibiting the
transactions contemplated hereby and such order, decree, ruling
or other action is or shall have become non-appealable or (ii)
the transactions contemplated hereby have not been consummated
by December 31, 2001 (the "Final Date"); provided that no party
may terminate this Agreement pursuant to this clause (ii) if
such party's failure to fulfill any of its obligations under
this Agreement shall have been a principal reason that the
Closing Date shall not have occurred on or before said date.
ARTICLE XII
Survival; Indemnification
12.1. Survival of Representations and Warranties and Covenants. The
representations and warranties set forth herein shall survive through
the second anniversary of the Closing Date, except the representations
and warranties in Sections 4.1, 4.2, 4.6, 4.7, 5.2, 5.3, 5.6, 5.15,
5.21, 6.2, 6.3, 6.4, 6.7, 6.16 and 6.22, which shall survive and remain
in effect until the expiration of the applicable statute of limitations.
Further, any covenant in this Agreement which by its terms, requires
performance by a Party after the Closing Date shall survive the Closing
Date for the period set forth in such covenant, and if no time period is
ascribed in such covenant, indefinitely.
12.2. Indemnification by DSI and DSSI. Each of DSI and DSSI hereby agrees,
severally, to indemnify and hold the Shareholders harmless from and
against any and all damages, awards, judgments, payments, diminutions in
value, all interest thereon, costs and expenses of investigating claims,
lawsuits or arbitration and any appeal from any of
54
the foregoing and reasonable attorneys fees incurred in connection
therewith (collectively, the "Damages") resulting from
(i) any misrepresentation, breach of any warranty, or
non-fulfillment of any covenant or agreement of DSI or DSSI
contained in this Agreement or in any statement, attachment,
schedule or certificate attached to this Agreement or delivered
at the Closing or
(ii) for a period of three years from the Closing Date, any liability
of DSI or any DSI Subsidiary with respect to taxes relating to
periods or events prior to the DSI Balance Sheet, which
liability was not adequately provided for in the DSI Financial
Statements,
but in any such case, only if such Damages exceed $375,000 ("Minimum
Damages"), in which case the indemnification obligation provided for
herein shall be effective with respect of any and all Damages and not
only with respect to the amount of Damages in excess of the Minimum
Damages. Any indemnification liability of DSSI or DSI solely pursuant to
clause (ii) above shall be satisfied by the deduction of the amount of
such liability from the Preference Amount (as defined in Article 66 of
the Amended Articles) , and any excess of such liability over the
Preference Amount shall be paid, at the option of DSSI, either (x) by
the transfer of cash or other value from DSSI to DSI or (y) by the
transfer to the indemnified Shareholder of a percentage of the amount of
such liability which is equal to such Shareholder's ownership percentage
of the outstanding Ordinary Shares on the Closing Date disregarding any
Ordinary Shares issuable upon the conversion of the Preferred Shares or
upon the exercise of the Option. DSSI and DSI shall not be liable for
Damages of any Shareholder that is in excess of an amount equal to, in
respect of each Shareholder, (A) the amount set forth opposite the name
of such Shareholder under the column "maximum indemnity from DSI" on
Schedule 3.2 hereof, minus (B) (x) if such Shareholder shall have sold
his or its DSSI Shares as of the date such liability is payable, the
aggregate price paid or to be paid for such DSSI Shares, (y) if such
Shareholder shall have not sold any of his or its DSSI Shares, such
Shareholder's "Percentage of DSSI Shares" (as set forth on Schedule 3.2
hereof) of $2.25 million, and (z) if such Shareholder shall have sold
some but not all of his or its DSSI Shares, the sum of (I) the price
paid or to be paid for the DSSI Shares sold, plus (II) a percentage of
the amount determined in the preceding clause (y) (which percentage will
be equal to the quotient of the number of DSSI Shares unsold divided by
the number of DSSI Shares such Shareholder received at Closing) (the
"Shareholders Maximum Damages"). Notwithstanding the foregoing, and
without limiting any other remedy that may be available to the
Shareholders, the provisions of this Section 11.2 shall not apply to any
breach or non-fulfillment of the covenants and agreements set forth in
Article X of this Agreement. Damages shall be fully indemnifiable and
not subject to the Minimum Damages or Shareholders Maximum Damages
limitations if such Damages arise from any fraudulent misrepresentation.
Any payment by DSI to a Shareholder pursuant to this Section (other than
payment by deduction from liquidation preference or by transfer of cash
from DSSI to DSI) shall be grossed up to account for the decrease in
value of such Shareholder's Ordinary Shares resulting from such payment.
55
12.3. Indemnification by Kardan and Noy. Each of (x) Kardan and (y) ▇▇▇▇▇▇▇▇
Investments jointly with Noy, hereby agrees, severally, to indemnify and
hold DSI and DSSI harmless from and against
(i) any Damages resulting from any misrepresentation, breach of any
warranty, or non-fulfillment of any covenant or agreement
regarding itself (and in the case of Noy, ▇▇▇▇▇▇▇▇ Investments)
contained in this Agreement or in any statement, attachment,
schedule or certificate attached to this Agreement or delivered
at the Closing, and
(ii) its (and in the case of Noy, ▇▇▇▇▇▇▇▇ Investments') pro rata
share of the "maximum indemnity to DSI" as set forth against its
name in Schedule 3.2 hereof (calculated among Kardan and Noy,
and totaling 100%) of any Damages resulting from (A) any
misrepresentation, breach of any warranty, or non-fulfillment of
any covenant or agreement regarding Endan, contained in this
Agreement or in any statement, attachment, schedule or
certificate attached to this Agreement or delivered at the
Closing or (B) for a period of three years from the Closing
Date, any liability of Endan or any Subsidiary with respect to
taxes relating to periods or events prior to the Endan Balance
Sheet, which liability was not adequately provided for in the
Endan Financial Statements,
but in any such case, only if such Damages exceed the Minimum Damages,
in which case the indemnification obligation provided for herein shall
be effective with respect of any and all Damages and not only with
respect to the amount of Damages in excess of the Minimum Damages. Any
indemnification liability of Kardan, ▇▇▇▇▇▇▇▇ Investments or Noy solely
pursuant to clause (ii)(B) above shall be satisfied by the increase by
the amount of such liability of the liquidation preference payable in
respect of the Preferred Shares in up to an amount equal to the
Preference Amount (as defined in Article 66 of the Amended Articles)
after giving effect to the adjustment called for thereunder in respect
of the 2001 year end financials, and any excess of such liability over
such amount shall be satisfied by the transfer of cash to DSI. A
Shareholder shall not be liable for Damages of DSI or DSSI that is in
excess of the amount set forth opposite such Shareholder's name on
Schedule 3.2 hereof under the column "maximum indemnity to DSI" (the
"DSSI Maximum Damages"). Damages shall be fully indemnifiable and not
subject to the Minimum Damages or DSSI Maximum Damages limitations if
such Damages arise from any fraudulent misrepresentation.
12.4. Notice of Claim, Assumption of Defense and Settlement of Claims. With
respect to any third party claims against a Party (the "Indemnitee")
made subsequent to the Closing Date, the following procedures shall be
observed:
(a) the Indemnitee shall promptly give notice to the indemnifying
Party (the "Indemnitor") after the Indemnitee has knowledge of
any claim as to which recovery may be sought against the
Indemnitor because of the Indemnity provisions set forth in
Sections 12.2 and 12.3 above, or of the commencement of any
legal proceedings against the Indemnitee with respect to such
claim after the Indemnitee has knowledge or such proceedings,
whichever shall first occur, and shall permit the Indemnitor to
assume the defense of any such claim or any litigation resulting
from such claim with counsel reasonably satisfactory to the
Indemnitee. Failure by the Indemnitor to notify the
56
Indemnitee of its election to defend any such action within 30
days after notice thereof shall have been given, shall be deemed
a waiver by the Indemnitor of its right to defend and settle
such action.
(b) If the Indemnitor assumes the defense of any such claim or
litigation resulting therefrom, its obligations hereunder as to
such claim shall be limited to taking all steps necessary in the
defense or settlement of such claim or litigation resulting
therefrom and to holding the Indemnitee harmless from and
against any and all Damages awarded in any such proceeding or
arising out of any settlement approved by the Indemnitor or any
judgment in connection with such claim or litigation resulting
therefrom. The Indemnitor shall not, in the defense of such
claim or any litigation resulting therefrom, consent to entry of
any judgment (except with the prior written consent of the
Indemnitee) or enter into any settlement (except with the prior
written consent of the Indemnitee) which does not include as an
unconditional term thereof the giving by the claimant or the
plaintiff to the Indemnitee of a release from all liability in
respect of such claim or litigation.
(c) If the Indemnitor does not assume the defense of any third party
claim or litigation resulting therefrom, the Indemnitee may
defend against or settle such claim or litigation in such manner
as it may deem appropriate, and the Indemnitor shall promptly
reimburse the Indemnitee for all expenses, legal or otherwise,
incurred by the Indemnitee in connection with the defense
against and settlement of such claim or litigation, as and when
the same shall be incurred by the Indemnitee. If no settlement
of such claim or litigation is made, the Indemnitor shall
promptly reimburse the Indemnitee for the amount of any judgment
rendered with respect to such claim or in such litigation and of
all expenses, legal or otherwise, incurred by the Indemnitee in
the defense against such claim or litigation.
ARTICLE XIII
Miscellaneous
13.1. Fees and Expenses. DSSI shall bear its and DSI's expenses and each of
the Shareholders and Noy shall bear its own expenses in connection with
this Agreement and the transactions contemplated hereby, including
without limitation legal fees, accounting and auditors fees, and costs
associated with filings, whether incurred before or after the date
hereof, including the excess of the costs of the audit for the 2001
Endan Financial Statements over any costs that DSI would have incurred
at any event with respect to Endan as part of the preparation of DSI's
audited annual financial statements for the year 2001.
13.2. Amendment. This Agreement may be amended only by an instrument in
writing signed by all of the parties hereto.
13.3. Extension; Waiver. At any time prior to the Closing Date, each party
hereto may (i) extend the time for the performance of any of the
obligations or other acts of the other party, (ii) waive any
inaccuracies in the representations and warranties of the other
57
party contained herein or in any document, certificate or writing
delivered pursuant hereto or (iii) waive compliance by the other party
with any of the agreements or conditions contained herein. Any agreement
on the part of any party hereto to any such extension or waiver shall be
valid only if set forth in an instrument, in writing, signed on behalf
of such party. The failure of any party hereto to assert any of its
rights hereunder shall not constitute a waiver of such rights.
13.4. Entire Agreement; Assignment. This Agreement (including the Disclosure
Schedules) (a) constitutes the entire agreement between the parties
hereto with respect to the subject matter hereof and supersedes all
other prior agreements and understandings both written and oral between
the parties with respect to the subject matter hereof and (b) shall not
be assigned by any Party, whether by operation of law or otherwise,
without the prior consent of the other Parties; provided, that the
rights and obligations of Kardan and ▇▇▇▇▇▇▇▇ Investments pursuant to
Article 10 hereof may be assigned by Kardan and ▇▇▇▇▇▇▇▇ Investments,
respectively, in connection with a sale of all, but not less than all,
of such Shareholder's DSI Shares to a transferee, except for the rights
pursuant to Sections 10.2 or 10.3.3, which may not be assigned by Kardan
other than to a Permitted Transferee; provided that such transferee
executes a document whereby he or it agrees to be bound by the relevant
provisions of this Agreement. No party hereto may transfer any of his or
its DSI Shares to an actual competitor of DSI in the fields of
information technology projects, integration of IT, software development
outsourcing and software services without the approval of the majority
of the Board of Directors of DSI. 13.5. Validity. If any provision of
this Agreement or the application thereof to any person or circumstance
is held invalid or unenforceable, the remainder of this Agreement and
the application of such provision to other persons or circumstances
shall not be affected thereby and to such end the provisions of this
Agreement are agreed to be severable.
13.6. Notices. All notices, requests, claims, demands and other communications
hereunder shall be in writing and shall be given (and shall be deemed to
have been duly given upon receipt) by delivery in person, by facsimile,
by registered or certified airmail (postage prepaid, return receipt
requested) or sent by internationally-recognized courier to each other
party as set forth below or to such other address as the party to whom
notice is to be given may have furnished to the other parties hereto in
writing in accordance herewith. Any such notice or communication shall
be deemed to have been delivered and received (a) in the case of
personal delivery, on the date of such delivery, (b) in the case of
facsimile, on the date sent if confirmation of receipt is received and
such notice is also promptly mailed by registered or certified mail
(return receipt requested) or by internationally-recognized courier, (c)
in the case of a internationally-recognized courier, on the second
business day after the date when sent and (d) in the case of mailing, on
the fifth business day following that date on which the piece of mail
containing such communication is posted:
if to DSI or to DSSI:
Data Systems and Software Inc.
▇▇▇ ▇▇▇▇▇ ▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
Facsimile: ▇▇-▇▇▇-▇▇▇-▇▇▇▇
58
with a copy to:
Eitan, Pearl, ▇▇▇▇▇▇ & ▇▇▇▇▇-▇▇▇▇▇
▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇,Adv.
Facsimile: ▇▇▇▇-▇-▇▇▇-▇▇▇▇
and to
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP
▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, Esq.
Facsimile: ▇▇-▇▇▇-▇▇▇-▇▇▇▇
if to Kardan:
Kardan Communications Ltd.
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇., ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Israel
Facsimile: ▇▇▇▇-▇-▇▇▇-▇▇▇▇
with a copy to:
Shem-tov, Ickovics, ▇▇▇▇▇▇ & Co.
▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇., ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇
Attention: ▇▇▇ ▇▇▇▇▇▇▇▇▇▇, Adv.
Facsimile: ▇▇▇▇-▇-▇▇▇▇▇▇▇
if to ▇▇▇▇▇▇▇▇ Investments or Noy:
▇▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇., ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇
Facsimile: ▇▇▇▇-▇-▇▇▇▇▇▇▇
if to Givon:
▇▇ ▇▇▇▇▇▇▇ ▇▇., ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇
Facsimile: ▇▇▇▇-▇-▇▇▇▇▇▇▇
13.7. Governing Law; Venue. This Agreement shall be deemed to be made in and
in all respects shall be interpreted, construed and governed by and in
accordance with the law of Israel without regard to the conflict of law
principles thereof. The parties hereby irrevocably submit to the
jurisdiction of the courts of Israel in Tel Aviv/Yafo in respect of the
interpretation and enforcement of the provisions of this Agreement and
of the documents referred to in this Agreement.
59
13.8. Descriptive Headings and Section References. The descriptive headings
herein are inserted for convenience of reference only and are not
intended to be part of or to affect the meaning or interpretation of
this Agreement. All Article, Section, subsection, paragraph and clause
references in this Agreement are to Articles, Sections, subsections,
paragraphs and clauses, respectively, of this Agreement unless otherwise
specified.
13.9. Parties in Interest. This Agreement shall be binding upon and inure
solely to the benefit of each party hereto and its successors and
permitted assigns and, except as expressly provided in this Agreement to
the contrary, nothing in this Agreement is intended to or shall confer
upon any other person any rights, benefits or remedies of any nature
whatsoever under or by reason of this Agreement nor shall any such
person be entitled to assert any claim hereunder.
13.10. Personal Liability. Except as and to the extent expressly provided
elsewhere in this Agreement, this Agreement shall not create or be
deemed to create or permit any personal liability or obligation on the
part of any direct or indirect shareholder of any corporate party hereto
or any officer, director, employee, agent, representative or investor of
any party hereto.
13.11. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of
which shall constitute one and the same agreement.
13.12. Guarantee. Noy hereby agrees to fully and unconditionally guarantee in
all respects, for the benefit of Data Systems & Software Inc. and
Decision Systems Israel Ltd., any and all obligations of payment or
performance of ▇▇▇▇▇▇▇▇ Investments under this Agreement, for a period
of seven (7) years from the date hereof.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
60
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
duly executed on its behalf as of the day and year first above written.
DATA SYSTEMS AND SOFTWARE INC.
By: s/▇▇▇▇▇ ▇▇▇▇▇▇▇
----------------------------------
Name:
Title:
DECISION SYSTEMS ISRAEL LTD.
By: s/▇▇▇▇▇ ▇▇▇▇▇▇▇
----------------------------------
Name:
Title:
KARDAN COMMUNICATIONS LTD.
By: s/▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
----------------------------------
Name:
Title:
By: s/▇▇▇▇▇▇ ▇▇▇▇▇▇▇
----------------------------------
Name:
Title:
ENDAN IT SOLUTIONS LTD.
By: s/▇▇▇▇▇ ▇▇▇▇▇▇▇▇
----------------------------------
Name:
Title:
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ LTD.
By: s/▇▇▇▇▇ ▇▇▇▇▇▇▇▇
----------------------------------
Name:
Title:
s/▇▇▇▇▇ ▇▇▇▇▇▇▇
--------------------------------------
ADV. ▇▇▇▇▇ ▇▇▇▇▇▇▇ AS TRUSTEE FOR
▇▇▇▇ ▇▇▇▇▇
61
The undersigned hereby agrees to fully and unconditionally guarantee in all
respects, for the benefit of Data Systems & Software Inc. and Decision Systems
Israel Ltd., any and all obligations of payment or performance of ▇▇▇▇▇▇▇▇
Investments Ltd. under this Agreement, for a period of seven (7) years from the
date hereof.
s/▇▇▇▇▇ ▇▇▇▇▇▇▇▇
--------------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ (NOY)
62