▇▇▇▇▇▇ ▇▇▇▇ & Priest EXECUTION COPY
January 14, 2004
SHARE PURCHASE AGREEMENT
BETWEEN
DISTINCTIVE DEVICES INC.
AS PURCHASER
AND
MEDIA HILL COMMUNICATION
BERATUNGS- UND VERTRIEBS GMBH
AS SELLER
DATED AS OF
JANUARY 14, 2004
TABLE OF CONTENTS
PAGE
ARTICLE I SALE AND PURCHASE OF SHARES.........................................1
SECTION 1.1 SHARES TO BE SOLD AND PURCHASED....................1
SECTION 1.2 PURCHASE PRICE.....................................2
SECTION 1.3 ISSUANCE OF ADDITIONAL SHARES......................2
ARTICLE II CLOSING............................................................2
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE Seller.....................3
SECTION 3.1 CORPORATE EXISTENCE AND POWER......................3
SECTION 3.2 STOCK OWNERSHIP....................................3
SECTION 3.3 AUTHORITY RELATIVE TO THIS AGREEMENT...............4
SECTION 3.4 NO CONFLICTS; CONSENTS.............................4
SECTION 3.5 CHARTER DOCUMENTS AND CORPORATE RECORDS............4
SECTION 3.6 LEGAL STRUCTURE OF THE COMPANY.....................5
SECTION 3.7 RELATIONS WITH AFFILIATED COMPANIES AND WITH
CLOSELY ASSOCIATED PERSONS....................6
SECTION 3.8 BUSINESS OPERATIONS AND BUSINESS ASSETS............6
SECTION 3.9 FINANCIAL INFORMATION..............................7
SECTION 3.10 ABSENCE OF CERTAIN CHANGES.........................7
SECTION 3.11 INTANGIBLE PROPERTY................................9
SECTION 3.12 PROPERTIES; TITLE..................................9
SECTION 3.13 CUSTOMERS AND SUPPLIERS...........................10
SECTION 3.14 LABOR LAW STATUS OF THE COMPANIES.................10
SECTION 3.15 CONTRACTS.........................................11
SECTION 3.16 CLAIMS AND PROCEEDINGS............................12
SECTION 3.17 PERMITS...........................................12
SECTION 3.18 TAX STATUS OF THE COMPANIES.......................13
SECTION 3.19 INSURANCE.........................................13
SECTION 3.20 COMPLIANCE WITH LAWS..............................14
SECTION 3.21 POTENTIAL CONFLICTS OF INTEREST...................14
SECTION 3.22 INVESTMENT REPRESENTATION.........................15
SECTION 3.23 FINDERS' FEES.....................................15
SECTION 3.24 DISCLOSURE........................................15
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE PURCHASER...................15
SECTION 4.1 ORGANIZATION, QUALIFICATION.......................15
SECTION 4.2 SUBSIDIARIES......................................16
SECTION 4.3 CAPITALIZATION....................................16
SECTION 4.4 AUTHORITY RELATIVE TO THIS AGREEMENT..............16
SECTION 4.5 NO CONFLICTS; CONSENTS............................17
SECTION 4.6 CHARTER DOCUMENTS AND CORPORATE RECORDS...........17
SECTION 4.7 FINANCIAL INFORMATION.............................17
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SECTION 4.8 ABSENCE OF CERTAIN CHANGES........................17
SECTION 4.9 SEC REPORTS.......................................18
SECTION 4.10 TAXES.............................................18
SECTION 4.11 LITIGATION........................................19
SECTION 4.12 CONSENTS..........................................19
SECTION 4.13 COMPLIANCE........................................19
SECTION 4.14 INTELLECTUAL PROPERTY.............................19
SECTION 4.15 NO UNDISCLOSED LIABILITIES; ETC...................20
SECTION 4.16 COMPLIANCE WITH LAWS..............................20
SECTION 4.17 TITLE TO PROPERTIES; ENCUMBRANCES.................20
SECTION 4.18 FINDERS' FEES.....................................21
SECTION 4.19 DISCLOSURE........................................21
ARTICLE V COVENANTS OF THE PARTIES...........................................21
SECTION 5.1 CONDUCT OF BUSINESS...............................21
SECTION 5.2 CORPORATE EXAMINATIONS AND INVESTIGATIONS.........23
SECTION 5.3 PROPRIETARY INFORMATION; CONFIDENTIAL RECORDS,
INTELLECTUAL PROPERTY RIGHTS.................24
SECTION 5.4 NOTICES OF CERTAIN EVENTS.........................25
SECTION 5.5 PUBLIC ANNOUNCEMENTS..............................25
SECTION 5.6 EXPENSES..........................................26
SECTION 5.7 FURTHER ASSURANCES................................26
SECTION 5.8 CONSENTS, FILINGS AND AUTHORIZATIONS; EFFORTS
TO CONSUMMATE................................26
SECTION 5.9 DISCLOSURE SUPPLEMENTS............................26
ARTICLE VI COVENANTS OF THE PURCHASER........................................27
SECTION 6.1 BOARD OF DIRECTORS................................27
SECTION 6.2 ▇▇▇▇▇▇ EMPLOYMENT AGREEMENT.......................27
ARTICLE VII COVENANTS OF THE SELLER..........................................27
SECTION 7.1 NON-COMPETITION...................................27
SECTION 7.2 NON-SOLICITATION..................................27
ARTICLE VIII CONDITIONS TO CLOSING...........................................28
SECTION 8.1 CONDITIONS TO THE OBLIGATIONS OF ALL PARTIES......28
SECTION 8.2 CONDITIONS TO THE OBLIGATIONS OF THE SELLER.......29
SECTION 8.3 CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER....30
ARTICLE IX TERMINATION.......................................................32
SECTION 9.1 TERMINATION.......................................32
SECTION 9.2 EFFECT OF TERMINATION; RIGHT TO PROCEED...........33
ARTICLE X INDEMNIFICATION....................................................33
SECTION 10.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES........33
SECTION 10.2 OBLIGATION OF THE WARRANTOR TO INDEMNIFY..........34
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SECTION 10.3 OBLIGATION OF THE PURCHASER TO INDEMNIFY..........34
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SECTION 10.4 NOTICE AND OPPORTUNITY TO DEFEND THIRD
PARTY CLAIMS.................................35
SECTION 10.5 LIMITATION ON INDEMNIFICATION; PAYMENT OF
INDEMNIFICATION AMOUNTS......................35
SECTION 10.6 LIMITATION ON INDEMNIFICATION.....................36
ARTICLE XI MISCELLANEOUS.....................................................36
SECTION 11.1 NOTICES...........................................36
SECTION 11.2 WAIVERS...........................................37
SECTION 11.3 INTERPRETATION....................................38
SECTION 11.4 APPLICABLE LAW....................................38
SECTION 11.5 ASSIGNMENT........................................38
SECTION 11.6 NO THIRD PARTY BENEFICIARIES......................38
SECTION 11.7 ENFORCEMENT OF THE AGREEMENT......................38
SECTION 11.8 SEVERABILITY......................................38
SECTION 11.9 REMEDIES CUMULATIVE...............................39
SECTION 11.10 ENTIRE UNDERSTANDING..............................39
SECTION 11.11 WAIVER OF JURY TRIAL..............................39
SECTION 11.12 CONSENT TO JURISDICTION AND SERVICE OF PROCESS....39
SECTION 11.13 COUNTERPARTS......................................39
ARTICLE XII DEFINITIONS......................................................40
SECTION 12.1 DEFINITIONS.......................................40
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EXHIBITS
EXHIBIT A - Registration Rights Agreement
EXHIBIT B - Non-Competition Agreement
EXHIBIT C - Opinion of the Purchaser's Counsel
EXHIBIT D - Statement of Seller's Counsel regarding ▇▇▇▇ settlement
EXHIBIT E - ▇▇▇▇ Settlement Agreement
EXHIBIT F - Opinion of the Company's Counsel
EXHIBIT G - Pledge Agreement
EXHIBIT H - ▇▇▇▇▇▇ Employment Agreement
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SCHEDULES(1)
1.3 Lloyds Indebtedness
3.2 Stock liens, options, rights, claims and restrictions
3.7 Contracts with affiliated companies
3.8(A) Fixed Assets
3.10 Changes to Balance Sheet
3.11 Intellectual Property
3.12(A) Real Property Leases
3.12(C) Tangible Personal Property
3.13 Customers and Suppliers
3.14(A) Managing Directors and Employees
3.14(D) Advisors and Freelancers
3.14(F) Pension Commitments
3.15 Contracts
3.16 Claims
3.17 Permits
3.19 Insurance Policies
4.2 Subsidiaries of Purchaser
4.3 Warrants of Purchaser
4.8 Absence of Changes
4.11 Purchaser Litigation
1 To the best Knowledge of the Seller, the Schedules are correct and complete.
Further reference is made to the due diligence documentation located at the
premises of the Company at ▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇, ▇▇▇▇▇ ▇▇▇▇▇▇.
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This Share Purchase Agreement (the "Agreement"), dated as of January
14, 2004, is entered into between DISTINCTIVE DEVICES, INC., a Delaware
corporation (the "Purchaser"), and MEDIA HILL COMMUNICATION BERATUNGS- UND
VERTRIEBS GMBH, a German corporation (the "Seller").
R E C I T A L S
WHEREAS, the Seller is the sole shareholder of galaxis technology ag, a
German stock corporation (the "Company"), registered with the commercial
register (the "Commercial Register") of the Local Court in Lubeck with the
registration number HRB 4762, owning 50,000 shares of common stock with a par
value of Euro 1.00, of which one global share ("Globalurkunde") (the "Company
Share") of the Company, in an amount of Euro 50,000, is issued and outstanding.
WHEREAS, the Company owns 100% of the outstanding equity interests in
Omniscience Multimedia Lab GmbH, a limited liability company organized under the
laws of Germany, and Convergence GmbH, a limited liability company organized
under the laws of Germany (collectively, the "Subsidiaries").
WHEREAS, the Company is primarily engaged in the business of developing
and marketing digital television software and set-top box technology (the
"Business").
WHEREAS, subject to the terms and conditions herein, the Seller desires
to sell and transfer the Company Share to the Purchaser, and the Purchaser
desires to purchase and acquire the Company Share from the Seller, for the
consideration herein.
WHEREAS, in furtherance of the consummation of the acquisition (the
"Acquisition"), the parties hereto desire to enter into this Agreement (certain
capitalized terms used herein have the respective meanings set forth in Article
XII hereof).
NOW, THEREFORE, in consideration of the premises and the
representations, warranties and agreements contained in this Agreement, the
parties to this Agreement agree as follows:
ARTICLE I
SALE AND PURCHASE OF SHARES
SECTION 1.1 SHARES TO BE SOLD AND PURCHASED. Subject to the provisions
of this Agreement and in reliance upon the representations, warranties,
covenants and agreements contained herein, at the Closing (as defined in Article
II hereof), the Seller agrees to sell and deliver the Company Share to the
Purchaser, and the Purchaser agrees to purchase the Company Share from the
Seller, for the consideration set forth herein.
SECTION 1.2 PURCHASE PRICE.
(a) Share Issuance. In consideration of the sale, transfer and delivery
of the Company Share, the Purchaser agrees to issue and allot to the Seller
6,400,000 shares (the "Acquisition Shares") of Common Stock, $.001 par value, of
the Purchaser.
(b) Company Note. Furthermore, the Purchaser shall contribute
$1,000,000 to the capital of the Company through a forgiveness of the Promissory
Note (the "Company Note") issued by the Company to the Purchaser in the
principal amount of US$1,000,000, according to the terms and conditions of the
letter of intent signed on October 7, 2003.
(c) Capital Contribution. On Closing Date, the Purchaser shall
contribute US$1,000,000 to the capital of the Company. No later than thirty (30)
days after the Closing Date, the Purchaser shall make an additional capital
contribution of US$1,000,000.
SECTION 1.3 Issuance of Additional Shares.
(a) Pledged Shares. The Purchaser shall issue 3,000,000 shares of its
Common Stock (the "Pledged Shares") for the benefit of the Company, that the
Company shall pledge to Lloyds TSB Bank plc ("Lloyds Bank") under a Pledge
Agreement in the form attached hereto as Exhibit G. Pursuant to the Pledge
Agreement between the Company and Lloyds Bank dated as of January 14, 2004, when
the Companies' outstanding indebtedness to Lloyds Bank has been fully paid and
discharged according to Section 1.3(b) of this Agreement, Lloyds Bank is to
immediately release the Pledged Shares of any lien or security interest created
pursuant to the Pledge Agreement and release it of all claims Lloyds Bank may
have there under. The Company will immediately after the release transfer the
Pledged Shares back to the Purchaser.
(b) Registered Shares. The Purchaser agrees to file a registration
statement with the U.S. Securities and Exchange Commission under the Securities
Act of 1933, as amended (the "Securities Act"), for the sale of 3,000,000 shares
or such other number of shares as the Purchaser determines would fulfill its
obligation under this Section 1.3(b) (the "Registered Shares") of the
Purchaser's Common Stock. The Purchaser shall file such registration statement
on or before December 31, 2004 (subject to the right to extend the filing for up
to six (6) months, with the prior written consent of Lloyds Bank, should the
Purchaser determine, in its good faith judgment, that the then prevailing market
conditions are not conducive to the offering), and use its best efforts to cause
the registration statement to be declared effective. The Company shall apply the
net proceeds from the sale of the Registered Shares to fully satisfy the
Companies' outstanding indebtedness as set forth in Schedule 1.3 to Lloyds Bank.
In the event that the net proceeds from the sale of the Registered Shares
exceeds the Companies' outstanding indebtedness, the excess shall be paid to the
Seller.
ARTICLE II
CLOSING
Subject to the terms and conditions of this Agreement, the sale and
purchase of the Company Share contemplated hereby, the signing of the Agreement
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and the closing of the Acquisition (the "Closing") shall take place
simultaneously at the offices of ▇▇▇▇▇▇ ▇▇▇▇ & Priest LLP, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇
▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇, and the offices of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Notary (Rechtsanwalt
und Notar), ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇, at 10:00 a.m. New York local
time, within three (3) Business Days after all conditions precedent to Closing
hereunder shall have been satisfied, or at such other time or place as the
parties hereto shall agree. The date of the Closing is hereinafter called the
"Closing Date." The Purchaser and the Seller hereby agree to deliver at the
Closing such documents, certificates of officers and such other instruments as
are specified in Article VIII hereof and as reasonably may be required to effect
the sale by the Seller of the Company Share pursuant to and as contemplated by
this Agreement and to consummate the Acquisition.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
THE SELLER
As an inducement to the Purchaser to enter into this Agreement and to
consummate the Acquisition, the Seller represents and warrants to the Purchaser,
as of the Closing Date, that:
SECTION 3.1 CORPORATE EXISTENCE AND POWER. The Company and its
Subsidiaries (together, the "Companies") and the Seller each is duly organized
and validly existing under the laws of the Federal Republic of Germany, and has
all requisite powers and all material Companies' Permits (as defined herein)
required to own, lease and operate its respective properties and to conduct its
respective business as conducted. Each of the Companies is duly qualified to do
business in Germany and in such other jurisdictions in which either the
ownership or use of the properties owned or used by it, or the nature of the
activities conducted by it, require such qualification.
SECTION 3.2 STOCK OWNERSHIP.
(a) The Seller is the direct registered and beneficial owner of all of
the outstanding shares of capital stock of the Company, comprised of the Company
Share. Except as set forth in Schedule 3.2, the Seller's ownership of the
Company Share is free and clear of all Liens, options, rights, claims and
restrictions of any kind or nature.
(b) As of the date hereof, the Company is the legal and beneficial
owner of Omniscience Multimedia Lab GmbH, a limited liability company organized
under the laws of the Federal Republic of Germany, and of Convergence GmbH, a
limited liability company organized under the laws of the Federal Republic of
Germany. Except as set forth on Schedule 3.2, the Company's ownership of the
Subsidiaries is free and clear of all Liens, options, rights, claims and
restrictions of any kind or nature. Neither the Company (except for its interest
in the Subsidiaries) nor does either Subsidiary own or beneficially own any
capital stock or equity interest or investment in any corporation, partnership,
limited liability company, association or other business entity.
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(c) Except as set forth on Schedule 3.2, there are no outstanding
options, warrants, purchase rights, subscription rights, obligations, conversion
rights, exchange rights or other contracts or commitments that could require or
allow any of the Companies to sell, exchange, issue or purchase any shares of
its respective capital stock, or require or allow either Subsidiary to sell,
transfer or otherwise dispose any shares of its capital stock or require or
allow the Seller to sell, transfer or otherwise dispose of the Company Share
other than pursuant to this Agreement.
SECTION 3.3 AUTHORITY RELATIVE TO THIS AGREEMENT. The Seller has full
power, capacity and authority to execute and deliver this Agreement and each
other Transaction Document (as defined herein) to which it is a party and to
consummate the Acquisition. The execution, delivery and performance by the
Seller of this Agreement and the other Transaction Documents to which it is a
party and the consummation by the Seller of the Acquisition have been duly and
validly authorized by the supervisory board and the shareholders of the Seller,
and no other proceedings on the part of the Seller or any of the Companies (or
any other Person excluding the Purchaser) are necessary to authorize the
execution and delivery by the Seller of this Agreement or any other Transaction
Documents to which it is a party or the consummation of the Acquisition. This
Agreement and the other Transaction Documents to which the Seller is a party
have been duly and validly executed and delivered by the Seller and (assuming
the valid execution and delivery thereof by the other parties thereto)
constitute the legal, valid and binding agreements of the Seller, enforceable
against it in accordance with their respective terms, except as such obligations
and their enforceability may be limited by applicable bankruptcy and other
similar Laws (as defined herein) affecting the enforcement of creditors' rights
generally and except that the availability of equitable remedies is subject to
the discretion of the court before which any proceeding therefore may be brought
(whether at law or in equity).
SECTION 3.4 NO CONFLICTS; CONSENTS. Neither the execution, delivery or
performance by the Seller of this Agreement and each other Transaction Document
to which it is a party, nor the consummation of the Acquisition (i) violates any
provisions of the charter documents of the Seller or any of the Companies; (ii)
requires the Seller or any of the Companies to obtain any consent, approval,
Companies' Permit (as defined herein) or action of or waiver from, or make any
filing with, or give any notice to, any Governmental Body (as defined herein) or
any other Person; (iii) violates, conflicts with or results in a breach or
default under (after the giving of notice or the passage of time or both), or
permits the termination of, any Contract (as defined herein) of the Seller or
any of the Companies to which the Seller or any of the Companies is a party or
by which their respective assets may be bound or subject, or results in the
creation of any Lien upon any of the Company Share other than to Lloyds Bank;
(iv) violates any Law or Order (as defined herein) of any Governmental Body
against, or binding upon the Seller or any of the Companies; or (v) violates or
results in the revocation or suspension of any Permit.
SECTION 3.5 CHARTER DOCUMENTS AND CORPORATE RECORDS. The Seller and
each of the Companies have heretofore delivered to the Purchaser the most recent
certified copies of their respective charter documents and excerpts from the
respective Commercial Register (the "Commercial Register Excerpts"). All
financial, business and accounting books, minutes of shareholder and board
meetings, accounts and other records relating to the Business (as defined
herein) as conducted as of the date hereof and the Company Share have been
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accurately kept and completed in all material respects, and there are no
material inaccuracies or discrepancies contained or reflected therein.
SECTION 3.6 LEGAL STRUCTURE OF THE COMPANY.
(a) The Company is a German stock corporation ("Aktiengesellschaft")
duly incorporated pursuant to the laws of the Federal Republic of Germany and
validly existing under its articles of association ("Gesellschaftervertrag").
(b) The authorized share capital ("Grundkapital") of the Company
amounts to Euro 50,000.00 and consists of 50,000 shares of common stock with a
par value of Euro 1.00 each, of which one global share ("Globalurkunde") in the
amount of Euro 50,000 is issued and outstanding.
(c) No shareholders' resolutions have been passed to modify the
articles of association that are registered with the commercial register, nor do
ancillary agreements exist in relation to the structure and organization of the
Company.
(d) The information in the recitals relating to the Company and the
Company Share is complete and correct. Since formation of the Company, the
Company Share has been held by the Seller, as described in the Recitals of this
Agreement.
(e) Other than those shares set forth in Subsection (b) above, no other
shares exist or are authorized in the Company. Except as listed in Schedule 3.2,
the Company Share set forth in Subsection (b) is free of all and any
encumbrances and other rights created in favor of any third party. When conveyed
to the Purchaser at Closing in accordance with this Agreement, the Purchaser
will acquire good and valid title to the Company Share, subject to a pledge to
Lloyd's Bank pertaining to sixty (60%) per cent of the Company Share.
(f) The Company's minute books that have been provided to the Purchaser
are true and correct, and contain all the records of the proceedings of the
Company's supervisory directors and sole shareholder. The books and records of
the Company are being maintained in material compliance with applicable legal
and accounting requirements.
(g) Except as set forth in Schedule 3.6(g), neither the Seller nor the
Companies ("verbundene Unternehmen") within the meaning of section 15 German
Stock Corporation Act ("Aktiengesetz") nor persons closely associated with the
Seller or the Companies ("nahestehende Personen") have granted security of any
kind to third parties for liabilities of the Seller or the Companies.
(h) To the Knowledge of the Seller, insolvency proceedings have neither
ever been initiated against any of the Companies and the Seller does not have
Knowledge of any circumstances that would justify or require such proceedings
being initiated against any of the Companies at the date of this Agreement. To
the Knowledge of the Seller, none of the Companies is "insolvent," as such term
is defined in ▇▇.▇▇. 17, 18, 19 InsO and is required to apply for insolvency
proceedings according to ▇▇.▇▇. 13 ff InsO.
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SECTION 3.7 RELATIONS WITH AFFILIATED COMPANIES AND WITH CLOSELY
ASSOCIATED PERSONS. Other than those set forth in Schedule 3.7 hereto, no
agreements exist between the Companies on the one hand and the Seller within the
meaning of section 15 German Stock Corporation Act ("Aktiengesetz") and/or
persons closely associated with the Seller ("nahestehende Personen") on the
other. No liabilities or obligations, in particular loan liabilities, to the
Seller and/or persons closely related to the Seller exist under such agreements.
SECTION 3.8 BUSINESS OPERATIONS AND BUSINESS ASSETS.
(a) Schedule 3.8(a) hereto sets forth a correct and complete list all
of material fixed assets (the "Fixed Assets") used by the Companies in their
respective business operations. The Companies are the legal and beneficial
owners of all the scheduled Fixed Assets, free of Liens and of other rights
created in favor of any third party other than the Liens set forth on Schedule
3.8(a) or otherwise in favor of Lloyds Bank. The Fixed Assets are in good
working and operating condition and repair, except for normal wear and tear, and
are sufficient for operation of the Business as conducted. Since the Companies
Interim Statements' Date (as defined herein), none of the Fixed Assets has been
(i) materially and adversely affected in any way as a result of any casualty,
whether or not covered by insurance, or (ii) operated or maintained other than
in a manner consistent with the Companies' past practices.
(b) The Companies are the legal and beneficial owners of all current
assets shown on the Companies' Latest Balance Sheet (as defined herein) other
than those current assets purchased or sold in the ordinary course of business
since the Companies' Latest Balance Sheet Date (as defined herein). Such assets
are free of Liens and of other rights created in favor of any third party, other
than statutory Liens and retention of title arrangements made in the ordinary
course of business in relation to liabilities reported in the Companies' Latest
Balance Sheet and the Liens set forth on Schedule 3.8(a). The inventory of the
Companies, in particular stock of products and merchandise, does not include any
material items that are below standard quality or of the quality or a quantity
not usable or saleable in the ordinary course of business. The inventory levels
of the Companies have been maintained in such amounts as are required for their
operation of business in the ordinary course.
(c) Schedule 3.8(c) hereto sets forth a complete and correct list of
the work-in-process and accounts receivable (the "Accounts Receivable") of the
Companies as set forth on the Companies' Latest Balance Sheet or which have
arisen subsequent to the Companies' Latest Balance Sheet Date. All Accounts
Receivable, either shown on such Balance Sheet or which have arisen subsequent
to such Balance Sheet Date represent sales made in the ordinary course of
business, are current and are not subject to any claims, offsets, rebates,
concessions, discounts, allowances or adjustments.
(d) All of the accounts payable of the Companies reflect actual
transactions and have been incurred by the Companies in the ordinary course of
the conduct of their respective Businesses. The Company has entered into a
Settlement Agreement with ▇▇▇▇ ▇▇ to settle a (euro)21.8 million payment dispute
for approximately (euro)9.8 million, of which the Company paid (euro)1.0 million
and is to pay the balance in accordance with the Settlement Agreement attached
hereto as Exhibit E.
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SECTION 3.9 FINANCIAL INFORMATION. The Seller has previously furnished
to the Purchaser true and complete copies of (i) the Companies' audited
consolidated financial statements at and for the years ended December 31, 2000,
December 31, 2001 and December 31, 2002 (the "Companies' Annual Statements")
which included the financial information for its Subsidiaries, (ii) the
Companies' unaudited consolidated financial statements at and for the nine
months ended September 30, 2003 (the "Companies' Interim Statements," and
together with the Companies' Annual Statements, the "Companies' Financial
Statements"), and (iii) all management letters, audit letters and attorney audit
response letters issued in connection the Companies' Annual Statements. The
Companies' Annual Statements have been prepared in accordance with GAAP and the
German Commercial Code (`Handelsgesetzbuch") consistently applied as set forth
in the notes thereto and were audited by the Companies' independent accountants.
Each of the Companies' Financial Statements presents fairly the financial
position of the Companies, as of its date, and their earnings and cash flows for
the periods then ended. Each balance sheet contained in the Companies' Financial
Statements fully sets forth all assets and liabilities, including all accrued
liabilities and deferred revenues, of the Companies existing as of its date
which, under GAAP, should be set forth therein, and each statement of earnings
contained therein sets forth the items of income and expense of the Companies,
as applicable, which should appear therein under GAAP. The Companies' Interim
Statements, including the September 30, 2003 balance sheet (the "Companies'
Latest Balance Sheet"), have been prepared in a manner consistent with the
Companies' past practices (as converted to GAAP) and present fairly the
financial position of the Companies as of their dates and results of operations
for the respective periods then ended, subject to normal recurring year-end
adjustments.
SECTION 3.10 ABSENCE OF CERTAIN CHANGES.
(a) Since September 30, 2003 (the "Companies' Interim Statements Date")
and through the date hereof, except as set forth in or contemplated by this
Agreement or disclosed on Schedule 3.10 or any other Schedule hereto, each of
the Companies has conducted its respective Business in the ordinary course and
consistent with past practices, and there has not been:
(i) any Material Adverse Change (as defined herein) with respect
to any of the Companies, or the capital stock, financial condition or the
results of operations of any of the Companies taken as a whole (collectively,
the "Condition of the Business");
(ii) any Material Adverse Change affecting the Condition of the
Business with respect to damage, destruction or other casualty loss (whether or
not covered by insurance), condemnation or other taking;
(iii) any Material Adverse Change with respect to any method of
accounting or accounting practice by the Companies, except as required hereunder
to conform the Companies' Financial Statements to GAAP;
(iv) any Material Adverse Change other than in the ordinary course
of business with respect to employees of any of the Companies whose base salary
is less than Euro 70,000, any increase in the rate of compensation payable or to
become payable to any officer, shareholder, director, consultant, agent, sales
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representative or full-time employee of any of the Companies, or any material
alteration in the benefits payable to any thereof;
(v) any Material Adverse Change in the relationships of any of the
Companies with its respective Major Customers or Major Suppliers (as defined
herein) which has had a Material Adverse Effect (as defined herein);
(vi) except for any changes made in the ordinary course of
business, any Material Adverse Change in any of the Companies' business
policies, including advertising, marketing, pricing, purchasing, personnel,
returns or budget policies with Material Adverse Effect;
(vii) except in the ordinary course of business, any Material
Adverse Change with respect to any payment, directly or indirectly, of any
Liability before it became due in accordance with its terms;
(viii) except in the ordinary course of business, any Material
Adverse Change with respect to any modification, termination, amendment or other
alteration or change in the terms or provisions of any Material Contract of the
Companies;
(ix) any Material Adverse Change with respect to any Liens imposed
upon any of the assets, tangible or intangible, of the Companies;
(x) any Material Adverse Change with respect to any capital
investments in, any loan to, or any acquisition of the securities or assets of,
any other Person (or series of related capital investments, loans or
acquisitions);
(xi) any Material Adverse Change with respect to any note, bond or
other debt security issued, incurred or assumed, or guarantee of any
indebtedness for borrowed money;
(xii) any Material Adverse Change with respect to any license,
sublicense, sale or pledge of any rights granted under or with respect to any
Intellectual Property (as defined herein);
(xiii) any Material Adverse Change with respect to any newly
written employment contract or collective bargaining agreement; or
(xiv) any Material Adverse Change with respect to any agreement or
commitment to do or perform any of the above.
(b) Neither the Company nor its Subsidiaries has any liabilities or
obligations of any nature, whether accrued, absolute, contingent or otherwise,
which in the ordinary course of business individually or in the aggregate could
be expected to have a Material Adverse Effect except (i) as set forth on or
reflected in the Companies' Latest Balance Sheet or (ii) liabilities and
obligations incurred since September 30, 2003 in the ordinary and usual course
of its business consistent with past practice, which individually or in the
aggregate, would not have a Material Adverse Effect.
8
SECTION 3.11 INTANGIBLE PROPERTY.
(a) Schedule 3.11 hereto sets forth a correct and complete list of all
trademarks, registered copyrights, service marks or trade names, patents (and
all applications for any of the foregoing), shown by jurisdiction, and all other
intangible assets, know-how, properties and rights owned or used by the
Companies, and there are no other trademarks, copyrights, service marks, trade
names or other intangible assets, properties or rights that are material to the
Companies (the "Intellectual Property"). Except as disclosed on Schedule 3.11
hereto:
(i) to the Knowledge of the Seller, the Companies own all right,
title and interest in and to the Intellectual Property listed on Schedule 3.11
as owned by any of them, and there are no agreements, licenses or grants
entitling any Person other than the Purchaser to any interest in the
Intellectual Property;
(ii) to the Knowledge of the Seller, the Intellectual Property
does not infringe on or conflict with the rights or intellectual property of
third parties, and the Companies have not received any notice contesting the
Companies' right to use any such Intellectual Property;
(iii) to the Knowledge of the Seller, the Intellectual Property is
not the subject of any pending or threatening litigation or Claim of
infringement; and
(iv) to the Knowledge of the Seller, no license or royalty
agreement to which the Companies are a party is in breach or default by any
party thereto or the subject of any notice of termination given or threatened.
(b) Each of the Companies has at all times taken all reasonable efforts
to protect all trade secrets related to its Intellectual Property, including,
but not limited to, obtaining confidentiality agreements from its employees and
consultants.
SECTION 3.12 PROPERTIES; TITLE.
(a) Schedule 3.12(a) hereto sets forth a correct and complete list and
general description of all real property and buildings and structures leased by
the Companies. The Companies do not own any real property. True and correct
copies of leases (the "Real Property Leases") relating to the real property used
by the Companies (the "Premises") have been delivered to the Purchaser. The Real
Property Leases are in full force and effect and neither the Companies as
tenants nor the landlords thereof are in default there under. The Premises have
no material structural or other material defects Known to the Seller that could
materially affect the operation of the Business, and are suitable for the
purposes for which they are currently used. No Person, other than the Companies,
has any right to occupy the Premises.
(b) The Companies have not subleased, and no third party is in
possession of, any of the Premises. There are no contracts or agreements,
granting to any third party the right of use or occupancy of any portion of the
Premises set forth in Schedule 3.12(a) hereto.
9
(c) Schedule 3.12(c) hereto sets forth a correct and complete list and
general description of all tangible personal property leased by the Companies.
SECTION 3.13 CUSTOMERS AND SUPPLIERS.
(a) Schedule 3.13 hereto lists, by Euro volume paid for the nine months
ended September 30, 2003, the five (5) largest customers of the Companies
(collectively, the "Major Customers") and the five (5) largest suppliers of the
Companies (collectively, the "Major Suppliers"). The relationships of each of
the Companies with their customers are on an arm's length basis, and (i) all
amounts owing from such customers, if not in dispute, have been paid or are
expected to be paid in accordance with their respective terms, (ii) none of the
Major Customers within the last twelve months has threatened in writing to
cancel, or otherwise terminate, the relationship of such Person with the
Companies, and (iii) none of the Major Customers during the last twelve months
has decreased materially or, to the Knowledge of the Seller, threatened to
decrease or limit materially its relationship with the Companies to decrease or
limit materially its purchases from the Companies.
(b) Except as set forth in Schedule 3.13 the relationships of the
Companies with the Major Suppliers are reasonable commercial working
relationships and (i) all amounts owing to such suppliers, if not in dispute,
have been or are expected to be paid in accordance with their respective terms,
(ii) none of the Major Suppliers within the last twelve months has threatened in
writing to cancel, or otherwise terminate, the relationship of such Major
Supplier with the Companies, and (iii) none of the Major Suppliers during the
last twelve months has decreased materially or, to the Knowledge of the Seller,
threatened to decrease or limit materially its relationship with them or to
decrease or limit materially its supplies to the Companies.
SECTION 3.14 LABOR LAW STATUS OF THE COMPANIES.
(a) Schedule 3.14(a) hereto contains a complete and correct list of all
supervisory and managing directors and employees of the Companies which are paid
an annual salary in excess of Euro 70,000, in each case stating (i) the
remaining term or the notice period for termination of the service or employment
agreement as well as the applicable dismissal protection provisions other than
the Dismissal Protection Act ("Kundigungsschutzgesetz") and (ii) the total fixed
annual remuneration as well as any variable compensation of whatever type,
whether owed or discretionary. To the extent an employee has indicated his
intention to terminate the employment agreement, this is also noted in Schedule
3.14(a) hereto.
(b) None of the Companies has granted any wage or salary increases or
other benefits to employees on the basis of a mere company praxis ("betriebliche
Ubung") without contractual obligation to grant such increases or benefits. The
employees are not entitled to any claims under the employee invention act
("Mitarbeitererfindungsgesetz").
(c) There are no labor disputes involving employees of the Companies.
(d) Schedule 3.14(d) hereto contains a complete and correct list of all
agreements of the Companies with consultants, advisors and freelancers, in each
case stating the total annual remuneration, payment obligations, term, and
notice period for termination.
10
(e) None of the Companies is a party to any agreement or framework
agreement with agencies offering the services of temporary employees to the
Companies, which are not directly employed by the Companies
("Leiharbeitnehmer").
(f) Except as set forth in Schedule 3.14(f) hereto, none of the
Companies has made any pension commitments or taken out direct insurance
policies for the benefit of any current or former supervisory or managing
director or employee of the Companies.
(g) The Companies have fulfilled all obligations for the payment and
transmittal of social security contributions ("Sozialversicherungsbeitrage")
when due.
(h) At none of the business locations of the Companies has a works
council ("Betriebsrat") been formed.
(i) The Companies are not bound by any collective bargaining agreements
("Tarifvertrage").
SECTION 3.15 CONTRACTS.
(a) Schedule 3.15 sets forth a complete and correct list of all written
Contracts and an accurate and complete description of all material terms of all
oral Contracts resulting in payment obligations of the Companies exceeding Euro
100,000, as of the date hereof. All such Contracts are valid, in full force and
effect and binding upon the Companies and the other parties thereto in
accordance with their terms. To the Knowledge of the Seller under no such
Contract (i) does any condition exist that with notice or the lapse of time or
both would constitute a default (or give rise to a termination right) or (ii)
none of the other parties to any such Contract has given notice in writing or
orally that it intends to terminate or alter the provisions thereof by reason of
the Acquisition or otherwise. Since the Companies' Latest Balance Sheet Date,
none of the Companies has waived any right under any such Contract, amended or
extended any such Contract or failed to renew (or received notice of termination
or failure to renew with respect to) any such Contract. Each of the Contracts
was negotiated and entered into on an arms-length basis. The Company has
heretofore delivered or made available to the Purchaser, correct and complete
copies of all of such written Contracts and summaries of the material provisions
of all oral Contracts resulting in payment obligations of the Companies
exceeding Euro 100,000. The Contracts include:
(i) All and any lease agreements regarding moveable property;
(ii) All and any contracts for acquiring or disposing of Fixed
Assets or intangible assets, property reported as Fixed Assets (other than real
property and rights equivalent in nature to title in real property) and
investment assets;
(iii) All and any service agreements and maintenance agreements;
(iv) All and any know-how transfer or other similar technology
agreements;
11
(v) All and any loans and borrowing arrangements and credit line
arrangements that the Companies have made whether as lender or borrower, other
than extension of maturity dates for liabilities granted in accordance with
common practice in the ordinary course of business;
(vi) All and any guarantees and sureties ("Garantien" and
"Burgschaften"), arrangements to join as co-debtor, and any other collateral
that has been provided or for the providing of which an obligation exists;
(vii) All and any factoring agreements or arrangements;
(viii) All and any other contracts or commitments under which the
resulting payment obligations are in excess of Euro 100,000 individually or Euro
100,000 annually; and
(ix) All and any contracts that may be terminated by the
respective other party or the terms and conditions of which may be unilaterally
amended on the grounds of any direct or indirect change in the ownership of the
Company.
(b) The Companies have not entered into any nondisclosure agreement or
into any agreement or arrangement restricting competition.
(c) (i) The execution and delivery of this Agreement by the Seller or
(ii) the sale and transfer to the Purchaser of the Company Share or (iii) the
consummation by the Seller of the agreements contemplated by this Agreement will
not constitute breach of, or require consent under, any contract or agreement by
which any of the Companies is bound.
SECTION 3.16 CLAIMS AND PROCEEDINGS. Other than listed in Schedule 3.16
hereto, there are no outstanding Orders (as defined herein) of any Governmental
Body, no actions, suits, claims or counterclaims or legal, administrative or
arbitral proceedings or investigations (collectively, "Claims") (whether or not
the defense thereof or Liabilities in respect thereof are covered by insurance),
pending or threatened in writing on the date hereof, against the Companies, the
Company Share, the Business or any of their directors or officers, other than
Claims that, individually or in the aggregate, could not reasonably be expected
to have a Material Adverse Effect. As of the date hereof, no fact, event or
circumstance Known to the Seller that would give rise to any Claim that, if
pending or threatened on the date hereof, could reasonably be expected to have a
Material Adverse Effect on the Condition of the Business. There are no Claims
pending or threatened in writing that would give rise to any right of
indemnification on the part of the Seller or any officer, director or employee
of any of the Companies or the heirs, executors or administrators of any such
officer, director or employee, against the Companies.
SECTION 3.17 PERMITS. The Company and its Subsidiaries hold all permits
and required licenses necessary for their operations as currently conducted (the
"Companies' Permits"). Schedule 3.17 hereto sets forth a complete and correct
list of all Companies' Permits. To the Knowledge of the Seller, neither the
revocation nor any restriction of any such Permit is impending. All Companies'
Permits are in full force and effect. The Companies are in compliance in all
material respects with all of the terms and conditions of the Companies'
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Permits. To the Knowledge of the Seller, there are no material restrictions in
the Companies' Permits or to the Companies' ability to renew the Companies'
Permits. The execution or consummation of this Agreement or the agreements
connected hereto will not conflict with or violate the terms of, or result in
default under, any Companies' Permit or result in the termination or amendment
of, or require third party approval or other action pursuant to, any of the
Companies' Permits.
SECTION 3.18 TAX STATUS OF THE COMPANIES.
(a) The Companies have fully performed all duties required under the
applicable tax laws of the Federal Republic of Germany (the "Tax Laws") as to
keeping and maintaining records and documents. The relevant records are
maintained in good order and easy to reference and are being safely kept by the
tax advisors and will be delivered to the Companies upon request at any time
without any right of retention.
(b) The Companies have filed all and any forms, whether definitive or
preliminary, for all taxes, charges and other duties, when due, completely and
truthfully, including (but not limited to) all tax returns for the 2002
assessment period and all monthly preliminary returns up to the date hereof as
required by the Tax Laws.
(c) In the period commencing January 1, 2003 and ending at the date
hereof, no director or shareholders resolutions have been made by the Companies
for any advance distribution of any projected profit or bonus payment for the
financial year 2003, and no director or shareholders resolution have been made
for any distribution of profits from previous financial years nor has any such
distribution taken or will take place.
SECTION 3.19 INSURANCE. Schedule 3.19 hereto sets forth a complete and
correct list of all insurance policies, fidelity and surety bonds and fiduciary
liability policies (the "Insurance Policies") covering the Company Share, the
Business, operations, employees, officers and managers of the Companies and
complete and correct copies of all such Insurance Policies have been delivered
or made available to the Purchaser. Schedule 3.19 hereto also sets forth a true
and complete list of Claims made in respect of Insurance Policies during the
three (3) years prior to the date hereof. There is no Claim by the Companies
pending under any of such Insurance Policies as to which coverage has been
questioned, denied or disputed by the underwriters of such Insurance Policies or
any request by any insurer to perform work which has not been satisfied. All
premiums due under all Insurance Policies have been paid or accrued on the
Companies' Financial Statements and the Companies are otherwise in compliance
with the terms and conditions of all such Insurance Policies. All Insurance
Policies are in full force and effect. The Companies have not received a written
refusal of coverage under any Insurance Policy during the three (3) years prior
to the date hereof. The Seller does not have Knowledge of any threatened
termination of, premium increase with respect to, or uncompleted requirements
under, any Insurance Policy. No premiums are or will be payable by the Company
under Insurance Policies after the Closing with respect to insurance provided
for periods prior to the Closing Date.
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SECTION 3.20 COMPLIANCE WITH LAWS.
(a) None of the Companies is in violation of any order, judgment,
injunction, award, citation, decree, consent decree or writ (collectively,
"Orders").
(b) Neither the current business operations of the Companies nor their
products nor existing agreements or services infringe any applicable Law or
Orders imposed by any Governmental Body. No fact, circumstance, condition or
situation exists which, after notice or lapse of time or both, would constitute
noncompliance by the Companies (except where such noncompliance is
inconsequential and could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect on the Companies or their respective
business operations). The Company and its Subsidiaries have not received notice
of any violation of any applicable Law, or any potential liability under any
applicable law, nor is the Seller aware of any such violation or potential
liability.
(c) To the Knowledge of the Seller, no consent is required to be
obtained, satisfied or made pursuant to any applicable Law by which the Seller
or the Companies are bound, in connection with (i) the execution and delivery of
this Agreement by the Seller or (ii) the sale and transfer to the Purchaser of
the Company Share or the consummation by the Seller of this Agreement or the
other Transaction Documents.
SECTION 3.21 POTENTIAL CONFLICTS OF INTEREST. Neither the Seller nor
any officer or director of any of the Companies, nor any spouse or member of the
immediate family of any such officer or director, nor any entity controlled by
one or more of the foregoing:
(a) owns, directly or indirectly, any interest in (except less than 1%
stock holdings for investment purposes in securities of publicly held and traded
companies), or is an officer, director, employee or consultant of, any Person
that carries on business in competition with any of the Companies;
(b) owns, directly or indirectly, in whole or in part, any material
asset that any of the Companies uses in the conduct of its respective Business;
(c) has entered into a sale and leaseback or similar transaction with
any of the Companies; or
(d) has any material Claim whatsoever against, or owes any amount to
any of the Companies, except for claims in the ordinary course of business such
as for salary, commissions, accrued vacation pay and accrued benefits under
employee benefit plans.
14
SECTION 3.22 INVESTMENT REPRESENTATION. The Seller is aware that the
Acquisition Shares have not been registered under the Securities Act and are
being issued in reliance upon an exemption from registration there under that
depends in part on the Seller's representation in this Section. The Seller is an
"accredited investor," as such term is defined in Regulation D under the
Securities Act, and it is acquiring the Acquisition Shares for investment for
its own account, except as provided for in Section 8.1(b). It has received and
reviewed the Purchaser's SEC Reports, has had the opportunity to discuss the
Purchaser's operations and financial condition with executive officers of the
Purchaser, and understands the limited market for the Purchaser Common Stock,
the speculative nature of such securities, and the restrictions on the sale or
transfer of the Acquisition Shares as imposed by the Securities Act, subject to
any rights it may have in a Registration Rights Agreement, a form of which is
attached hereto as Exhibit A. The Seller further acknowledges that the Purchaser
may place restrictive legends on, and stop transfer orders against, the
certificates representing the Acquisition Shares, which does not affect the
Seller's ability to privately sell the Acquisition Shares.
SECTION 3.23 FINDERS' FEES. There is no investment banker, broker,
finder or other intermediary which has been retained by or is authorized to act
on behalf of the Companies who is entitled to any fee or commission from the
Companies as a result of and upon consummation of the Acquisition.
SECTION 3.24 DISCLOSURE. Neither this Agreement, the Schedules hereto,
nor the Companies' Financial Statements and the Companies' Latest Balance Sheet,
documents or certificates furnished or to be furnished pursuant to this
Agreement to the Purchaser or any of its Representatives by or on behalf of the
Companies pursuant to this Agreement or in connection with the Acquisition
contains or will contain any untrue statement of a material fact or omits or
will omit to state a material fact necessary in order to make the statements
contained herein or therein or their intended purposes regarding the Companies'
operation of the Business not misleading. To the Knowledge of the Seller, no
material facts or circumstances are present that in the future might materially
adversely affect the Company and its Subsidiaries and their Business, other than
general economic or market developments. All representations and warranties made
by the Seller will be deemed to have been relied on by the Purchaser
notwithstanding any investigation by the Purchaser.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to the Seller as of the Closing
Date as follows:
SECTION 4.1 ORGANIZATION, QUALIFICATION. The Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. The Purchaser is duly qualified or licensed to do business as
a foreign corporation in good standing in every jurisdiction where the character
of its properties, owned or leased, or the nature of its activities make such
qualification necessary.
15
SECTION 4.2 SUBSIDIARIES. Except for the subsidiaries listed on
Schedule 4.2 hereto (each a "Purchaser Subsidiary" and collectively the
"Purchaser Subsidiaries"), of which the Purchaser is the beneficial owner of at
least ninety (90%) percent all of their issued and outstanding shares of voting
capital stock, the Purchaser has no subsidiaries and does not own, of record or
beneficially, any capital stock or equity interest or investment in any
corporation, partnership, limited liability company, association or other
business entity. Each of the Purchaser Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its formation. There is no claim or any grounds for potential
claims with respect to the Purchaser's ownership of any of the Purchaser
Subsidiaries.
SECTION 4.3 CAPITALIZATION. The Purchaser's authorized capital stock,
consists of 50,000,000 shares of Purchaser Common Stock, and 5,000,000 shares of
preferred stock, $.001 par value, of which 7,904,736 shares of Purchaser Common
Stock and no shares of Preferred Stock are issued and outstanding. The Purchaser
has reserved 9,063,716 shares of Purchaser Common Stock for issuance upon the
exercise of outstanding options, warrants and other purchase rights, as listed
on Schedule 4.3. Except to the extent listed on Schedule 4.3, all of the issued
and outstanding shares of Purchaser Common Stock are validly issued, fully paid
and non-assessable, and are not subject to preemptive rights or rights of first
refusal created by statute, the Purchaser's Charter Documents or any document or
agreement to which the Purchaser is a party, and the Acquisition Shares and the
Pledged Shares when issued in accordance with this Agreement will be duly
authorized, validly issued, fully paid and non-assessable shares of Purchaser
Common Stock, and based upon representations pursuant to Sections 3.22 and
8.1(b), the Acquisition Shares and the Pledged Shares will be issued pursuant to
exemptions from registration under the Securities Act, and not subject to any
Liens or restrictions imposed by the Purchaser other than restrictions under the
Securities Act and under the Pledge Agreement. Except as disclosed in Schedule
4.3 annexed hereto or as otherwise provided for in this Agreement, there are no
other outstanding options, warrants or rights of any kind to acquire any
additional shares of capital stock of the Purchaser or securities convertible
into or exchangeable for, or which otherwise confer on the holder thereof any
right to acquire, any such additional shares, nor is the Purchaser committed to
issue any such option, warrant, right or security. The holders of Purchaser
Common Stock do not have preemptive rights. Furthermore, there are no other
outstanding options, warrants or rights of any kind to acquire any additional
shares of capital stock of the Purchaser Subsidiaries. The Preferred Stock
issued in Real Time Systems are non-voting shares. Except to the extent set
forth on Schedule 4.3, there are no agreements relating to the voting, purchase
or sale of capital stock between or among the Purchaser and any of its
stockholders.
SECTION 4.4 AUTHORITY RELATIVE TO THIS AGREEMENT. The Purchaser has
full power, capacity and authority to execute and deliver this Agreement and
each other Transaction Document (as defined herein) to which it is a party and
to consummate the Acquisition (including the issuance of the Acquisition Shares
and the Pledged Shares).. The execution, delivery and performance by the
Purchaser of this Agreement and the other Transaction Documents to which it is a
party and the consummation by the Purchaser of the Acquisition (including the
issuance of the Acquisition Shares and the Pledged Shares) have been duly and
validly authorized by the board of directors of the Purchaser, and no other
proceedings on the part of the Purchaser are necessary to authorize the
execution and delivery by the Purchaser of this Agreement or any other
Transaction Documents to which it is a party or the consummation of the
16
Acquisition (including the issuance of the Acquisition Shares and the Pledged
Shares). This Agreement and the other Transaction Documents to which the
Purchaser is a party have been duly and validly executed and delivered by the
Purchaser, and (assuming the valid execution and delivery thereof by the other
parties thereto) constitute the legal, valid and binding agreements of the
Purchaser, enforceable against it in accordance with their respective terms,
except as such obligations and their enforceability may be limited by applicable
bankruptcy and other similar Laws (as defined herein) affecting the enforcement
of creditors' rights generally and except that the availability of equitable
remedies is subject to the discretion of the court before which any proceeding
therefore may be brought (whether at law or in equity).
SECTION 4.5 NO CONFLICTS; CONSENTS. Neither the execution, delivery and
performance by the Purchaser of this Agreement and each other Transaction
Document to which it is a party, nor the consummation of the Acquisition (i)
violates any provisions of the charter documents of the Purchaser; (ii) requires
the Purchaser to obtain any prior consent, approval, Permit or action of or
waiver from, or make any filing with, or give any notice to, any Governmental
Body or any other Person; (iii) violates, conflicts with or results in a breach
or default under (after the giving of notice or the passage of time or both), or
permits the termination of, any contract of the Purchaser to which the Purchaser
is a party or by which its assets may be bound or subject; (iv) violates any Law
or Order of any Governmental Body against, or binding upon the Purchaser; or (v)
violates or results in the revocation or suspension of any Permit of the
Purchaser.
SECTION 4.6 CHARTER DOCUMENTS AND CORPORATE RECORDS. The Purchaser has
heretofore delivered to the Seller a certified copy of its Certificate of
Incorporation and By-Laws, as in effect on the date hereof.
SECTION 4.7 FINANCIAL INFORMATION. The Purchaser's Annual Report on
Form 10-KSB for the fiscal year ended December 31, 2002 together with the
Purchaser's Quarterly Report on Form 10-QSB for the fiscal quarter ended
September 30, 2003 (collectively, the "Purchaser's Financial Statements")
present fairly the financial position and results of operations of the Purchaser
at the dates and for the periods to which they relate (subject, in the case of
the unaudited financial statements, to normal year-end adjustments). The audited
financial statements and the unaudited financial statements contained in the
Purchaser's SEC Reports have been prepared in accordance with GAAP consistently
followed throughout the periods involved (except as may be otherwise indicated
in the notes thereto and except with respect to unaudited statements as
permitted by Form 10-QSB), and comply in all material respects with applicable
accounting requirements and with published rules and regulations of the SEC with
respect thereto.
SECTION 4.8 ABSENCE OF CERTAIN CHANGES. Except to the extent set forth
in Schedule 4.8 annexed hereto, at all times since September 30, 2003, there has
not been any event or condition of any character which has adversely affected,
or may be expected to adversely affect, the Purchaser `s business or prospects,
as a whole, including but not limited to:
(i) any Material Adverse Change with respect to the condition,
assets, liabilities (existing or contingent) or business of the Purchaser from
that shown on the Purchaser's Reports;
17
(ii) any Material Adverse Change with respect to any damage,
destruction or loss of any of the properties or assets of the Purchaser (whether
or not covered by insurance) materially adversely affecting the business or
plans of the Purchaser;
(iii) any Material Adverse Change with respect to any declaration,
setting aside or payment or other distribution in respect of any of the
Purchaser's capital stock, or any direct or indirect redemption, purchase or
other acquisition of any of such stock by the Purchaser;
(iv) any Material Adverse Change with respect to any actual or
threatened cancellation or adverse modification of any contract, licensing
agreement, manufacturing agreement, marketing agreement or strategic partnering
agreement to which the Purchaser is a party;
(v) any labor trouble, or any other event or condition of any
character, materially adversely affecting the business or plans of the
Purchaser;
(vi) any Material Adverse Change with respect to any capital
investment in, any loan to, or any acquisition of the securities or assets of,
any Person (excluding the Acquisition);
(vii) any Material Adverse Change with respect to any note, bond
or other debt security issued, incurred or assumed, or guarantee of any
indebtedness for borrowed money; or
(viii) any Material Adverse Change with respect to any agreement
or commitment to do or perform any of the above.
SECTION 4.9 SEC REPORTSThe Purchaser is subject to filing requirements
with the U.S. Securities and Exchange Commission pursuant to Section 12(g) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The
Purchaser has filed with the United States all forms, reports, schedules,
statements and other documents required to be filed by it since January 1, 2001
(collectively, the "Purchaser SEC Documents"). The Purchaser SEC Documents (a)
do not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading and (b) comply in all material respects with the applicable
requirements of the Exchange Act and the Securities Act, as the case may be, and
the applicable rules and regulations of the SEC there under. No subsidiary of
the Purchaser is required to make any filings with the SEC. The Purchaser's
Common Stock is traded on the OTC Bulletin Board.
SECTION 4.10 TAXES. The Purchaser and the Purchaser Subsidiaries have
filed or will file within the time prescribed by law (including extensions of
time approved by the appropriate taxing authority) all tax returns and reports
required to be filed with the United States Internal Revenue Service and with
the States of Delaware and New Jersey and (except to the extent that the failure
to file would not have a material adverse effect on the condition or operations
of the Purchaser) with all other jurisdictions where such filing is required by
law and such tax returns were true, complete and correct in all material
18
respects. The Purchaser and the Purchaser Subsidiaries have paid, or made
adequate provision for the payment of, all taxes, interest, penalties,
assessments or deficiencies shown to be due or claimed to be due on or in
respect of such tax returns and reports. The Purchaser's federal income tax
returns have not, to the best of the Purchaser's Knowledge and belief, been
audited by the Internal Revenue Service.
SECTION 4.11 LITIGATION. Except as set forth on Schedule 4.11, There is
neither pending nor, to the Purchaser's Knowledge, threatened any action, suit,
proceeding or claim to which the Purchaser or any of the Purchasers Subsidiary
is or may be named as a party or its property is or may be subject and in which
an unfavorable outcome, ruling or finding in any such matter or for all such
matters taken as a whole might have a material adverse effect on the condition,
financial or otherwise, and operations or prospects of the Purchaser taken as a
whole. The Purchaser has no Knowledge of any unasserted claim which, if asserted
and granted might have a Material Adverse Effect on the condition, financial or
otherwise, operations or prospects of the Purchaser and the Purchaser
Subsidiaries, taken as a whole.
SECTION 4.12 CONSENTS. No consent, approval, qualification, order or
authorization of, or filing with, any governmental authority is required in
connection with the Purchaser's execution, delivery or performance of this
Agreement or other Transaction Documents.
SECTION 4.13 COMPLIANCE. The execution, delivery and performance of
this Agreement or other Transaction Documents by the Purchaser does not conflict
with or cause a breach under any of the terms or conditions of (i) its
Certificate of Incorporation or By-Laws or (ii) any mortgage, indenture,
contract, agreement, instrument, judgment, decree, order, statute, rule or
regulation to which the Purchaser is subject and a breach or violation of which
might have a Material Adverse Effect on the condition, financial or otherwise,
operations or prospects of the Purchaser. To the Knowledge of the Purchaser, the
operations of the Purchaser and each Purchaser Subsidiary have complied and are
in compliance in all material respects with all applicable federal, state and
local laws, and where appropriate, foreign laws, except to the extent any
failure to so comply would not have a material adverse effect on the condition,
financial or otherwise, operations or prospects of the Purchaser taken as a
whole. The Purchaser and the Purchaser Subsidiaries possess all permits from
Governmental Bodies which are required in the operation of its business, except
for those the failure of which would not have a Material Adverse Effect on the
Purchaser's business and prospects taken as a whole. To the Knowledge of the
Purchaser, the Purchaser and the Purchaser Subsidiaries are in compliance in all
material respects with the terms and conditions of such Permits.
SECTION 4.14 INTELLECTUAL PROPERTY. Each of the Purchaser and the
Purchaser Subsidiaries owns or has valid, adequate and subsisting rights to use
and exploit all patents, patent licenses, trade secrets, copyrights, trademarks
and service marks necessary for the conduct of its business (collectively, the
"Purchasers Intellectual Property") free and clear of any Lien or other
encumbrance. None of the processes currently used by the Purchaser or the
Purchaser Subsidiaries nor any of the properties or products currently sold or
trademarks, trade names, labels or other marks or copyrights used by the
Purchaser or the Purchaser Subsidiaries to the best Knowledge of the Purchaser
and the Purchaser Subsidiaries, infringes the patent, industrial property,
trademark, trade name, label, other ▇▇▇▇, right or copyright of any other person
or entity. The Purchaser or the Purchaser Subsidiaries have not received any
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written notice of adverse claim with respect to any of the Intellectual
Property, and, to the Purchaser's Knowledge, no basis exists for any such claim.
SECTION 4.15 NO UNDISCLOSED LIABILITIES; ETC. Except as set forth on
Schedule 4.8, neither the Purchaser nor any Purchaser Subsidiary has any
material liabilities or obligations of any nature (absolute, accrued, contingent
or otherwise) which were not fully reflected or reserved against in the balance
sheet included in September 30, 2003 Form 10-QSB (the "Purchaser's Latest
Balance Sheet"), except for liabilities and obligations incurred in the ordinary
course of business and consistent with past practice since the date thereof, and
which have not had or could not reasonably be expected to have a Material
Adverse Effect on the Purchaser and the Purchaser Subsidiaries taken as a whole.
The reserves reflected in the Purchaser's Latest Balance Sheet are adequate,
appropriate and reasonable or otherwise disclosed on a Schedule to this
Agreement.
SECTION 4.16 COMPLIANCE WITH LAWS.
(a) Neither the Purchaser nor the Purchaser Subsidiaries are in
violation of any order, judgment, injunction, award, citation, decree, consent
decree or writ (collectively, "ORDERS").
(b) Neither the current business operations of the Purchaser or the
Purchaser Subsidiaries nor their products nor existing agreements or services
infringe any applicable Law or Orders imposed by any Governmental Body. No fact,
circumstance, condition or situation exists which, after notice or lapse of time
or both, would constitute noncompliance by the Purchaser or the Purchaser
Subsidiaries (except where such noncompliance is inconsequential and could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on the Purchaser or the Purchaser Subsidiaries or their
respective business operations). The Purchaser and the Purchaser Subsidiaries
have not received notice of any violation of any applicable Law, or any
potential liability under any applicable law, nor is the Purchaser aware of any
such violation or potential liability.
(c) To the Knowledge of the Purchaser, no consent is required to be
obtained, satisfied or made pursuant to any applicable Law by which the
Purchaser or the Purchaser Subsidiaries are bound, in connection with (i) the
execution and delivery of this Agreement by the Purchaser or (ii) the
consummation by the Purchaser of this Agreement or the other Transaction
Documents.
SECTION 4.17 TITLE TO PROPERTIES; ENCUMBRANCES. Each of the Purchaser
and the Purchaser Subsidiaries has good, valid and marketable title to all the
properties and assets which it purports to own (personal and mixed, tangible and
intangible), including, without limitation, all the properties and assets
reflected in the Purchaser's Latest Balance Sheet (except for personal property
sold since the date thereof in the ordinary course of business and consistent
with past practice), and all the properties and assets purchased by the
Purchaser and its Subsidiaries since the date thereof. All properties and assets
reflected in the Purchaser's Latest Balance Sheet are free and clear of all
title defects or objections, Liens or other encumbrances of any nature
whatsoever including, without limitation leases, chattel mortgages, conditional
sales contracts, collateral security arrangements and other title or interest
retention arrangements.
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SECTION 4.18 FINDERS' FEES. There is no investment banker, broker,
finder or other intermediary which has been retained by or is authorized to act
on behalf of the Purchaser who is entitled to any fee or commission from the
Purchaser as a result of and upon consummation of the Acquisition.
SECTION 4.19 DISCLOSURE. Neither this Agreement, the Schedules hereto,
nor any audited or unaudited financial statements, documents or certificates
furnished or to be furnished pursuant to this Agreement to the Seller or any of
its Representatives by or on behalf of the Purchaser pursuant to this Agreement
or in connection with the Acquisition contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact
necessary in order to make the statements contained herein or therein or their
intended purposes regarding the Purchaser's business not misleading. To the
Knowledge of the Purchaser, no material facts or circumstances are present that
in the future might materially adversely affect the Purchaser and its business,
other than general economic or market developments. All representations and
warranties made by the Purchaser will be deemed to have been relied on by the
Seller notwithstanding any investigation by the Seller.
ARTICLE V
COVENANTS OF THE PARTIES
SECTION 5.1 CONDUCT OF BUSINESS.
(a) From the date hereof through the Closing Date, the Seller shall
cause the Companies, except as otherwise agreed upon by the Purchaser giving its
prior written consent with respect to clauses 5.1(a)(v)-(xiv):
(i) to operate their respective businesses in a reasonable and
prudent manner;
(ii) to maintain in the ordinary course, and in accordance with
the requirements of all Contracts, all their material structures, equipment and
other tangible property in their present repair, order and condition, subject to
ordinary wear and tear;
(iii) to maintain the books and records relating to the Companies
in the usual and ordinary manner and not to change any of their accounting
principles or practices;
(iv) to pay all valid account and trade payables in a timely and
reasonable manner consistent with past practices;
(v) not to incur any Liability (other than Liabilities incurred in
the ordinary course of the Business and which are not in the aggregate material
thereto);
(vi) not to pay, discharge or satisfy any material Claim or
Liability, other than the payment, discharge or satisfaction in the ordinary
course of business of Claims or Liabilities incurred in the ordinary course;
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(vii) not to sell, transfer, convey, assign or otherwise dispose
of any of its assets, or create, incur or assume any Lien on any of the assets,
except in the ordinary course;
(viii) not to waive, release or cancel any material claims against
third parties or debts owing to any of the Company and the Subsidiaries or any
material rights which have any material value, or waive or extend the statute of
limitations in respect of any Taxes (as defined herein);
(ix) not to authorize for issuance, issue, sell, purchase, deliver
or agree or commit to issue, sell, purchase or deliver (whether through the
issuance or granting of options, warrants, convertible or exchangeable
securities, commitments, subscriptions, rights to purchase or otherwise) any
equity interests in the Companies or any other securities, or amend any of the
terms of any such securities;
(x) not to terminate, modify, amend, renew or otherwise alter or
change any of the material terms or provisions of any Contract (other than in
the ordinary course of business) or breach the terms of any Contract or pay any
amount not required by Law or by any Contract;
(xi) not to make or commit to any capital investment in, or any
acquisition of the securities or assets of any Person or any merger,
consolidation or other extraordinary transaction (or series of related capital
investments, loans, acquisitions or other transactions);
(xii) to continue to carry all Insurance Policies and use their
best efforts not to allow any breach, default, termination or cancellation of
such Insurance Policies to occur or exist;
(xiii) not to make any loan or advance to any Person other than
for travel and similar routine advances in the ordinary course of business; or
(xiv) not to enter into any agreement or commitment to do or
perform any of the above.
(b) From the date hereof through the Closing Date, the Purchaser and
the Purchaser Subsidiaries agree hereto:
(i) to operate their businesses in a reasonable and prudent
manner;
(ii) to maintain the books and records relating to the Purchaser
and the Purchaser Subsidiaries in the usual and ordinary manner and not to
change any of its accounting principles or practices;
(iii) except for funds to be raised for obligations as of the
Closing, not to authorize for issuance, issue, sell, deliver or agree or commit
to issue, sell or deliver any equity interest in the Purchaser or the Purchaser
Subsidiaries or any other securities or amend any of the terms of any such
securities other than as contemplated under this Agreement or disclosed in any
Schedule to this Agreement or to undertake any other placements;
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(iv) not to terminate, modify, amend, renew or otherwise alter or
change any material terms or provisions of any of their contracts (other than in
the ordinary course of business) or breach the terms of any contract or pay any
amount not required by Law or by any contract;
(v) not to pay any dividend or distribution (other than
intra-corporate dividends or distributions);
(vi) except for funds to be raised for obligations as of the
Closing, not to make or commit to make any capital investment in, or any
acquisition of the securities or assets of any Person or any merger,
consolidation or other extraordinary transaction (or series of related capital
investments, loans, acquisitions or other transactions) for which the
consideration would exceed Euro 100,000;
(vii) not to enter into any agreement or commitment to do or
perform on any of the above.
(c) From the date hereof through the Closing Date, the Seller and the
Purchaser each agree to use its best efforts to cause the respective businesses
of the Companies and the Purchaser to be conducted in such a manner so that
their respective representations and warranties contained herein shall continue
to be true and correct on and as of the Closing Date as if made on and as of the
Closing Date. Neither the Seller nor the Purchaser will or permit or cause any
of the Companies or the Purchaser Subsidiaries to (i) take or agree to take any
action that would make any of its representations or warranties herein
inaccurate in any material respect or (ii) omit to take or agree to omit to take
any action necessary to prevent any such representation or warranty from being
inaccurate in any material respect.
SECTION 5.2 CORPORATE EXAMINATIONS AND INVESTIGATIONS.
(a) Subject to Section 5.2(b) hereof and the terms of a Letter of
Intent entered into between the parties hereto on October 7, 2003 (the "Letter
of Intent"), prior to the Closing Date, the Seller and the Purchaser agree that
the other party shall be entitled, through its officers, directors,
stockholders, affiliates, employees, attorneys, accountants, representatives,
lenders, consultants and other agents (collectively, the "Representatives"), to
make such investigation of the Companies (with respect to the Purchaser) and
Purchaser and the Purchaser Subsidiaries (with respect to the Seller), as
applicable, and such examination of the books, records and financial condition
of the other parties, as either party reasonably deems necessary. Any such
investigation and examination shall be conducted at reasonable times, under
reasonable circumstances and upon reasonable notice, and the Companies or the
Purchaser, as applicable, shall, cooperate fully therein. In connection with
such review, each of the parties shall make available to the Representatives of
the other party during such period, without however causing any unreasonable
interruption in the operations of the examined party, all such information and
copies of such documents and records concerning the affairs of each of the
examined parties, as such Representatives may reasonably request. No
investigation by any party hereto shall diminish or obviate any of the
representations, warranties, covenants or agreements of the other parties
contained in this Agreement.
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(b) The Seller shall cause the Companies to permit the Representatives
of the Purchaser access to the Companies and all parts thereof and to
information concerning their employees, customers, suppliers and others, and to
cooperate fully in connection with such review and examination, and the
Purchaser shall permit similar access by Representatives of the Company to the
Purchaser and to information concerning its employees, customers, suppliers and
others. The Purchaser shall coordinate any and all communications with customers
and suppliers of the Companies through ▇▇. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, CEO, and the Seller
shall coordinate any and all communications with customers and suppliers of the
Purchaser through ▇▇. ▇▇▇▇▇▇ ▇▇▇▇, President and CEO. Neither the Seller nor the
Purchaser shall, and the Seller shall cause the Companies and the Purchaser
shall procure that the Purchaser Subsidiaries act accordingly, make or attempt
to make any direct communications with any such customers and suppliers of the
other without the prior knowledge and consent of one of the foregoing
individuals of the other party in each instance, provided that should either
party have a pre-existing relationship with any customer or supplier of the
other party, the investigating party or its Representatives may directly contact
such customer or supplier so long as the relationship between the other party
hereto and such customer or supplier is not discussed.
SECTION 5.3 PROPRIETARY INFORMATION; CONFIDENTIAL RECORDS, INTELLECTUAL
PROPERTY RIGHTS.
(a) The Seller, on one hand, and the Purchaser, on the other hand, and
the Seller shall cause the Companies and the Purchaser shall procure that the
Purchaser Subsidiaries act accordingly, each covenants to the other that it
shall not at any time hereafter, directly or indirectly, use for its own purpose
or for the benefit of any Person other than in connection with its review as
conducted under Section 5.2, or disclose, any proprietary information received
during such review to any Person. For purposes of this Agreement, the term
"proprietary information" shall include, but it is not limited to: (i) the name
and address of any client, identified prospect, former client, vendor or
supplier of the Purchaser and the Purchaser Subsidiaries or the Companies
(collectively, the "Reviewed Entities") and any information concerning the
transactions or relations of any client, identified prospect, former client,
vendor or affiliate of any of the Reviewed Entities or any of their
shareholders, directors, officers, principals, employees, independent
contractors or agents; (ii) any information concerning any product, technology,
practice or procedure employed or used by a Reviewed Entity but not generally
known to its clients, vendors or competitors, or under development by or being
tested by a Reviewed Entity but not at the time offered generally to clients or
vendors; (iii) any information relating to computer software or systems used by
a Reviewed Entity or any of its pricing or marketing methods, research
techniques, sales margins, capital structure, operating results, borrowing
arrangements or business plans; (iv) any information which is generally regarded
as confidential or proprietary; (v) any business plans, budgets, advertising or
marketing plans of any of the Reviewed Entities; (vi) any information contained
in any written or oral policies and procedures or employee manuals of any of the
Reviewed Entities; (vii) any information belonging to clients, identified
prospects, former clients, vendors or suppliers of any of the Reviewed Entities
which such Entity has agreed to hold in confidence; (viii) any inventions,
innovations or improvements; (ix) all written, graphic and other material
relating to any of the foregoing; (x) any software and computer program relating
to any of the foregoing; and (xi) any compilation or arrangements of any
information relating to any of the foregoing proprietary information.
Information that is not novel or copyrighted or patented may nonetheless be
24
proprietary information. Notwithstanding the foregoing, the term "proprietary
information" shall not include any information generally available to and known
by the public, but shall include information which becomes public as a result of
a breach of an obligation of confidentiality by a Reviewed Entity.
(b) The Seller, on one hand, and the Purchaser, on the other hand, and
the Seller shall cause the Companies and the Purchaser shall procure that the
Purchaser Subsidiaries act accordingly, acknowledge and agree that by virtue of
the extraordinary value of the proprietary information and confidential records,
their access to and use of such proprietary information and confidential records
and their unique knowledge of and contacts relating to the respective Business,
any violation by any of them of the undertakings and agreements contained in
this Section 5.3 would cause the other immediate, substantial and irreparable
injury for which it has no adequate remedy at law. Accordingly, the parties
agree and consent to the entry of an injunction or other equitable relief by a
court of competent jurisdiction restraining any violation or threatened
violation of any undertaking contained in this Section 5.3. The parties waive
posting of any bond otherwise or any proof of actual damages necessary to secure
such injunction or other equitable relief. The rights and remedies otherwise
available to the parties hereunder or under any other agreement or applicable
law or otherwise.
SECTION 5.4 NOTICES OF CERTAIN EVENTS.
(a) Prior to the Closing Date, the Seller and the Purchaser shall
promptly notify the other of:
(i) any notice or other communication from any Person alleging
that the consent of such person is or may be required in connection with the
Acquisition;
(ii) any notice or other communication from any Governmental Body
in connection with the Acquisition;
(iii) any event, condition or circumstance occurring from the date
hereof through the Closing Date that would constitute a violation or breach of
any representation or warranty, whether made as of the date hereof or as of the
Closing Date, or that would constitute a violation or breach of any covenant of
any party contained in this Agreement; and
(iv) any notice or other communication from a Governmental Body
relating to Taxes of the Companies, the Purchaser or the Purchaser Subsidiaries.
SECTION 5.5 PUBLIC ANNOUNCEMENTS. Prior to the Closing Date, the Seller
and the Purchaser shall consult with each other before issuing any press release
or otherwise making any public statement with respect to this Agreement or the
Acquisition, and shall not issue any such press release or make any such public
statement (other than product announcements consistent with past practices)
without the prior written approval of the other party, as the case may be,
except as may be required by applicable Law in which event the other party shall
have the right to review and comment upon (but not approve) any such press
release or public statement prior to its issuance.
25
SECTION 5.6 EXPENSES. Except as otherwise specifically provided in this
Agreement, the parties hereto shall bear their respective expenses incurred in
connection with the preparation, execution and performance of this Agreement and
the Acquisition, including, without limitation, all fees and expenses of their
respective Representatives (the "Transaction Expenses").
SECTION 5.7 FURTHER ASSURANCES. The Seller and the Purchaser hereby
agree, without further consideration, to execute and deliver at or prior to the
Closing such instruments of transfer and take such other action as the other may
reasonably request in order to put the Purchaser in actual possession and
control of, and to vest in the Purchaser good, valid and unencumbered title to
the Company Share in accordance with this Agreement, subject to any lien or
encumbrance of Lloyds Bank, and to otherwise give effect to the Acquisition.
Following the Closing, the Seller and the Purchaser shall execute and deliver,
or cause to be executed and delivered, to the other party such instruments of
conveyance and transfer as the requesting party may reasonably request.
SECTION 5.8 CONSENTS, FILINGS AND AUTHORIZATIONS; EFFORTS TO
CONSUMMATE. As promptly as practicable after the date hereof, the Seller and the
Purchaser shall make all filings and submissions under such Laws as are
applicable to them, as may be required for them to consummate the Acquisition in
accordance with the terms of this Agreement and shall furnish copies thereof to
each other party prior to such filing and shall not make any such filing or
submission to which the Seller or the Purchaser, as the case may be, reasonably
objects in writing. All such filings shall comply in form and content in all
material respects with applicable Law. Subject to the terms and conditions
herein, each party hereto, without payment or further consideration, shall use
its good faith efforts to take or cause to be taken all action and to do or
cause to be done all things necessary, proper or advisable under applicable
Laws, permits and orders, to consummate and make effective, as soon as
reasonably practicable, the Acquisition, including, but not limited to, the
obtaining of all Companies' required consents, the Purchaser's required consents
or consents of any third party, whether private or governmental, required in
connection with such party's performance of such transactions and each party
hereto shall cooperate with the other in all of the foregoing.
SECTION 5.9 DISCLOSURE SUPPLEMENTS. From time to time prior to the
Closing Date, each party hereto will promptly supplement or amend (by written
notice to the other) its respective disclosure schedules delivered pursuant
hereto with respect to any matter hereafter arising which, if existing,
occurring or known at the date of this Agreement, would have been required to be
set forth or described in such schedules or which is necessary to correct any
information in such schedules which has been rendered materially inaccurate
thereby. For the purpose of determining satisfaction of the conditions set forth
in Article VIII, no supplement or amendment to such schedules shall correct or
cure any representation, warranty or covenant which was untrue when made, but
shall enable the disclosure of subsequent facts or events to maintain the
truthfulness of any warranty.
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ARTICLE VI
COVENANTS OF THE PURCHASER
SECTION 6.1 BOARD OF DIRECTORS. As of the Closing, ▇▇. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
will be added to the Board of Directors of the Purchaser then consisting of six
(6) persons. The Seller will have the right to designate three additional
directors and the Board of Directors will be increased to eight (8) persons
members, four (4) of whom shall be current directors or persons chosen by the
current directors, and four (4) of whom shall be designated by the Seller. The
Seller's designees as directors shall be persons reasonably acceptable to the
Purchaser. At least ten (10) days prior to the Closing Date, the Seller shall
provide to the Purchaser background information regarding its designees as may
be reasonably requested by the Purchaser, including the completion of
questionnaires for each designee. In addition, the Seller shall have the right
to designate one person to serve as a director of the Purchaser's Subsidiaries
Distinctive Devices, Inc. (India) PLC and Realtime Systems Ltd.
SECTION 6.2 ▇▇▇▇▇▇ EMPLOYMENT AGREEMENT(a) Employment Terms. The
Purchaser shall cause the Company to execute an employment agreement with
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ as Managing Director, in the form attached hereto as Exhibit
H (the "Employment Agreement"), effective immediately after the Closing.
(b) Stock Options. In addition, the Purchaser shall grant to ▇▇▇▇▇▇▇▇
▇. ▇▇▇▇▇▇ options (the "Options") to purchase 1,250,000 shares of Purchaser
Common Stock at an exercise price of the lower of (i) the average market price
of Purchaser Common Stock for the ten trading days immediately preceding the
Closing Date or (ii) $0.70 per Share, vesting as to 25% of the shares six (6)
months after grant, and 25% per year on the first three anniversary dates of the
Closing, exercisable for five years from the Closing.
(c) Indemnification Obligations. For the express purpose of securing
the Seller's indemnification obligations pursuant to Article X hereof, the
Purchaser reserves the right to credit the Option rights to be granted to ▇▇.
▇▇▇▇▇▇ under Section 6.3(b) against any Losses suffered or incurred by the
Purchaser arising under Article X hereof. The Option will be valued at US$0.50
per Share solely for the particular purpose of any reduction by reason of the
indemnification obligation.
ARTICLE VII
COVENANTS OF THE SELLER
SECTION 7.1 NON-COMPETITION. The Seller agrees that for a period of
three (3) years after the Closing Date, the Seller shall not, directly or
indirectly, engage in any business similar to the Business, as set forth in the
Non-Competition Agreement attached hereto as Exhibit B.
SECTION 7.2 NON-SOLICITATION. Unless and until this Agreement shall
have been terminated pursuant to and in compliance with Subsections (a) through
27
(e) of Section 9.1, the Seller shall not and shall cause the Companies not
(collectively, the "Restricted Parties") (whether directly or indirectly through
its respective Representatives), nor shall any Restricted Party authorize or
permit any of its respective Representatives to (i) solicit, initiate, encourage
(including by way of furnishing information) or take any action to facilitate
the submission of any inquiries, proposals or offers (whether or not in writing)
from any person relating to (A) any acquisition or purchase of any of the assets
of the Company or any Subsidiary or of any class of equity securities of the
Company or any Subsidiary, (B) any tender offer (including a self tender offer)
or exchange offer, (C) any merger, consolidation, business combination, sale of
substantially all assets, recapitalization, liquidation, dissolution or similar
transaction involving the Company or any Subsidiary, or (D) any other
transaction the consummation of which would or would reasonably be expected to
impede, interfere with, prevent or materially delay the Acquisition or which
would or would reasonably be expected to materially dilute the benefits to the
Purchaser of the transactions contemplated by this Agreement (collectively,
"Acquisition Proposals"), or agree to, recommend or endorse any Acquisition
Proposal, (ii) enter into or execute any agreement or letter of intent with
respect to any of the foregoing or (iii) enter into or participate in any
discussions or negotiations regarding any of the foregoing, or furnish to any
other Person any information with respect to a Restricted Party's business,
properties or assets in connection with the foregoing, or otherwise cooperate in
any way with, or participate in or assist, facilitate, or encourage, any effort
or attempt by any other Person (other than the Purchaser) to do or seek any of
the foregoing. The Restricted Parties represent that since the effectiveness of
the Letter of Intent none of them has had any discussions or negotiations with
any Persons other than the Purchaser with respect to any Acquisition Proposal
and agree to disclose any such discussions or negotiations immediately.
ARTICLE VIII
CONDITIONS TO CLOSING
SECTION 8.1 CONDITIONS TO THE OBLIGATIONS OF ALL PARTIES. The
obligations of the Seller and the Purchaser to consummate the Acquisition are
subject to the satisfaction (or waiver) of the following conditions on or prior
to the Closing Date:
(a) Further Investment. The Purchaser shall contribute US$1,000,000 to
the capital of the Company at Closing. Furthermore, the Purchaser shall make a
capital contribution in the amount of US$1,000,000 to the Company by forgiving
and returning the Company Note marked as paid.
(b) Transfer of Acquisition Shares. The Seller shall deliver to the
Purchaser a schedule of its shareholders with an allocation of the 6,400,000
shares issued by the Purchaser among those holders. After Closing, the Seller
shall furnish the allocation schedule to the Purchaser. The Purchaser at the
option of the Seller will either (i) deliver the respective stock certificates
allocated to the holders or (ii) provide a confirmation letter that such stock
certificated are held by ▇▇▇▇▇▇▇▇ Chance US LLP, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇
▇▇▇▇▇-▇▇▇▇, are marketable ("verkehrsfahig") subject to US securities laws and
exchangeable ("Ubergabe Zug um Zug") to ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Notary ("Rechtsanwalt
und Notar"), ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇. As a condition to transfer
of any Acquisition Shares to a holder, the holder shall execute and deliver
28
investment representations with respect to his portion of the Acquisition
Shares, which representations shall contain the representations in Section 3.22.
(c) Internal Statements. The Company shall have delivered to the
Purchaser the Companies internal statements date dated as of November 30, 2003
showing any changes in the Companies since the Companies Interim Statement Date.
(d) No Injunction. No provision of any applicable Law and no Order
shall prohibit the consummation of the Acquisition.
(e) No Proceeding or Litigation. No Claim instituted by any Person
shall have been commenced or pending against the Companies or the Purchaser or
any of their respective Affiliates, officers or directors which Claim seeks to
restrain, prevent, change or delay in any material respect the Acquisition or
seeks to challenge any of the material terms or provisions of this Agreement or
seeks material damages in connection with any of such transactions, and, in the
opinion of counsel to the Companies or counsel to the Purchaser, is not a
specious Claim and represents a serious risk for its client to proceed with the
Acquisition.
(f) Pledge Agreement. The Pledge Agreement shall have been entered
into.
(g) Non-Competition Agreement. The Non-Competition Agreement shall have
been entered into.
(h) Employment Agreement. The Employment Agreement with ▇▇. ▇▇▇▇▇▇
referred to in Section 6.2 shall have been entered into.
(i) Registration Agreement. The Registration Rights Agreement shall
have been entered into.
SECTION 8.2 CONDITIONS TO THE OBLIGATIONS OF THE SELLER. All
obligations of the Seller to consummate the Acquisition hereunder are subject to
the fulfillment (or waiver by the Seller) of each of the following further
conditions on or prior to the Closing:
(a) Performance. The Purchaser shall have performed and complied with
all agreements, obligations and covenants required by this Agreement to be
performed or complied with by it on or prior to the Closing Date.
(b) Representations and Warranties. The representations and warranties
of the Purchaser contained in this Agreement and in any certificate or other
writing delivered by the Purchaser pursuant hereto shall be true in all material
respects at and as of the Closing Date as if made at and as of such time.
(c) No Adverse Change. During the period from September 30, 2003 to the
Closing Date, except to the extent contemplated in the Agreement or any Schedule
hereto, there shall not have been (i) any material adverse change in the
condition of the business of the Purchaser, (ii) any damage, destruction,
casualty, determination or other event to or affecting the Purchaser which has a
Material Adverse Effect or (iii) any Claims or Liens filed or threatened in
29
writing, against or affecting the Purchaser which, if adversely determined,
would be reasonably likely to have a Material Adverse Effect on the Purchaser.
(d) Purchase Price. The Purchase Price shall have been paid by the
Purchaser in accordance with Section 1.2 hereto on the Closing Date to the
Seller, including delivery of the Pledged Shares in accordance with the Pledge
Agreement.
(e) Purchaser's required consents. All consents required of the
Purchaser shall have been obtained prior to the Closing.
(f) Documentation. There shall have been delivered to the Seller the
following:
(i) If the Closing Date is other than the date of this Agreement,
a certificate, dated the Closing Date, of an officer of the Purchaser confirming
the matters set forth in Sections 8.2(a), (b) and (c) hereof;
(ii) A certificate, dated the Closing Date, of the Secretary of
the Purchaser certifying, among other things, that attached or appended to such
certificate (A) is a true and correct copy of its Certificate of Incorporation
and all amendments if any thereto as of the date thereof; (B) is a true and
correct copy of its By-laws and all amendments if any thereto as of the date
thereof; (C) is a true copy of all actions taken by it, including resolutions of
its Board of Directors authorizing the consummation of the Acquisition and the
execution, delivery and performance of this Agreement and each other Transaction
Document to be delivered by the Purchaser pursuant hereto; and (D) are the names
and signatures of its duly elected or appointed officers who are authorized to
execute and deliver this Agreement, the other Transaction Documents to which the
Purchaser is a party and any certificate, document or other instrument in
connection herewith;
(iii) Good standing certificates for the Purchaser from the
Secretary of State of the State of Delaware and each of the jurisdictions in
which the Purchaser is qualified to do business as a foreign corporation;
(iv) A signed opinion of the Purchaser's counsel, dated the
Closing Date, addressed to the Seller, substantially in the form of the opinion
attached hereto as Exhibit C;
(v) Such other documents as the Seller may reasonably request.
SECTION 8.3 CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER. All
obligations of the Purchaser to consummate the Acquisition hereunder are subject
to the fulfillment (or waiver by the Purchaser) of each of the following further
conditions on or prior to the Closing:
(a) Performance. Each of the Seller and Companies shall have performed
and complied with all agreements, obligations and covenants required by this
Agreement to be performed or complied with by it or them on or prior to the
Closing Date.
30
(b) Representations and Warranties. The representations and warranties
of the Seller contained in this Agreement and in any certificate or other
writing delivered by the Seller pursuant hereto shall be true in all material
respects at and as of the Closing Date as if made at and as of such time.
(c) No Adverse Change. During the period from September 30, 2003 to the
Closing Date, there shall not have been (i) any material adverse change in the
condition of the Business or in the Companies' relationships with their major
clients, (ii) any damage, destruction, casualty, determination or other event to
or affecting the Shares of any of the Companies which has a Material Adverse
Effect or (iii) any Claims or Liens filed or threatened in writing, against or
affecting any of the Companies or the Company Share which, if adversely
determined, would be reasonably likely to have a Material Adverse Effect on the
Condition of the Business.
(d) Companies' required consents. All consents required of the Seller
or the Company shall have been obtained prior to the Closing.
(e) Documentation. There shall have been delivered to the Purchaser the
following:
(i) If the Closing Date is other than the date of this Agreement,
a certificate, dated the Closing Date, of an officer of each of the Companies
confirming the matters set forth in Sections 8.3 (a), (b) and (c) hereto.
(ii) A certificate, dated the Closing Date, of the Secretary or
Assistant Secretary of each of the Companies certifying, among other things,
that attached or appended to such certificate (A) are the names of the officers
of each of the Companies; (B) is a true copy of all actions taken by the
Companies' Shareholders and directors of each of the Companies (which actions
shall have been taken prior to the date of entering into this Agreement) to
authorize the Acquisition; and (C) are the names and signatures of the duly
elected or appointed officers of each of the Companies who are authorized to
execute and deliver this Agreement, the Transaction Documents to which each of
the Companies is a party and any certificate, document or other instrument in
connection herewith;
(iii) Commercial Register Excerpts of the Companies;
(iv) Form of consent of Lloyds Bank to the Acquisition acceptable
to the Purchaser.
(v) A written statement of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ & Partner,
▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ with respect to the validity of the
▇▇▇▇ settlement agreement attached hereto as Exhibit D.
(vi) A signed opinion of the Company's Counsel, dated the Closing
Date, addressed to the Purchaser, substantially in the form of the opinion
attached hereto as Exhibit F; and
(vii) Such other documents as the Purchaser may reasonably
request.
31
ARTICLE IX
TERMINATION
SECTION 9.1 TERMINATION. In the event this Agreement is not
simultaneously executed and closed, this Agreement may be terminated and the
Acquisition may be abandoned at any time after execution and prior to the
Closing by the party desiring to terminate this Agreement pursuant to this
Section giving written notice of termination to the other party hereto
specifying the reasons for the termination:
(a) By mutual written consent of the parties hereto.
(b) By the Purchaser or by the Seller at any time after December 31,
2003, unless the Closing has not occurred by that date (or such later date as to
which the parties agree) and if the failure to close is not the result of a
breach of this Agreement by the party seeking termination.
(c) By the Seller (provided that it is not in material breach of any of
its obligations in this Agreement) if (i) there has been a material
misrepresentation or breach of warranty on the part of the Purchaser in its
representations and warranties contained herein and such material
misrepresentation or breach of warranty, if curable, is not cured within five
(5) days after written notice thereof from the Seller, (ii) the Purchaser has
committed a material breach of any covenant imposed upon it and has failed to
cure such breach within five (5) days after written notice thereof from the
Seller or (iii) any condition to any of the Seller's obligations hereunder
becomes incapable of fulfillment through no fault of the Seller and is not
waived by any of the Companies.
(d) By the Purchaser (provided that it is not in material breach of any
of its obligations in this Agreement) if (i) there has been a material
misrepresentation or breach of warranty on the part of the Seller in its
representations and warranties contained herein and such material
misrepresentation or breach of warranty, if curable, is not cured within five
(5) days after written notice thereof from the Purchaser, (ii) the Seller has
committed a material breach of any covenant imposed upon it hereunder and fails
to cure such breach within five (5) days after written notice thereof from the
Purchaser, or (iii) any condition to the Purchaser's obligations hereunder
becomes incapable of fulfillment through no fault of the Purchaser and is not
waived by the Purchaser.
(e) By the Purchaser, on the one hand, or by the Seller, on the other
hand, if there shall be any Law that makes consummation of the Acquisition
illegal or otherwise prohibited, or if any Order enjoining the Purchaser, on the
one hand, or the Seller or any of the Companies, on the other hand, from
consummating the Acquisition is entered and such Order shall have become final
and non-appeal able.
(f) By the Purchaser if the Seller or any of the other Restrictive
Parties breaches the covenants in Section 7.2.
32
SECTION 9.2 EFFECT OF TERMINATION; RIGHT TO PROCEED.
(a) In the event that this Agreement shall be terminated pursuant to
Section 9.1 (a), (b) or (e) hereof, all further obligations of the parties under
the Agreement shall terminate without further liability of any party hereunder.
Notwithstanding any other provision in this Agreement to the contrary, (i) upon
termination of this Agreement pursuant to Section 9.1(c) hereof, the Purchaser
shall remain liable to the Seller for any misrepresentation or breach of
warranty or non-fulfillment of or failure to perform any covenant or agreement
of the Purchaser existing at the time of such termination; and in any such event
the terminating party may seek such remedies, including, without limitation,
Losses against the other party with respect to any such breach as are provided
in this Agreement or are otherwise available in law or equity, (ii) upon
termination of this Agreement pursuant to Section 9.1(d) hereof, the Warrantor
shall remain liable jointly and severally to the Purchaser for any
misrepresentation or breach of warranty or non-fulfillment of or failure to
perform any covenant or agreement of the Seller or the Companies existing at the
time of such termination, and in any such event the terminating party may seek
such remedies, including without limitation, Losses (as defined herein) against
the other party with respect to any such breach as are provided in this
Agreement or as are otherwise available at Law or in equity; (iii) upon
termination of this Agreement pursuant to Section 9.1(f) hereof, the Seller
shall immediately pay US $175,000 to the Purchaser, and any late payment shall
bear interest at the rate of twelve (12%) percent per annum from the termination
date until the amount is paid in full, together with costs of collection,
including reasonable attorneys' fees. Without limiting the generality of the
foregoing sentence, in the event that this Agreement shall be terminated by the
Seller pursuant to Section 9.1(c) hereof or by the Purchaser pursuant to Section
9.1(d) hereof, the party in breach of its covenants, agreements or obligations
hereunder shall reimburse the non-breaching party for all costs and expenses
resulting from any such breach.
(b) Except to the extent specifically provided for in this Section 9.2,
the agreements contained in Section 5.3, 11.4, 11.11 and 11.12 hereof and the
Letter of Intent shall survive the termination hereof. In the event that a
condition precedent to its obligation is not met, nothing herein shall require
any party to terminate this Agreement, but will give any party the right to
waive such condition precedent and proceed with the Acquisition. Notwithstanding
the reason for the termination of this Agreement, upon such termination the
Company Note shall become due and payable, and the Purchaser shall be entitled
to enforce its rights there under and under any related guaranties.
(c) In the event that a condition precedent to its obligations is not
met, nothing contained herein shall be deemed to require any party to terminate
this Agreement, rather than to waive such condition precedent and proceed with
the Acquisition.
ARTICLE X
INDEMNIFICATION
SECTION 10.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All covenants,
representations and warranties and agreements of the parties hereto and in the
schedules and closing certificates shall survive the execution and delivery of
33
this Agreement and the Closing hereunder for a period of six (6) months from the
Closing Date. The right to indemnification, payment of Losses (as defined
herein) or other remedy based on such representations, warranties, covenants and
obligations will not be affected by any investigation conducted with respect to,
or any Knowledge acquired (or capable of being acquired) at any time, whether
before or after the execution and delivery of this Agreement or the Closing
Date, with respect to the accuracy or inaccuracy of or compliance with, any such
representation, warranty, covenant or obligation. The waiver of any condition
based on the accuracy of any representation or warranty, or on the performance
of or compliance with any covenant or obligation, shall not affect the right to
indemnification, payment of Losses or other remedy based on such
representations, warranties, covenants and obligations.
SECTION 10.2 OBLIGATION OF THE WARRANTOR TO INDEMNIFY. Subject to the
limitations set forth in Section 10.5 hereof, in the event the Closing is held,
the Seller hereby agrees (and in the event this Agreement is terminated prior to
the Closing, the Seller agrees) to indemnify, defend and hold harmless the
Purchaser (and its directors, stockholders, officers, employees, affiliates,
successors, assigns and Representatives) from and against all Claims, losses,
liabilities, damages, deficiencies, judgments, settlements, costs of
investigation or other expenses (including interest, penalties and reasonable
attorneys' fees and disbursements and expenses incurred in enforcing this
indemnification or in any litigation between the parties or with third parties)
(collectively, the "Losses") suffered or incurred by the Purchaser or any of the
foregoing persons arising out of (i) any breach of the representations,
warranties, covenants and agreements of the Seller contained in this Agreement,
in the Schedules hereto or in its closing certificates, or (ii) any third party
Claim, whether made before or after the date of this Agreement, or any
litigation, proceeding or governmental investigation, whether commenced before
or after the date of this Agreement, arising out of the operation of the
Business, or otherwise relating to any of the Companies, prior to the Closing,
or otherwise arising out of any act or occurrence prior to, or any state or
facts existing as of the Closing; except that the Seller shall not have any
obligation under this Section to the Purchaser with respect to Losses arising
from the gross negligence or willful misconduct of the Purchaser, its officers,
directors, employees or Representatives.
SECTION 10.3 OBLIGATION OF THE PURCHASER TO INDEMNIFY. Subject to the
limitations set forth in Section 10.5 hereof, the Purchaser hereby agrees to
indemnify, defend and hold harmless the Seller (and its shareholders, directors,
officers, employees, affiliates, successors, assigns and Representatives) (and,
in the event this Agreement is terminated prior to the Closing, also the Company
and its directors, officers, employees, affiliates and Representatives) from and
against any Losses suffered or incurred by the Seller or any of the foregoing
persons arising out of (i) any breach of the representations and warranties of
the Purchaser or of the covenants and agreements of the Purchaser contained in
this Agreement or in the Schedules hereto or any Transaction Documents, or (ii)
the operation or ownership of the Business from and after the Closing; except
that the Purchaser shall have no obligation under this Section to the Seller
(and the Company if applicable) with respect to Losses arising from the gross
negligence or willful misconduct of the Seller or the Companies and their
respective officers, directors, employees or Representatives.
34
SECTION 10.4 NOTICE AND OPPORTUNITY TO DEFEND THIRD PARTY CLAIMS.
(a) Promptly after receipt by any party hereto (the "Indemnitee") of
notice of any demand, Claim, circumstance or Tax Audit which would or might give
rise to a Claim or the commencement (or threatened commencement) of any action,
proceeding or investigation (the "Asserted Liability") that may result in a
Loss, the Indemnitee shall give prompt written notice thereof (the "Claims
Notice") to the party obligated to provide indemnification pursuant to Section
10.2 or 10.3 hereof (the "Indemnifying Party"), but the failure to notify the
Indemnifying Party shall not relieve the Indemnifying Party of any liability it
may have to the Indemnified Party except to the extent that the Indemnifying
Party demonstrates that the defense of such action is prejudiced by the
Indemnifying Party's failure to give such notice. The Claims Notice shall
describe the Asserted Liability in reasonable detail and shall indicate the
amount (estimated, if necessary, and to the extent feasible) of the Loss that
has been or may be suffered by the Indemnitee.
(b) The Indemnifying Party may elect to defend, at its own expense and
with its own counsel reasonably satisfactory to the Indemnitee, any Asserted
Liability, unless (i) the Asserted Liability seeks an Order, injunction or other
equitable or declaratory relief against the Indemnitee, or (ii) the Indemnitee
shall have reasonably concluded that (x) there is a conflict of interest between
the Indemnitee and the Indemnifying Party in the conduct of such defense, or (y)
the Indemnitee shall have one or more defenses not available to the Indemnifying
Party. If the Indemnifying Party elects to defend such Asserted Liability, it
shall within thirty (30) days (or sooner, if the nature of the Asserted
Liability so requires) notify the Indemnitee of its intent to do so, and the
Indemnitee shall cooperate, at the expense of the Indemnifying Party, in the
defense of such Asserted Liability. If the Indemnifying Party elects not to
defend the Asserted Liability, is not permitted to defend the Asserted Liability
by reason of the first sentence of this Section 10.4(b) or fails to notify the
Indemnitee of its election as herein provided or contests its obligation to
indemnify under this Agreement with respect to such Asserted Liability, the
Indemnitee may pay, compromise or defend such Asserted Liability at the sole
cost and expense of the Indemnifying Party, provided that such settlement shall
be upon commercially reasonable terms and circumstances. Notwithstanding the
foregoing, neither the Indemnifying Party nor the Indemnitee may settle or
compromise any claim over the reasonable written objection of the other,
provided that the Indemnitee may settle or compromise any claim as to which the
Indemnifying Party is contesting its indemnification obligations hereunder so
long as such settlement shall be upon commercially reasonable terms and
circumstances. In any event, the Indemnitee and the Indemnifying Party may
participate, at their own expense, in the defense of such Asserted Liability. If
the Indemnifying Party chooses to defend any Asserted Liability, the Indemnitee
shall make available to the Indemnifying Party any books, records or other
documents within its control that are necessary or appropriate for such defense.
Any out-of-pocket expenses of any Indemnitee for which indemnification is
available hereunder shall be included in the Losses for which the Indemnifying
Party is responsible.
SECTION 10.5 LIMITATION ON INDEMNIFICATION; PAYMENT OF INDEMNIFICATION
AMOUNTS. The Sellers' and the Purchaser's liability for indemnifiable damages
pursuant to this Article X shall accrue but shall not be payable until the total
amount of Losses suffered or incurred by the Purchaser or the Seller (and the
Company, if applicable), and their respective Indemnitees, as applicable,
exceeds in the aggregate US$50,000, and then the Seller (and the Company, if
35
applicable), or the Purchaser, as applicable, shall be responsible for the
payment of all indemnifiable damages which may be payable by such party pursuant
to this Article X; provided that the aggregate of the sums of any party under
this Article X shall be limited to US$625,000. The obligation of the Seller
under this Article X shall be satisfied solely from the Options granted to
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ under Section 6.2. The obligation of the Purchaser under this
Article X may, at the Purchaser's discretion, be satisfied in shares of
Purchaser Common Stock, with the shares valued at the average closing market
price for the ten (10) days immediately preceding the date that payment is made.
SECTION 10.6 LIMITATION ON INDEMNIFICATION. The Seller and the
Purchaser agree that neither of them shall indemnify, or hold each other
harmless (including their shareholders, directors, officers, employees,
affiliates, successors, assigns and Representatives) from and against any Losses
suffered or incurred by any of the foregoing parties arising out of or based
upon information disclosed, regardless of whether provided in writing or via
email (i) during the course of the due diligence procedure or (ii) any
information provided to the party affected by such Losses during the
negotiations of the Acquisition, which to the Knowledge of the Seller or the
Purchaser has been complete, correct and was diligently collected at the date
thereof. In the event this Agreement is terminated prior to the Closing, the
Company, its directors, officers, employees, affiliates and Representatives
shall become third party beneficiaries of this Section 10.6.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1 NOTICES.
(a) Any notice or other communication required or permitted hereunder
shall be in writing and shall be delivered personally by hand, with an
acknowledgment of receipt, or by recognized overnight courier, telecopied or
mailed (by registered or certified mail, postage prepaid) as follows:
(i) If to Purchaser, to:
DISTINCTIVE DEVICES, INC.
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇
Attention: ▇▇. ▇▇▇▇▇▇ ▇▇▇▇, President & CEO
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
36
with a simultaneous copy to:
▇▇▇▇▇▇ ▇▇▇▇ & PRIEST LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
(ii) If to the Seller or the Company, one copy to:
the Seller:
MEDIA HILL COMMUNICATION BERATUNGS- UND VERTRIEBS GMBH
▇▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇
▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇
Attention: ▇▇▇▇-▇▇▇▇▇▇ ▇▇▇▇▇▇, CEO
Facsimile:
the Company:
GALAXIS TECHNOLOGY ▇▇
▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇
▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, CEO
Facsimile:
(b) Each such notice or other communication shall be effective (i) if
given by facsimile, when such facsimile is transmitted to the facsimile number
specified in Section 11.1(a) (with confirmation of transmission), or (ii) if
given by any other means, when delivered at the address specified in Section
11.1(a). Any party by notice given in accordance with this Section 11.1 to the
other party may designate another address (or facsimile number) or person for
receipt of notices hereunder.
SECTION 11.2 WAIVERS. The failure or delay of a party hereto at any
time or times to require performance of any provision hereof shall in no manner
affect its right at a later time to enforce the same. No waiver by a party of
any condition or of any breach of any term, representation or warranty contained
in this Agreement shall be effective unless in writing, and no waiver in any one
or more instances shall be deemed to be a further or continuing waiver of any
such condition or breach in other instances or a waiver of any other condition
or breach of any other term, representation or warranty.
37
SECTION 11.3 INTERPRETATION.
(a) Unless the context otherwise requires, the terms defined in Section
12.1 hereof shall have the meanings herein specified for all purposes of this
Agreement. The language of this Agreement is English, and shall be the language
of both parties hereto and shall in all cases be construed according to its fair
meaning and not for or against either party. Any notice or other document to be
given by reason of this Agreement shall be in the English language. When a
reference is made in this Agreement to Sections, such reference shall be to a
Section of this Agreement unless otherwise indicated. The headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement. Whenever the words "include",
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation."
(b) The Purchaser and the Seller acknowledge that they have been
advised and represented by counsel in the negotiation, execution and delivery of
this Agreement and the other Transaction Documents and accordingly agrees that
if an ambiguity exists with respect to any provision of this Agreement or any
Transaction Document, such provision shall not be construed against any party
because such party or its Representatives were the drafters of any such
provision.
SECTION 11.4 APPLICABLE LAW. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of
Delaware without giving effect to the principles of conflicts of law thereof.
SECTION 11.5 ASSIGNMENT. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns; provided, however, that no assignment of any rights or obligations
shall be made by any party without the prior written consent of all the other
parties hereto; except that the Purchaser shall have the right to assign all or
any portion of its rights and obligations under this Agreement to one or more
wholly-owned subsidiaries of the Purchaser.
SECTION 11.6 NO THIRD PARTY BENEFICIARIES. Except for Section 10.6,
this Agreement is solely for the benefit of the parties hereto and, to the
extent provided herein, and their respective directors, officers, employees,
agents and representatives, and no provision of this Agreement shall be deemed
to confer upon other third parties any remedy, claim, liability, reimbursement,
cause of action or other right. Notwithstanding the foregoing, Lloyds Bank shall
be deemed a third party beneficiary entitled to enforce this Agreement as if it
were a party hereto with respect to Section 1.3 or any claims arising out of the
Pledge Agreement.
SECTION 11.7 ENFORCEMENT OF THE AGREEMENT. The parties hereto agree
that irreparable damage would result in the event that any provision of this
Agreement is not performed in accordance with specific terms or is otherwise
breached. It is accordingly agreed that the parties hereto will be entitled to
equitable relief including an injunction or injunctions to prevent breaches of
this Agreement and to enforce specifically the terms and provisions hereof.
SECTION 11.8 SEVERABILITY. If any provision of this Agreement shall be
held invalid, illegal or unenforceable, the validity, legality or enforceability
38
of the other provisions hereof shall not be affected thereby, and there shall be
deemed substituted for the provision at issue a valid, legal and enforceable
provision as similar as possible to the provision at issue.
SECTION 11.9 REMEDIES CUMULATIVE. The remedies provided in this
Agreement shall be cumulative and shall not preclude the assertion or exercise
of any other rights or remedies available by law, in equity or otherwise.
SECTION 11.10 ENTIRE UNDERSTANDING. This Agreement (including the
Schedules hereto), and the other agreements and certificates entered into in
connection with this Agreement, sets forth the entire agreement and
understanding of the parties hereto, with respect to the subject matter herein,
and supersede all prior agreements, arrangements and understandings (written or
oral) among the parties hereto, including the Letter of Intent. This Agreement
cannot be amended, modified or terminated except by a writing executed by the
parties hereto.
SECTION 11.11 WAIVER OF JURY TRIAL. EACH PARTY HERETO WAIVES THE RIGHT
TO A TRIAL BY JURY IN ANY DISPUTE IN CONNECTION WITH THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT, AND AGREES TO TAKE ANY AND ALL ACTION NECESSARY
OR APPROPRIATE TO EFFECT SUCH WAIVER.
SECTION 11.12 CONSENT TO JURISDICTION AND SERVICE OF PROCESS. THE
PARTIES HERETO IRREVOCABLY: (I) AGREE THAT ANY SUIT, ACTION OR OTHER LEGAL
PROCEEDING ARISING OUT OF THIS AGREEMENT MAY BE BROUGHT IN THE COURTS OF THE
STATE OF DELAWARE OR THE COURTS OF THE UNITED STATES LOCATED IN THE STATE OF
DELAWARE, CITY OF WILMINGTON, (II) CONSENT TO THE JURISDICTION OF EACH COURT IN
ANY SUCH SUIT, ACTION OR PROCEEDING, (III) WAIVE ANY OBJECTION WHICH THEY, OR
ANY OF THEM, MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR
PROCEEDING IN ANY OF SUCH COURTS, AND (IV) WAIVE THE RIGHT TO A TRIAL BY JURY IN
ANY SUCH SUIT, ACTION OR OTHER LEGAL PROCEEDING. THE PARTIES HEREBY APPOINT
CORPORATION SERVICE COMPANY, ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇ ▇▇▇▇▇ AS THEIR AGENT FOR SERVICE IN THE STATE OF DELAWARE FOR SERVICE
OF PROCESS RELATING TO ANY DISPUTE IF SUCH PARTY DOES NOT OTHERWISE MAINTAIN AN
OFFICE IN THE STATE.
SECTION 11.13 COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
39
ARTICLE XII
DEFINITIONS
SECTION 12.1 DEFINITIONS.
(a) The following terms, as used herein, have the following meanings:
"Agreement" or "this Agreement" means, and the words "herein," "hereof"
and "hereunder" and words of similar import refers to, this Agreement and all
Schedules hereto as they from time to time may be amended.
The term "audit" or "audited" when used in regard to financial
statements means an examination of the financial statements by a firm of
independent certified public accountants in accordance with generally accepted
auditing standards for the purpose of expressing an opinion thereon.
"Business Day" means a day that is not a Saturday, Sunday or a day on
which banks are required or permitted to be closed in the State of New York.
"Contract" means any contract, agreement, indenture, note, bond, lease
for personal or real property, conditional sale contract, mortgage, license,
franchise, instrument, commitment or other binding arrangement resulting in
payment obligations of the Companies in excess of Euro 100,000, whether written
or oral.
"Code" means the Internal Revenue Code of 1986, as amended.
The term "control", with respect to any Person, means the power to
direct the management and policies of such Person, directly or indirectly, by or
through stock ownership, agency or otherwise, or pursuant to or in connection
with an agreement, arrangement or understanding (written or oral) with one or
more other persons by or through stock ownership, agency or otherwise; and the
terms "controlling" and "controlled" have meanings correlative to the foregoing.
"GAAP" means generally accepted accounting principles in effect on the
date hereof as set forth in the opinions and pronouncements of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States.
"Knowledge" with respect to (a) any individual means actual knowledge,
and (b) any corporation means the actual knowledge of the directors or the
executive officers of such corporation; and "Known" and "Knows" has a
correlative meaning.
"Liability" means any direct or indirect indebtedness, liability,
assessment, claim, loss, damage, deficiency, obligation or responsibility, fixed
or unfixed, ▇▇▇▇▇▇ or inchoate, liquidated or unliquidated, secured or
unsecured, accrued, absolute, actual or potential, contingent or otherwise
40
(including any liability under any guaranties, letters of credit, performance
credits or with respect to insurance loss accruals).
"Lien" means, with respect to any Asset, any mortgage, lien (including
mechanics, warehousemen, laborers and landlords liens), claim, pledge, charge,
security interest, preemptive right, right of first refusal, option, judgment,
title defect or encumbrance of any kind in respect of or affecting such Asset.
"Material Adverse Change" means any major change in the business,
properties, assets, prospects, condition (financial or otherwise), liabilities
or operations of a Person and its Subsidiaries, taken as a whole, which does not
occur in the ordinary course of business conducted by the Company on a daily
basis.
"Material Adverse Effect" means a material adverse effect on the
business, properties, assets, prospects, condition (financial or otherwise),
liabilities or operations of a Person and its Subsidiaries, taken as a whole, or
on the ability of such Person to perform its obligations under this Agreement.
"Person" means an individual, corporation, partnership, joint venture,
association, trust, unincorporated organization or other entity, including a
government or political subdivision or an agency or instrumentality thereof.
"Receivables" means as of any date any trade accounts receivable, notes
receivable, sales representative advances and other miscellaneous receivables of
any of the Companies arising in the ordinary course.
"SEC" means the U.S. Securities and Exchange Commission.
"Subsidiary" of a person means any entity of which securities or other
ownership interests having ordinary Voting Power to elect a majority of the
board of directors, board of managers or other persons performing similar
functions are owned directly or indirectly through one or more intermediaries,
or both, by the person.
"Tax Return" means any return or report (including elections,
declarations, disclosures, schedules, attachments, estimates and information
returns) relating to Taxes required to be supplied to any Tax Authority, and
including any amendment thereof.
"Transaction Documents" means, collectively, this Agreement, and each
of the other agreements and instruments to be executed and delivered by all or
some of the parties hereto in connection with the consummation of the
transactions contemplated hereby.
(b) The following additional terms are defined in the following
sections of this Agreement:
41
TERM SECTION
---- -------
Account Receivable 3.8(c)
Asserted Liability 10.4
Acquisition Recitals
Acquisition Shares 1.2
Business Recitals
Claims 3.16
Claims Notice 10.4
Closing Article II
Closing Date Article II
Commercial Register Excerpts 3.5
Companies 3.1
Companies' Annual Statements 3.9
Companies' Financial Statements 3.9
Companies' Interim Statements 3.9
Companies' Interim Statements Date 3.10(a)
Companies' Latest Balance Sheet 3.9
Companies' Latest Balance Sheet Date [3.8(b)]
Companies' Permits 3.17
Company Recitals
Company Note 1.2
Company Share Recitals
Condition of the Business 3.10(a)(i)
Exchange Act 4.9
Fixed Assets 3.8(a)
Governmental Bodies [3.4]
Indemnifying Party 10.4
Indemnitee 10.4
Insurance Policies 3.19
Laws [4.4]
Letter of Intent 5.2(a)
Lloyds Bank 1.3(a)
Losses 10.2
Major Customers 3.13(a)
Major Suppliers 3.13(a)
Orders 3.20(a)
Pledged Shares 1.3(a)
Premises 3.12(a)
Purchase Price 1.2
Purchaser Introduction
Purchaser Subsidiary 4.2
Purchaser Subsidiaries 4.2
Purchaser Common Stock 4.3
Purchaser's Financial Statements 4.7
Purchaser's Intellectual Property 4.14
Purchaser's Latest Balance Sheet 4.15
Purchaser's SEC Reports 4.9
Real Property Leases 3.12(a)
42
Representatives 5.2(a)
Restricted Parties 7.2
Reviewed Entities 5.3(a)
Securities Act 1.3(b)
Seller Introduction
Subsidiaries Recitals
Tax Laws 3.18(a)
Transaction Expenses 5.6
(c) Terms used with initial capital letters will have the meanings
specified, applicable to both singular and plural forms, for all purposes of
this Agreement. All pronouns (and any variations) will be deemed to refer to the
masculine, feminine or neuter, as the identity of the Person may require. The
singular or plural includes the other, as the context requires or permits. The
word include (and any variation) is used in an illustrative sense rather than a
limiting sense. The word day means a calendar day. All accounting terms not
otherwise defined in this Agreement will have the meanings ascribed to them
under GAAP.
43
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date set forth above.
MEDIA HILL COMMUNICATION BERATUNGS- UND
VERTRIEBS GMBH
By: /s/ ▇▇▇▇-▇▇▇▇▇▇ ▇▇▇▇▇▇
-------------------------
Name: ▇▇▇▇-▇▇▇▇▇▇ ▇▇▇▇▇▇
Title: Chief Executive Officer
DISTINCTIVE DEVICES, INC:
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇
-------------------------
Name: ▇▇▇▇▇▇ ▇▇▇▇
Title: Chief Executive Officer
THE UNDERSIGNED AGREES TO BE BOUND BY THIS AGREEMENT TO THE EXTENT OF HIS
OBLIGATIONS IN SECTION 6.2 (C) OF THIS AGREEMENT.
By: /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------
Name: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇