SHARE SALE AND PURCHASE AGREEMENT
SHARE SALE AND PURCHASE AGREEMENT dated as of October 27, 2005 by and among
VocalTec Communications Ltd., a public company organized under the laws of the
State of Israel ("Buyer"), Tdsoft Ltd., a private company organized under the
laws of the State of Israel (the "Company"), and the Company's shareholders
whose names appear on the signature page of this Agreement or who become parties
hereto by virtue of Sections 2.3 or 2.4 (each, a "Shareholder" and together, the
"Shareholders").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Shareholders hold (i) at least 75% of the issued and outstanding
Company Shares (as defined below), and (ii) at least 55% of the issued and
outstanding Company Preferred Shares (as defined below), and the Buyer, Company
and the Shareholders agreed that, at the Closing and subject to the terms and
conditions hereof, Buyer shall acquire all the share capital of the Company for
the consideration set forth herein; and
WHEREAS, the Shareholders wish to sell all their Company Shares to Buyer, and
Buyer wishes to buy all Company Shares, on the terms and conditions of this
Agreement; and
WHEREAS, the board of directors of the Company has determined that the
Transaction is advisable and in the best interests of the Company and the
Shareholders, has approved and adopted the Transactions and has recommended to
the Shareholders to approve the consummation of the Transaction; and
WHEREAS, the board of directors of Buyer has determined that the Transaction is
advisable and in the best interests of Buyer and its shareholders, has approved
and adopted the transactions contemplated hereby and has recommended to the
shareholders of Buyer to approve the consummation of the Transaction.
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties, covenants and agreements hereinafter contained, the
parties intending to be legally bound agree as follows:
1. DEFINITIONS
For purposes of this Agreement, the following terms shall have the
following meanings:
1.1. "Action" means any legal, administrative, governmental or
------
regulatory proceeding by or before any arbitrator, mediator, court
or other Governmental Authority.
1.2. "Acquisition" shall mean: (i) a transaction or series of
-----------
transactions pursuant to which any Person or group of Persons
acquires or would acquire beneficial ownership of more than 50% of
the outstanding voting power of Buyer or the Company, as the case
may be, whether from Buyer or the Company, as the case may be, or
pursuant to a tender offer, exchange offer or otherwise; (ii) a
merger, consolidation, business combination, reorganization or
share exchange pursuant to which any Person or group of Persons
acquires or would acquire beneficial ownership of more than 50% of
the outstanding voting power of Buyer or the Company, as the case
may be; or a recapitalization, liquidation, dissolution or similar
transaction involving Buyer or the Company, as the case may be;
(iii) any transaction or series of transactions which would result
in any third party, un-Affiliated with the Buyer or the Company
acquiring more than 50% of the fair market value of the assets of
Buyer or the Company, as the case may be, immediately prior to
such transaction (whether by purchase of assets, acquisition of
stock or otherwise); or (iv) any combination of the foregoing.
1.3. "Affiliate" means, with respect to any Person, any other Person
---------
directly or indirectly Controlling, Controlled by or under common
Control with such Person. The term "Control" means the possession,
directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether
through ownership of voting securities, by Contract or otherwise.
1.4. "Agreement" means this Share Sale and Purchase Agreement,
---------
including all Exhibits and Schedules hereto, as may be amended
from time to time.
1.5. "Average Share Price" means the average of the last sale price of
-------------------
Buyer's ordinary shares as reported on the primary stock exchange
or quotation or trading system in which such Buyer ordinary shares
are then traded or quoted, as the case may be, during the 30
trading days ending on the last trading day preceding the date on
which such determination is made; provided that if on such date of
determination the Buyer's ordinary shares shall have been reported
on such primary stock exchange or quotation system for less than
30 trading days, the Average Share Price shall be determined based
on such lesser number of trading days; and further provided that
if on such date of determination the Buyer's ordinary shares shall
have been reported on such primary stock exchange or quotation
system for less than 10 trading days, the Average Share Price
shall be determined in good faith by the members of audit
committee of the Buyer in their sole discretion.
1.6. "Business Day" means any day other than a Saturday or any other
------------
day on which banking institutions in the State of Israel are not
open for the transaction of normal banking business.
1.7. "Buyer Business Intellectual Property" means all Intellectual
------------------------------------
Property owned, licensed or used by the Buyer.
1.8. "Buyer Options" means all options and warrants to purchase
-------------
securities of the Buyer granted and any other securities
convertible or exercisable into Buyer Shares and those obligations
to grant such options, warrants and securities, including such
options or obligations to grant options to employees, consultants,
directors or other Persons set forth on Section 6.15.2 of the
Buyer Disclosure Schedule under or subject to the terms of any
Buyer Option Plan or pursuant to other specific agreements
approved by the board of directors of Buyer and set forth on
2
Section 6.3 of the Buyer Disclosure Schedule (in each case,
whether or not vested).
1.9. "Buyer Amended Articles" means the articles of association of the
----------------------
Buyer in the form of Exhibit 1.9, which will be in full force and
effect on or prior to the Closing.
1.10. "Buyer Shares" means all shares of all classes of the Buyer share
------------
capital as of the date hereof and/or as of the date of Closing.
1.11. "Buyer Option Plans" means the Buyer's 1996 Stock Option Plan and
------------------
Incentive Plan, 1997 Stock Option and Incentive Plan, 1998 and
1999 Stock Option Plan and Incentive Plan, 2000 Master Option Plan
and 2003 Master Option Plan and related agreements, and all other
plans under which options to purchase Buyer Shares have been or
may be issued, in each case, as in effect as of the date hereof or
as such plan may be amended pursuant to the terms of this
Agreement.
1.12. "Company Business Intellectual Property" means all Intellectual
--------------------------------------
Property owned, licensed or used by the Company.
1.13. "Code" means the U.S. Federal Internal Revenue Code of 1986, as
----
amended.
1.14. "Company Option" means all options and warrants to purchase
--------------
Company Shares granted and any other securities convertible or
exercisable into Buyer Shares and those obligations to grant such
options, warrants or securities, including such options or
obligations to grant options to employees, consultants, directors
or other Persons set forth on Section 5.3 of the Company
Disclosure Schedule under or subject to the terms of any Company
Option Plan or pursuant to other specific agreements approved by
the board of directors of the Company and set forth on Section 5.3
of the Company Disclosure Schedule (in each case, whether or not
vested).
1.15. "Company Option Plans" means the ▇▇▇▇ ▇▇▇▇▇ Adiv Share Option
--------------------
Plan, ▇▇▇ ▇▇▇▇ Share Option Plan, Tdsoft Ltd. Employee Share
Option Plan (1997), Tdsoft Ltd. Employee Share Option Plan (1998),
Tdsoft Ltd. Director Share Option Plan (1999), Tdsoft Ltd.
Employee Share Option Plan (2000) (as amended in 2003), Tdsoft
Ltd. U.S. Employee Stock Option Plan (2000) and Tdsoft Ltd.
Foreign Employee Share Option Plan (2002), and related agreements,
and all other plans under which options to purchase Company Shares
have been or may be issued, in each case, as in effect as of the
date hereof or as such plan may be amended pursuant to the terms
of this Agreement.
1.16. "Company Amended Articles" means the amended articles of
------------------------
association of the Company, in the form of Exhibit 1.16 hereto,
and which will be in full force and effect on or prior to the
Closing.
1.17. "Company Shares" means all shares of all classes of the Company's
--------------
share capital, issued and outstanding as of the date hereof and/or
as of the date of Closing.
3
1.18. "Confidentiality Agreement" means the Nondisclosure Agreement
-------------------------
entered into between the Company and Buyer dated as of January 3,
2005.
1.19. "Consents" means consents, approvals, exemptions, orders, waivers,
--------
authorizations, declarations, filings, registrations and
notifications.
1.20. "Contracts" means, with respect to any Person, all agreements,
---------
undertakings, contracts, obligations, arrangements, binding
promises, understandings and commitments (whether written or oral)
(i) to which such Person is a party, (ii) under which such Person
has any rights, (iii) under which such Person has any Liability or
(iv) by which such Person, or any of the assets or properties
owned, held, leased or licensed by such Person, is bound,
including, in each case, all amendments, modifications and
supplements thereto and waivers and consents thereunder.
1.21. "Damages" means any and all losses, Liabilities, claims, damages,
-------
deficiencies, diminutions in value, fines, payments, costs and
expenses, whenever or however arising and whether or not resulting
from Third Party Claims (including all related Taxes and the
reasonable costs and expenses of any and all Actions or other
legal matters; all amounts paid in connection with any demands,
assessments, judgments, settlements and compromises relating
thereto; interest and penalties with respect thereto; and costs
and expenses, including reasonable attorneys', accountants' and
other experts' fees and expenses, incurred in investigating,
preparing for or defending against any such Actions or other legal
matters or in asserting, preserving or enforcing the rights of any
Person hereunder).
1.22. "GAAP" means generally accepted accounting principles as in effect
----
at the time during which the applicable audit or review is
conducted, consistently applied.
1.23. "Governmental Authority" means any government, court or other
----------------------
governmental or regulatory agency, commission or body exercising
administrative or regulatory authority.
1.24. "Intellectual Property" means (i) all patentable inventions, all
---------------------
improvements thereto and all patents, patent applications and
patent disclosures; (ii) all registered and unregistered
trademarks, service marks, trade names, trade dress, logos and
registrations and applications for registration thereof; (iii) all
copyrights in copyrightable works, and all other rights of
authorship, and all applications and registrations in connection
therewith; (iv) all trade secrets and confidential business and
technical information (including research and development,
know-how, proprietary knowledge, formulas, technology,
engineering, production and other designs, drawings, engineering
notebooks, industrial models, software and specifications); and
(v) all copies and tangible embodiments of any or all of the
foregoing (in whatever form, including electronic media).
1.25. "Knowledge" or "aware of" or a similar phrase with respect to any
--------- --------
Person means the knowledge of such Person and any of its officers
(including vice presidents) and directors, if such Person, officer
4
or director is actually aware of such fact or other matter or such
Person, officer or director would have been aware of such fact or
matter had it reasonably performed its duties in such position.
1.26. "Leases" means all leases, subleases, licenses, rights to occupy
------
or use and other Contracts with respect to real property,
including, in each case, all amendments, modifications and
supplements thereto and waivers and consents thereunder.
1.27. "Liability" means any and all claims, debts and liabilities of
---------
whatever nature, whether asserted or, based on the current state
of affairs or facts, reasonably expected to be asserted, fixed,
absolute or contingent, matured or unmatured, accrued or
unaccrued, liquidated or unliquidated or due or to become due, and
whenever or however arising (including those arising out of any
Contract or tort, whether based on negligence, strict liability or
otherwise).
1.28. "Lien" means any charge, lien, encumbrance, option, pledge,
----
security interest, mortgage, right of first refusal, restriction
by way of security of any kind, community property interest,
equitable interest, proxy, right of preemption, transfer or
retention of title agreement, restriction by way of security of
any kind or nature, including any restriction on use, voting,
transfer, receipt of income or exercise of any other attribute of
ownership, or any other third party right.
1.29. "Material Adverse Effect" means, with respect to any Person as to
-----------------------
which such term is used, any act, fact or occurrence that has
material adverse effect on the business, results of operations,
assets, liabilities or financial condition of such Person and its
Subsidiaries, taken as a whole, or the ability of such Person and
its Subsidiaries, taken as a whole, to perform its and their
respective obligations under this Agreement or consummate the
Transaction, but shall not include adverse effect resulting
primarily from, arising in connection or relating to (i) effects,
changes, events, circumstances or conditions generally affecting
the industry, markets or general political or economic environment
in which such Person operates, or (ii) the announcement of the
Transaction; or (iii) any change in applicable laws or accounting
principles, or (iv) compliance with the terms of, or taking any
action required by, this Agreement; provided, however, that with
respect to Buyer, changes in the trading volume or trading prices
of its ordinary shares, or the de-listing of its ordinary shares
from NASDAQ Capital Market, in and of themselves, shall not be
deemed a Material Adverse Effect on Buyer.
1.30. "NIS" shall mean New Israeli Shekel.
---
1.31. "Person" means any individual, firm, partnership, joint venture,
-----
trust, corporation, limited liability entity, unincorporated
organization, estate or other entity.
1.32. "Plan" means each pension, retirement, deferred compensation,
----
bonus, incentive (including, without limitation, stock option,
cash, cash balance, money purchase, savings, profit sharing,
annuity, deferred compensation, vision, hospitalization, long-term
5
care, prescription drug and other health, employee assistance,
cafeteria, flexible benefits, life insurance, stock bonus, stock
appreciation, phantom stock, restricted stock and stock purchase),
medical, dental, life insurance, disability, vacation pay,
severance pay, other welfare and fringe benefit and similar plans,
programs, understandings, arrangements or agreements, including
without limitation all employee benefit plans, sponsored or
maintained by the relevant Person or to which such Person is a
party or required to contribute or has any Liability, whether
written or oral, direct or indirect, actual or contingent, whether
within or outside of Israel.
1.33. "Post Closing Directors" shall mean ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇,
----------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇. ▇▇▇▇ ▇▇▇▇▇, Yoav Chelouch, Michal Even Chen
and ▇▇▇▇▇▇ ▇▇▇▇▇▇.
1.34. "Preferred Shares" or "Company Preferred Shares" means the shares
---------------- ------------------------
of each of the classes of the Company preferred shares, whether
existing today or issued or authorized hereinafter, including the
Series A, Series B, Series B-2 and Series C preferred shares, par
value NIS 0.02 each.
1.35. "Registration Rights Agreement" means the Registration Rights
-----------------------------
Agreement between Buyer and the Shareholders substantially in the
form set forth in Exhibit 3.2.6 hereto.
1.36. "Shareholder's Pro Rata Share" shall mean, with respect to any
----------------------------
Shareholder, the percentage out of the total Issued Shares
issuable to such Shareholder under the allocations of the Issued
Shares as set forth in Exhibit 2.2.2.
1.37. "Subsidiary" when used with respect to any Person, means any other
----------
Person of which a majority of the voting power or the power to
direct the election of a majority of the board of directors are
owned or controlled, directly or indirectly, by such first Person.
1.38. "Tax" (and, with correlative meaning, "Taxes" and "Taxable") means
--- ----- -------
(i) any net income, alternative or add-on minimum tax, gross
income, estimated, gross receipts, sales, use, ad valorem, value
added, transfer, franchise, capital stock, profits, license,
registration, withholding, payroll, national insurance, social
security (or equivalent), employment, unemployment, disability,
excise, severance, stamp, occupation, premium, property (real,
tangible or intangible), environmental or windfall profit tax,
custom duty or other tax, governmental fee or other like
assessment or charge of any kind whatsoever, together with any
linkage differentials, interest or any penalty, addition to tax or
additional amount (whether disputed or not) imposed by any
Governmental Authority responsible for the imposition of any such
tax (domestic or foreign) (each, a "Tax Authority"), (ii) any
liability for the -------------- payment of any amounts of the
type described in clause (i) of this sentence as a result of being
a member of an Affiliated, consolidated, combined, unitary or
aggregate group for any Taxable period, and (iii) any liability
for the payment of any amounts of the type described in clause (i)
or (ii) of this sentence as a result of being a transferee of or
successor to any Person or as a result of any express or implied
obligation to assume such Taxes or to indemnify any other Person.
6
1.39. "Tax Return" means any return, statement, report or form
----------
(including estimated Tax returns and reports, withholding Tax
returns and reports, any schedule or attachment, and information
returns and reports) required to be filed with respect to Taxes.
1.40. "Third Party Claim" means a claim or demand made against any party
-----------------
to this Agreement by any Person that is not a party to this
Agreement and is not an Affiliate of a Party to this Agreement.
1.41. "Transaction" means the transactions contemplated by the
-----------
Transaction Documents.
1.42. "Transaction Documents" means this Agreement, the Registration
---------------------
Rights Agreement and all other instruments, certificates and
agreements delivered or required to be delivered by the
Shareholders, the Company, Buyer or any of their directors,
officers, employees or other representatives pursuant to this
Agreement.
1.43. "USD" or "$" shall mean the United States Dollar.
--- -
1.44. Terms Generally.
---------------
The definitions in Section 1 shall apply equally to both the
singular and plural forms of the terms defined. The words
"include", "includes" and "including" shall be deemed to be
followed by the phrase "without limitation". The words "herein",
"hereof" and "hereunder" and words of similar import refer to this
Agreement (including the Exhibits and Schedules to this Agreement)
in its entirety and not to any part hereof unless the context
shall otherwise require. All references herein to Articles,
Sections, Exhibits and Schedules shall be deemed references to
Articles and Sections of, and Exhibits and Schedules to, this
Agreement unless the context shall otherwise require. Any
reference in this Agreement to a "day" or a number of "days"
(without explicit reference to "Business Days") shall be
interpreted as a reference to a calendar day or number of calendar
days. If any action is to be taken or given on or by a particular
calendar day, and such calendar day is not a Business Day, then
such action may be deferred until the next Business Day.
2. PURCHASE AND SALE OF COMPANY SHARES
-----------------------------------
2.1. Purchase and Sale of Company Shares.
-----------------------------------
Subject to the terms and conditions of this Agreement, in reliance
on the covenants, representations and warranties contained herein,
each Person that is or will be a Shareholder at the Closing shall
at the Closing sell, convey, transfer, assign and deliver to Buyer
all Company Shares owned by such Shareholder on the date of
Closing, in each case, free and clear of all Liens, and the Buyer
will purchase and acquire from the Shareholders at the Closing all
such Company Shares. From and after the consummation of the
Closing, the Shareholders shall have no rights with respect to the
7
Company Shares and upon the Closing all the Company Shares shall
be owned and registered solely in the name of Buyer.
2.2. Consideration.
2.2.1. The consideration for all of the Company Shares shall be
newly issued ordinary shares of Buyer, par value NIS 0.01
per share (the "Issued Shares") that shall constitute in
the aggregate, immediately following the issuance thereof
to the Shareholders in accordance with the terms of this
Agreement, 75% of the aggregate issued and outstanding
shares of Buyer as of immediately following the issuance of
the Issued Shares.
2.2.2. Exhibit 2.2.2 hereto indicates each Shareholder's Pro Rata
Share as of the date hereof. The Company shall deliver to
Buyer, two (2) Business Days prior to the date set for the
Closing, a certificate executed by the Company's Chief
Executive Officer, setting forth: (i) the number of Company
Shares and the respective holders thereof, as of Closing;
(ii) the number and type of Company Shares acquired as a
result of an exercise of any Company Options which occurred
from the date hereof to such date, and the respective
holders thereof; (iii) the number and type of Company
Shares issuable upon exercise of Company Options which will
be outstanding as of the Closing, and the exercise price,
vesting schedule and other terms and conditions of same,
and the respective holders thereof; and (iv) an updated
Exhibit 2.2.2 that will indicate each Shareholder's Pro
Rata Share as of the Closing.
2.2.3. The Buyer shall deliver to Company, two (2) Business Days
prior to the date set for the Closing, a certificate
executed by the Buyer's Chief Executive Officer, setting
forth (i) the number of Buyer Shares, as of Closing; (ii)
the number and type of Buyer Shares acquired as a result of
an exercise of any Buyer Options which occurred from the
date hereof to such date; and (iii) the number and type of
Buyer Shares issuable upon exercise of Buyer Options which
will be outstanding as of the Closing, and the exercise
price, vesting schedule and other terms and conditions of
same, and the respective holders thereof.
2.2.4. Subject to the terms and conditions of this Agreement, at
the Closing the Buyer shall deliver to American Stock
Transfer & Trust Company, Buyer's transfer agent ("AST"),
with a copy to the Shareholders Representative Committee
(as defined in Section 11.1), irrevocable written
instructions in the form of Exhibit 2.2.1, to issue to the
Shareholders certificates representing the Issued Shares
and to transfer all certificates representing such Issued
Shares to the Shareholders Representative Committee in
accordance with Exhibit 2.2.2. Notwithstanding the
foregoing, if prior to the Closing the Shareholders
Representative Committee notifies Buyer in writing that the
Israeli Withholding Tax Pre-Ruling has not been received by
the Shareholders Representative Committee as of such date
(as required under Section 7.3.1.4), then, if requested by
8
the Shareholders Representative Committee, Buyer shall
instruct AST in writing to delay the issuance of the Issued
Shares to some or all of the Shareholders hereunder until
receipt by AST of written instructions from the
Shareholders Representative Committee to issue such shares.
The Shareholders Representative Committee shall notify
Buyer in writing promptly upon receipt by any of them of
the Israeli Withholding Tax Pre-Ruling.
2.2.5. As promptly as practicable after the Closing, the
Shareholders Representative Committee shall distribute the
Issued Shares received thereby to all the Shareholders in
accordance with Exhibit 2.2.2. Notwithstanding anything to
the contrary, neither the Buyer nor anyone on its behalf
shall have any responsibility, obligation or liability with
respect to the distribution or allocation to any of the
Shareholders of any Issued Shares or the manner of
calculation or determination thereof, provided by or on
behalf of the Buyer to the Shareholders Representative
Committee under this Agreement, or the compliance of such
allocation with any agreement or charter documents of the
Company, and such allocation and distribution shall be
solely the responsibility of the Shareholders
Representative Committee.
2.2.6. As a result of the Transaction (and subject to Sections 2.3
and 2.4), at the Closing the Company shall become a
wholly-owned subsidiary of Buyer and the Shareholders shall
hold, in the aggregate, 75% of the issued and outstanding
share capital of the Buyer.
2.2.7. The Shareholders Representative Committee is hereby
instructed by the Company and the Shareholders (solely in
their capacity as shareholders of the Company) to allocate
the Issued Shares as set forth in Exhibit 2.2.2.
2.3. Other Shareholders.
------------------
As of the date hereof, shareholders of the Company holding more
than seventy-five percent (75%) of the issued and outstanding
Ordinary Shares of the Company (assuming that all Preferred Shares
and Ordinary A Shares of the Company have been converted into
Ordinary Shares of the Company), and holders of at least fifty
five percent (55%) of the issued and outstanding Preferred Shares
have duly executed this Agreement; and Shareholders holding of
record at least sixty-three percent (63%) of the outstanding
Ordinary Shares and Ordinary A Shares of the Company, considered
together as a single separate class, and Shareholders holding of
record at least fifty-five (55%) of the outstanding Preferred
Shares of the Company considered together as a single class, have
duly executed this agreement and have duly executed the Company
Shareholder Undertaking Agreement in accordance with Section 2.6
below (and by executing this Agreement such Shareholders agree to
9
be deemed to have approved the Transaction, in accordance with
Article 74 of the Company's current articles of association).
Promptly after the date hereof and as long as this Agreement is
not duly terminated, the Company and the Shareholders (solely in
their capacity as shareholders of the Company) shall take all
commercially reasonable action to obtain from all other
shareholders of the Company who did not execute this Agreement on
the date hereof, a counter signature on this Agreement under which
each such other Shareholder becomes bound by and subject to the
provisions of this Agreement as a "Shareholder" and makes all the
representations and warranties of a "Shareholder" under this
Agreement.
2.4. Section 341 Action.
------------------
2.4.1. This Agreement shall be deemed, for the purpose of Article
20(d) of the Company Amended Articles (as and when adopted)
and Section 341(a) of the Israeli Companies Law, 1999 (the
"Companies Law"), (i) an offer by the Buyer for the
purchase of all issued and outstanding Ordinary Shares of
the Company (assuming that all Preferred Shares and
Ordinary A Shares of the Company have been converted into
Ordinary Shares) which is conditioned upon the sale of all
of the outstanding Ordinary Shares of the Company (assuming
that all Preferred Shares and Ordinary A Shares of the
Company have been converted into Ordinary Shares) and (ii)
an acceptance of such offer by all Shareholders who have
duly executed this Agreement initially or pursuant to
Section 2.3 above.
2.4.2. Within one (1) Business Day after the date hereof, the
Buyer shall, in accordance with Section 341(a) of the
Companies Law and Article 20(d) of the Company Amended
Articles (as and when adopted), provide a written notice to
each shareholder of the Company that has not duly executed
and delivered this Agreement or countersigned this
Agreement in accordance with Section 2.3 above (a "Non
Consenting Shareholder"), that the Buyer wishes to purchase
such Non Consenting Shareholder's Company Shares under the
terms and conditions of this Agreement. Buyer shall take
such other actions as may be commercially reasonably
appropriate in order to complete the transfer of all
Company Shares under Section 341 of the Companies Law and
Article 20(d) of the Company Amended Articles (as and when
adopted) and under the terms and conditions of this
Agreement. After satisfactory completion of the necessary
procedures under Section 341 of the Companies Law and
Article 20(d) of the Company Amended Articles (as and when
adopted) and provided that no injunction against the
Transaction was issued by a court of competent jurisdiction
and was not removed, the Company shall register the Buyer
as owner of all the Company Shares held by all Non
Consenting Shareholders as of the Closing.
10
2.4.3. Subject to section 2.2.4, at the Closing, if there are any
Non Consenting Shareholders, Buyer shall (i) deliver to the
Shareholders Representative Committee irrevocable written
instructions addressed to AST in the form of Exhibit 2.2.1
to issue to the Non Consenting Shareholders certificates
representing Issued Shares in accordance with the number of
shares of the Buyer set forth against the names of such Non
Consenting Shareholders on Exhibit 2.2.2, which written
instructions shall be delivered by the Shareholders
Representative Committee to AST after completion of the
necessary procedures under Section 341 of the Companies Law
and registration of the Buyer as owner of all the Company
Shares held by all Non Consenting Shareholders as of the
Closing as set forth in the immediately preceding sentence,
provided that such instructions shall state that all share
certificates of Issued Shares with respect to Non
Consenting Shareholders shall be delivered to the Company
to be held by the Company in trust for such Non Consenting
Shareholders and (ii) notify AST in writing (with a copy to
the Shareholders Representative Committee) of the mechanism
set forth in clause (i) of this Section 2.4.
Without derogating from the above, for purpose of this
Agreement, "Shareholder" shall include all Non Consenting
Shareholders and each such Non Consenting Shareholder shall
be deemed to be subject to the terms and conditions of this
Agreement, except to the extent that doing so would be
inconsistent with the provisions of this Section 2.4,
Article 20(d) of the Company Amended Articles (as and when
adopted), and Section 341 of the Companies Law.
2.4.4. Each party hereto shall cooperate with the other parties
hereto, as any party may reasonably request, in the taking
of any action under this Section 2.4 and otherwise under
Section 341 of the Companies Law, including in making all
reasonable filings and taking such other reasonable action
which is necessary or desirable to effect the transactions
under this Agreement with respect to all the Company Shares
issued and outstanding as of the Closing in compliance with
Section 341 of the Companies Law.
2.5. Treatment of Company Options.
----------------------------
On the terms and subject to the conditions set forth in this
Agreement, and without any action on the part of any holder of
Company Options:
2.5.1. at the Closing, Buyer shall adopt each Company Option Plan
pursuant to which there shall be as of the Closing
unexpired and outstanding Company Options. Each Company
Option, provided that it is unexpired and outstanding
immediately prior to the Closing (the "Assumed Company
Options"), shall, automatically and without any further
action on the part of the holder thereof, on the terms and
subject to the conditions set forth in this Agreement, be
11
assumed and converted by Buyer in accordance with Section
2.5.2 into an option to purchase ordinary shares of Buyer
(after giving effect to such assumption, the "Buyer Assumed
Options"), and thereafter there shall be no options
outstanding to purchase Company Shares. Each Buyer Assumed
Option shall be subject to the same vesting arrangements
and schedule that were applicable to the respective Assumed
Company Option immediately prior to the Closing, and no
vesting acceleration of these options shall occur by reason
of the consummation of the Transaction. Except as set forth
Section 2.5.2, each Assumed Company Option shall, upon
conversion into Buyer Assumed Option, remain subject to the
terms set forth in the respective Company Option Plan
pursuant to which it shall have been granted.
2.5.2. each unexercised portion of a Company Assumed Option shall,
from the conversion thereof into a Buyer Assumed Option and
thereafter, be exercisable for a number of whole ordinary
shares of Buyer equal to the product (rounded down to the
next whole number of ordinary shares of Buyer) of the
number of such Company Ordinary Shares that were issuable
upon exercise of such unexercised portion of Company
Assumed Option immediately prior to the Closing multiplied
by (i) the Option Exchange Ratio (as defined below) and
multiplied by (ii) the Recap Ratio. The per share exercise
price for the ordinary shares of Buyer issuable upon
exercise of such unexercised portion of such Company
Assumed Option shall, from the conversion thereof into a
Buyer Assumed Option and thereafter, be equal to the
quotient (rounded up to the next whole $0.01) obtained by
dividing the exercise price per each Company Ordinary Share
at which the Company Assumed Option was exercisable
immediately prior to the Closing by the Option Exchange
Ratio.
"Option Exchange Ratio" shall mean a fraction, (i) the
numerator of which is the number of ordinary shares of the
Buyer that will be issued to the shareholders of the
Company in accordance with Section 2.2.1 above, and (ii)
the denominator of which is the number of issued and
outstanding shares of the Company at the Closing, which
fraction is 1.858:1 (assuming that the number of ordinary
shares of the Buyer at the Closing will be equal to the
number of ordinary shares outstanding of the Buyer as of
the date hereof (i.e., 15,086,523)), as such ratio may be
adjusted to reflect additional issuances of ordinary shares
of the Buyer and the Company between the date hereof and
the Closing.
"Recap Ratio" shall mean 0.342.
2.5.3. As soon as practicable following the Closing, the Buyer
shall send each Person holding Buyer Assumed Options a
notice with respect to the matters described in Section
2.5.1 and 2.5.2.
12
2.5.4. The parties shall use their reasonable best efforts to
ensure that the tax treatment of the Buyer Options is not
adversely affected by consummation of the Transaction and
that the Option Tax Pre-Ruling is obtained prior to the
Closing.
2.6. Certain Undertakings and Proxies from certain shareholders of
-------------------------------------------------------------
Buyer and the Company.
---------------------
Simultaneously herewith, Buyer is delivering to the Company Buyer
Shareholder Undertaking Agreements duly executed by each of ▇▇.
▇▇▇▇ ▇▇▇▇▇, Mr. Ami Tal, LaCresta International Trading, Inc. and
▇▇. ▇▇▇▇ ▇▇▇▇▇▇▇▇ in the form of Exhibit 2.6(a), and each
Shareholder that is a party to this Agreement is delivering to
Buyer a Company Shareholder Undertaking Agreement in substantially
the form of Exhibit 2.6(b), pursuant to which such Persons are
agreeing to refrain from transfer of their securities in the Buyer
or Company, as applicable, and give an irrevocable proxy to vote
at the respective shareholders meetings of Buyer or the Company
for approval of the Transaction contemplated herein, including
without limitation the adoption of amendments to the articles of
association of Buyer and the Company as contemplated herein.
2.7. Fractional Shares. No fraction of a share of Buyer will be issued
-----------------
and the number of shares to be issued shall be rounded up or down
to the nearest whole number.
2.8. Company Dormant Shares. At the Closing, each Company Share that is
----------------------
a dormant share shall remain outstanding and no consideration
shall be delivered with respect thereto.
3. CLOSING
-------
3.1. Closing.
-------
The closing of the Transaction (the "Closing") will take place at
the offices of Meitar, Liquornik, Geva & Leshem, ▇▇▇▇▇▇▇▇▇ and
Co., ▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇, Israel, at 10:00
a.m. on the second Business Day following the satisfaction or
waiver of all conditions set forth in Section 8 or at such other
place, date and time as the Company, the Shareholders
Representative Committee and Buyer may agree. The date and time at
which the Closing occurs is referred to herein as the "Closing
Date". All transactions occurring at the Closing shall be deemed
to take place simultaneously and no transaction shall be deemed to
have been completed and no document or certificate shall be deemed
to have been delivered until all transactions are completed and
all documents delivered. Unless otherwise indicated, all documents
and certificates shall be dated on or as of the Closing Date.
3.2. Closing Deliveries of the Company and the Shareholders.
------------------------------------------------------
At the Closing, each of the Shareholders for itself and the
Company, will deliver to Buyer the following:
13
3.2.1. share certificates representing all the Company Shares
(except for those held by Non Consenting Shareholders) to
be sold hereunder, or a declaration and indemnification
undertaking given by a Shareholder in a form satisfactory
to Buyer to the effect that the share certificates
representing its Company Shares were lost, accompanied by
duly executed share transfer deeds in the form of Exhibit
3.2.1(A) transferring the Company Shares to Buyer, and a
duly completed notice of such transfer to the Israeli
Registrar of Companies in the form of Exhibit 3.2.1(B) to
be executed by a Company officer immediately after the
Closing;
3.2.2. the certificate of the chief executive officer of the
Company in the form of Exhibit 3.2.2, certifying on behalf
of the Company the matters set forth in Section 2.2.2;
3.2.3. resolutions of the board of directors of the Company in the
form of Exhibit 3.2.3 (a) approving the execution, delivery
and performance by the Company of this Agreement and all
Transaction Documents to which the Company is a party, and
(b) authorizing the registration at the Closing of the
transfer of all Company Shares to the Buyer;
3.2.4. unanimous written consents or minutes of shareholders
meetings of the Company and certain classes of shares of
the Company in the form of Exhibit 3.2.4, approving the
Transaction and the Transaction Documents, all in
accordance with all applicable Israeli laws, the Company
Amended Articles and any current agreements among the
shareholders of the Company; and minutes of a shareholders
meeting of the Company and meetings of certain classes of
shares of the Company in the form of Exhibit 3.2.4,
approving the adoption of the Company Amended Articles;
3.2.5. an opinion of ▇▇▇▇▇ ▇▇▇▇▇ & Co., counsel to the Company, in
the form of Exhibit 3.2.5;
3.2.6. a copy of the Registration Rights Agreement in the form of
Exhibit 3.2.6, duly signed by all of the Shareholders that
countersign this Agreement; and
3.2.7. indemnification agreements in the form of Exhibit 3.2.7
duly signed by each of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇.
3.3. Closing Deliveries of Buyer.
---------------------------
At the Closing, Buyer will deliver to the Company, the following:
3.3.1. a certificate of the chief financial officer of Buyer in
the form of Exhibit 3.3.1, certifying on behalf of the
Buyer the matters set forth in Section 2.2.3;
14
3.3.2. the signed written instructions to AST referred to in
Section 2.2.4;
3.3.3. a copy of the Registration Rights Agreement in the form of
Exhibit 3.2.6, duly signed by Buyer;
3.3.4. an opinion of Meitar Liquornik Geva & Leshem ▇▇▇▇▇▇▇▇▇,
counsel to Buyer, in the form of Exhibit 3.3.4;
3.3.5. duly executed resignation of each current member of the
board of directors of Buyer that is not a Post Closing
Director (other than Ami Tal, whose term as a director of
the Buyer will end at the annual meeting of the Buyer's
shareholders), in the form of Exhibit 3.3.5;
3.3.6. resolutions of the board of directors of the Buyer in the
forms of Exhibit 3.3.6(a) and 3.3.6(b); and resolutions of
the audit committee of the Buyer in the forms of Exhibit
3.3.6(c) and 3.3.6(d);
3.3.7. minutes of shareholders meeting of the Buyer with respect
to the matters set forth in Section 3.3.7 of the Buyer
Disclosure Schedule;
3.3.8. the indemnification agreements referred to in Section
3.2.7, duly signed by the Buyer;
3.3.9. indemnification agreements in the form of Exhibit 3.3.9
executed by the Buyer and each of the Post Closing
Directors (other than those referred to in Section 3.2.7
above); and
3.3.10. a copy of the Registration Rights Agreement in the form of
Exhibit 3.2.6, duly signed by the Buyer.
3.4. Transfer Taxes; Withholding.
---------------------------
All stock transfer Taxes and stamp duties due as a result of the
sale of the Company Shares (including any Taxes on income or
capital gains on such) will be borne and paid by each Shareholder
with respect to the Company Shares transferred thereby to the
Buyer. All stock transfer Taxes and stamp duties due as a result
of the issuance of the Issued Shares will be borne and paid by
Buyer.
Each of the Shareholders Representative Committee and Buyer shall
be entitled to deduct and withhold from any consideration payable
or otherwise deliverable pursuant to this Agreement, to any holder
or former holder of Company Shares or options to purchase Company
Shares, as the case may be, such amounts as Buyer or the
Shareholders Representative Committee, as the case may be, in good
faith determines may be required to be deducted or withheld
therefrom under the applicable U.S. Federal backup withholding
provisions of the Code, the Income Tax Ordinance of Israel [New
15
Version], 1961, as amended (the "Ordinance"), or under any
provision of state, local, Israeli or other foreign law or any
other applicable requirement; provided that with respect to any
withholding under the laws or regulations of the State of Israel,
the Shareholders Representative Committee and Buyer shall act in
accordance with any withholding Tax ruling from the Israeli Tax
Authority, if obtained. To the extent such amounts are so deducted
or withheld, such amounts shall be treated for all purposes under
this Agreement as having been paid to the Person to whom such
amounts would otherwise have been paid.
4. REPRESENTATIONS AND WARRANTIES OF EACH SHAREHOLDER
--------------------------------------------------
Each Shareholder, severally and not jointly, only as to himself or
itself, represents and warrants to Buyer as of the date hereof and as of
the Closing as follows:
4.1. Organization and Authority. Such Shareholder (if not an
--------------------------
individual) is duly organized and validly existing under the law
of its jurisdiction of incorporation. Such Shareholder has all
requisite power and authority, corporate or otherwise, to execute
and deliver each Transaction Document delivered or to be delivered
by such Shareholder and to perform all of its obligations
hereunder and thereunder. With respect to each such Shareholder
that is not an individual, the execution, delivery and performance
by such Shareholder of each Transaction Document delivered or to
be delivered by such Shareholder and the consummation by such
Shareholder of the Transaction have been duly authorized. This
Agreement has been, and each other Transaction Document to be
delivered by such Shareholder will be, duly executed and delivered
by such Shareholder and constitutes or will constitute the legal,
valid and binding obligation of such Shareholder, enforceable
against such Shareholder in accordance with its terms, except as
such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or
affecting the enforcement of creditors' rights in general and by
general principles of equity.
4.2. Noncontravention.
----------------
None of the execution, delivery or performance by such Shareholder
of any Transaction Document does or will, with or without the
giving of notice or the lapse of time or both, conflict with, or
result in a breach or violation of, or a default under, or give
rise to any other right (i) with respect to each such Shareholder
that is not an individual, the charter or memorandum and articles
of association (or similar governance documents) of such
Shareholder, (ii) any Contract to which such Shareholder is a
party, or (iii) any law, rule, regulation or license to which such
Shareholder or its properties or assets are subject.
4.3. Title to Shares.
---------------
Such Shareholder has good and valid title to all of the Company
Shares set forth opposite such Shareholder's name in Section 5.3
of the Company disclosure schedule attached hereto (the "Company
Disclosure Schedule"), free and clear of any Liens. Upon transfer
16
and delivery to Buyer at the Closing and subject to the
registration of Buyer in the Company's shareholders register by
the Company, Buyer will have good and valid title to all such
Shareholder's Company Shares, free and clear of any Liens. The
number of Company Shares set forth opposite such Shareholder's
name in Section 5.3 of the Company Disclosure Schedule constitutes
all of the Company Shares owned by such Shareholder, and such
Shareholder does not own any other share capital of, or other
securities, equity or ownership interest in the Company. Except
for the Company Shares and Company Options, warrants, convertible
securities and other rights to acquire Company Shares set forth
opposite the name of such Shareholder in Section 5.3 of the
Company Disclosure Schedule, there are no outstanding (i) Company
Shares or options, warrants, convertible securities or other
arrangements relating to the issuance by the Company to such
Shareholder of any securities of the Company, (ii) phantom equity,
equity appreciation or similar rights which permit such
Shareholder to participate in the residual or appreciation equity
value of the Company, (iii) any securities, instruments or rights
which permit such Shareholder, under any circumstances, to vote
for the election of members of the Company's board of directors or
(iv) any securities, instruments or rights of such Shareholder
which are, directly or indirectly, convertible into or exercisable
or exchangeable for any of the securities, instruments or rights
described in clause (i), (ii) or (iii) above. Except as set forth
in Section 5.3 of the Company Disclosure Schedule, such
Shareholder has not granted options or other rights to purchase
any securities of the Company from such Shareholder.
4.4. Purchase for Own Account.
------------------------
The Issued Shares issuable to such Shareholder are being acquired
for investment for such Shareholder's own account, not as a
nominee or agent, in the ordinary course of business, and not with
a view to the public resale or distribution thereof within the
meaning of the U.S. Securities Act of 1933, as amended (the
"Securities Act"), without prejudice, however, to such
Shareholder's right at all times to sell or otherwise dispose of
all or any part of such Issued Shares in compliance with all
applicable federal and state securities laws. Such Shareholder (if
not an individual) also represents that it has not been formed for
the specific purpose of acquiring any Issued Shares. Such
Shareholder does not have any agreement or understanding, whether
or not legally binding, direct or indirect, with any other Person,
to sell or otherwise distribute any Issued Shares.
4.5. Investment Experience.
---------------------
Such Shareholder understands that the purchase of Issued Shares
involves substantial risk. Such Shareholder has experience as an
investor in securities of companies and acknowledges that such
Shareholder can bear the economic risk of its investment in the
Issued Shares and has such knowledge and experience in financial
or business matters to be capable of evaluating the merits and
risks of this investment in the Issued Shares and protecting such
Shareholder's own interests in connection with this investment.
4.6. Status of Shareholder.
---------------------
17
4.6.1. If such Shareholder checked one of the first three boxes on
the Shareholders Signature Page of this Agreement, then
such Shareholder hereby represents and warrants to Buyer as
follows: Such Shareholder is either (i) an "accredited
investor" as such term is defined in Rule 501 promulgated
under the Securities Act; (ii) not an "accredited
investor", but such Shareholder has substantial knowledge
and experience in financial and business matters and is
capable, without the use of a financial advisor, of
utilizing and analyzing the information made available in
connection with the acquisition of the Issued Shares under
this Agreement, and of evaluating the merits and risks of
an investment in the Issued Shares; or (iii) not an
"accredited investor", but such Shareholder has, through
appropriate representation by a "purchaser representative"
(as such term is used in the Securities Act and Regulation
D thereunder), substantial knowledge and experience in
financial and business matters and is capable, with the use
of a financial advisor, of utilizing and analyzing the
information made available in connection with the
acquisition of the Issued Shares under this Agreement, and
of evaluating the merits and risks of an investment in the
Issued Share, as indicated on the signature page hereof
("Experienced Non Accredited Investor"). Such Shareholder
acknowledges that the Issued Shares were not offered to
such Shareholder by means of any form of general or public
solicitation or general advertising, or publicly
disseminated advertisements or sales literature, including
(i) any advertisement, article, notice or other
communication published in any newspaper, magazine, or
similar media, or broadcast over television or radio, or
(ii) any seminar or meeting to which such Shareholder was
invited by any of the foregoing means of communications.
4.6.2. If such Shareholder checked the fourth box on the
Shareholders Signature Page of this Agreement, then such
Shareholder hereby represents and warrants to Buyer as
follows: Such Shareholder is not a "U.S. Person" as defined
by Rule 902 of Regulation S promulgated under the
Securities Act, was not formed (if an entity) by a "U.S.
Person" as defined by United States jurisdiction, and was
not formed (if an entity) for the purpose of investing in
securities not registered under the Securities Act. Such
Shareholder is not acquiring the Issued Shares for the
benefit of a "U.S. Person" as defined by Rule 902 of
Regulation S. On the date hereof, Such Shareholder was
outside the United States. All subsequent offers and sales
to such Shareholder of Issued Shares will be made (A)
outside the United States in compliance with Rule 903 or
Rule 904 of Regulation S promulgated under the Securities
Act, (B) pursuant to registration of such Issued Shares
under the Securities Act, or (C) pursuant to an exemption
from such registration. Such Shareholder understands the
conditions of the exemption from registration afforded by
Section 4(1) of the Securities Act and acknowledges that
there can be no assurance that such Shareholder will be
able to rely on such exemption. Such Shareholder
acknowledges, agrees and covenants that it will not engage
18
in hedging transactions with regard to Issued Shares prior
to the expiration of the distribution compliance period
specified in Rule 903 of Regulation S promulgated under the
Securities Act, unless in compliance with the Securities
Act. Absent another exemption from registration, such
Shareholder will not resell Issued Shares to "U.S. Persons"
(as defined in the Securities Act) or within the United
States, unless pursuant to registration of such Issued
Shares under the Securities Act.
4.7. Reliance Upon Shareholder's Representations.
-------------------------------------------
Such Shareholder understands that the issuance and sale
thereto of Issued Shares will not be registered under the
Securities Act on the ground that such issuance and sale
will be exempt from registration under the Securities Act
pursuant to Section 4(2) thereof or Regulation S promulgated
under the Securities Act, as the case may be, and that
Buyer's reliance on such exemption is based on each
Shareholder's representations set forth herein.
4.8. Receipt of Information.
----------------------
Such Shareholder has had an opportunity to ask questions and
receive answers from Buyer regarding the terms and conditions of
the issuance and sale of the Issued Shares and the business,
properties, prospects and financial condition of Buyer and to
obtain any additional information requested, and has received and
considered all information such Shareholder deems relevant to make
an informed decision to purchase Issued Shares. Neither such
inquiries nor any other investigation conducted by or on behalf of
such Shareholder or its representatives or counsel shall modify,
amend or affect such Shareholder's right to rely on the truth,
accuracy and completeness of such information and Buyer's
representations and warranties contained in this Agreement.
4.9. Restricted Securities.
---------------------
Such Shareholder understands that the Issued Shares have not been
registered under the Securities Act and such Shareholder will not
sell, offer to sell, assign, pledge, hypothecate or otherwise
transfer any of the Issued Shares unless (i) a registration
statement covering such Issued Shares is effective under the
Securities Act, (ii) such sale, offer to sale, assignment, pledge,
hypothecation or other transfer is exempt from registration under
the Securities Act and, if the Buyer requests, an opinion
satisfactory to the Buyer to such effect has been rendered by
counsel, or (iii) such Shareholder provides Buyer with reasonable
assurances (in the form of seller and broker representation
letters) that the Issued Shares can be sold pursuant to (A) Rule
144 promulgated under the Securities Act or (B) Rule 144(k)
promulgated under the Securities Act, in each case following the
applicable holding period set forth therein. Notwithstanding
anything to the contrary contained in this Agreement, such
Shareholder may transfer (without restriction and without the need
for an opinion of counsel) the Issued Shares to its Affiliates (or
if such Shareholder is not a "U.S. Person" to any other Person who
19
is not a "U.S. Person"), provided that each such Affiliate is an
"accredited investor" and such Affiliate agrees to be bound by the
terms and conditions of this Agreement.
4.10. Legends.
-------
Such Shareholder agrees that the certificates representing the
Issued Shares shall bear a legend in substantially the following
form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR WITH ANY APPLICABLE STATE SECURITIES LAWS,
AND MAY NOT BE SOLD OR TRANSFERRED UNLESS (I) A REGISTRATION
STATEMENT COVERING SUCH SECURITIES IS EFFECTIVE UNDER THE
SECURITIES ACT OR (II) THE TRANSACTION IS EXEMPT FROM REGISTRATION
UNDER THE SECURITIES ACT AND, IF THE COMPANY REQUESTS, AN OPINION
SATISFACTORY TO THE COMPANY TO SUCH EFFECT HAS BEEN RENDERED BY
COUNSEL."
In addition, such Shareholder agrees that Buyer may place stop
transfer orders with AST (or any other transfer agent) with
respect to such certificates in order to implement the
restrictions on transfer set forth in this Agreement. The
appropriate portion of the legend and the stop transfer orders
will be removed promptly upon delivery to Buyer of such
satisfactory evidence as reasonably may be required by Buyer that
such legend or stop orders are not required to ensure compliance
with the Securities Act.
4.11. Independent Investment.
----------------------
Such Shareholder acknowledges that it is aware of its obligations
as a beneficial owner of Issued Shares pursuant to Section 13(d)
of the U.S. Securities Exchange Act of 1934, as amended (the
"Exchange Act").
5. REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE COMPANY
----------------------------------------------------------
The Company hereby represents and warrants to Buyer, as of the date
hereof and as of the Closing, that except as disclosed in the Company
Disclosure Schedule:
5.1. Organization and Authority.
--------------------------
The Company is duly organized and validly existing under the laws
of the State of Israel. The Company has all requisite power and
authority to carry on its business as it is currently conducted
and to own, lease and operate its assets and properties where such
assets and properties are now owned, leased or operated. Copies of
the articles and memorandum of association, as amended to date, of
the Company have previously been delivered or made available to
Buyer. The Company is not in violation of any of the provisions of
its articles or memorandum of association. The Company has all
20
requisite power and authority to execute and deliver each
Transaction Document delivered or to be delivered thereby and to
perform all of its obligations hereunder and thereunder. All
corporate actions on the part of the Company and the Shareholders
(solely in their capacity as shareholders of the Company, and
including without limitation any approval by any class of
Shareholders) necessary for the authorization, execution, delivery
of and performance of all obligations of the Company under this
Agreement and the other Transaction Documents to which the Company
is a party have been taken or will be taken before the Closing;
and no further consent or authorization of the Company, its board
of directors or the Shareholders (solely in their capacity as
shareholders of the Company, and including without limitation any
approval by any class of Shareholders, if applicable) is required.
Each Transaction Document to be delivered by the Company has been
or will be duly executed and delivered by the Company and, when so
executed and delivered, will constitute the legal, valid and
binding obligation of the Company, enforceable against the Company
in accordance with its terms, except (i) as may be limited by (1)
applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation, conservatorship, receivership or other similar laws
of general application relating to or affecting the enforcement of
creditors' rights generally or (2) the effect of rules of law
governing the availability of equitable principles of general
application, or (ii) as rights to indemnity or contribution may be
limited under federal or state securities laws or by principles of
public policy thereunder.
5.2. Noncontravention; Compliance with Laws and Articles of
------------------------------------------------------
Association.
-----------
Subject to obtaining the approvals required by the Company for the
consummation of the Transactions, as further set forth herein,
none of the execution, delivery or performance by the Company of
any Transaction Document does or will, with or without the giving
of notice or the lapse of time or both, result in the creation of
any Lien upon any of the assets or properties of the Company, or
conflict with, or result in a breach or violation of, or a default
under, or trigger any "change of control" right in, or give rise
to a right of amendment, termination, cancellation or acceleration
of any obligation under (i) the Company's articles or memorandum
of association, (ii) any Contract of the Company or (iii) any law,
rule, regulation or license to which the Company or its properties
or assets are subject, which breach, violation of default in the
case of (ii) and (iii) would reasonably be expected to have a
Material Adverse Effect on the Company. The Company has complied
and is currently in compliance with all applicable statutes, laws,
rules, regulations and orders of each Governmental Authority
having jurisdiction over the Company's business or properties,
except for any non-compliance that has not had, and would not
reasonably be expected to have, a Material Adverse Effect on the
Company.
5.3. Capitalization; Title.
---------------------
The Company's authorized share capital consists of NIS 1,023,800,
divided into 39,991,444 authorized ordinary shares of the Company,
nominal value of NIS 0.02 each, 1,948,871 authorized ordinary A
shares, nominal value of NIS 0.02 each, 2,749,285 Series A
21
preferred shares, nominal value of NIS 0.02 each, 2,720,985 Series
B convertible preferred shares, nominal value NIS 0.02 each,
819,220 Series B-2 convertible preferred shares, nominal value NIS
0.02 each, 1,564,930 Series C convertible preferred shares,
nominal value NIS 0.02 each, and 1,395,265 deferred shares,
nominal value NIS 0.02 each. All such Company Shares are held by
the Shareholders as set forth in Section 5.3 of the Company
Disclosure Schedule. Section 5.3 of the Company Disclosure
Schedule sets forth a list of all Company Options, warrants,
convertible securities and other rights to acquire Company Shares
outstanding on the date hereof, the class and number of Company
Shares subject thereto, the vesting schedule with respect thereto,
and the name of the holder thereof. As of the date hereof,
15,819,072 ordinary shares, 1,948,871 ordinary A shares, 2,749,285
Series A preferred shares, 1,477,515 Series B preferred shares,
819,220 Series B-2 preferred shares, 1,546,930 Series C preferred
Shares are issued and outstanding and 2,389,018 ordinary shares
are issuable upon exercise of all outstanding Company Options and
172,463 ordinary shares that are held by the Company and
considered dormant shares. All of the Company Shares outstanding
on the date hereof are duly authorized and validly issued, fully
paid and nonassessable, are owned of record and beneficially by
the Shareholders and in the amounts set forth in Section 5.3 of
the Company Disclosure Schedule, and have been offered, issued,
sold and delivered by the Company in compliance with all
applicable federal and state securities laws. There are no notes
or other indebtedness of the Company that are convertible into,
exchangeable or exercisable for Company Shares or that have the
right to vote on any matters on which the Shareholders may vote or
the right to receive any of the Company's profits. Except for the
Company Shares and Company Options, warrants, convertible
securities and other rights to acquire Company Shares set forth in
Section 5.3 of the Company Disclosure Schedule, there are no
outstanding (i) Company Shares or options, warrants, convertible
securities or other arrangements relating to the issuance by the
Company of any securities of the Company, (ii) phantom equity,
equity appreciation or similar rights which permit the holder
thereof to participate in the residual or appreciation equity
value of the Company, (iii) any securities, instruments or rights
which permit the holder thereof, under any circumstances, to vote
for the election of members of the Company's board of directors or
(iv) any securities, instruments or rights which are, directly or
indirectly, convertible into or exercisable or exchangeable for
any of the securities, instruments or rights described in clause
(i), (ii) or (iii) above. To the best of the Company's knowledge,
no Shareholder has granted options or other rights to purchase any
securities of the Company from such Shareholder. Other than
172,463 ordinary shares that are held by the Company and
considered dormant shares, the Company holds no share capital in
its treasury or otherwise. Since January 1, 2000, there has been
no declaration or payment by the Company of dividends, or any
distribution by the Company of any assets of any kind to any of
its past or present shareholders in redemption of or as the
purchase price for any of the Company's securities.
5.4. Governmental Approvals.
----------------------
22
No Consent or order of, with or to any Governmental Authority is
required to be obtained or made by or with respect to the Company
in connection with the execution, delivery and performance of the
Transaction Documents by the Company.
5.5. Permits and Licenses.
--------------------
Each of the Company and each Subsidiary thereof has obtained each
consent, license, permit, grant or other authorization of a
Governmental Authority (i) pursuant to which the Company or any
Subsidiary thereof currently operates or holds any interest in any
of its assets or properties or (ii) that is required for the
operation of the Company's or such Subsidiary's business or the
holding of any such interest (all of the foregoing consents,
licenses, permits, grants, and other authorizations, collectively,
the "Company Authorizations"), and all of the Company
Authorizations are in full force and effect; except where the
failure by the Company or any Subsidiary thereof to obtain any
such consent, license, permit, grant or other authorization of a
Governmental Authority would not be reasonably expected to have a
Material Adverse Effect. Neither the Company nor any Subsidiary
thereof has received any notice or other communication from any
Governmental Authority regarding (i) any actual or possible
violation of law or any Company Authorization or any failure to
comply with any term or requirement of any Company Authorization
or (ii) any actual or possible revocation, withdrawal, suspension,
cancellation, termination or modification of any Company
Authorization, except for any violation, failure, revocation,
withdrawal, suspension, cancellation, termination or modification
of any Buyer Authorization that would not be reasonably expected
to have a Material Adverse Effect on the Company. None of the
Company Authorizations will be terminated or impaired, or will
become terminable, in whole or in part, as a result of the
consummation of the transactions contemplated by this Agreement,
except for any termination or impairment that would not be
reasonably expected to have a Material Adverse Effect on the
Company.
5.6. Company Financial Statements.
----------------------------
5.6.1. Set forth in Section 5.6 of the Company Disclosure Schedule
are (i) drafts of the consolidated balance sheet of the
Company as of December 31, 2004 and the related
consolidated statements of operations, shareholders' equity
and cash flows for the year ended December 31, 2004 and
(ii) drafts of the consolidated balance sheet of the
Company as of March 31 and June 30, 2005 and the related
consolidated statements of operations and cash flows for
the period ended March 31, 2005 (collectively, with the
notes thereto, the "Company Financial Statements"). The
Company Financial Statements were prepared in accordance
with US GAAP and present fairly, in all material respects,
the consolidated financial position, results of operations,
changes in shareholders' equity (only with respect to the
year ended December 31, 2004) and cash flows of the Company
at the respective dates set forth therein and for the
respective periods covered thereby, subject to normal audit
and review, as the case may be, adjustments. The Company
23
has delivered to Buyer, in addition to the Company
Financial Statements, its audited consolidated balance
sheet as of December 31, 2000, 2001, 2002 and 2003, and the
related audited consolidated statements of operations,
shareholders' equity and cash flows for the years ended
December 31, 2000, 2001, 2002 and 2003, together with the
reports of PWC thereon.
5.6.2. The Company Financial Statements show all liabilities,
absolute or contingent, of the Company and its Subsidiaries
(including for all Taxes) required to be recorded thereon
in accordance with US GAAP as at the respective dates
thereof subject to normal audit or review, as the case may
be, adjustments. There are no off-balance sheet or other
liabilities, claims or obligations of any nature, whether
accrued, absolute, contingent, or otherwise, that are not
shown or provided for in the Company Financial Statements,
subject to normal audit or review, as the case may be,
adjustments and except for (i) liabilities incurred in the
ordinary course of business since December 31, 2004 (in the
case of the balance sheet as of December 31, 2004) or March
31, 2005 (in the case of the balance sheet as of March 31,
2005) that are of the type that ordinarily recur and,
individually or in the aggregate, are not material in
nature or amount and do not result from any breach of
Contract, tort or violation of law and (ii) liabilities
incurred by the Company in connection with the execution of
this Agreement. Neither the Company nor any Subsidiary
thereof has any outstanding material indebtedness for
borrowed money except as reflected on the Company Financial
Statements, and is not a guarantor or otherwise
contingently liable for any such indebtedness.
5.6.3. Subject to normal audit or review, as the case may be,
adjustments, all reserves that are set forth in or
reflected in the balance sheets constituting part of the
Company Financial Statements have been established in
accordance with US GAAP and are adequate.
5.7. Absence of Certain Changes.
--------------------------
5.7.1. Since December 31, 2004 the Company has conducted its
businesses in the ordinary course and there has not been
any Material Adverse Effect. Without limiting the
generality of the foregoing, from and after December 31,
2004 and through the date hereof, the Company has not:
suffered any loss to its property or incurred any damage,
award or judgment for injury to the property or business of
others or for injury to any person in excess of $25,000 in
any one case or $50,000 in the aggregate;
5.7.2. made any capital expenditure in excess of $25,000 or series
of capital expenditures in excess of $50,000 in the
aggregate;
24
5.7.3. made any change in the rate of compensation, commission,
bonus or other remuneration payable to any of its
directors, officers, employees or agents, or agreed to pay,
conditionally or otherwise, any bonus or extra compensation
or other employee benefit to any of such directors,
officers, employees or agents, or accelerated any vesting
schedule, reduced exercised price of any option or
otherwise amended the term of any options or Plan of the
Company;
5.7.4. sold, assigned, leased or transferred any asset, other than
in the ordinary course of business;
5.7.5. made any change in its accounting methods, policies,
practices or principles;
5.7.6. waived or released any rights or claims of material value
or settled or compromised any Action;
5.7.7. amended its memorandum or articles of association;
5.7.8. made any Tax election, changed any annual Tax accounting
period, amended any Tax Return, settled any income Tax
liability, surrendered any right to claim or been required
to make any repayment of any Tax refund or consented to any
extension of the limitations period applicable to any Tax
claim, in each case, with a material value, or received any
Tax ruling other than the Israeli Tax Rulings;
5.7.9. issued, pledged, encumbered, sold, disposed of, purchased
or redeemed any securities of the Company (including
without limitations, share, warrants, options, instrument
convertible or exercisable into securities of the Company,
etc.) or amended the terms of any outstanding securities of
the Company;
5.7.10. declared, set aside, paid or made any dividend or other
distribution with respect to any of its share capital, or
otherwise redeemed, repurchased or acquired any share
capital or other securities of the Company;
5.7.11. lent money to any Person or incurred, assumed or created
any indebtedness;
5.7.12. subjected any of its material assets or properties to any
Lien or permitted any of its material assets or properties
to be subjected to any Lien;
5.7.13. granted any license or sublicense of any rights under or
with respect to, or sold, transferred or permitted to
lapse, any Intellectual Property, except for grants of
licenses in the ordinary course of business to customers;
25
5.7.14. entered into any transaction with any Affiliate, director,
officer or Shareholder (other than the payment of ordinary
course compensation);
5.7.15. purchased any real property or entered into any Lease
(including any capitalized lease obligations);
5.7.16. received or filed any application for receipt of Grants;
5.7.17. written off as uncollectible or established an
extraordinary reserve with respect to any material account
receivable or other material indebtedness;
5.7.18. commenced or settled any legal proceedings or disputes;
5.7.19. taken any material action outside the ordinary course of
business or inconsistent with past practice; or
5.7.20. entered into any agreement to take any of the types of
action described in Sections 5.7.1 to 5.7.19.
5.8. Tax Matters.
-----------
5.8.1. All Tax Returns required to be filed by or on behalf of the
Company have been timely filed with the Tax authorities or
extensions have been timely granted and have not expired.
All material Taxes with respect to Taxable periods or
portions thereof covered by such Tax Returns and all other
material Taxes (without regard to whether a Tax Return was
or is required) for which the Company is otherwise liable
that are due have been paid in full or are being contested
in good faith and, to the extent the liabilities for such
Taxes are not due or are being contested in good faith,
materially adequate reserves have been established in the
Company Financial Statements.
5.8.2. The Company has withheld materially accurate amounts from
its employees, customers, Shareholders (solely in their
capacity as shareholders of the Company), Affiliates,
independent contractors and others from whom it is or was
required to withhold Taxes, including national insurance,
social security, in compliance in all material respects
with all applicable laws and has paid all such withheld
amounts to the Taxing authorities.
5.8.3. There are no Actions pending with respect to any Taxes for
which the Company is liable. To the knowledge of the
Company, no Tax Return of the Company is currently the
subject of an audit by any Taxing authority, no written
notice of such an audit has been received, and the Company
is not aware that there is any basis for the initiation of
such an audit or repayment of any Tax refund, or any part
thereof, received by the Company or any of its Subsidiaries
26
(or that the Company currently expects to receive from any
tax authorities).
5.8.4. To the Company's knowledge, as of December 31, 2004, the
Company and its Subsidiaries had: (i) immaterial U.S.
federal net operating loss carryforwards and (ii)
approximately US$32 million of Israeli net operating loss
carryforwards.
5.9. Assets and Property.
------------------
The Company has good and valid title to all material property,
equipment and other assets (other than the Intellectual Property,
title to which is addressed in Section 5.10) that it purports to
own, free and clear of any Lien, except for (i) statutory Liens
for the payment of current Taxes that are not yet delinquent and
(ii) Liens that arise in the ordinary course of business and do
not in any material respect affect the business of the Company as
currently conducted. The Company has valid leasehold interests in
any premises leased by the Company and the material equipment,
furniture and fixtures purported to be leased by it. The Company
does not own any real property. There are no restrictions imposed
by any Lease or other Contract or by law that preclude or restrict
in any material respect the Company's ability to use the leased
premises currently used by it or contemplated to be used by it for
the purposes for which they are currently being used or are
contemplated to be used.
5.10. Intellectual Property.
---------------------
5.10.1. Set forth in Section 5.10.1 of the Company Disclosure
Schedule are (i) all patents and patent applications,
copyright applications and registrations, trademarks
and trademark applications and registrations owned by
the Company, and domain names used by the Company and
(ii) all agreements pursuant to which the Company
uses third party Intellectual Property (other than
off-the-shelf license) together with the license
fees, maintenance payments and any other payments
made or payable by the Company thereunder during the
12-month period immediately preceding the date
hereof.
5.10.2. The Company owns all right, title and interest in and
to all of the Company Business Intellectual Property,
or, in the case of Company Business Intellectual
Property subject to license agreements under which
the Company is a licensee, has sufficient right to
use or exploit such Company Business Intellectual
Property for the purposes it is licensed to the
Company, free and clear of any Liens (other than
non-exclusive rights to use the Company Business
Intellectual Property granted to customers in the
ordinary course of business) and free from any
requirement of any past or present payments or future
payments that are currently known (other than
maintenance payments and license fees).
27
5.10.3. To the knowledge of the Company, the Company has not
infringed, misappropriated or made unlawful use of,
or is infringing, misappropriating or making unlawful
use of, any Intellectual Property or other rights
owned or held by any other Person.
5.10.4. The rights of the Company in and to all Company
Business Intellectual Property are valid and all
filings, payments and other actions required to be
made or taken by the Company to maintain any item of
Company Business Intellectual Property in full force
and effect have been properly made and taken.
5.10.5. To the best knowledge of the Company, there is no
infringement or misappropriation by any Person of any
Company Business Intellectual Property owned by or
licensed exclusively to the Company; and since
January 1, 2000, none of the Company or its
Subsidiaries has received any written notice or other
written communication relating to any actual, alleged
or suspected infringement, misappropriation or
violation of any Intellectual Property of another
Person by the Company or any of its Subsidiaries,
and, to the knowledge of the Company, none of the
Company and its Subsidiaries has received any
non-written notice or other non-written communication
relating to any actual, alleged or suspected
infringement, misappropriation or violation of any
Intellectual Property of another Person by the
Company or any of its Subsidiaries.
5.10.6. No claim or legal proceeding with respect to
infringement, misappropriation or violation of any
Intellectual Property has been pending since January
1, 2000 or, to the knowledge of the Company,
currently threatened against the Company or any of
its Subsidiaries or, to the knowledge of the Company,
against any other Person who is, or has asserted or
could reasonably be expected to assert that it is,
entitled to be indemnified, defended, held harmless
or reimbursed by the Company or any of its
Subsidiaries with respect to such claim or legal
proceeding (including any claims or legal proceedings
that have been settled, dismissed or otherwise
concluded), and, since January 1, 2000, the Company
or any of its Subsidiaries received no requests or
notices from any third party alleging that the
Company or any of its Subsidiaries is obligated to
indemnify, defend, or hold them harmless with respect
to any such claim or legal proceeding.
5.10.7. The Company Business Intellectual Property
constitutes all Intellectual Property necessary to
conduct the business of the Company in materially the
same way as currently conducted.
5.10.8. The Company has taken reasonable steps to secure,
maintain and protect its right, title (where
applicable) and interest in and to all Company
Business Intellectual Property.
28
5.10.9. Any and all Company Business Intellectual Property of
any kind that has been developed or is currently
being developed by any current or past employee or
consultant of the Company in the course of his or her
employment in or consulting relationship with the
Company is the property solely of the Company. The
current and former employees of the Company and such
consultants and other Persons that are or were
engaged in developing technology for the Company,
have entered into written agreements with the Company
assigning to the Company all rights in any
Intellectual Property developed by them in the course
of their employment by or consulting or other
relationship with the Company, and each of the
Company's employees and other persons who, either
alone or in concert with others, developed, invented,
discovered, derived, programmed or designed the
Company Business Intellectual Property which is owned
by the Company, or who has access to the Company
Business Intellectual Property which is owned by the
Company, have entered into a similar written
agreement with the Company.
5.10.10. The Company is not and has never been a member or
promoter of, or a contributor to, any industry
standards body or any similar organization that is
entitled to require or obligate the Company to grant
or offer to any other Person any license or right to
any Company Business Intellectual Property.
5.10.11. No source code of any part of the Company Business
Intellectual Property has been delivered, licensed or
made available to any escrow agent or other Person
(other than employees of the Company in the course of
and for the purpose of their employment) and the
Company is not subject to any obligation (whether
present, contingent or otherwise) to deliver, license
or make available any such source code to any escrow
agent or other Person.
5.10.12. The business of the Company as currently conducted
does not require the Company to obtain a license from
the Israeli Ministry of Defense or an authorized body
thereof pursuant to Section 2(a) of the Control of
Products and Services Declaration (Engagement in
Encryption), 1974, as amended.
5.10.13. The Company is not aware that its Tdgate and TdMAX
products and other elements of such products or any
other products to which the Company is subject to any
warranty, support or maintenance obligations, contain
any bug, defect or error that materially and
adversely affects the use, functionality or
performance of such products.
5.10.14. The Company does not use any Open Source Software (as
defined below) which grants any third party any
rights in the Company Business Intellectual Property
or which requires the Company to make any of the
Company Business
29
Intellectual Property available for use by third
parties. Section 5.10.14 of the Company Disclosure
Schedule lists all Open Source Software currently
used by the Company. For purposes of this Agreement,
"Open Source Software" shall mean any software that
contains, or is derived in any manner (in whole or in
part) from, any software that is distributed as free
software, open source software (e.g., Linux) or
similar licensing or distribution models, and shall
also include freeware and shareware.
5.11. Contracts.
---------
5.11.1. Section 5.11 of the Company Disclosure Schedule
lists the following Contracts to which the Company
is a party, provided that the Company has any
outstanding rights, liabilities or obligations
thereunder:
5.11.1.1. all Contracts for the lease (whether as
lessor or lessee) of personal property
to or from the Company pursuant to which
the Company made or received, or was
required to pay or receive, lease
payments in the 12-month period
immediately prior to the date hereof in
excess of $50,000;
5.11.1.2. all Contracts for the purchase or sale
of inventories, supplies, products or
real or personal property, or for the
furnishing or receipt of services,
pursuant to which the Company paid or
was paid or was required to pay or
receive, $50,000 or more in the 12-month
period immediately prior to the date
hereof in ;
5.11.1.3. all Contracts concerning a partnership,
joint venture or joint development;
5.11.1.4. all Contracts for the purchase or sale
of any business, corporation,
partnership, joint venture or other
business organization entered into after
January 1, 2000;
5.11.1.5. all Contracts relating to or evidencing
material indebtedness for money borrowed
by the Company;
5.11.1.6. all Contracts under which (i) any Person
has guaranteed any material indebtedness
for money borrowed or other liabilities
of the Company or (ii) the Company has
guaranteed any material indebtedness for
money borrowed or other liabilities of
any Person;
5.11.1.7. all Contracts under which the Company
has made any material advance, loan,
extension of credit or capital
contribution to, or other material
investment in, any Person, other than
trade accounts payable arising in the
ordinary course of business;
30
5.11.1.8. all Contracts providing for or
containing any mortgage, pledge,
security agreement or other Contract
granting a Lien upon any material assets
or properties of the Company;
5.11.1.9. all Contracts not otherwise listed
herein providing for indemnification of
any Person with respect to liabilities
relating to any current or former
business of the Company, except for
customer, distribution, reseller,
license, OEM and development agreements
in the ordinary course of business;
5.11.1.10.all Contracts which limit or purport to
limit the ability of the Company to
compete in the line of business in which
it is currently engaged;
5.11.1.11.all Contracts with any broker,
distributor, dealer, sales
representative or other Person relating
to the distribution or marketing of
Company products pursuant to which the
payment by the Company to any such
broker, distributor, dealer, sales
representative or other Person in the
12-month period immediately prior to the
date hereof was, or was required to be,
in excess of $50,000;
5.11.1.12.all Contracts concerning the issuance,
delivery, pledge or other encumbrance,
sale or disposal of any share capital or
other securities of the Company, except
for options and warrants;
5.11.1.13.all Contracts for the sale to a third
party by the Company of any Intellectual
Property; and all Contracts (A) for the
license of any source code, (B) granting
any third party an exclusive license for
any Company Business Intellectual
Property or (C) entered into not on an
arms' length basis for the license of
Company Business Intellectual Property;
and
5.11.1.14.all Contracts which are otherwise
material to the Company which are not
described in any of the categories
specified in this Section 5.11.1.
The Contracts set forth above are referred to
herein as "Material Contracts" (and such term
shall also be used in this Agreement with respect
to Contracts of the types set forth above to which
Buyer is party). The Company has heretofore made
available to Buyer copies of all of its Material
Contracts.
5.11.2. Each Material Contract of the Company is in
written form, is in effect, has not been amended
in any material respect and is legal, valid and
binding on the Company and the other party or
31
parties thereto. The Company and, to the Company's
knowledge, each of the other party or parties
thereto has performed in all material respects all
obligations required to be performed by it under
each Material Contract of the Company and is not
alleged to be in material default in respect
thereof. No event has occurred with respect to the
Company or, to the knowledge of the Company, with
respect to any other Person that (with or without
lapse of time or the giving of notice or both or
the happening of any other event or conditions,)
would reasonably be expected to (i) become a
material default or event of default under any
Material Contract of the Company or (ii) give any
third party (A) the right to exercise any remedy
under any Material Contract of the Company, (B)
the right to a material rebate, chargeback,
refund, credit, penalty or change in delivery
schedule under any Material Contract of the
Company, (C) the right to accelerate the maturity
or performance of any material obligation of the
Company or any of its Subsidiaries under any
Material Contract of the Company, or (D) the right
to cancel, terminate or modify any Material
Contract of the Company.
5.12. Insurance.
----------
Section 5.12 of the Company Disclosure Schedule sets forth a
list of all insurance policies that the Company currently
maintains with respect to its assets, liabilities,
employees, officers, directors or other representatives (the
"Company Insurance Policies"). The Company Insurance
Policies are customarily obtained and maintained by
companies in a stage and size similar to that of the Company
in order to adequately protect such companies and their
financial condition against the risks involved in the
business conducted by them, are enforceable and in full
force and effect and will not lapse or be subject to
suspension, modification, revocation, cancellation,
termination or non-renewal by reason of the execution,
delivery or performance of any Transaction Document or
consummation of the Transaction. The Company is current in
all premiums or other payments due under each Company
Insurance Policy. The Company has not received any notice
that any Company Insurance Policy is not in full force and
effect.
5.13. Litigation.
----------
Since January 1, 2000, there has been no judgment, ruling,
order, writ, decree, stipulation, settlement, injunction or
determination by or with any arbitrator, court or other
Governmental Authority to which the Company was or currently
is party or by which the Company was or currently is bound,
and which relates to or affects the Company or any of its
assets, properties or liabilities. The Company is not party
to or, to the knowledge of the Company, threatened with any
Action which relates to or affects the Company or any of its
assets, properties or liabilities.
5.14. Employee Matters; Directors, Officers and Key Employees.
-------------------------------------------------------
5.14.1. The Company is not a party to any Contract
regarding collective bargaining or other Contract
32
with any labor or trade union or collective
bargaining group representing any employee of the
Company. There are no unfair labor practice
charges or complaints pending or, to the knowledge
of the Company, threatened against the Company.
5.14.2. Section 5.14.2 of the Company Disclosure Schedule
sets forth a list of the Company's directors,
officers, employees and consultants, and includes
a list of each of such director's, officer's,
employee's and consultant's employment and
compensation terms as of the date hereof, which
will include, for each employee and consultant
employed by the Company, the following
information: name, address, title, employment
commencement date, gross salary, manager's
insurance, educational fund; cellular phone,
vacation days per year, accumulated vacation days,
company's vehicle; accumulated severance pay,
unfunded severance pay, accumulated recuperation
pay, bonuses including conditional bonuses,
options grant, options vested, and exercise price,
participation under any other Plan of the Company,
and entitlement to any other benefit in connection
with his employment or service.
5.14.3. The Company is not delinquent in any material
payment to any of its employees for any salaries,
commissions, bonuses or other direct compensation
for any services performed by any such employee
through the date hereof or amounts required to be
reimbursed to any of such Persons. The Company has
withheld and reported all amounts required by law
or by agreement to be withheld and reported with
respect to salaries and any other payments to
employees. The Company timely made all required
provisions and contributions to managers insurance
fund and educational funds in accordance with the
terms of each employment agreement.
5.14.4. Upon termination of the employment of any employee
in accordance with the relevant employment
agreement or termination of a consulting
relationship with any consultant in accordance
with the relevant consulting agreement, neither
the Company nor Buyer will by reason of anything
done prior to the Closing Date be liable to any of
such employee or consultant for severance pay or
any other payments (other than accrued salary or
other compensation, vacation or sick pay, release
of managers insurance policies and education funds
in accordance with normal policies or amounts
required to be paid under applicable laws).
5.14.5. The Company has previously delivered to Buyer
copies of all employment, consulting, termination
and severance Contracts with or for the benefit
of, or otherwise relating to, any director,
officer or key employee of the Company. Except as
set forth on Section 5.14.5 of the Company
Disclosure Schedule, none of the execution,
delivery or performance of any Transaction
Document will result in any obligation to (i) pay
any director, officer, key employee or consultant
of the Company severance pay or termination,
retention or other benefits or (ii) extend the
33
notice period with respect to the termination of
employment of any employee of the Company.
5.14.6. Section 5.14.6 of the Company Disclosure Schedule
sets forth a list of all Plans of the Company. The
Company has delivered or made available to Buyer
copies of (i) each of its Plans and (ii) all trust
agreements or similar agreements maintained in
connection with any such Plan.
5.14.7. The Company has complied in all material respects
with all obligations under law with respect to any
aspect of the employment of its employees,
including with respect to the health and safety at
work of its employees.
5.14.8. The Company paid in full all amounts to which
employees whose employment was terminated
following January 1, 2004 were entitled to, and
any such terminated employee has executed a
release letter in accordance with Section 29 of
the Israeli Severance Pay Law (5723-1963) (the
"Severance Pay Law"), whereby, inter alia, the
terminated employee acknowledged the receipt of
all amounts to which he or she is entitled to and
released the Company from any and all claims.
5.14.9. All obligations of the Company to provide
statutory severance pay to all of its Israeli
employees pursuant to the Severance Pay Law are
fully funded or accrued on the Company's financial
statements.
5.14.10. There are no unwritten policies, practices or
customs of the Company that, by extension, could
reasonably be expected to entitle any employee to
benefits in addition to what such employee is
entitled to by applicable law or under the terms
of such employee's employment agreement (including
unwritten customs or practices concerning the
payment of statutory severance pay when it is not
required under applicable law).
5.15. Affiliate Transactions.
----------------------
There is no indebtedness, Contract, arrangement,
transaction, payment or transfer, directly or indirectly, of
any funds or other property, between the Company, on the one
hand, and any Shareholder or any Affiliate, officer or
director of the Company or any Affiliate of any thereof, on
the other hand, except for (i) regularly scheduled
compensation paid to employees of the Company either as
salary or pursuant to existing employee benefit plans or
(ii) reimbursements of employees' and directors' ordinary
business expenses incurred in connection with their
employment with or service to the Company.
5.16. Governmental Grants.
-------------------
34
Section 5.16 of the Company Disclosure Schedule provides a
complete list as of the date hereof of all outstanding
grants, incentives and subsidies (collectively, "Grants)
from the Government of the State of Israel or any agency
thereof, or from any foreign governmental or administrative
agency, granted to the Company, including, without
limitation, (i) "Approved Enterprise" status from the
Israeli Investment Center, (ii) grants from the Office of
the Israeli Chief Scientist ("OCS"), (iii) grants from the
Fund for Encouragement of Marketing, and (iv) grants from
the BIRD Foundation. The Company has delivered to Buyer,
prior to the date hereof, correct copies of all letters of
approval (and other material correspondence and other
documents that evidence material changes to the terms of
such letters of approval) under which such Grants were
granted to the Company. Without limiting the generality of
the foregoing, Section 5.16 of the Company Disclosure
Schedule includes the aggregate outstanding obligations
thereunder of the Company with respect to royalties due to
the OCS or other Governmental Authority and outstanding
amounts to be paid by the OCS or any other Governmental
Authority to the Company. The Company is in compliance with
the terms and conditions of the Grants in all material
respects and has duly fulfilled in all material respects all
the undertakings relating thereto required to be fulfilled
prior to the date hereof. The Company does not have
knowledge of any intention by the OCS or any Governmental
Authority to revoke or materially modify any of its Grants
to the Company.
5.17. Subsidiaries.
------------
The Company's Subsidiaries are listed in Section 5.17 of the
Company Disclosure Schedule. The Company owns all shares of
each Subsidiary thereof. It is hereby clarified that all
representations and warranties included herein shall apply
also to the Company's Subsidiaries, to the extent
applicable.
5.18. Brokers' and Finders' Fees.
--------------------------
Neither the Company nor any Shareholder nor any Affiliate
thereof is obligated for the payment of any fees or expenses
of any investment banker, broker, advisor, finder or similar
party in connection with the origin, negotiation or
execution of this Agreement or in connection with the
Transaction, and Buyer will not incur any liability, either
directly or indirectly, to any such investment banker,
broker, advisor, finder or similar party as a result of this
Agreement, the Transaction or any act or omission of the
Company or any Shareholder or any Affiliate thereof.
6. REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
Buyer hereby represents and warrants to the Company and the
Shareholders that except as disclosed in the Buyer disclosure schedule
attached hereto (the "Buyer Disclosure Schedule"):
6.1. Organization and Authority.
--------------------------
35
Buyer is duly organized and validly existing under the laws
of the State of Israel. Buyer has all requisite power and
authority to carry on its business as it is currently
conducted and to own, lease and operate its assets and
properties where such assets and properties are now owned,
leased or operated. Copies of the articles and memorandum of
association, as amended to date, of Buyer have previously
been delivered or made available to the Company. Buyer is
not in violation of any of the provisions of its articles or
memorandum of association. Buyer has all requisite power and
authority to execute and deliver each Transaction Document
delivered or to be delivered thereby and to perform all of
its obligations hereunder and thereunder. All corporate
actions on the part of Buyer necessary for the
authorization, execution, delivery of and performance of all
obligations of Buyer under this Agreement and the other
Transaction Documents to which Buyer is a party and the
authorization, issuance, reservation for issuance and
delivery of all of the Issued Shares have been taken, except
for the matters set forth in Section 3.3.7 of the Buyer
Disclosure Schedule, which shall be submitted by the Buyer
to the approval of the Buyer's shareholders. Except for such
actions, no further consent or authorization of Buyer or its
board of directors is required for the authorization,
execution, delivery of and performance of all obligations of
Buyer under this Agreement and the other Transaction
Documents to which Buyer is a party. Each Transaction
Document to be delivered by Buyer has been or will be duly
executed and delivered by Buyer (subject to the approval by
Buyer's shareholders referred to above) and, when so
executed and delivered, will constitute the legal, valid and
binding obligation of Buyer, enforceable against Buyer in
accordance with its terms, except (i) as may be limited by
(1) applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation, conservatorship, receivership or
other similar laws of general application relating to or
affecting the enforcement of creditors' rights generally or
(2) the effect of rules of law governing the availability of
equitable principles of general application, or (ii) as
rights to indemnity or contribution may be limited under
federal or state securities laws or by principles of public
policy thereunder.
6.2. Noncontravention; Compliance with Laws and Articles of
------------------------------------------------------
Association.
------------
Subject to obtaining the approvals by Buyer's shareholders
referred to in Section 6.1, none of the execution, delivery
or performance by Buyer of any Transaction Document does or
will, with or without the giving of notice or the lapse of
time or both, result in the creation of any Lien upon any of
the assets or properties of Buyer, or conflict with, or
result in a breach or violation of, or a default under, or
trigger any "change of control" right in, or give rise to a
right of amendment, termination, cancellation or
acceleration of any obligation under (i) Buyer's articles or
memorandum of association, (ii) any Contract of Buyer or
(iii) any law, rule, regulation or license to which Buyer or
its properties or assets are subject, which breach,
violation of default in the case of (ii) and (iii) would
reasonably be expected to have a Material Adverse Effect on
Buyer. Buyer has complied and is currently in compliance
with all applicable statutes, laws, rules, regulations and
orders of each Governmental Authority having jurisdiction
over Buyer's business or properties, except for any
36
non-compliance that has not had, and would not reasonably be
expected to have, a Material Adverse Effect.
6.3. Capitalization.
--------------
The capitalization of Buyer as of the date hereof (excluding
the Issued Shares to be issued pursuant to this Agreement)
is as follows:
6.3.1. The authorized capital stock of Buyer consists of
50,000,000 ordinary shares, par value NIS 0.01 per
share.
6.3.2. As of the date hereof, the issued and outstanding
share capital of Buyer consists of 15,086,523
ordinary shares. The issued and outstanding share
capital of Buyer has been duly authorized and
validly issued, is fully paid and nonassessable
and has not been issued in violation of any
preemptive or other similar rights and has been
offered, issued, sold and delivered by the Buyer
in compliance with all applicable federal and
state securities laws.
6.3.3. As of the date hereof, Buyer has 1,700,000
ordinary shares reserved for issuance upon
exercise of outstanding warrants to purchase
shares of the Buyer (which warrants have vested as
of the date hereof with respect to 1,250,000
ordinary shares).
6.3.4. As of the date hereof, Buyer has 2,982,328
ordinary shares reserved for issuance upon
exercise of outstanding options granted under
Buyer's Plans (of which 752,869 were granted to
employees of Buyer whose employment terminated
prior to the date hereof).
6.3.5. As of the date hereof, Buyer has 1,703,492
ordinary shares available for future grants under
Buyer's Plans.
There are no notes or other indebtedness of the Buyer that
are convertible into, exchangeable or exercisable for Buyer
Shares or that have the right to vote on any matters on
which shareholders of the Buyer may vote or the right to
receive any of the Buyer's profits and no such notes or
other indebtedness exist as of the Closing. Except for the
Buyer Shares and Buyer Options, warrants, convertible
securities and other rights to acquire Buyer Shares set
forth in Section 6.3 of the Buyer Disclosure Schedule (which
includes the class and number of Buyer Shares subject to any
such Buyer Option, warrant, convertible security or other
right, the vesting schedule with respect thereto, the
exercise price thereof and the name of the holder thereof),
there are no outstanding (i) Buyer Shares or options,
warrants, convertible securities or other arrangements
relating to the issuance by the Buyer of any securities of
the Buyer, (ii) phantom equity, equity appreciation or
similar rights which permit the holder thereof to
participate in the residual or appreciation equity value of
the Buyer, (iii) any securities, instruments or rights which
permit the holder thereof, under any circumstances, to vote
for the election of members of the Buyer's board of
directors or (iv) any securities, instruments or rights
which are, directly or indirectly, convertible into or
exercisable or exchangeable for any of the securities,
instruments or rights described in clause (i), (ii) or (iii)
above ("Additional Buyer Securities"). Since January 1,
37
2000, there has been no declaration or payment by the Buyer
of dividends, or any distribution by the Buyer of any assets
of any kind to any of its past or present shareholders in
redemption of or as the purchase price for any of the
Buyer's securities.
The capitalization of Buyer as of the date of Closing
(excluding the Issued Shares to be issued pursuant to this
Agreement) shall be as set forth in Exhibit 3.3.1, which
shall be amended by the Buyer prior to Closing to reflect
new issuances of Buyer ordinary shares following the date
hereof. Except for the Buyer Shares and Buyer Options, as of
the date hereof there are no Additional Buyer Securities.
No holder of securities of the Buyer (including without
limitation shares, options and warrants) has any contractual
anti-dilution rights granted by the Buyer with respect to
securities of the Buyer.
6.4. Subsidiaries.
------------
The Buyer's Subsidiaries are listed in Section 6.4 of the
Buyer Disclosure Schedule. The Buyer owns all shares of each
Subsidiary thereof. It is hereby clarified that all
representations and warranties included herein shall apply
also to the Buyer's Subsidiaries, to the extent applicable.
Except for its Subsidiaries, Buyer does not have any
operational Subsidiaries and, does not own, directly or
indirectly, any capital stock of, assets comprising the
business of, obligations of, or any other interest
(including any equity or partnership interest) in, any
Person.
6.5. Valid Issuance of Issued Shares.
-------------------------------
6.5.1. Issued Shares. Subject to the approvals by Buyer's
shareholders referred to in Section 6.1, the
Issued Shares will be, upon delivery of the
Company Shares to Buyer in accordance with this
Agreement, duly authorized, validly issued, fully
paid and non-assessable, free from all Liens with
respect to the issuance thereof, and will not be
subject to any pre-emptive rights or similar
rights which shall not have been duly waived at
the time of, and with respect to, the issuance of
the Issued Shares.
6.5.2. Compliance with Securities Laws. Subject to the
accuracy of the representations made by the
Shareholders in Section 4 of this Agreement, the
Issued Shares (assuming no change in applicable
law and no unlawful distribution thereof by the
Shareholders or other parties) will be issued to
the Shareholders in compliance with applicable
exemptions from (1) the registration and
prospectus delivery requirements of the Securities
Act and (2) the registration and qualification
requirements of all applicable securities laws of
the states of the United States and Israel.
6.6. Governmental Approvals.
----------------------
38
No Consent or order of, with or to any Governmental
Authority is required to be obtained or made by or with
respect to Buyer in connection with the execution, delivery
and performance of the Transaction Documents by Buyer.
6.7. Permits and Licenses.
--------------------
Each of the Buyer and each Subsidiary thereof has obtained
each consent, license, permit, grant or other authorization
of a Governmental Authority (i) pursuant to which the Buyer
or any Subsidiary thereof currently operates or holds any
interest in any of its assets or properties or (ii) that is
required for the operation of the Buyer's or such
Subsidiary's business or the holding of any such interest
(all of the foregoing consents, licenses, permits, grants,
and other authorizations, collectively, the "Buyer
Authorizations"), and all of the Buyer Authorizations are in
full force and effect; except where the failure by the Buyer
or any Subsidiary thereof to obtain any such consent,
license, permit, grant or other authorization of a
Governmental Authority would not be reasonably expected to
have a Material Adverse Effect. Neither the Buyer nor any
Subsidiary thereof has received any notice or other
communication from any Governmental Authority regarding (i)
any actual or possible violation of law or any Buyer
Authorization or any failure to comply with any term or
requirement of any Buyer Authorization or (ii) any actual or
possible revocation, withdrawal, suspension, cancellation,
termination or modification of any Buyer Authorization,
except for any violation, failure, revocation, withdrawal,
suspension, cancellation, termination or modification of any
Buyer Authorization that would not be reasonably expected to
have a Material Adverse Effect on Buyer. None of the Buyer
Authorizations will be terminated or impaired, or will
become terminable, in whole or in part, as a result of the
consummation of the transactions contemplated by this
Agreement, except for any termination or impairment that
would not be reasonably expected to have a Material Adverse
Effect on Buyer.
6.8. Litigation.
----------
Since January 1, 2000, there has been no judgment, ruling,
order, writ, decree, stipulation, settlement, injunction or
determination by or with any arbitrator, court or other
Governmental Authority to which Buyer was or currently is
party or by which Buyer was or currently is bound, and which
relates to or affects Buyer or any of its assets, properties
or liabilities. Buyer is not party to or, to the knowledge
of Buyer, threatened with any Action which relates to or
affects Buyer or any of its assets, properties or
liabilities.
6.9. SEC Documents; Financial Statements.
-----------------------------------
6.9.1. The Buyer has made available to Company accurate
and complete copies of all registration
statements, proxy statements and other statements,
reports, schedules, forms and other documents
filed by the Buyer with, and all Buyer
Certifications (as defined below) filed or
furnished by the Buyer with or to, the SEC,
including all amendments thereto, since May 1,
2003 (collectively, the "SEC Documents"). All
statements, reports, schedules, forms and other
documents required to have been filed or furnished
39
by the Buyer with or to the SEC have been so filed
or furnished on a timely basis. None of the
Buyer's Subsidiaries is required to file or
furnish any documents with or to the SEC. As of
the time it was filed with or furnished to the
SEC: (i) each of the Buyer SEC Documents complied
as to form in all material respects with the
applicable requirements of the Securities Act or
the Exchange Act (as the case may be); and (ii)
none of the Buyer SEC Documents contained any
untrue statement of a material fact or omitted to
state a material fact required to be stated
therein or necessary in order to make the
statements therein, in the light of the
circumstances under which they were made, not
misleading, except to the extent corrected: (A) in
the case of SEC Documents filed or furnished on or
prior to the date of this Agreement that were
amended or superseded on or prior to the date of
this Agreement, by the filing or furnishing of the
applicable amending or superseding SEC Document;
and (B) in the case of SEC Documents filed or
furnished after the date of this Agreement that
are amended or superseded prior to the Closing, by
the filing or furnishing of the applicable
amending or superseding SEC Document. Each of the
certifications and statements relating to the SEC
Documents required by: (1) the SEC's Order dated
June 27, 2002 pursuant to Section 21(a)(1) of the
Exchange Act (File No. 4-460); (2) Rule 13a-14 or
15d-14 under the Exchange Act; or (3) 18 U.S.C.
ss.1350 (Section 906 of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act)
(collectively, the "Buyer Certifications")
complied as to form and content with all
applicable legal requirements in effect at the
time such Buyer Certification was filed with or
furnished to the SEC.
6.9.2. The Buyer and any of its Subsidiaries maintain
those internal controls required under Section 13
of the Exchange Act and those disclosure controls
and procedures required by Rule 13a-15 or 15d-15
under the Exchange Act. The Buyer has made
available to Company accurate and complete copies
of all material policies, manuals and other
documents promulgating, such disclosure controls
and procedures.
6.9.3. To the best of its knowledge, the Buyer is, and
has at all times since January 1, 2002 been, in
compliance with the applicable listing and other
rules and regulations of The NASDAQ Stock Market.
Except as set forth in Section 6.9.3 of the Buyer
Disclosure Schedule, the Buyer has not received
any written notice from the NASDAQ Stock Market
asserting any non-compliance with any of such
rules and regulations. Copies of all material
written communications with NASDAQ in respect of
any non-compliance with such rules and regulations
set forth in Section 6.9.3 of the Buyer Disclosure
Schedule have been provided to the Company.
6.9.4. The consolidated financial statements (including
any related notes) contained or incorporated by
reference in the SEC Documents: (i) complied, as
of the date of filing of the SEC Documents of
40
which they constituted a part, as to form in all
material respects with the published rules and
regulations of the SEC applicable thereto; (ii)
were prepared in accordance with GAAP applied on a
consistent basis throughout the periods covered
(including with respect to the accrual of actual
and contingent liabilities for Taxes for such
period but except as may be indicated in the notes
to such financial statements and except that the
unaudited financial statements that have been
furnished by Buyer to the SEC may not contain
footnotes and are subject to normal and recurring
year-end adjustments that will not, individually
or in the aggregate, be material in amount); and
(iii) fairly present, in all material respects,
the consolidated financial position of the Buyer
and its consolidated Subsidiaries as of the
respective dates thereof and the consolidated
results of operations and cash flows of the Buyer
and its consolidated Subsidiaries for the periods
covered thereby. No financial statements of any
Person other than the Buyer and any of its
Subsidiaries are required by GAAP to be included
in the consolidated financial statements of the
Buyer.
6.9.5. Neither Buyer nor any of its Subsidiaries has
effected, entered into or created any
securitization transaction or "off-balance sheet
arrangement" (as defined in Item 303I of
Regulation S-K under the Exchange Act) since
January 1, 2003.
6.10. Absence of Certain Changes.
--------------------------
Since December 31, 2004 Buyer has conducted its businesses in the
ordinary course and there has not been any Material Adverse Effect.
Without limiting the generality of the foregoing, from and after
December 31, 2004 and through the date hereof, Buyer has not:
6.10.1. suffered any loss to its property or incurred any damage,
award or judgment for injury to the property or business of
others or for injury to any person in excess of $25,000 in
any one case or $50,000 in the aggregate;
6.10.2. made any capital expenditure in excess of $25,000 or series
of capital expenditures in excess of $50,000 in the
aggregate;
6.10.3. made any change in the rate of compensation, commission,
bonus or other remuneration payable to any of its directors,
officers, employees or agents, or agreed to pay,
conditionally or otherwise, any bonus or extra compensation
or other employee benefit to any of such directors,
officers, employees or agents, or accelerated any vesting
schedule, reduced the exercise price of any option or
otherwise amended the term of any options or Plans of the
Buyer;
6.10.4. sold, assigned, leased or transferred any asset, other than
in the ordinary course of business;
6.10.5. made any change in its accounting methods, policies,
practices or principles;
41
6.10.6. waived or released any rights or claims of material value or
settled or compromised any Action;
6.10.7. amended its memorandum or articles of association;
6.10.8. made any Tax election, changed any annual Tax accounting
period, amended any Tax Return, settled any income Tax
liability, surrendered any right to claim or been required
to make any repayment of any Tax refund or consented to any
extension of the limitations period applicable to any Tax
claim, in each case, with a material value or received any
tax ruling;
6.10.9. issued, pledged, encumbered, sold, disposed of, purchased or
redeemed any securities of Buyer (including without
limitations, share, warrants, options, instrument
convertible or exercisable into securities of the Buyer,
etc.) or amended the terms of any outstanding securities of
the Buyer;
6.10.10. declared, set aside, paid or made any dividend or other
distribution with respect to any of its share capital, or
otherwise redeemed, repurchased or acquired any share
capital or other securities of the Buyer;
6.10.11. lent money to any Person or incurred, assumed or created any
indebtedness;
6.10.12. subjected any of its material assets or properties to any
Lien or permitted any of its material assets or properties
to be subjected to any Lien;
6.10.13. granted any license or sublicense of any rights under or
with respect to, or sold, transferred or permitted to lapse,
any material Intellectual Property, except for grants of
licenses in the ordinary course of business to customers;
6.10.14. entered into any transaction with any Affiliate, director,
officer or shareholder (other than the payment of ordinary
course compensation);
6.10.15. purchased any real property or entered into any Lease
therefor (including any capitalized lease obligations);
6.10.16. received or filed any application for receipt of Grants;
6.10.17. written off as uncollectible or established an extraordinary
reserve with respect to any material account receivable or
other material indebtedness;
6.10.18. commenced or settled any legal proceedings or disputes;
6.10.19. taken any material action outside the ordinary course of
business or inconsistent with past practice; or
42
6.10.20. entered into any agreement to take any of the types of
action described in Sections 6.10.1 to 6.10.19.
6.11. Intellectual Property.
---------------------
6.11.1. Set forth in Section 6.11.1 of the Buyer Disclosure Schedule
are (i) all patents and patent applications, copyright
applications and registrations, trademarks and trademark
applications and registrations owned by the Buyer, and
domain names used by the Buyer and (ii) all agreements
pursuant to which the Buyer uses third party Intellectual
Property (other than off-the-shelf license) together with
the license fees, maintenance payments and any other
payments made or payable by the Buyer thereunder during the
12-month period immediately preceding the date hereof.
6.11.2. The Buyer owns all right, title and interest in and to all
of the Buyer Business Intellectual Property, or, in the case
of Buyer Business Intellectual Property subject to license
agreements under which the Buyer is a licensee, has
sufficient right to use or exploit such Buyer Business
Intellectual Property for the purposes it is licensed to the
Buyer, free and clear of any Liens (other than non-exclusive
rights to use the Buyer Business Intellectual Property
granted to customers in the ordinary course of business) and
free from any requirement of any past or present payments or
future payments that are currently known (other than
maintenance payments and license fees);
6.11.3. To the knowledge of the Buyer, the Buyer has not infringed,
misappropriated or made unlawful use of, or is infringing,
misappropriating or making unlawful use of, any Intellectual
Property or other rights owned or held by any other Person;
6.11.4. The rights of the Buyer in and to all Buyer Business
Intellectual Property are valid and all filings, payments
and other actions required to be made or taken by the Buyer
to maintain any item of Buyer Business Intellectual Property
in full force and effect have been properly made and taken;
6.11.5. To the best knowledge of the Buyer, there is no infringement
or misappropriation by any Person of any Buyer Business
Intellectual Property owned by or licensed exclusively to
the Buyer; and since January 1, 2000, none of the Buyer or
its Subsidiaries has received any written notice or other
written communication relating to any actual, alleged or
suspected infringement, misappropriation or violation of any
Intellectual Property of another Person by the Buyer or any
of its Subsidiaries, and, to the knowledge of the Buyer,
none of the Buyer and its Subsidiaries has received any
non-written notice or other non-written communication
relating to any actual, alleged or suspected infringement,
misappropriation or violation of any Intellectual Property
of another Person by the Buyer or any of its Subsidiaries.
43
6.11.6. No claim or legal proceeding with respect to infringement,
misappropriation or violation of any Intellectual Property
has been pending since January 1, 2000 or, to the knowledge
of the Buyer, threatened against the Buyer or any of its
Subsidiaries or, to the knowledge of the Buyer, against any
other Person who is, or has asserted or could reasonably be
expected to assert that it is, entitled to be indemnified,
defended, held harmless or reimbursed by the Buyer or any of
its Subsidiaries with respect to such claim or legal
proceeding (including any claims or legal proceedings that
have been settled, dismissed or otherwise concluded), and,
since January 1, 2000, the Buyer or any of its Subsidiaries
received no requests or notices from any third party
alleging that the Buyer or any of its Subsidiaries is
obligated to indemnify, defend, or hold them harmless with
respect to any such claim or legal proceeding.
6.11.7. The Buyer Business Intellectual Property constitutes all
Intellectual Property necessary to conduct the business of
the Buyer in materially the same way as currently conducted.
6.11.8. The Buyer has taken reasonable steps to secure, maintain and
protect its right, title (where applicable) and interest in
and to all Buyer Business Intellectual Property.
6.11.9. Any and all Buyer Business Intellectual Property of any kind
that has been developed or is currently being developed by
any current or past employee or consultant of the Buyer in
the course of his or her employment in or consulting
relationship with the Buyer is the property solely of the
Buyer. The current and former employees of the Buyer and
such consultants and other Persons that are or were engaged
in developing technology for the Buyer, have entered into
written agreements with the Buyer assigning to the Buyer all
rights in any Intellectual Property developed by them in the
course of their employment by or consulting or other
relationship with the Buyer, and each of the Buyer's
employees and other persons who, either alone or in concert
with others, developed, invented, discovered, derived,
programmed or designed the Buyer Business Intellectual
Property which is owned by the Buyer, or who has access to
the Buyer Business Intellectual Property which is owned by
the Buyer, have entered into a similar written agreement
with the Buyer.
6.11.10. The Buyer is not and has never been a member or promoter of,
or a contributor to, any industry standards body or any
similar organization that is entitled to require or obligate
the Buyer to grant or offer to any other Person any license
or right to any Buyer Business Intellectual Property.
6.11.11. No source code of any part of the Buyer Business
Intellectual Property has been delivered, licensed or made
available to any escrow agent or other Person (other than
employees of the Buyer in the course of and for the purpose
of their employment) and the Buyer is not subject to any
44
obligation (whether present, contingent or otherwise) to
deliver, license or make available any such source code to
any escrow agent or other Person.
6.11.12. The business of the Buyer as currently conducted does not
require the Buyer to obtain a license from the Israeli
Ministry of Defense or an authorized body thereof pursuant
to Section 2(a) of the Control of Products and Services
Declaration (Engagement in Encryption), 1974, as amended.
6.11.13. The Buyer is not aware that any of its Essentra product
family (including EX, BAX, CX and other elements of the
Essentra product family) or any other products to which the
Buyer is subject to any warranty, support or maintenance
obligations, contains any bug, defect or error that
materially and adversely affects the use, functionality or
performance of such products.
6.11.14. The Buyer does not use any Open Source Software which grants
any third party any rights in the Buyer Business
Intellectual Property or which requires the Buyer to make
any of the Buyer Business Intellectual Property available
for use by third parties. Section 6.11.14 of the Buyer
Disclosure Schedule lists all Open Source Software currently
used by the Buyer.
6.12. Title to Property and Assets.
----------------------------
With respect to the property and assets it leases, Buyer is in
compliance with such leases in all material respects. Buyer has good
and valid title to all material property, equipment and other assets
(other than its Intellectual Property, title to which is addressed in
Section 6.11) that it purports to own, free and clear of any Lien,
except for (i) statutory Liens for the payment of current Taxes that
are not yet delinquent, (ii) Liens that arise in the ordinary course
of business and do not in any material respect affect the business of
Buyer as currently conducted and (iii) as set forth in Section 6.12 of
the Buyer Disclosure Schedule. Buyer has valid leasehold interests in
any premises leased by Buyer and the material equipment, furniture and
fixtures purported to be leased by it. Buyer does not own any real
property. There are no restrictions imposed by any Lease or other
Contract or by law that preclude or restrict in any material respect
Buyer's ability to use the eased premises currently used by it or
contemplated to be used by it for the purposes for which they are
currently being used or are contemplated to be used.
6.13. Tax Matters.
6.13.1. All Tax Returns required to be filed by or on
behalf of Buyer have been timely filed with the
Tax authorities or extensions have been timely
granted and have not expired. All material Taxes
with respect to Taxable periods or portions
thereof covered by such Tax Returns and all other
material Taxes (without regard to whether a Tax
Return was or is required) for which the Company
is otherwise liable that are due have been paid in
45
full or are being contested in good faith and, to
the extent the liabilities for such Taxes are not
due or are being contested in good faith,
materially adequate reserves have been established
in Buyer's financial statements.
6.13.2. Buyer has withheld materially accurate amounts
from its employees, customers, shareholders,
Affiliates, independent contractors and others
from whom it is or was required to withhold Taxes,
including social security, in compliance in all
material respects with all applicable laws and has
paid all such withheld amounts to the Taxing
authorities.
6.13.3. There are no Actions pending with respect to any
Taxes for which Buyer is liable. To the knowledge
of Buyer, no Tax Return of Buyer is currently the
subject of an audit by any Taxing authority, no
written notice of such an audit has been received,
and Buyer is not aware that there is any basis for
the initiation of such an audit or repayment of
any tax refund, or any part thereof, received by
the Buyer or any of its Subsidiaries (or that the
Buyer currently expects to receive from the US tax
authorities).
6.13.4. To the Buyer's knowledge, as of December 31, 2004,
the Buyer and its Subsidiaries had: (i)
approximately US$7 million of U.S. federal net
operating loss carryforwards, which begin to
expire in 2024; and (ii) approximately US$86
million of Israeli net operating loss
carryforwards.
6.13.5. The Buyer is not subject to any restrictions or
limitations pursuant to Part E2 of the Ordinance,
although it may become subject to such
restrictions or limitations pursuant to the
Israeli Withholding Tax Pre Ruling (as defined in
Section 7.3.1.4.2).
6.14. Insurance.
---------
Section 6.14 of the Buyer Disclosure Schedule sets forth a
list of all insurance policies that Buyer currently
maintains with respect to its assets, liabilities,
employees, officers, directors or other representatives (the
"Buyer Insurance Policies"). The Buyer Insurance Policies
are customarily obtained and maintained by companies in a
stage and size similar to that of Buyer in order to
adequately protect such companies and their financial
condition against the risks involved in the business
conducted by them, are enforceable and in full force and
effect and will not lapse or be subject to suspension,
modification, revocation, cancellation, termination or
non-renewal by reason of the execution, delivery or
performance of any Transaction Document or consummation of
the Transaction. Buyer is current in all premiums or other
payments due under each Buyer Insurance Policy. Buyer has
not received any notice that any Buyer Insurance Policy is
not in full force and effect.
6.15. Employee Matters; Directors, Officers and Key Employees.
-------------------------------------------------------
46
6.15.1. The Buyer is not a party to any Contract regarding
collective bargaining or other Contract with any
labor or trade union or collective bargaining
group representing any employee of the Buyer.
There are no unfair labor practice charges or
complaints pending or, to the knowledge of the
Buyer, threatened against the Buyer.
6.15.2. Section 6.15.2 of the Buyer Disclosure Schedule
sets forth a list of the Buyer's directors,
officers, employees and consultants, and includes
a list of each of such director's, officer's,
employee's and consultant's employment and
compensation terms as of the date hereof, which
will include, for each employee and consultant
employed by the Buyer, the following information:
name, address, title, employment commencement
date, gross salary, manager's insurance,
educational fund; cellular phone, vacation days
per year, accumulated vacation days, company's
vehicle; accumulated severance pay, unfunded
severance pay, accumulated recuperation pay,
bonuses including conditional bonuses, options
grant, options vested, and exercise price,
participation under any other Plan of the Buyer,
and entitlement to any other benefit in connection
with his employment or service.
6.15.3. The Buyer is not delinquent in any material
payment to any of its employees for any salaries,
commissions, bonuses or other direct compensation
for any services performed by any such employee
through the date hereof or amounts required to be
reimbursed to any of such Persons. The Buyer has
withheld and reported all amounts required by law
or by agreement to be withheld and reported with
respect to salaries and any other payments to
employees. The Buyer timely made all required
provisions and contributions to managers insurance
fund and educational funds in accordance with the
terms of each employment agreement.
6.15.4. Upon termination of the employment of any employee
in accordance with the relevant employment
agreement or termination of a consulting
relationship with any consultant in accordance
with the relevant consulting agreement, the Buyer
will not by reason of anything done prior to the
Closing Date be liable to any of such employee or
consultant for severance pay or any other payments
(other than accrued salary or other compensation,
vacation or sick pay, release of managers
insurance policies and education funds in
accordance with normal policies or amounts
required to be paid under applicable laws).
6.15.5. The Buyer has previously delivered to the Company
copies of all employment, consulting, termination
and severance Contracts with or for the benefit
of, or otherwise relating to, any director,
officer or key employee of the Buyer. Except as
set forth on Section 6.15.5 of the Buyer
Disclosure Schedule, none of the execution,
delivery or performance of any Transaction
Document will result in any obligation to (i) pay
any director, officer, key employee or consultant
of the Buyer severance pay or termination,
47
retention or other benefits or (ii) extend the
notice period with respect to the termination of
employment of any employee of the Buyer.
6.15.6. Section 6.15.6 of the Buyer Disclosure Schedule
sets forth a list of all Plans of the Buyer. The
Buyer has delivered or made available to the
Company copies of (i) each of its Plans and (ii)
all trust agreements or similar agreements
maintained in connection with any such Plan.
6.15.7. The Buyer has complied in all material respects
with all obligations under law with respect to any
aspect of the employment of its employees,
including with respect to the health and safety at
work of its employees.
6.15.8. The Buyer paid in full all amounts to which
employees whose employment was terminated
following January 1, 2004 were entitled to, and
any such terminated employees has executed a
release letter in accordance with Section 29 of
the Severance Pay Law, whereby, inter alia, the
terminated employee acknowledged the receipt of
all amounts to which he or she is entitled to and
released the Buyer from any and all claims.
6.15.9. All obligations of the Buyer to provide statutory
severance pay to all of its Israeli employees
pursuant to the Severance Pay Law are fully funded
or accrued on the Buyer's financial statements.
6.15.10. There are no unwritten policies, practices or
customs of the Buyer that, by extension, could
reasonably be expected to entitle any employee to
benefits in addition to what such employee is
entitled to by applicable law or under the terms
of such employee's employment agreement (including
unwritten customs or practices concerning the
payment of statutory severance pay when it is not
required under applicable law).
6.16. Affiliate Transactions
----------------------
Since January 1, 2003, there has been no indebtedness,
Contract, arrangement, transaction, payment or transfer,
directly or indirectly, of any funds or other property,
between the Buyer, on the one hand, and any of Buyer's
shareholders or any Affiliate, officer or director of the
Buyer or any Affiliate of any thereof, on the other hand,
except for (i) regularly scheduled compensation paid to
employees of the Buyer either as salary or pursuant to
existing employee benefit plans or (ii) reimbursements of
employees' and directors' ordinary business expenses
incurred in connection with their employment with or service
to the Buyer.
6.17. General Solicitation.
--------------------
Neither Buyer nor any other Person authorized by Buyer act
on its behalf has engaged in a general solicitation or
48
general advertising (within the meaning of Regulation D
under the Securities Act) of investors with respect to
offers or sales of the Issued Shares.
6.18. Brokers' and Finders' Fees.
--------------------------
Neither Buyer nor any Affiliate thereof is obligated for the
payment of any fees or expenses of any investment banker,
broker, advisor, finder or similar party in connection with
the origin, negotiation or execution of this Agreement or in
connection with the Transaction, and the neither the Company
nor any Shareholder will incur any liability, either
directly or indirectly, to any such investment banker,
broker, advisor, finder or similar party as a result of this
Agreement, the Transaction or any act or omission of Buyer
or any Affiliate thereof.
6.19. Fairness Opinion.
----------------
The Company's board of directors has received the opinion of
D&A High-Tech Information Ltd., financial advisor to the
Company, dated September 30, 2005, that, as of the date of
its opinion, the Transaction is fair, from a financial point
of view, to the Buyer and its shareholders.
6.20. Governmental Grants.
-------------------
Section 6.20 of the Buyer Disclosure Schedule provides a
complete list as of the date hereof of all outstanding
Grants from the Government of the State of Israel or any
agency thereof, or from any foreign governmental or
administrative agency, granted to the Buyer, including,
without limitation, (i) "Approved Enterprise" status from
the Israeli Investment Center (ii) grants from the OCS,
(iii) grants from the Fund for Encouragement of Marketing,
and (iv) grants from the BIRD Foundation. The Buyer has
delivered to the Company, prior to the date hereof, correct
copies of all letters of approval (and other material
correspondence and other documents that evidence material
changes to the terms of such letters of approval) under
which such Grants were granted to the Buyer. Without
limiting the generality of the foregoing, Section 6.20 of
the Buyer Disclosure Schedule includes the aggregate
outstanding obligations thereunder of the Buyer with respect
to royalties due to the OCS or other governmental authority
and outstanding amounts to be paid by the OCS or any other
governmental authority to the Buyer. The Buyer is in
compliance with the terms and conditions of the Grants in
all material respects and has duly fulfilled in all material
respects all the undertakings relating thereto required to
be fulfilled prior to the date hereof. The Buyer does not
have knowledge of any intention by the OCS or any
Governmental Authority to revoke or materially modify any of
its Grants to Buyer.
6.21. Contracts.
---------
6.21.1. Section 6.21 of the Buyer Disclosure Schedule
lists all of Buyer's Material Contracts. The Buyer
has heretofore made available to the Company
copies of all of its Material Contracts.
49
6.21.2. Each Material Contract of Buyer is in written
form, is in effect, has not been amended in any
material respect and is legal, valid and binding
on the Buyer and the other party or parties
thereto. The Buyer and, to the Buyer's knowledge,
each of the other party or parties thereto has
performed in all material respects all obligations
required to be performed by it under each Material
Contract of Buyer and is not alleged to be in
material default in respect thereof. No event has
occurred with respect to the Buyer or, to the
knowledge of the Buyer, with respect to any other
Person that (with or without lapse of time or the
giving of notice or both or the happening of any
other event or conditions) would reasonably be
expected to (i) become a material default or event
of default under any Material Contract of Buyer or
(ii) give any third party (A) the right to
exercise any remedy under any Material Contract of
Buyer, (B) the right to a material rebate,
chargeback, refund, credit, penalty or change in
delivery schedule under any Material Contract of
Buyer, (C) the right to accelerate the maturity or
performance of any material obligation of the
Buyer or any of its Subsidiaries under any
Material Contract of Buyer, or (D) the right to
cancel, terminate or modify any Material Contract
of Buyer.
7. COVENANTS
7.1. Conduct of Business.
-------------------
To the extent permitted by law, except as set forth in
Section 7 and except for actions taken or required by this
Agreement or any other Transaction Document from the date
hereof through the Closing Date, neither Buyer nor the
Company will, without the prior written consent of the
Company or Buyer, respectively, engage in any of the
following transactions or take any of the following actions:
7.1.1. make any capital expenditure in excess of $25,000
or $50,000 in the aggregate;
7.1.2. make any change in the rate of compensation,
commission, bonus or other remuneration payable or
to become payable to any of its directors,
officers, employees or agents or amend any Plan;
7.1.3. sell, assign, lease or transfer any right or
assets or otherwise acquire, lease or license any
right or other asset or assume any liability,
other than in the ordinary course of business;
7.1.4. make any change in its accounting methods,
policies or principles, other than as required by
rules of applicable accounting or regulatory
bodies;
7.1.5. waive or release any rights or claims of material
value;
50
7.1.6. amend its memorandum or articles of association,
except for any amendment contemplated under this
Agreement;
7.1.7. make any Tax election, change any annual Tax
accounting period, amend any Tax Return, settle
any income Tax liability, settle any Tax claim,
surrender any right to claim a Tax refund or
consent to any extension or waiver of the
limitations period applicable to any Tax claim, in
each case, in any material respect or apply for
any tax ruling other as contemplated herein;
7.1.8. issue, pledge or otherwise encumber, sell or
dispose of any shares of its capital stock or
other securities convertible into, or rights with
respect to, or options or warrants to purchase or
rights to subscribe to, any shares of its capital
stock or other securities, except pursuant to the
exercises of options or warrants;
7.1.9. declare, set aside, pay or make any dividend or
other distribution with respect to any of its
shares of capital stock, or redeem, repurchase or
otherwise acquire any shares of its capital stock
or other securities or any rights, options or
warrants to acquire any such shares or other
securities; or accelerate the vesting schedule or
otherwise revise any terms of any Company Assumed
Option (with respect to the Company) or any
options for ordinary shares of Buyer;
7.1.10. incur, assume or create any indebtedness for
borrowed money or guarantee any indebtedness for
borrowed money of any other Person, or make,
incur, assume, create or guarantee any loan (other
than the making of employee advances for travel in
the ordinary course of business consistent with
past practices and except as may be required to
continue such party's business in the ordinary
course (which will be determined by such party in
its sole discretion));
7.1.11. subject any of its assets or properties to any
Lien, except for Liens created by law without
cooperation of such party;
7.1.12. acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial
portion of the capital stock or assets of, or by
any other manner, any business or any corporation,
partnership, limited liability entity, joint
venture, or other business organization or Person;
7.1.13. solicit, initiate, induce, facilitate or encourage
the making, submission or announcement of any
proposal for the Acquisition of the Company or the
Buyer, as the case may be ("Acquisition Proposal")
or an inquiry in this respect ("Acquisition
Inquiry"), furnish any nonpublic information
regarding the Company or Buyer, as the case may
be, in connection with or in response to an
Acquisition Proposal or Acquisition Inquiry;
engage in discussions or negotiations with any
Person with respect to any Acquisition Proposal or
Acquisition Inquiry, approve, endorse or recommend
51
any Acquisition Proposal or Acquisition Inquiry;
or enter into any letter of intent or similar
document or any Contract contemplating or
otherwise relating to any acquisition of the
Company or Buyer, as the case may be;
7.1.14. (i) enter into any transaction with any Affiliate,
director, officer or shareholder or any Affiliate
of such director, officer or shareholder or (ii)
make any payments or transfer any property to or
on behalf of any Affiliate, director, officer or
shareholder or any Affiliate of any such director,
officer or shareholder (other than pursuant to
currently existing agreements, and reimbursements
of ordinary and necessary business expenses of
employees or directors incurred in connection with
their employment with or service to such party);
7.1.15. amend in any material respect or terminate (other
than by completion or expiration thereof) any
existing contract of the type referred to in
Section 5.11 or enter into any contract of the
type referred to in Section 5.11, except for
amendments and Contracts which do not impose any
material liabilities on such party (the foregoing
shall not prohibit any party from entering into
customer agreements for the sale or license of
products or the provision of services, provided
that such agreements are entered into in the
ordinary course of such party's business
consistent with past practice, and do not contain
provisions that are reasonably expected to create
a material new liability, and that such execution
is done in consultation with the Company or the
Buyer, as the case may be);
7.1.16. purchase any real property or enter into any Lease
(including any capitalized lease obligations);
7.1.17. cancel, terminate or fail to renew any existing
insurance policy;
7.1.18. hire new employees or terminate any Key Employee;
7.1.19. commence or settle any legal proceedings; or
7.1.20. undertake or enter into any agreement to take any
of the types of action described in subclauses
7.1.1 through 7.1.19.
From the date hereof through the Closing Date, each of Buyer
and the Company will use commercially best efforts to (i)
preserve its current business, (ii) retain the services of
its present officers, employees and agents so as to ensure
compliance with the Closing conditions, and (iii) maintain
good business relationships with third parties having
material business dealings with it. Nothing herein shall be
deemed to restrict Buyer or the Company from taking actions
that are required to be taken under this Agreement in order
to consummate the Closing or that are otherwise permitted
herein.
52
Each of Buyer and the Company undertakes to consider any
request under this Section 7 in good faith and in a
reasonably expedited manner, but no later than three (3)
days after all relevant information has been provided by the
Company or Buyer, respectively, and not to withhold its
consent other than for reasons that are commercially
reasonable. Failure of Buyer or the Company to respond
timely shall be deemed to be a consent to the requested
action.
For the purposes of administering this Section 7.1 with
respect to actions taken by the Buyer, the Company and Buyer
shall form a steering committee (the "Steering Committee"),
which will be comprised of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇▇
(each, as long as he is employed by the Company) and ▇▇▇▇
▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇▇ (each, as long as he is employed by
Buyer) and which will meet regularly on a semi-weekly basis
or on such more frequent basis as the members of the
Steering Committee may deem necessary. The members of the
Steering Committee shall discuss in good faith taking any of
the transactions and actions set forth in this Section 7.1
with respect to the Buyer before any determination is made
by Buyer. In administering this Section 7.1, the Steering
Committee shall consider, among other things, whether such
action is reasonably required in order to (i) preserve the
current business of the Buyer, (ii) retain the services of
Buyer's present officers, employees and agents, and (iii)
maintain good business relationships with third parties
having material business dealings with the Buyer. At the
Company's request, the Buyer shall arrange meetings between
representatives of the Buyer and the Company with customers
of the Buyer.
7.2. Investigation of Business.
-------------------------
From the date hereof through the Closing Date, each of Buyer
and the Company will provide the other and its
representatives reasonable access during normal business
hours to the properties, books, records, employees and
representatives of such party to make or cause to be made
such investigation of the other party and of the assets and
liabilities and financial and legal condition thereof as
such party reasonably deems necessary or advisable, provided
that any such investigation shall not interfere
unnecessarily with normal operations of the other party. The
Confidentiality Agreement will apply with respect to the
information provided pursuant to this Section 7.2.
7.3. Further Assurance, Regulatory Approvals.
---------------------------------------
7.3.1. Subject to the terms and conditions of this
Agreement and applicable law, the Company, each
Shareholder (solely in its capacity as a
shareholder of the Company) and Buyer will use
their commercially reasonable efforts to take, or
cause to be taken, all actions, and to do, or
cause to be done, all things reasonably necessary,
proper or advisable under applicable laws and
regulations or otherwise to consummate and make
effective the Transaction as soon as practicable.
53
From time to time, as and when requested by any
party to this Agreement and according to this
Agreement, the other parties will execute and
deliver, or cause to be executed and delivered,
all such documents and instruments and will take,
or cause to be taken, all such reasonable actions,
as such other party may reasonably deem necessary
or desirable to consummate the Transaction.
Without limiting the foregoing, the Company shall
use its reasonable best efforts to cause to be
delivered to the Buyer, promptly after the date
hereof and prior to the Closing, the Company's (i)
audited consolidated balance sheet as of December
31, 2004 and the related consolidated statements
of operations, shareholders' equity and cash flows
for the year ended December 31, 2004 and (ii)
reviewed consolidated balance sheet as of March
31, 2005 and the related consolidated statements
of operations, shareholders' equity and cash flows
for the period ended March 31, 2005, all of which
shall be prepared in accordance with US GAAP and
shall, upon delivery thereof to the Buyer, replace
the draft financial statements attached to Section
5.6 of the Company Disclosure Schedule. Upon
receipt of the foregoing financial statements, the
Buyer shall include such financial statements in
the Proxy Statement referred to in Section 7.9.2
below, through either (i) the distribution thereof
to the Buyer's shareholders, (ii) the posting
thereof on the Internet and a notification to the
Buyer's shareholders of such posting, through a
press release, the filing with the SEC of a Form
6-K and/or any other manner, (iii) the
incorporation thereof by reference into the Proxy
Statement or (iv) any other manner determined by
the Buyer's management. Each of the Company and
Buyer shall cause their respective legal counsel
and tax advisers to coordinate all activities and
to cooperate with each other, including by
providing each an opportunity to comment on all
applications to any Governmental Authority, with
respect to the preparation and filing of such
notices or applications for approval and the
preparation of any written or oral submissions
that may be necessary, proper or advisable to
obtain such Consents. Without derogating from the
generality of the foregoing,
7.3.1.1. the parties undertake to use their best
efforts to make, as promptly as possible
following the date hereof, any filings
required under any applicable laws to be
made for the consummation of the
Transaction;
7.3.1.2. the parties shall promptly after the
execution of this Agreement apply for or
otherwise seek, and use their reasonable
best efforts to obtain, all consents and
approvals required to be obtained for
the consummation of the Transaction,
including the consent of the Investment
Center, the OCS and the Commissioner of
Restrictive Trade Practices (if
applicable);
7.3.1.3. the Shareholders (solely in their
capacity as shareholders of the Company)
and the Company undertake to cooperate
54
with Buyer in its efforts to maintain
the listing of its ordinary shares on
the NASDAQ Capital Market, including in
connection with the Plan of Compliance
submitted by Buyer to NASDAQ on August
26, 2005 (as amended on September 7 and
19, 2005), including by providing to
NASDAQ such information about the
Company that NASDAQ may reasonably
request, and in connection therewith,
the Buyer shall coordinate with the
Company all submissions to and contact
with NASDAQ and with Buyer's U.S.
counsel dealing with this matter;
7.3.1.4. the Company shall promptly after the
execution of this Agreement cause its
legal counsel and accountants to prepare
and file with the Israeli Income Tax
Commissioner applications for the
following two rulings (and Buyer shall
cooperate with the Company in preparing
such rulings):
7.3.1.4.1. one ruling (the "Option Tax
Pre-Ruling") that: (A)
confirms that the adoption by
Buyer of the Company Plans
(including the replacement of
Company Options with Buyer
Assumed Options) in accordance
with Section 2.5 will not
result in a requirement for an
immediate Israeli tax payment
and that the Israeli taxation
will be deferred until the
exercise of the Buyer Assumed
Options, or in the case of
Company Assumed Options
replaced by Buyer Assumed
Options that are part of a
"Section 102 Plan," until the
actual sale of the underlying
shares of Buyer by the holders
of such Buyer Assumed Options;
(B) confirms that the "lock-up
period" under any "Section 102
Plan" will continue to run and
will not be restarted as a
result of the replacement of
the Assumed Company Options
with Buyer Assumed Options;
and (C) confirms that the
issuance of any of the Issued
Shares pursuant to this
Agreement in exchange for
ordinary shares of the Company
held in trust at the Closing
under a "Section 102 Plan"
will not result in an
immediate taxable event for
the person entitled to such
Company Ordinary Shares if
such issuance is made directly
to the "Section 102 Plan"
trustee and until such time as
such portion of the Issued
Shares is subsequently
transferred by such trustee to
the person entitled thereto
and is sold by such person,
55
whether at the end of the
statutory holding period or
otherwise, in accordance with
the terms of such ruling; and
7.3.1.4.2. a second ruling that either
(A) exempts Buyer and the
Shareholders Representative
Committee from any obligation
to withhold Israeli Tax at
source from any consideration
payable or otherwise
deliverable pursuant to this
Agreement as part of the
consideration to the
Shareholders, or clarifying
that no such obligation
exists; or (B) clearly
instructs the Buyer and the
Shareholders Representative
Committee how such withholding
at source is to be executed,
and in particular, the rate or
rates of withholding to be
applied (the "Israeli
Withholding Tax Pre-Ruling",
and together with the Option
Tax Pre-Ruling, the "Israeli
Tax Rulings");
7.3.1.5. as soon as reasonably practicable after
the execution of this Agreement, Buyer
shall cause its Israeli counsel to
prepare and file with the Israeli
Securities Authority an application for
an exemption from the requirements of
the Israeli Securities Law 1968
concerning the publication of a
prospectus in respect of the exchange of
the Company Options for the Assumed
Options, pursuant to Section 15D of the
Securities Law of Israel (the "Israeli
Securities Exemption"). The Company
shall cooperate and cause its
representatives to cooperate with Buyer
in connection with the preparation and
filing of such application and in the
preparation of any written or oral
submissions that may be necessary,
proper or advisable to obtain the
Israeli Securities Exemption; and
7.3.1.6. the Buyer shall use best reasonable
efforts to cause Deutsche Telekom AG to
execute an undertaking in the form of
Exhibit 2.6(a).
7.3.2. Without derogating from the foregoing, (i) neither
the Shareholders (solely in their capacity as
shareholders of the Company) or the Company, on
the one hand, nor Buyer, on the other hand, nor
any one on their behalf, shall take any action
with the intention that same will adversely affect
the business of Buyer or the Company,
respectively, between the date hereof and Closing,
and (ii) the Company shall as promptly as
practicable inform Buyer, and Buyer shall as
promptly as practicable inform the Company, in the
event that any of their respective customers
56
advises the Company or Buyer, as the case may be,
of its intention not to continue its engagement
with the Company or Buyer, as the case may be,
should the Transaction be consummated. In such
event Buyer and the Company shall reasonably
cooperate with each other in attempting to reduce
such customer's concerns and securing its
continued business relationship with Buyer or the
Company, as applicable, after Closing.
7.4. Non-Solicitation of Employees.
-----------------------------
From the date hereof until the Closing, or if this Agreement
is terminated in accordance with Section 10 hereof, until
the expiration of twelve (12) months after such termination,
except as permitted under this Agreement, without the prior
written consent of the Company or Buyer, as the case may be,
neither Buyer, on the one hand, nor the Company and each
Shareholder (other than Cisco Systems International BV), on
the other hand, will, and each shall cause its respective
Affiliates not to, directly or indirectly, alone or in
association with any other Person, solicit, induce or
attempt to solicit or induce, an employee, independent
contractor or consultant, any person employed by the Company
or any Subsidiary thereof or Buyer or any Subsidiary
thereof, as the case may be, on the date hereof, neither
will such entity, during such period, induce or attempt to
induce any such employee to terminate his or her employment
with the Company or any Subsidiary thereof or Buyer or any
Subsidiary thereof, as the case may be.
Nothing herein shall limit Buyer or any of its Subsidiaries,
on the one hand, or the Company or any Shareholder or any of
their respective Subsidiaries, on the other hand, from
employing or offering employment to any person employed by
the Company or any Shareholder or any of their respective
Subsidiaries, on the one hand, or Buyer or any of its
Subsidiaries, on the other hand (as the case may be), as of
the date hereof, (i) 30 days after such person's employment
with such Person is terminated, (ii) if such person has
applied for a position with the Company or the Buyer, as the
case may be, as a result of a general solicitation by the
Company or the Buyer, as the case may be, or any third party
on any of their behalf (e.g., in response to an
advertisement published by the Company or the Buyer, as the
case may be, in any newspaper or job-board) provided, for
the removal of doubt, that Company or Buyer, as the case may
be, may directly communicate to such person an offer of
employment only following termination of his employment with
Buyer or the Company, as the case may be, or (iii) after the
appointment of a receiver or liquidator over all or any part
of the assets of the Buyer or the Company, as the case may
be.
For the avoidance of doubt, neither Cisco Systems
International B.V. nor any of its Affiliates shall be
subject to any restriction pursuant to this Section 7.4.
7.5. Notification of Certain Matters.
-------------------------------
Between the date hereof and the Closing Date, the Company,
on the one hand, will give prompt notice in writing to
57
Buyer, and Buyer, on the other hand, will give prompt notice
in writing to the Company, upon becoming aware of the
occurrence or non-occurrence of (i) any event which will
result, or has a reasonable likelihood of resulting, in the
failure of any covenant, agreement and condition in this
Agreement to be complied with or satisfied or in any
representation and warranty given hereunder to be inaccurate
in any material respect, (ii) of any Action or investigation
by or before any Governmental Authority or arbitrator
initiated by or against it or any of its Subsidiaries, or
known by it or by any Subsidiary thereof to be threatened
against it, any of its Subsidiaries or any of their
respective directors, officers, employees or stockholders in
their capacity as such, (iii) of any event that may result
in a Material Adverse Effect to the Company or the Buyer, as
the case may be, provided however, that the delivery of any
notice pursuant to this Section 7.5 shall not (a) limit or
otherwise affect any remedies available to the party
receiving such notice or (b) constitute an acknowledgement
or admission of a breach of this Agreement. No disclosure by
the Company or Buyer as the case may be pursuant to this
Section 7.5 shall prevent or cure any misrepresentations,
breach of warranty or breach of covenant.
7.6. Public Announcements.
--------------------
No press release or announcement concerning the transactions
contemplated hereby will be issued by any party hereto
without the prior written consent of Buyer and the Company,
except as such release or announcement may be required by
law, rule or regulation or under this Agreement, in which
case the Person required to make the release or announcement
will allow the Person whose consent would otherwise be
required reasonable time (subject to the timing required
under the law for such release or announcement to be made)
to comment on such release or announcement in advance of
such issuance.
The foregoing shall not be in limitation of the parties'
obligations hereunder to take such actions as required for
the consummation of the Transaction and for the removal of
doubt shall not apply to (i) the submission by Buyer to its
shareholders of a proxy statement in accordance with Section
7.9 below and (ii) submission of a report on Form 6-K with
the SEC in accordance with Section 12.10 below.
7.7. Directors' and Officers' Insurance and Indemnification.
------------------------------------------------------
For a period of seven years after the Closing, and subject
to any applicable law (as may be amended from time to time),
Buyer shall make commercial reasonable efforts to maintain
in effect the existing directors' and officers' liability
insurance, a copy of which was provided to the Company
("Existing D&O Policy"), covering those persons who are
currently covered by Buyer's directors' and officers'
liability insurance policy with respect to claims arising
from acts or events which occurred before the Closing, on
terms substantially similar to those contained in the
Existing D&O Policy, provided, however, that: (i) the Buyer
may substitute for the Existing D&O Policy a policy or
policies of substantially similar comparable coverage; and
(ii) the Buyer shall not be required to pay annual premiums
for the Existing D&O Policy (or for any substitute policies)
58
in excess of US$270,000 (the "Maximum Premium"). In the
event any future annual premiums for the Existing D&O Policy
(or any substitute policies) exceed the Maximum Premium, the
Buyer shall be entitled to reduce the amount of coverage of
the Existing D&O Policy (or any substitute policies) to the
amount of coverage that can be obtained for a premium equal
to the Maximum Premium. In the event that following the
Closing and prior to the seven-year anniversary thereof the
Buyer obtains directors' and officers' liability insurance
with a coverage that is broader than the coverage under the
Existing D&O Policy, the Buyer shall cause the persons who
are currently covered thereby to be covered by such broader
policy through the end of the seven-year period following
the Closing, provided that the inclusion of such persons in
such broader policy shall not increase the premium payable
by the Buyer thereunder.
For a period of seven years after the Closing, and subject
to any applicable law (as may be amended from time to time),
Buyer shall not amend any provision of its articles of
association (as shall be amended immediately prior to the
Closing, subject to approval of Buyer's shareholders) in a
manner that will, or will be reasonably expected to,
adversely affect the insurance and indemnification of the
persons who are currently covered by Buyer's directors' and
officers' liability insurance policy. The provisions of this
Section 7.7 are intended to be for the benefit of, and shall
be enforceable by, each director and officer referred to
above, and his or her heirs and legal representatives, and
shall be in addition to, and shall not impair, any other
rights under applicable law or otherwise.
Any amendment to the provisions of this Section 7.7 with
respect to any person covered under the Existing D&O Policy
which adversely affects the rights of such person covered by
any such Existing D&O Policy (or any substitute policy)
shall only be effective upon the consent of the Buyer, the
Company and such person, which consent shall not be
unreasonably withheld.
7.8. Listing Agreement.
-----------------
Promptly after the Closing, the Buyer shall make
commercially reasonable efforts to remain listed, and if no
longer listed, to re-list on NASDAQ Capital Market and in
this respect, to the extent required under NASDAQ rules,
submit to NASDAQ a new listing agreement, setting forth the
number of authorized ordinary shares of Buyer as amended
pursuant to the amendment to Buyer's articles of association
in the form attached hereto as Exhibit 1.9.
7.9. Shareholders Meeting; Proxy Statement; Board Structure.
------------------------------------------------------
7.9.1. Shareholders Meeting.
--------------------
Immediately after the date hereof, Buyer shall
take all action necessary in order to convene a
general shareholders meeting of Buyer that will
consider the matters set forth in Section 3.3.7 of
the Buyer Disclosure Schedule.
59
7.9.2. Proxy Statement
---------------
As promptly as practicable after the date of this
Agreement, the Buyer shall prepare a proxy
statement with respect to the foregoing general
meeting, which proxy statement shall include a
recommendation of Buyer's board of directors to
approve all matters set forth in Section 3.3.7 of
the Buyer Disclosure Schedule and shall be in form
and substance to the reasonable satisfaction of
the Company (the "Proxy Statement"). The Buyer
shall: (i) cause the Proxy Statement to comply
with applicable legal requirements; (ii) provide
the Company with a reasonable opportunity to
review and comment on any draft of the Proxy
Statement, and include in the Proxy Statement all
changes reasonably proposed by the Company; (iii)
promptly cause the Proxy Statement to be submitted
to the SEC on a Form 6-K; and (iv) cause the Proxy
Statement to be mailed to the Buyer's shareholders
as promptly as practicable following the date of
this Agreement. If any event relating to the Buyer
occurs, or if the Buyer becomes aware of any
information, that should be disclosed in a
supplement to the Proxy Statement, then the Buyer
shall promptly inform the Company of such event or
information and shall, in accordance with the
procedures set forth above, (i) prepare and submit
to the SEC a Form 6-K that shall include such
amendment or supplement as soon thereafter as is
reasonably practicable, and (ii) if appropriate,
cause such supplement to be mailed to the
shareholders of the Buyer or otherwise inform the
Buyer's shareholders of such events, in such
manner that shall be elected by the Buyer and
which complies with applicable legal requirements.
The Company will cooperate with the Buyer in the
preparation of the Proxy Statement and will
provide all information reasonably required to be
provided by it for inclusion in the Proxy
Statement, all of which shall be complete and
accurate in all material respects.
7.9.3. Board of Directors.
------------------
The parties agree to cooperate, through the
election effective as of the Closing of the
members of the board of directors of Buyer, in
ensuring that the structure of Buyer's board of
directors is in compliance with all of the
requirements of the Companies Law, the rules and
regulations of the SEC and NASDAQ listing
requirements (subject to any exemptions that are
or may be available to Buyer from any of the
foregoing).
7.10. Additional Investment in Buyer.
------------------------------
After Closing, subject to the discretion of its board of
directors, Buyer will use its commercially reasonable
efforts to complete a private financing in Buyer in an
amount of up to $10 million.
7.11. Releases and Waivers.
--------------------
60
7.11.1. To the extent permitted under applicable law,
except for any breach of any of the Transaction
Documents and any Damages with respect thereto,
either in contracts, torts or under applicable
law, and without limiting Section 7.7, for and in
consideration of the Issued Shares issuable to
each Shareholder hereunder, effective as of the
Closing Date, each Shareholder (other than with
respect to claims arising out of the sale and
purchase of products and services in the ordinary
course of business) hereby releases, acquits and
forever discharges the Company, Buyer and each of
their present and former shareholders, officers,
directors, employees, representatives, advisors
and agents (in their capacities as such) and each
of their respective heirs, executors,
administrators, successors and assigns, of and
from any and all manner of action or actions,
cause or causes of action, demands, rights,
Damages, debts, costs, expenses, responsibilities,
contracts, agreements, Actions and claims
whatsoever, whether known or unknown, of every
name and nature, both in law and in equity, which
such Shareholder, or its heirs, executors,
administrators, successors or assigns ever had,
now has, or which it or its heirs, executors,
administrators, successors or assigns hereafter
may have or shall have against such Persons,
arising out of any matters, causes, acts, claims,
circumstances or events occurring or failing to
occur or conditions existing at or prior to the
Closing, except for any claim of breach of any of
the Transaction Documents.
7.11.2. To the extent permitted under applicable law,
except for any breach of any of the Transaction
Documents and any Damages with respect thereto,
either in contracts, torts or under applicable
law, effective as of the Closing, the Company
hereby releases, acquits and forever discharges
each Shareholder and each of such Shareholder's
respective present and former officers, directors,
employees, representatives, advisors and agents
(in their capacities as such) and each of their
respective heirs, executors, administrators,
successors and assigns and each present or former
director or officer of the Company, of and from
any and all manner of action or actions, cause or
causes of action, demands, rights, Damages, debts,
costs, expenses, responsibilities, contracts,
agreements, Actions and claims whatsoever, whether
known or unknown, of every name and nature, both
in law and in equity, which the Company, or its
heirs, executors, administrators, successors or
assigns ever had, now has, or which it or, its
heirs, executors, administrators, successors or
assigns hereafter may have or shall have against
the Shareholder or any other Person referred to
above arising out of any matters, causes, acts,
claims, circumstances or events occurring or
failing to occur or conditions existing at or
prior to the Closing.
Without limitation of Section 7.11.1, (a) for and
in consideration of the Issued Shares issuable to
each Shareholder hereunder, to the extent any of
61
the following rights exists in respect of the
Transaction, the Company and each Shareholder
(solely in their capacity as shareholders of the
Company) hereby waives any and all pre-emptive
rights, anti-dilution rights, rights of first
refusal or co-sale or other rights to purchase or
sell capital stock of the Company, relating to the
Transaction, and (b) each of the Shareholders, on
a several and not joint basis, represents and
warrants that (i) the capitalization table of the
Company attached hereto as Exhibit 2.2.2 hereto
constitutes an accurate and complete description
of its shareholdings as of the date hereof and as
of Closing and (ii) it is not entitled to any
further issuance of shares or other securities of
the Company above the number of shares set forth
alongside its name in Exhibit 2.2.2.
7.12. Confidentiality.
---------------
Each party agrees to use any information it receives in the
course of and in connection with the Transaction for the
sole purpose of evaluating the Transaction and hereby
acknowledges that it is prohibited from reproducing or
distributing any such information, this Agreement or any
other materials provided in connection with such
consideration of the contemplated transaction, in whole or
in part, or divulging or discussing any of their contents
except to its advisors and representatives for the purpose
of evaluating such transaction. The foregoing agreements
shall not apply to any information that is or becomes
publicly available through no fault of such party, or that
such party is legally required to disclose; provided,
however, that if such party is requested or ordered to
disclose any such information pursuant to any court or other
governmental order or any other applicable legal procedure,
it shall provide the other parties with reasonably prompt
notice of any such request or order to enable the other
parties to seek an appropriate protective order and shall
provide the other parties with reasonable assistance in
obtaining such protective order.
7.13. Adoption of Company Amended Articles.
------------------------------------
Unless the Company Amended Articles have been approved by a
unanimous consent of the shareholders of the Company, no
later than one Business Day following the execution of this
Agreement, the Company shall call a meeting of its
shareholders for the approval of the Company Amended
Articles. The Company shall provide the Buyer with copies of
all materials to be sent to the Company's shareholders with
respect to such meeting, which materials shall include a
recommendation of the Company's board of directors to
approve the consummation of the Transaction and shall be in
form and substance to the reasonable satisfaction of the
Buyer.
7.14. Rule 506 and Regulation D Requirement.
-------------------------------------
The Buyer has provided to the Company, for purposes of
delivery to each Experienced Non Accredited Investor, copies
of the most recent annual report on Form 20-F of the Buyer
and any Form 6-K submitted by the Buyer with the SEC
following the date of filing of such Form 20-F.
62
8. CONDITIONS TO CLOSING
---------------------
8.1. Conditions to Each Party's Obligations.
--------------------------------------
The respective obligations of the Company, each Shareholder
and Buyer to effect the Transaction are subject to the
satisfaction or written waiver (which waiver on behalf of
all Shareholders may be given by the Shareholders
Representative Committee) at or prior to the Closing Date of
each of the following conditions:
8.1.1. Litigation, Etc. No Action shall have been
----------------
instituted or pending which is reasonably likely
to make illegal, or to otherwise restrain or
prohibit, the consummation of the Transaction.
8.1.2. Laws, Etc. There shall not exist any law or
----------
regulation or any other action taken by any
Governmental Authority that has resulted, or could
reasonably be expected to result in any of the
consequences referred to in Section 8.1.1.
8.1.3. Governmental and other Consents. All third party
-------------------------------
Consents and orders of all Persons required to be
obtained prior to the Closing in connection with
the execution, delivery and performance of the
Transaction Documents by the Company, the
Shareholders and Buyer or the consummation of the
Transaction thereby, including all governmental
approvals set forth in Section 5.4 of the Company
Disclosure Schedule and Section 6.6 (except for
the Form D listed therein) of the Buyer Disclosure
Schedule, shall have been obtained and shall be in
full force and effect.
8.1.4. Section 341 Action. In the event that any Non
------------------
Consenting Shareholders are forced to sell their
shares in accordance with Section 341 of the
Companies Law and Article 20(d) of the Company
Amended Articles (as and when adopted), the 30-day
period to file an action under Section 341 of the
Companies Law by such Non Consenting Shareholder
shall have expired.
8.1.5. Approval by Buyer Shareholders. The shareholders
------------------------------
of the Buyer shall have duly approved the
Transaction and the transactions and actions
contemplated thereby, including without
limitation: (i) the issuance of the Issued Shares
to the Shareholders in accordance with this
Agreement, (ii) the increase of the Buyer's
authorized share capital from NIS 500,000, divided
into 50,000,000 ordinary shares, par value NIS
0.01 per share, to NIS 1,500,000, divided into
150,000,000 ordinary shares, par value NIS 0.01
per share, (iii) the appointment of ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇
▇▇▇▇▇ as members of the Board of Directors of the
Buyer, (iv) a consulting agreement in the form of
Exhibit 8.1.5(iv) to be entered into by the Buyer
and ▇▇▇▇ ▇▇▇▇▇ (subject to his appointment as a
director of the Buyer following the Closing), (v)
subject to consummation of the Transaction, the
issuance of (A) options to purchase 200,000
63
ordinary shares of the Buyer to ▇▇▇▇ ▇▇▇▇▇, (B)
options to purchase 140,000 ordinary shares of the
Buyer to ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ and (C) options to
purchase 160,000 ordinary shares of the Buyer to
Michal Even Chen, which options shall (U) be
granted on the date that is 30 days after the
Closing Date, (V), except as set forth in clause
(X) below, become exercisable with respect to
1/16th of the underlying ordinary shares at the
end of each three-month period following the date
of grant thereof during which the person receiving
such grant shall have served as a director of the
Buyer, (W) have an exercise price calculated in
accordance with the terms of the Buyer's 2003
Master Stock Option Plan, (X) be subject to full
acceleration in the event that such person is
required to cease from being a director of the
Buyer in connection with a change of control of
the Buyer (other than pursuant to the
Transaction), (Y) be exercisable for a period of
twelve (12) months following such time as the
person receiving such grant ceases from being a
director of the Buyer and (Z) be otherwise subject
to the terms of the Buyer's 2003 Master Stock
Option Plan, (vi) the entering by the Buyer into
the indemnification agreements referred to in
Sections 3.2.7 and 3.3.9 and (vii) the increase of
the number of ordinary shares of the Buyer
underlying the Buyer's 2003 Master Stock Option
Plan by 7,500,000 ordinary shares.
8.2. Conditions to Obligations of Buyer.
----------------------------------
The obligations of Buyer to effect the Transaction are
subject to the satisfaction or written waiver by Buyer at or
prior to the Closing Date of each of the following
conditions:
8.2.1. Representations and Warranties. The
------------------------------
representations and warranties of the Shareholders
and the Company set forth in Sections 4 and 5
shall be true and correct in all respects, as of
the date of this Agreement and as of the Closing
Date with the same effect as though made on and as
of the date of this Agreement and (after giving
effect to the events and situations disclosed
under Section 8.2.3) the Closing Date (except for
any representation or warranty made as of a
particular date, which shall be true and correct
in all respects as of such date), except for any
failures of such representations and warranties to
be true and correct in all respects that, taken as
a whole, would not be reasonably expected to
result in a Material Adverse Effect on the
Company; provided that no event or situation that
shall have occurred following the date hereof and
through the Closing and disclosed under Section
8.2.3 shall be deemed to result in a Material
Adverse Effect on the Company.
8.2.2. Performance of Obligations of the Company and
---------------------------------------------
Shareholders. Each and all of the covenants and
------------
agreements of the Company and the Shareholders to
be performed or complied with pursuant to the
Transaction Documents on or prior to the Closing
Date shall have been performed and complied with
in all material respects.
64
8.2.3. Compliance Certificate. The Company shall have
----------------------
delivered to Buyer a certificate signed on its
behalf by its chief executive officer in the form
of Exhibit 8.2.3 (i) certifying that the
conditions specified in Sections 8.2.1 and 8.2.2
hereof and relating to the Company have been
fulfilled, and (ii) to the extent applicable,
disclosing any situation or event that shall have
occurred following the date hereof and through the
Closing and which, had such event occurred or
situation existed, as the case may be, prior to
the date hereof, would be required to be disclosed
in the Company Disclosure Schedule.
8.2.4. Delivery of Documents. All Closing deliveries as
---------------------
specified in Section 3.2, shall have been
delivered.
8.2.5. Approval by Shareholders. The Transaction
------------------------
(including but not limited to adoption of the
Company Amended Articles) shall have been approved
by the shareholders of the Company in accordance
with the terms of the Company's articles of
association and any relevant agreement by and
among the shareholders of the Company.
8.2.6. Termination of Investors Rights and Shareholders
------------------------------------------------
Agreement. The Investors Rights and Shareholders
---------
Agreement dated May 2004 between the Company and
certain of its shareholders shall have been duly
terminated pursuant to a termination agreement in
the form of Exhibit 8.2.6.
8.3. Conditions to Obligations of the Company and the
------------------------------------------------
Shareholders.
------------
The obligations of the Company and the Shareholders to
effect the Transaction are subject to the satisfaction or
written waiver by the Company and the Shareholders (which
waiver on behalf of all Shareholders may be given by
Shareholders Representative Committee) at or prior to the
Closing Date of each of the following conditions:
8.3.1. Representations and Warranties. The
------------------------------
representations and warranties of Buyer set forth
in Section 6 shall be true and correct in all
respects as of the date of this Agreement and as
of the Closing Date with the same effect as though
made on and as of the date of this Agreement and
(after giving effect to the events disclosed under
Section 08.3.3) the Closing Date (except for any
representation or warranty made as of a particular
date, which shall be true and correct in all
respects as of such date), except for any failures
of such representations and warranties to be true
and correct in all respects that, taken as a
whole, would not be reasonably expected to result
in a Material Adverse Effect on the Buyer;
provided that no event or situation that shall
have occurred following the date hereof and
through the Closing disclosed under Section 8.3.3
shall be deemed to result in a Material Adverse
Effect on the Buyer.
65
8.3.2. Performance of Obligations of Buyer. Each and all
-----------------------------------
of the covenants and agreements of Buyer to be
performed or complied with pursuant to the
Transaction Documents on or prior to the Closing
Date shall have been performed and complied with
in all material respects.
8.3.3. Compliance Certificate. Buyer shall have delivered
----------------------
to the Company a certificate signed on its behalf
by its chief executive officer in the form of
Exhibit 8.3.3 (i) certifying that the conditions
specified in Sections 8.3.1 and 8.3.2 hereof have
been fulfilled, and (ii) to the extent applicable,
disclosing any situation or event that shall have
occurred following the date hereof and through the
Closing and which, had such event occurred or
situation existed, as the case may be, prior to
the date hereof, would be required to be disclosed
in the Buyer Disclosure Schedule.
8.3.4. Delivery of Documents. All Closing deliveries as
---------------------
specified in Section 3.3, shall have been
delivered.
8.3.5. Israeli Tax Ruling. The Option Tax Pre-Ruling
------------------
shall have been obtained and shall be in form and
substance reasonably satisfactory to the Company.
8.3.6. Termination of Certain Agreements. Each of (i) the
---------------------------------
Shareholders Agreement dated as of January 19,
1998 by and among La Cresta International Trading
Inc., Deutsche, ▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇
▇▇▇▇▇, Ami Tal and Dovrat, ▇▇▇▇▇/Yozma - Keren
Polaris Limited Partnership, and (ii) Articles 7,
8, 13, 14 and 15 of that Share Purchase Agreement
dated as of December 29, 1997 between Buyer and
Deutsche, shall have been duly terminated by all
respective parties thereto pursuant to agreements
in the forms of Exhibits 8.3.6(i) and 8.3.6(ii),
respectively. In addition, the Buyer will obtain
the waiver by Deutsche of any rights it may have
had with respect to issuance of securities of the
Buyer pursuant to the Securities Purchase
Agreement between the Buyer and certain purchasers
dated ▇▇▇▇▇ ▇▇, ▇▇▇▇, (▇▇) the Warrant Agreement
between the Buyer and IBM Deutschland GmbH dated
June 27, 2005 and (iii) this Agreement.
8.3.7. Approval of the Company Amended Articles. The
----------------------------------------
shareholders of the Company shall have approved
the adoption of the Company Amended Articles.
8.3.8. Liquidation Proceeding. No permanent or temporary
----------------------
receiver or liquidator shall have been appointed
over all or a substantial part of the assets of
the Buyer.
8.3.9. ISA. The Israeli Securities Authorities has issued
---
the Israeli Securities Exemption pursuant to
Section 15D of the Securities Law of Israel.
66
8.3.10. Approval of terms of employment of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇.
-------------------------------------------------
The terms of employment of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ as the
Buyer's Chief Executive Officer following the
Closing, as set forth in the employment agreement
in the form of Exhibit 8.3.10, including the grant
to him of options to purchase 1,777,998 ordinary
shares of the Buyer (which options shall vest over
a period of 48 months as follows: options to
purchase 25% of the underlying shares will vest 12
months after the date of his employment agreement
with the Buyer, and options to purchase the
remaining underlying shares will vest in equal
installments over the subsequent 12 quarters,
provided that if ▇▇. ▇▇▇▇▇▇▇'▇ employment with the
Buyer is terminated by the Buyer (other than
termination for Cause, as defined in ▇▇. ▇▇▇▇▇▇▇'▇
employment agreement) or terminated by ▇▇. ▇▇▇▇▇▇▇
with Good Reason (as defined in ▇▇. ▇▇▇▇▇▇▇'▇
employment agreement), the options that would
otherwise have vested as of the 8 subsequent
vesting dates will immediately vest and become
exercisable), shall have been duly approved by the
Buyer's shareholders.
8.3.11. Approval of grants of options to newly appointed
------------------------------------------------
directors. The issuance of options to purchase
---------
200,000 ordinary shares of the Buyer to each of
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇
(which options shall have the same terms as the
options referred to in Section 8.1.5(v)) shall
have been duly approved by the Buyer's
shareholders.
9. TERMINATION
-----------
9.1. Termination.
-----------
This Agreement may be terminated and the Transaction
abandoned at any time prior to the Closing Date:
9.1.1. by the mutual written agreement of Buyer, the
Company and the Shareholders Representative
Committee;
9.1.2. by each of the Company and Buyer, in the event
that within 60 days following the date hereof the
Closing shall not have occurred, provided,
--------
however, that the right to terminate this
-------
Agreement under this Section 9.1.2 shall not be
available to any party whose failure to fulfill
any obligation under this Agreement shall have
been the cause of, or results in, the failure of
the Closing to occur on or before such date;
9.1.3. by written notice by Buyer to the Company and the
Shareholders Representative Committee (or, if a
Shareholders Representative Committee shall not
have been designated, to all Shareholders), if
there shall have been a breach of any covenant or
67
agreement on the part of the Company or any
Shareholder set forth in this Agreement or any
other Transaction Document which is material to
this Agreement as a whole, or if any
representation or warranty of the Company or any
Shareholder set forth in this Agreement or any
other Transaction Document shall have become
untrue in a manner which constitutes a Material
Adverse Effect on the Company, provided that if
such breach or misrepresentation is curable by the
Company or such Shareholder, then Buyer shall give
written notice of such breach or misrepresentation
to the Company and the Shareholders Representative
Committee (or, if a Shareholders Representative
Committee shall not have been designated, to all
Shareholders), and it shall only be entitled to
give the notice of termination if such breach or
misrepresentation shall not have been cured within
30 (thirty) days from the date of Buyer's notice
notifying of such breach or misrepresentation;
9.1.4. by written notice by the Company or the
Shareholders Representative Committee (if a
Shareholders Representative Committee shall have
been designated) to Buyer, if there shall have
been a breach of any covenant or agreement on the
part of Buyer set forth in this Agreement or any
other Transaction Document which is material to
this Agreement as a whole, or if any
representation or warranty of Buyer set forth in
this Agreement or any other Transaction Document
shall have become untrue in a manner that
constitutes a Material Adverse Effect on the
Buyer, provided that if such breach or
misrepresentation is curable by Buyer, then the
Company or the Shareholders Representative
Committee, as the case may be, shall give written
notice of such breach or misrepresentation to
Buyer, and it shall only be entitled to give the
notice of termination if such breach or
misrepresentation shall not have been cured within
30 (thirty) days from the date of notice from the
Company or the Shareholders Representative
Committee, as the case may be, notifying of such
breach or misrepresentation;
9.1.5. if there shall be any law that makes consummation
of the Transaction illegal or otherwise prohibited
or any ruling, judgment, injunction, order or
decree of any Governmental Authority having
competent jurisdiction enjoining the Company or
Buyer from consummating the Transaction is entered
and the ruling, judgment, injunction, order or
decree shall have become final and nonappealable
and, prior to that termination, the parties shall
have used reasonable efforts to resist, resolve or
lift, as applicable, any law, ruling, judgment,
injunction, order or decree; provided, however,
that the right to terminate this Agreement
pursuant to this Section 9.1.5 shall not be
available to any party whose breach of any
provision of this Agreement or other action
results in the imposition of such ruling,
judgment, injunction, order or decree or the
failure of such ruling, judgment, injunction,
order or decree to be resisted, resolved or
lifted, as applicable; or
68
9.1.6. by Buyer or the Company, prior to the approval of
the Transaction by its respective shareholders and
following receipt by the Buyer or the Company,
respectively, of a Superior Proposal (as defined
below), if a Superior Proposal has been made, has
not been withdrawn and continues to be a Superior
Proposal; provided, however, that the party
wishing to terminate this Agreement under this
Section 9.1.6 shall not be permitted to do so
unless it pays to the other party the termination
fee in accordance with Section 9.2.
A "Superior Proposal" shall mean any written
Acquisition Proposal (provided that no Acquisition
Proposal shall constitute a Superior Proposal if
immediately following the consummation of such
Acquisition Proposal, the shareholders of Buyer or
the Company, as the case may be, would own a
majority of the voting power of the survivor or
acquiring entity) that a majority of the members
of the board of directors of Buyer or the Company,
as the case may be, determine in good faith, after
consultation with outside legal counsel and
financial advisors, (w) provides to the
shareholders of Buyer or the Company, as the case
may be, with a value that exceeds the value to be
reflected pursuant to this Agreement, (x) would
result in a transaction, if consummated, that
would be more favorable to the shareholders of
Buyer or the Company, as the case may be (taking
into account all facts and circumstances,
including all legal, financial, regulatory and
other aspects of the proposal and the identity of
the offeror) than the transactions contemplated
hereby, (y) is reasonably likely to be consummated
in a timely manner (taking into account all legal,
financial, regulatory and other relevant
considerations), and (z) is made by a Person or
group of Persons who have provided Buyer or the
Company, as the case may be, with reasonable
evidence that such Person or group has or will
have sufficient funds or committed financing to
complete such Acquisition Proposal (with respect
to a Superior Proposal that contemplates a cash
consideration).
9.2. Termination Fee.
---------------
The party desiring to terminate this Agreement pursuant to Sections
9.1.1 through 9.1.6 shall give written notice of such termination to
the other party in accordance with Section 12.6; provided that no such
termination by the Company or by Buyer pursuant to Section 9.1.6 shall
be effective unless the terminating party shall have paid to the other
party a cash amount equal to (i) in the event that this Agreement is
terminated pursuant to (A) Section 9.1.6 and a Superior Proposal is
not consummated within 150 days after termination of this Agreement,
the costs and expenses of the non-terminating party, up to $250,000,
which amount shall be payable upon the expiration of such 150-day
period, or (ii) in the event that this Agreement is terminated
pursuant to Section 9.1.6 and the Superior Proposal is consummated
within 150 days after termination of this Agreement, $1,000,000, which
amount shall be payable upon consummation of the Superior Proposal.
9.3. Effect of Termination.
---------------------
69
In the event of the termination of this Agreement pursuant to Section
9.1, this Agreement shall thereafter become void and have no effect ,
without any liability on the part of any party in respect thereof,
except that (i) nothing herein will relieve any party from liability
for any breach of any representation, warranty, covenant or agreement
in this Agreement and (ii) Section 9 and 12 shall survive termination
of this Agreement.
10. SURVIVAL; INDEMNIFICATION
-------------------------
10.1. Except as described below, the respective representations
and warranties of the Company, each Shareholder and Buyer
contained in this Agreement will terminate and expire upon
the Closing.
10.2. The Shareholders' representations and warranties contained
in Section 4.3 (Title to Shares), the Company's
representations and warranties contained in Section 5.3 and
Buyer's representations and warranties contained in Section
6.3 (Capitalization) and Section 6.5 (Valid Issuance of
Issued Shares), will survive the execution and delivery of
this Agreement, the consummation of the transactions
contemplated hereby and the Closing Date until all
applicable statutes of limitation shall have expired and
shall then expire.
10.3. Indemnification by Each Shareholder.
-----------------------------------
Subject to Section 10.6, each Shareholder shall, severally
and not jointly, indemnify, defend and hold harmless Buyer
from and against any and all Damages as incurred or suffered
by Buyer based upon, arising out of or otherwise in any way
relating to or in respect of:
10.3.1. any breach of any representation or warranty made
by such Shareholder in Section 4.3 hereof; or
10.3.2. any breach or violation of any covenant or
agreement of such Shareholder contained in any
Transaction Document.
10.4. General Indemnification by Shareholders.
---------------------------------------
Subject to Section 10.6, the Shareholders shall, severally
and not jointly, indemnify, defend and hold harmless the
Buyer from and against any and all Damages as incurred or
suffered by Buyer based upon, arising out of or otherwise in
any way relating to or in respect of:
10.4.1. any breach of any representation or warranty made
by the Company in Section 5.3 hereof;
10.4.2. any breach or violation of any covenant or
agreement of the Company contained in any
Transaction Document prior to Closing; or
10.4.3. any Damages resulting from or relating to any
claims by any Shareholder or its Affiliate in
connection with the distribution of the Issued
Shares in accordance with Exhibit 2.2.2.
10.5. Indemnification by Buyer.
------------------------
70
Subject to Section 10.6, Buyer shall indemnify, defend and
hold harmless each of the Shareholders and their respective
Affiliates (collectively, the "Sellers Group") from and
against any and all Damages as incurred or suffered by the
Shareholders or any other member of the Sellers Group based
upon, arising out of or otherwise in any way relating to or
in respect of:
10.5.1. any breach of any representation or warranty made
by Buyer in Section 6.3 or Section 6.5 hereof; or
10.5.2. any breach or violation of any covenant or
agreement of Buyer contained in any Transaction
Document.
10.6. Certain Rights and Limitations.
------------------------------
10.6.1. The liability of the Sellers Group for Damages
incurred by Buyer under Section 10.3 and Section
10.4 (except under Section 10.4.3 and except for
Damages incurred by the Buyer due to a breach of
the Shareholders' representations and warranties
set forth in Section 4.3 and a breach of the
Company's representations and warranties set forth
in Section 5.3) shall not exceed $500,000. The
liability of each Shareholder for Damages incurred
by Buyer under Section 10.4.3 or due to a breach
of such Shareholder's representations and
warranties set forth in Section 4.3 or a breach of
the Company's representations and warranties set
forth in Section 5.3 shall not exceed an amount
equal to the value (calculated based on the
Average Share Price on the Closing Date) of the
Issued Shares allocated to such Shareholder
pursuant to Exhibit 2.2.2.
10.6.2. The liability of the Buyer for Damages incurred by
the Sellers Group under Section 10.5 (except for
Damages incurred by the Sellers Group due to any
breach of the Buyer's representations and
warranties set forth in Sections 6.3 and 6.5)
shall not exceed $500,000.
10.6.3. The Buyer shall not be entitled to be indemnified
by the Sellers Group and the Sellers Group shall
not be entitled to be indemnified by Buyer with
respect to any claims hereunder until the
aggregate amount of Damages actually incurred by
the indemnified party with respect to such claims
exceeds $50,000 in the aggregate, in which event
the indemnifying party shall be responsible for
the full amount of such Damages from the first
dollar of such Damages (but subject to Sections
10.6.1 and 10.6.2).
10.6.4. Limitation on Indemnification.
-----------------------------
10.6.4.1. All claims of the Buyer for Damages
under Section 10.4 that are resolved in
favor of the Buyer shall be payable
through the transfer to the Buyer from
the Shareholders (in accordance with the
allocation to them of Issued Shares set
forth on Exhibit 2.2.2) of ordinary
shares of Buyer, subject to Section
10.6.4.4, and after such amount of
71
ordinary shares of Buyer is transferred
to the Buyer as set forth herein,
neither the Sellers Group nor any of the
Shareholders shall have any further
liability with respect to claims that
are subject to the aforesaid maximum
indemnification amount. The Buyer shall
have the right to redeem the foregoing
ordinary shares without consideration
and without the need to receive any deed
of transfer or similar document relating
to such ordinary shares, and upon such
redemption such ordinary shares shall be
deemed to have been transferred to the
Buyer by the Shareholders (in accordance
with the allocation to them of Issued
Shares set forth on Exhibit 2.2.2) and
the share register of the Buyer shall be
adjusted accordingly.
10.6.4.2. All claims of the Buyer for Damages
under Section 10.3 that are resolved in
favor of the Buyer shall be payable
through the transfer to the Buyer from
the respective Shareholder of ordinary
shares of Buyer, subject to Section
10.6.4.4, and after such amount of
ordinary shares of Buyer is transferred
to the Buyer as set forth herein, such
Shareholder shall have no further
liability with respect to claims that
are subject to the aforesaid maximum
indemnification amount. The Buyer shall
have the right to redeem the foregoing
ordinary shares from the respective
Shareholder without consideration and
without the need to receive any deed of
transfer or similar document relating to
such ordinary shares, and upon such
redemption such ordinary shares shall be
deemed to have been transferred to the
Buyer by the respective Shareholder and
the share register of the Buyer shall be
adjusted accordingly.
10.6.4.3. All claims of the Sellers Group for
Damages under Section 10.5 that are
resolved in favor of the Sellers Group
shall be payable through the issuance by
the Buyer to the Shareholders (in
accordance with the allocation to them
of Issued Shares set forth on Exhibit
2.2.2) of new ordinary shares of Buyer,
subject to Section 10.6.4, and after
such amount of ordinary shares of Buyer
is issued to the Shareholders as set
forth herein, the Buyer shall have no
further liability with respect to claims
that are subject to the aforesaid
maximum indemnification amount.
10.6.4.4. Notwithstanding anything to the contrary
set forth herein, the maximum amount of
ordinary shares of Buyer (i) that the
Sellers Group or any Shareholder may be
required to transfer to Buyer under
72
Sections 10.6.4.1 or 10.6.4.2, as the
case may be, or (ii) that the Buyer may
be required to issue to the Sellers
Group under Section 10.6.4.3 (other than
as a result of a breach of any of the
representations and warranties contained
in Sections 6.3 and 6.5) (in each case,
the "Indemnification Shares"), shall be
equal to such number of Buyer ordinary
shares that shall have, as of the
Closing, a value (based on the Average
Share Price on the Closing Date) equal
to $500,000 (as such number of
Indemnification Shares may be adjusted
for stock splits, combinations and like
events), provided that in no event shall
the number of Indemnification Shares
exceed 110% of the number of ordinary
shares of the Buyer that shall have a
value as of the dated hereof (based on
the Average Share Price as of the date
hereof) equal to $500,000 (as such
number of Indemnification Shares may be
adjusted for stock splits, combinations
and like events).
10.6.5. No loss, Liability, damage or deficiency shall
constitute Damages to any party to the extent of
any insurance proceeds actually received by such
party with respect to such loss, Liability, damage
or deficiency (after deducting reasonable costs
and expenses incurred in connection with recovery
of such proceeds).
10.6.6. The parties acknowledge and agree that, the
aforesaid maximum indemnification amounts and
Survival Period shall not apply to claims against
a Shareholder based on fraud on the part of such
Shareholder in connection with the Transaction or
any misrepresentation knowingly made by such
Shareholder, and except for claims against Buyer
based on fraud on the part of Buyer in connection
with the Transaction or any misrepresentation
knowingly made by Buyer.
10.6.7. For the removal of doubt and as contemplated
above, each Shareholder shall be liable only for
such Shareholder's Pro Rata Share of any liability
of Shareholders to the Buyer pursuant to claims
for indemnification under Section 10.6.1 and shall
be liable alone for any claims brought against
such Shareholder pursuant to Section 10.6.1.
11. SHAREHOLDERS REPRESENTATIVE COMMITTEE
-------------------------------------
11.1. All of the parties to the Agreement agree that each of
▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇ are hereby
appointed, effective from and after the Closing Date, to act
as the Shareholders Representative Committee under this
Agreement in accordance with the terms of this Section 11
(the "Shareholders Representative Committee"). In the event
that one (1) or two (2) members of the Shareholders
Representative Committee cease to be members as a result of
73
death, resignation, incapacity or removal, then the
remaining members of the Shareholders Representative
Committee shall appoint one or more successor member(s) as
soon as practicable. In the event that there are no members
of the Shareholders Representative Committee at any time
from and after the Closing Date as a result of death,
resignation, incapacity or removal, then Shareholders who
were entitled to receive a majority of the number of the
Issued Shares shall be entitled to appoint successor members
of the Shareholders Representative Committee. The
Shareholders Representative Committee shall act by majority
vote in accordance with such procedures as it may adopt.
Buyer shall be entitled to rely, without any investigation
or inquiry, upon a certificate or instrument executed by a
majority of the Shareholders Representative Committee as
evidence that such action was duly and property taken by the
Shareholders Representative Committee.
11.2. The Shareholders hereby authorize the Shareholders
Representative Committee (i) to take all action necessary in
connection with the defense, negotiation and/or settlement
of any claims for which the Shareholders may be required to
indemnify Buyer (provided that the settlement of any claim
for which any Shareholder may be required to indemnify Buyer
severally from the other Shareholders and not based on its
respective Shareholder's Pro Rata Share shall be subject to
the consent of such Shareholder) and any claim for which the
Buyer may be required to indemnify the Shareholders, (ii) to
give and receive all notices required to be given and take
all action required or permitted to be taken under this
Agreement and the other agreements contemplated hereby to
which the Shareholders collectively as a group are parties,
(iii) to execute and deliver all agreements, certificates
and documents required or deemed appropriate by the
Shareholders Representative Committee in connection with,
and for the implementation of, any of the transactions
contemplated by this Agreement; (iv) to engage special
counsel, accountants and other advisors and incur such other
expenses in connection with any of the transactions
contemplated by this Agreement; and (vi) to take such other
action as the Shareholders Representative Committee may deem
appropriate, including: (a) agreeing to any modification or
amendment of this Agreement and executing and delivering an
agreement of such modification or amendment; (b) taking any
actions required or permitted under this Agreement; and (c)
all such other matters as the Shareholders Representative
Committee may deem necessary or appropriate to carry out the
intents and purposes of this Agreement.
11.3. By their acceptance and adoption of this Agreement, the
Shareholders agree that:
11.3.1. notwithstanding any other provision herein to the
contrary, Buyer shall be entitled to rely
conclusively on (i) the instructions and decisions
of the Shareholders Representative Committee as to
the settlement of any claims for indemnification
by Buyer or by the Shareholders or any other
actions taken by the Shareholders Representative
Committee hereunder and (ii) the confirmation of
the Shareholders Representative Committee, with
respect to any action taken by it hereunder, that
it is authorized to take such action; and the
Buyer shall have no liability towards any
74
Shareholder with respect to its reliance on any of
the foregoing;
11.3.2. all actions, decisions and instructions of the
Shareholders Representative Committee taken in
accordance with the provisions of Section 11.2,
including, without limitation, the defense or
settlement of any claims for which the
Shareholders may be required to indemnify Buyer,
shall be conclusive and binding upon all of the
Shareholders and no Shareholder shall have any
right to object, dissent, protest or otherwise
contest the same or have any cause of action
against the Shareholders Representative Committee
for any action taken, decision made or instruction
given by the Shareholders Representative Committee
under this Agreement, except for frauds, willful
breach of this Agreement or gross negligence by
the Shareholders Representative Committee; the
Shareholders Representative Committee shall give
the Shareholders notices, from time to time and as
reasonably required, of any action, decision and
instruction made or given by them; and the Buyer
shall have the right to rely on, and shall have no
liability towards any Shareholder with respect to
its reliance on, any such action, decisions and
instructions of the Shareholders Representative
Committee;
11.3.3. in the event that the Shareholders who were
entitled to receive a majority of the number of
the Issued Shares shall require or instruct the
Shareholders Representative Committee to act in a
certain manner (provided such manner does not
contradict the specific provisions hereof), in
connection with a certain action, decision or
instruction or in general, then the Shareholders
Representative Committee shall act accordingly.
11.3.4. the provisions of this Section 11.3 are
independent and severable, are irrevocable and
coupled with an interest and shall be enforceable
notwithstanding any rights or remedies that any
Shareholder may have in connection with the
transactions contemplated by this Agreement;
11.3.5. remedies available at law for any breach of the
provisions of this Section 11 may be inadequate;
therefore, Buyer and the Shareholders
Representative Committee shall be entitled to
temporary and permanent injunctive relief without
the necessity of proving Damages if Buyer or the
Shareholders Representative Committee brings an
action to enforce the provisions of this Section
11; and
11.3.6. the provisions of this Section 11 shall be binding
upon the executors, heirs, legal representatives,
successors and assigns of each Shareholder, and
any references in this Agreement to a Shareholder
or the Shareholders shall mean and include the
successors to the Shareholders' rights hereunder,
whether pursuant to assignment, testamentary
75
disposition, the laws of descent, and distribution
or otherwise.
11.4. All reasonable fees and expenses incurred by the
Shareholders Representative Committee in connection with
this Agreement shall be paid by the Shareholders in
proportion to their respective Shareholder's Pro Rata Share.
11.5. In acting as the representative of the Shareholders, the
Shareholders Representative Committee, to the extent
applicable, may rely upon, and shall not be liable to any
Shareholder for acting or refraining from acting upon, an
opinion of counsel. The Shareholders Representative
Committee shall incur no liability to any Shareholder with
respect to any action taken or suffered by him in its
capacity as Shareholders Representative Committee, in
reliance upon any such opinion of counsel, provided, in each
case, that the Shareholders Representative Committee informs
the Shareholders in writing of such opinion, except for
their own willful misconduct or gross negligence and the
Shareholders Representative Committee shall be indemnified
and kept harmless by the Shareholders (severally and not
jointly) from all losses, costs and reasonable expenses
which the Shareholders Representative Committee may incur as
a result of involvement in any legal proceedings arising
from the performance of his duties hereunder, provided he
acted in good faith in accordance herewith and promptly
notified the Shareholders of such proceeding, and except for
his own willful misconduct or gross negligence.
11.6. Each Shareholder hereby releases, acquits and forever
discharges any and all of the other Shareholders and each of
their representatives, of and from any claim, Damages or
responsibility in connection with any action made or
resolution adopted by such Shareholders in good faith
pursuant to, and in connection with, the fulfillment of the
provisions of this Agreement or any other Transaction
Document (provided such Shareholders have acted in
accordance therewith), including, inter alia, in connection
with any resolution taken by such Shareholders or a group of
Shareholders whenever the approval, instructions or actions
by the majority Shareholders is required or referred to
hereunder or under any other Transaction Document.
11.7. For the avoidance of doubt, the provisions of this Section
11 shall be in addition to any specific agreement made
between the Shareholders and the Shareholders Representative
Committee.
12. GENERAL PROVISIONS
------------------
12.1. Assignment.
----------
No party to this Agreement will convey, assign or otherwise
transfer any of its, his or her rights or obligations under
any Transaction Document without the prior written consent
of the Company and the Shareholders Representative Committee
(in the case of an assignment by Buyer) or of Buyer (in the
case of an assignment by the Company or any Shareholder).
Any conveyance, assignment or transfer requiring prior
written consent which is made without such consent will be
void ab initio. No assignment of this Agreement will relieve
76
the assigning party of its obligations hereunder.
12.2. Parties in Interest.
-------------------
This Agreement is binding upon and is for the benefit of the
parties hereto and their respective successors and permitted
assigns. This Agreement is not made for the benefit of any
Person not a party hereto, and no Person other than the
parties hereto or their respective successors and permitted
assigns will acquire or have any benefit, right, remedy or
claim under or by reason of this Agreement.
12.3. Amendment.
---------
This Agreement may not be amended, modified or supplemented
except by a written agreement executed by Buyer, the Company
and the Shareholders Representative Committee. Any such
amendment will be binding upon Buyer, the Company, all of
the Shareholders and their respective successors and
assigns.
12.4. Waiver; Remedies.
----------------
No failure or delay on the part of any party in exercising
any right, power or privilege under any Transaction Document
will operate as a waiver thereof, nor will any waiver on the
part of a party of any right, power or privilege under any
Transaction Document operate as a waiver of any other right,
power or privilege under any Transaction Document, nor will
any single or partial exercise of any right, power or
privilege thereunder preclude any other or further exercise
thereof or the exercise of any other right, power or
privilege.
12.5. Fees and Expenses.
-----------------
Subject to Section 9.2, each of the Company, the
Shareholders and Buyer will pay, without any right of
reimbursement from the other, all of their respective costs
and expenses incident to the performance of their respective
obligations hereunder, including the fees and disbursements
of legal counsel, accountants, experts and consultants
employed by the respective parties in connection with the
Transaction, whether or not the Transaction is consummated.
Neither the Buyer nor the Company shall bear legal fees in
connection with the Transaction in excess of US$150,000 plus
VAT and reimbursement of expenses (for each of the Company
and the Buyer), and with respect to the Buyer such amount
shall not include the legal fees plus VAT (if applicable)
and reimbursement of expenses of Buyer's legal counsel with
respect to all matters relating to the listing of Buyer's
ordinary shares on NASDAQ Capital Market (up to an amount of
US$ 10,000 for Israeli counsel for the Buyer and without
limitation with regard to U.S. counsel for the Buyer).
12.6. Notices.
-------
77
All notices, requests, claims, demands and other
communications required or permitted to be given under any
Transaction Document shall be in writing and will be
delivered by hand or telecopied or sent, postage prepaid, by
registered, certified or express mail or reputable overnight
courier service and will be deemed given when so delivered
by hand or telecopied, or three business days after being so
mailed (one business day in the case of overnight courier
service). All such notices, requests, claims, demands and
other communications will be addressed as set forth below,
or pursuant to such other instructions as may be designated
in writing by the party to receive such notice in accordance
with this Section 12.6:
If to Buyer:
▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇
Attention: Chief Financial Officer
Telecopy: 972-9-951-5307
with a copy to:
Meitar, Liquornik, Geva & Leshem, ▇▇▇▇▇▇▇▇▇
▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇-▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇
Attention: ▇▇▇ ▇▇▇▇▇▇▇, Adv.
Telecopy: 972-3-610-3111
If to the Company:
60 Medinat ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇.▇. ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇
Attention: Chief Financial Officer
Telecopy: 972-9-955-8175
with a copy to:
▇▇▇▇▇ ▇▇▇▇▇ & Co.
▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇.▇. ▇▇▇ ▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Adv.
Telecopy: 972-2-623-9236
If to the Shareholders Representative Committee:
To such addresses as provided upon selection of the
Shareholders Representative Committee
12.7. Entire Document.
---------------
This Agreement, the other Transaction Documents and the
Confidentiality Agreement collectively constitute the entire
78
agreement between the parties with respect to the subject
matter hereof and this Agreement, the other Transaction
Documents and the Confidentiality Agreement supersede all
prior negotiations, agreements and understandings of the
parties of any nature, whether oral or written, relating
thereto.
12.8. Severability.
------------
If any provision of any Transaction Document or the
application thereof to any Person or circumstance is
determined by a court of competent jurisdiction to be
invalid, void or unenforceable, the remaining provisions
thereof, or the application of such provision to Persons or
circumstances other than those as to which it has been held
invalid or unenforceable, shall remain in full force and
effect and shall in no way be affected, impaired or
invalidated thereby.
12.9. Governing Law; Jurisdiction.
---------------------------
This Agreement will be governed by and construed in
accordance with the internal laws of the State of Israel
applicable to Contracts made and to be performed entirely
within such State, without regard to the conflicts of law
principles of such State. The parties agree to negotiate in
good faith to resolve any controversy, dispute or claim
arising out of, in connection with, or in relation to the
interpretation, performance, non-performance, validity or
breach of this Agreement or the other Transaction Documents
or otherwise arising out of, or in any way related to, this
Agreement or the other Transaction Documents, including any
claim based on Contract, tort or statute (a "Dispute"). In
the event the parties are unable to resolve such Dispute,
such Dispute shall be submitted to the competent court in
Tel Aviv, Israel.
12.10. 6-K Submission and Publicity.
----------------------------
Neither Buyer, the Company nor any Shareholder shall issue
any press releases or any other public statements with
respect to the Transaction; provided, however, (i) that
Buyer, on or about the Closing Date, shall submit a Report
on Form 6-K with the SEC describing the terms of the
Transaction and attaching this Agreement and the press
release referred to below as exhibits to such submission
(the "6-K Submission" including all attachments) as is
required by applicable law, regulations, and NASDAQ rules
and shall provide the Company with a reasonable opportunity
to review and comment on drafts of the 6-K Submission, and
include therein all changes proposed by Company; and (ii)
the Buyer shall be entitled, to issue any press release or
make any other public disclosure (including a press release
concerning the offering of the Issued Shares) with respect
to the Transaction and shall provide the Company with a
reasonable opportunity to review and comment on such press
release or disclosure and include therein all changes
proposed by Company (A) in substantial conformity with the
6-K Submission and (B) as is required by applicable law,
regulations and NASDAQ rules; and, provided further, that no
such release may identify a Shareholder unless such
Shareholder has consented thereto in writing, or as required
by law.
79
12.11. Counterparts; Captions.
----------------------
This Agreement may be executed in separate counterparts,
each such counterpart being deemed to be an original
instrument, and all such counterparts will together
constitute the same agreement. The article and section
captions herein and the table of contents hereto are for
convenience of reference only, do not constitute part of
this Agreement.
[Remainder of this page intentionally left blank]
- 82 -
Buyer:
-----
VOCALTEC COMMUNICATIONS LTD.
By:
--------------------------
Name:
Title:
Company:
-------
TDSOFT LTD.
By:
--------------------------
Name:
Title:
SHAREHOLDERS SIGNATURE PAGE:
Name of Shareholder: ------------------------
Address: ------------------------
Signature: ------------------------
By checking the appropriate box below, such Shareholder represents and
warrants that such Shareholder is (and each Shareholder will become
party to this Agreement only upon checking one of the following
boxes):
--
/ / an "accredited investor" as such term is defined in Rule 501 of
-- Regulation D of the Securities Act.
--
/ / not an "accredited investor" but such Shareholder has
-- substantial knowledge and experience in financial and business
matters and is capable, without the use of a financial
advisor, of utilizing and analyzing the information made
available in connection with the acquisition of the Issued
Shares under this Agreement, and of evaluating the merits and
risks of an investment in the Issued Shares.
--
/ / not an "accredited investor", but such Shareholder has,
-- through appropriate representation by ________________, as
such Shareholder's "purchaser representative" (as such terms
used in the Securities Act and Regulation D thereunder),
substantial knowledge and experience in financial and business
matters and is capable, with the use of a financial advisor,
of utilizing and analyzing the information made available in
connection with the acquisition of the Issued Shares under
this Agreement, and of evaluating the merits and risks of an
investment in the Issued Shares.
--
/ / not a U.S. Person as defined by Rule 902 of Regulation S.
--