Exhibit 2.1
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
by and among
PerfectData Corporation
("Parent"),
SuperCom Ltd.
(the "Company")
and
PerfectData Merger Sub Ltd.
("Merger Sub")
Dated: July 2, 2003
TABLE OF CONTENTS
Page
ARTICLE I THE MERGER...................................................................................10
1.1 The Merger...................................................................................10
1.2 Closing Date.................................................................................10
1.3 Effective Time...............................................................................10
1.4 Approval of Shareholders.....................................................................10
1.5 Registration Statement; Joint Proxy Statement; Comfort Letters...............................11
1.6 Articles of Association......................................................................12
1.7 Directors....................................................................................12
1.8 Corporate Offices............................................................................13
1.9 Reincorporation in Delaware..................................................................13
1.10 Change in Merger Structure...................................................................13
ARTICLE II CONVERSION OF COMPANY SHARES.................................................................13
2.1 Conversion of Shares.........................................................................13
2.2 Exchange of Certificates.....................................................................14
2.3 Adjustments to Exchange Ratio................................................................16
2.4 Closing of the Company Transfer Books........................................................17
2.5 Stock Options; Warrants......................................................................17
2.6 Merger Sub Ordinary Shares...................................................................18
2.7 Taking of Necessary Action; Further Action...................................................18
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY................................................18
3.1 Corporate Organization; Charter Documents....................................................19
3.2 Capitalization...............................................................................19
3.3 Authority....................................................................................20
3.4 No Conflict; Required Filings and Consents...................................................20
3.5 Financial Statements.........................................................................21
3.6 Absence of Certain Changes or Events.........................................................22
3.7 Legal Proceedings............................................................................22
3.8 Compliance with Law..........................................................................22
3.9 Taxes and Tax Returns........................................................................22
3.10 Board Approval...............................................................................24
3.11 Transactions With Affiliates.................................................................24
3.12 Broker's and Other Fees......................................................................24
3.13 Public Filings...............................................................................25
3.14 Registration Statement; Prospectus/Proxy Statement...........................................25
3.15 Disclosure...................................................................................25
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB......................................26
4.1 Corporate Organization.......................................................................26
4.2 Capitalization...............................................................................26
4.3 Authority....................................................................................27
4.4 No Conflict; Required Filings and Consents...................................................27
4.5 Financial Statements.........................................................................28
4.6 SEC Filings..................................................................................28
4.7 Absence of Certain Changes or Events.........................................................29
4.8 Legal Proceedings............................................................................29
4.9 Compliance with Law..........................................................................29
4.10 Taxes and Tax Returns........................................................................29
4.11 Board Approval...............................................................................31
4.12 Transactions With Affiliates.................................................................31
4.13 Broker's and Other Fees......................................................................31
4.14 Registration Statement; Proxy Statement......................................................31
4.15 Parent Common Stock..........................................................................32
4.16 Disclosure...................................................................................32
ARTICLE V COVENANTS OF THE PARTIES.....................................................................32
5.1 Conduct of Business..........................................................................32
5.2 Prohibited Actions Pending Closing...........................................................32
5.3 Litigation...................................................................................33
5.4 Current Information..........................................................................33
5.5 Due Diligence; Access to Properties and Records..............................................34
5.6 Governmental Consents........................................................................34
5.7 Further Assurances...........................................................................34
5.8 Public Announcements.........................................................................35
5.9 Disclosure Supplements.......................................................................35
5.10 Tax-Free Merger Status.......................................................................35
5.11 Nasdaq or Amex Listing.......................................................................35
5.12 Notice of Certain Matters....................................................................35
5.13 Sale of Operating Assets; Available Cash.....................................................36
5.14 Resignation of Officers and Directors........................................................36
5.15 Merger Proposal..............................................................................36
5.16 Shareholders Meetings........................................................................37
5.17 Israeli Approvals............................................................................37
5.18 Termination of Parent Employee Benefit Plans.................................................38
ARTICLE VI CLOSING CONDITIONS...........................................................................38
6.1 Conditions of Each Party's Obligations Under This Agreement..................................38
6.2 Conditions To the Obligations of Parent and Merger Sub Under This Agreement..................39
6.3 Conditions To the Obligations of the Company Under This Agreement............................41
ARTICLE VII NO SOLICITATION; TERMINATION, AMENDMENT AND WAIVER...........................................42
7.1 No Solicitation..............................................................................42
7.2 Termination..................................................................................44
7.3 Break-Up Fee.................................................................................46
7.4 Effect of Termination........................................................................46
ARTICLE VIII MISCELLANEOUS................................................................................46
8.1 Expenses.....................................................................................46
8.2 Survival.....................................................................................47
8.3 Notices......................................................................................47
8.4 Parties In Interest..........................................................................48
8.5 Entire Agreement.............................................................................48
8.6 Amendment....................................................................................48
8.7 Extension; Waiver............................................................................48
8.8 Descriptive Headings.........................................................................48
8.9 Applicable Law...............................................................................48
8.10 Waiver of Jury Trial.........................................................................49
8.11 Severability.................................................................................49
8.12 Enforcement..................................................................................49
8.13 Remedies Cumulative..........................................................................49
8.14 Counterparts.................................................................................49
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
This Agreement and Plan of Merger and Reorganization (the "Agreement") is made
and entered into as of July 2, 2003 by and among PerfectData Corporation, a
California corporation ("Parent"), PerfectData Merger Sub Ltd., an Israeli
company and a wholly-owned subsidiary of Parent ("Merger Sub"), and SuperCom
Ltd., an Israeli company (the "Company"). RECITALS
A. Upon the terms and subject to the conditions of this Agreement and
in accordance with the Israeli Companies Law, 5759-1999 (the "Israeli Companies
Law"), Parent, Merger Sub and the Company intend to effect the merger of Merger
Sub with and into the Company, pursuant to which Merger Sub will cease to exist
and the Company will become a wholly-owned subsidiary of Parent.
B. The Board of Directors of the Company has: (i) determined that this
Agreement, the Merger (as defined in Section 1.1) and the other transactions
contemplated by this Agreement are fair to, and in the best interests of, the
Company and its shareholders, and that, considering the financial position of
the merging companies, no reasonable concern exists that the Surviving
Corporation (as defined in Section 1.1) will be unable to fulfill the
obligations of the Company to its creditors; (ii) approved this Agreement, the
Merger and the other transactions contemplated by this Agreement; and (iii)
determined to recommend that the shareholders of the Company approve this
Agreement, the Merger and the other transactions contemplated by this Agreement.
C. The Board of Directors of Parent has (i) determined that this
Agreement, the Merger and the other transactions contemplated by this Agreement
are fair to, and in the best interests of, the Parent and its shareholders, and
(ii) approved this Agreement, the Merger and the other transactions contemplated
by this Agreement, and the Board of Directors of Merger Sub has determined that,
considering the financial position of the merging companies, no reasonable
concern exists that the Surviving Corporation will be unable to fulfill the
obligations of Merger Sub to its creditors.
D. Concurrently with the execution of this Agreement and as a condition
and inducement to the Company's and Parent's willingness to enter into this
Agreement: (i) all directors and executive officers and certain principal
shareholders of Parent are entering into Voting Agreements, including the
irrevocable proxies contained therein, in substantially the form attached hereto
as Exhibit A (the "Parent Voting Agreements"); (ii) certain principal
shareholders of the Company are entering into Voting Agreements, including the
irrevocable proxies contained therein, in substantially the form attached hereto
as Exhibit B (the "Company Voting Agreements"); and (iii) all directors and
executive officers and certain principal shareholders of Parent and the Company
are entering into Lock-Up Agreements in substantially the form attached hereto
as Exhibit C (the "Lock-Up Agreements").
E. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code").
Now, therefore, in consideration of the foregoing premises, the mutual
covenants, promises and representations set forth herein, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged and accepted, the parties agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.3) and
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of the Israeli Companies Law, Merger Sub (as the target
company (Chevrat Yaad) in the Merger) shall be merged with and into the Company
(as the absorbing company (Chevra Koletet) in the Merger) in accordance with
Sections 314 through 327 of the Israeli Companies Law (the "Merger"), the
separate corporate existence of Merger Sub shall cease and the Company: (i)
shall continue as the surviving corporation (sometimes referred to herein as the
"Surviving Corporation"); and (ii) shall succeed to and assume all of the
rights, properties and obligations of Merger Sub in accordance with the
aforesaid sections of the Israeli Companies Law.
1.2 Closing Date. Subject to the terms and conditions of this
Agreement, the closing of the Merger and the other transactions contemplated by
this Agreement (the "Closing") shall take place at the offices of Mintz, Levin,
Cohn, Ferris, Glovsky and Popeo, P.C., ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇
▇▇▇▇▇, at a time and on a date to be designated by the parties (the time and
date upon which the Closing actually occurs being referred to herein as the
"Closing Date"), which shall be no later than the third business day after the
later to occur of: (i) the satisfaction or waiver of the conditions set forth in
Article VI hereof (other than those conditions which by their terms are to be
satisfied or waived as of the Closing) or (ii) the 71st day after the delivery
of the Merger Proposal (as defined in Section 5.15) to the office of the
Registrar of Companies of the State of Israel (the "Companies Registrar"), or at
such other time, date and location as the parties hereto shall mutually agree.
1.3 Effective Time. Each of the Company and Merger Sub, promptly and no
later than three (3) days after the date of the approvals required under
Sections 1.4(a) and 1.4(c) hereof are obtained, shall deliver (and Parent shall
cause Merger Sub to deliver) to the Companies Registrar a notice (the "Merger
Notice") informing the Companies Registrar that the Merger was approved by the
general shareholders meeting of the Company and the general shareholders meeting
of Merger Sub. The Merger shall become effective ("Effective Time") upon the
issuance by the Companies Registrar of a certificate evidencing the completion
of the Merger in accordance with Section 323(5) of the Israeli Companies Law.
1.4 Approval of Shareholders.
(a) Company Shareholders Meeting. The Company shall (i) take all
steps necessary to duly call, give notice of, convene and hold a general meeting
of the shareholders of Company (the "Company Shareholders Meeting") for the
purpose of securing the approval of the Company's shareholders of this Agreement
and the Merger, (ii) recommend to the Company's shareholders the approval of
this Agreement, the Merger and the transactions contemplated hereby and use
reasonable efforts to obtain, as promptly as practicable, such approvals, and
(iii) cooperate and consult with Parent with respect to each of the foregoing
matters.
(b) Parent Shareholders Meeting. Parent shall (i) take all steps
necessary to duly call, give notice of, convene and hold a meeting of the
shareholders of Parent (the "Parent Shareholders Meeting" and, together with the
Company Shareholders Meeting, the "Shareholders Meetings") for the purpose of
securing the approval of Parent's shareholders of the following proposals: (1)
approval of this Agreement, the Merger and the issuance of the shares of common
stock, no par value per share, of Parent ("Parent Common Stock") in connection
with the Merger contemplated by this Agreement, (2) reincorporation of Parent in
the State of Delaware under the name "SuperCom Corporation" (or similar name),
effective as of the Effective Time (the "Reincorporation"), (3) an increase in
the number of shares of Parent Common Stock that Parent is authorized to issue
to such amount as Parent and the Company shall mutually agree upon, (4) the
authorization of the Board of Directors of Parent, in its discretion, to effect
a reverse stock split of the issued and outstanding shares of Parent Common
Stock, of such ratio as Parent and the Company shall mutually agree upon, (5)
the adoption of a new employee stock option plan by Parent in the form prepared
by the Company, (6) the sale or liquidation of Parent's operating assets, (7)
the amendment to Parent's bylaws to increase the number of directors to eight,
(8) the election of eight members (six to be designated by the Company and two
to be designated by Parent) to the Board of Directors of Parent, which election
shall be effective at the Effective Time, and (9) the designation of independent
auditors selected by the Company for the current fiscal year (collectively, the
"Parent Shareholder Proposals"); (ii) recommend to the shareholders of Parent
the approval of the Parent Shareholder Proposals and the transactions
contemplated hereby and use reasonable efforts to obtain, as promptly as
practicable, such approvals, and (iii) cooperate and consult with the Company
with respect to each of the foregoing matters. Parent may, at its option,
convene the Parent Shareholders Meeting at its Annual Meeting of Shareholders
and include alternative choices for its shareholders relating to selection of
directors and auditors in the event that Parent's shareholders do not approve
the proposal in clause (1) of this Section 1.4(b).
(c) Merger Sub Shareholder Approval. Parent, in its capacity as the
sole shareholder of Merger Sub, has approved and adopted this Agreement and the
transactions contemplated hereby by the execution of a consent of sole
shareholder in lieu of a meeting.
1.5 Registration Statement; Joint Proxy Statement; Comfort Letters.
(a) Joint Proxy Statement/Prospectus; Registration Statement. As
promptly as practicable after the execution of this Agreement, the Company and
Parent will prepare a Joint Proxy Statement/Prospectus (the "Proxy Statement"),
and Parent will prepare and file with the Securities and Exchange Commission
(the "SEC") a Registration Statement on Form S-4 (the "Registration Statement")
in which the Proxy Statement will be included as a prospectus. Parent will
respond to any comments of the SEC; the Company will cooperate with Parent in
responding to any such comments; each of the Company and Parent will use its
best efforts to have the Registration Statement declared effective under the
Securities Act of 1933, as amended, and the rules and regulations promulgated
thereunder (collectively, the "Securities Act"), as promptly as practicable
after its filing, and the Company and Parent will cause the Proxy Statement to
be mailed to their respective shareholders at the earliest practicable time
after the Registration Statement is declared effective by the SEC. As promptly
as practicable after the date of this Agreement, each of the Company and Parent
will prepare and file any other filings required to be filed by it under the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder (collectively, the "Exchange Act"), the Securities Act or
any other federal, foreign or blue sky or related laws relating to the Merger
and the transactions contemplated by this Agreement (the "Other Filings"). Each
of the Company and Parent will notify the other promptly upon the receipt of any
comments from the SEC or its staff or any other government officials and of any
request by the SEC or its staff or any other government officials for amendments
or supplements to the Registration Statement, the Proxy Statement or any Other
Filing or for additional information and will supply the other with copies of
all correspondence between such party or any of its representatives, on the one
hand, and the SEC, or its staff or any other government officials, on the other
hand, with respect to the Registration Statement, the Proxy Statement, the
Merger or any Other Filing. Each of the Company and Parent will cause all
documents that it is responsible for filing with the SEC or other regulatory
authorities under this Section 1.5(a) to comply in all material respects with
all applicable requirements of law and the rules and regulations promulgated
thereunder, including (i) the Exchange Act, (ii) the Securities Act, and (iii)
the requirements of the Israeli Companies Law. Whenever any event occurs which
is required to be set forth in an amendment or supplement to the Proxy
Statement, the Registration Statement or any Other Filing, the Company or
Parent, as the case may be, will promptly inform the other of such occurrence
and cooperate in filing with the SEC or its staff or any other government
officials, and/or mailing to shareholders of the Company and shareholders of
Parent, such amendment or supplement.
(b) Letter of the Company Accountants. The Company shall use
all reasonable efforts to cause to be delivered to Parent a "comfort" letter
(the "Company Comfort Letter") of Ernst & Young (Israel) ("E&Y"), dated a date
within two (2) business days before the date on which the Registration Statement
shall become effective and as of the date of Closing and addressed to Parent, in
form and substance reasonably satisfactory to Parent and customary in scope and
substance for letters delivered by independent public accountants in connection
with registration statements similar to the Registration Statement.
(c) Letter of Parent Accountants. Parent shall use all
reasonable efforts to cause to be delivered to the Company a "comfort" letter
(the "Parent Comfort Letter") of KPMG LLP ("KPMG"), dated a date within two (2)
business days before the date on which the Registration Statement shall become
effective and as of the date of Closing and addressed to the Company, in form
and substance reasonably satisfactory to the Company and customary in scope and
substance for letters delivered by independent public accountants in connection
with registration statements similar to the Registration Statement.
1.6 Articles of Association. At the Effective Time, the Articles of
Association of the Company shall remain the Articles of Association of the
Surviving Corporation.
1.7 Directors.
(a) Directors of Parent. As of the Effective Time, Parent and the
Company shall use their respective best efforts to cause the Board of Directors
of Parent to be comprised of the following: (i) six (6) directors designated by
the Company, three (3) of which shall be independent to the extent required by
applicable law (including, without limitation, the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002),
and (ii) two (2) directors designated by Parent.
(b) Directors of Surviving Corporation. The directors of the
Company at the Effective Time shall become the directors of the Surviving
Corporation.
1.8 Corporate Offices. As of the Effective Time, the offices of Parent
shall be in New York, New York.
1.9 Reincorporation in Delaware. On the date of, and immediately prior
to, the Effective Time, Parent shall consummate the Reincorporation (as defined
in Section 1.4(b)) by merging Parent with and into SuperCom Corporation
("SuperCom Delaware"), a newly-formed Delaware corporation and wholly-owned
subsidiary of Parent, with SuperCom Delaware as the Surviving Corporation.
Following the Reincorporation, (i) Parent will cease to exist as a separate
entity; (ii) SuperCom Delaware, by operation of law, will succeed to all the
rights and properties, and subject to all the obligations and liabilities, of
Parent including, without limitation, those under this Agreement; and (iii) each
outstanding share of Parent Common Stock will be converted into one share of
SuperCom Delaware's common stock, $.01 par value per share ("SuperCom Delaware
Common Stock"). SuperCom Delaware will own 100% of Merger Sub following the
Reincorporation and 100% of the Surviving Corporation following the Merger. The
Certificate of Incorporation and Bylaws of SuperCom Delaware shall be in the
form as Parent and the Company shall mutually agree upon. Following the
Reincorporation, (i) all references to "Parent" in this Agreement, other than in
the defined term in the preamble and this Section 1.9, shall be deemed to refer
to SuperCom Delaware, as successor in interest to Parent, and (ii) all
references to Parent Common Stock shall refer to SuperCom Delaware Common Stock.
1.10 Change in Merger Structure. Anything in this Agreement to the
contrary notwithstanding, the Company may elect at any time before the Effective
Time, by written notice to Parent and Merger Sub, to structure the Merger in a
reverse way, namely, that the Company shall be the target company (Chevrat
Yaad), rather than the absorbing company (Chevra Koletet), and it shall merge
with and into Merger Sub with Merger Sub as the Surviving Corporation. Should
the Company make such election, this Agreement shall be amended accordingly and
the parties will cooperate with each other and take all other measures as may be
required or advisable in order to carry out and implement the Merger in the
elected structure.
ARTICLE II
CONVERSION OF COMPANY SHARES
2.1 Conversion of Shares. By virtue of the Merger and without any
action on the part of the holders thereof:
(a) Common Shares To Be Exchanged. Each Ordinary Share, NIS 0.01
par value per share, of the Company (the "Company Shares") issued and
outstanding immediately prior to the Effective Time, other than any Company
Shares (i) owned by Parent or Merger Sub or any subsidiary thereof, if any, or
(ii) held in the Company's treasury, shall automatically be converted into and
represent the right to receive the number of shares (as the same may be adjusted
as provided herein, the "Exchange Ratio") of Parent Common Stock equal to the
Exchange Ratio, subject to any adjustment provided by Section 2.3. For purposes
hereof, the "Exchange Ratio" shall mean the number of shares of Parent Common
Stock equal to (i) 3.3720926 times the number of shares of Parent Common Stock
outstanding on a fully-diluted basis (including, without limitation, all shares
of Parent Common Stock issuable upon exercise of options and warrants and the
number of shares to be issued to JDK Associates, Inc. as disclosed in Section
5.2(ii) of the Parent Disclosure Schedule) at the Effective Time, divided by
(ii) the number of Company Shares outstanding on a fully-diluted basis
(including, without limitation, all Company Shares issuable upon exercise of
options and warrants) at the Effective Time. The Exchange Ratio, assuming the
Minimum Cash Balance (as defined in Section 2.3(b)) is met, is intended to
result in the following equity ownership of Parent after giving effect to the
Merger and the payment of all finder fees: 72.5% to the shareholders of the
Company, 5% to the finders for the Company, 1% to the finders for Parent, and
21.5% to the shareholders of the Parent. Based on the fully-diluted ownership of
Parent and the Company as of the date hereof, the Exchange Ratio would equal
1.534804837 (assuming the Minimum Cash Balance is met and there are no changes
to the respective capitalizations of Parent or the Company). No fractional
shares of Parent Common Stock shall be issued in accordance with Section 2.2(e).
If any Company Shares outstanding immediately prior to the Effective Time are
unvested or are subject to a repurchase option, risk of forfeiture or other
condition under any applicable restricted stock purchase agreement or other
agreement with Company, then the shares of Parent Common Stock issued in
exchange for such Company Shares will also be unvested and subject to the same
repurchase option, risk of forfeiture or other condition. The Company shall take
all action that may be necessary to ensure that, from and after the Effective
Time, Parent is entitled to exercise any such repurchase option or other right
set forth in any such restricted stock purchase agreement or other agreement.
(b) Shares of Merger Sub. Each issued and outstanding share of
capital stock of Merger Sub shall be converted into one validly issued, fully
paid and non-assessable share of capital stock of the Surviving Corporation.
2.2 Exchange of Certificates.
(a) Exchange Agent. As of the Effective Time, Parent shall deposit,
or shall cause to be deposited, with U.S. Stock Transfer Corporation (the
"Exchange Agent"), for the benefit of the holders of Company Shares, for
exchange in accordance with this Article II, through the Exchange Agent,
certificates evidencing shares of Parent Common Stock and cash in such amount
that the Exchange Agent possesses such number of shares of Parent Common Stock
and such amount of cash as are required to provide all of the consideration
required to be exchanged by Parent pursuant to the provisions of this Article II
(such certificates for shares of Parent Common Stock, together with any
dividends or distributions with respect thereto, being hereinafter referred to
as the "Exchange Fund"). The Exchange Agent shall, pursuant to irrevocable
instructions, deliver the Parent Common Stock out of the Exchange Fund in
accordance with Section 2.1. Except as contemplated by Section 2.2(f) hereof,
the Exchange Fund shall not be used for any other purpose.
(b) Exchange Procedures. As soon as reasonably practicable after
the Effective Time, Parent will instruct the Exchange Agent to mail to each
holder of record of a certificate or certificates which immediately prior to the
Effective Time evidenced outstanding shares of Company Shares (the
"Certificates"): (i) a letter of transmittal (which is reasonably agreed to by
Parent and the Company and shall specify that delivery shall be effected, and
risk of loss and title to the Certificates shall pass, only upon proper delivery
of the Certificates to and receipt by the Exchange Agent and shall be in such
form and have such other provisions as Parent or Exchange Agent may reasonably
specify); and (ii) instructions for use in effecting the surrender of the
Certificates in exchange for certificates evidencing shares of Parent Common
Stock. Upon surrender of a Certificate for cancellation to the Exchange Agent
together with such letter of transmittal, duly executed, and such other
customary documents as may be required pursuant to such instructions, the holder
of such Certificate shall be entitled to receive in exchange therefor (A)
certificates evidencing that number of whole shares of Parent Common Stock which
such holder has the right to receive in respect of the Company Shares formerly
evidenced by such Certificate in accordance with Section 2.1, and (B) any
dividends or other distributions to which such holder is entitled pursuant to
Section 2.2(c) (the shares of Parent Common Stock, dividends, distributions and
cash described in clauses (A) and (B) being collectively, the "Merger
Consideration"), and the Certificates so surrendered shall forthwith be
cancelled. In the event of a transfer of ownership of Company Shares which is
not registered in the transfer records of the Company, a certificate evidencing
the proper number of shares of Parent Common Stock may be issued in accordance
with this Article II to a transferee if the Certificate evidencing such shares
of Company Shares is presented to the Exchange Agent, accompanied by all
documents required to evidence and effect such transfer and by evidence that any
applicable stock transfer taxes have been paid. In the event any Certificate
shall have been lost, stolen or destroyed, upon the making of an affidavit of
that fact by the person claiming such Certificate to be lost, stolen or
destroyed and, if required by Parent or the Exchange Agent, the posting by such
person of a bond in such amount as the Exchange Agent may direct as indemnity
against any claim that may be made against it with respect to such Certificate,
the Exchange Agent will issue in exchange for such lost, stolen destroyed
Certificate the Merger Consideration deliverable in respect thereof pursuant to
this Agreement. Until surrendered as contemplated by this Section 2.2, each
Certificate shall be deemed at any time after the Effective Time to evidence
only the right to receive upon such surrender the Merger Consideration.
(c) Distributions With Respect To Unexchanged Shares. No dividends
or other distributions declared or made after the Effective Time with respect to
Parent Common Stock with a record date after the Effective Time shall be paid to
the holder of any unsurrendered Certificate with respect to the shares of Parent
Common Stock evidenced thereby, and no other part of the Merger Consideration
shall be paid to any such holder, until the holder of such Certificate shall
surrender such Certificate. Subject to the effect of applicable laws, following
surrender of any such Certificate, there shall be paid to the holder of the
certificates evidencing shares of Parent Common Stock issued in exchange
therefor, without interest, (i) promptly, the amount of dividends or other
distributions with a record date after the Effective Time theretofore paid with
respect to such shares of Parent Common Stock and (ii) at the appropriate
payment date, the amount of dividends or other distributions, with a record date
after the Effective Time but prior to surrender and a payment date occurring
after surrender, payable with respect to such shares of Parent Common Stock. No
interest shall be paid on the Merger Consideration.
(d) No Further Rights in Company Shares. All shares of Parent
Common Stock (and other Merger Consideration) issued upon conversion of the
shares of Company Shares in accordance with the terms hereof shall be deemed to
have been issued in full satisfaction of all rights pertaining to such shares of
Company Shares.
(e) No Fractional Shares. No fractional shares of Parent Common
Stock shall be issued in the Merger. All shares of Parent Common Stock to which
a holder of Company Shares is entitled as a result of the Merger shall be
aggregated and if a fractional share of Parent Common Stock results even after
such aggregation, such fractional share shall be rounded up or down to the
nearest whole share of Parent Common Stock, in lieu of the fractional share.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund
which remains undistributed to the holders of Company Shares for six months
after the Effective Time shall be delivered to Parent, upon demand, and, subject
to Section 2.2(g), any holders of Company Shares who have not theretofore
complied with this Article II shall thereafter look only to Parent for the
Merger Consideration to which they are entitled.
(g) No Liability. Neither Parent nor the Company shall be liable to
any holder of shares of Company Shares for any such shares of Parent Common
Stock (or dividends or distributions with respect thereto) delivered to a public
official pursuant to any applicable abandoned property, escheat or similar law.
(h) Withholding Rights. Parent shall be entitled to deduct and
withhold, or cause the Exchange Agent to deduct and withhold, from the
consideration otherwise payable pursuant to this Agreement to any holder of
shares of Company Shares the minimum amounts (if any) that Parent is required to
deduct and withhold with respect to the making of such payment under the Code,
the Israeli Income Tax Ordinance [New Version], as amended (the "Ordinance") or
any provision of state, local or foreign tax law. To the extent that amounts are
so withheld by Parent, such withheld amounts shall be treated for all purposes
of this Agreement as having been paid to the holder of the shares of Company
Shares in respect of which such deduction and withholding was made by Parent.
2.3 Adjustments to Exchange Ratio.
(a) If between the date of this Agreement and the Effective Time
the outstanding shares of Parent Common Stock or Company Shares shall have been
changed into a different number of shares or a different class, by reason of any
stock dividend, stock split, reclassification, recapitalization, combination or
exchange of shares, the Exchange Ratio shall be correspondingly adjusted to
reflect such stock dividend, stock split, reclassification, recapitalization,
combination or exchange of shares.
(b) In the event that Parent has cash or cash equivalents as
determined in accordance with GAAP net of all liabilities, fixed, accrued or
contingent, at the Effective Time ("Final Net Available Cash") of less than
$2,000,000 (the "Minimum Cash Balance") as determined pursuant to subsection (c)
below, then the Exchange Ratio shall be adjusted as provided in Schedule 2.3(b)
hereto; provided, however, that if the Closing has not occurred within five (5)
months from the date of this Agreement as a result of a delay caused solely by
the Company, then such $2,000,000 amount may be reduced by the actual
out-of-pocket expenses incurred by Parent to non-affiliates for costs relating
to its obligations as a public company, such amount not to exceed $30,000 in the
aggregate.
(c) Parent shall prepare and deliver, or cause to be prepared and
delivered, to the Company (i) an unaudited statement that shall consist solely
of a balance sheet of Parent (the "Closing Statement") as of the day which is
the later of two (2) days following the closing of Parent's sale of its
operating business or three (3) days prior to the anticipated Effective Time
(the "Statement Date") on a basis prepared in accordance with GAAP applied
consistently with the Parent SEC Filings (as defined in Section 4.6); (ii)
evidence (in a form satisfactory to the Company) from Parent's bank as to its
cash position dated as of the Statement Date and as of the Effective Time; and
(iii) written statements from Parent's professional firms (i.e. legal counsel,
accounting firm, etc.) with respect to amounts payable to such professional
firms relating to the Merger and the transactions contemplated hereby. Such
Closing Statement shall include a good faith estimation of the Final Net
Available Cash (as defined in Section 2.3(b) above) on the anticipated closing
date of the Merger (the "Estimated Net Available Cash"), taking into account all
expenses relating to the Merger expected to be incurred by Parent ("Parent
Merger Expenses") and all other anticipated liabilities not set forth on the
Closing Statement. Within two (2) days following the delivery of the Closing
Statement by Parent to the Company, the Company may object to the Estimated Net
Available Cash calculation by notifying Parent; if the Company does not so
object, the "Final Net Available Cash" shall equal the Estimated Net Available
Cash. If the Company objects to the Estimated Net Available Cash calculation,
the parties shall attempt to resolve such dispute by negotiation and mutually
agree upon the Final Net Available Cash. Parent shall cooperate with the Company
and provide the Company and the Company's certified public accountants with
reasonable access to all information used by Parent to prepare the Closing
Statement. If the parties are unable to resolve such dispute within three (3)
days of any objection by the Company, the parties shall appoint one of the five
(5) largest independent certified public accounting firms, as shall be mutually
agreed upon, who shall, at Parent's and the Company's joint expense, review the
Closing Statement and Estimated Net Available Cash calculation and determine the
adjustment to the Estimated Net Available Cash, if any, necessitated. The
finding of such accounting firm shall be deemed to be the Final Net Available
Cash and shall be binding on the parties hereto.
2.4 Closing of the Company Transfer Books. Upon the Effective Time, the
stock transfer books of the Company shall be closed and no transfer of Company
Shares (other than shares into which the capital stock of Merger Sub is to be
converted pursuant to the Merger) shall thereafter be made. After the Effective
Time, any Certificates presented to the Exchange Agent or Parent for any reason
shall be converted into the Merger Consideration.
2.5 Stock Options; Warrants.
(a) Subject to Section 2.5(b) hereof, at the Effective Time, each
outstanding option to purchase Company Shares (a "Company Option") shall be
converted into and become rights to purchase Parent Common Stock, and Parent
shall assume each such Company Option in accordance with the terms (as in effect
as of the date of this Agreement or, for Company Options granted after the date
hereof, as in effect on the date of such grants) of the stock option plan under
which it was issued and or the terms of the stock option agreement by which it
is evidenced. From and after the Effective Time, (i) each Company Option assumed
by Parent may be exercised solely for shares of Parent Common Stock, (ii) the
number of shares of Parent Common Stock subject to each such Company Option
shall be equal to the number of Company Shares subject to such Company Option
immediately prior to the Effective Time multiplied by the Exchange Ratio,
rounding down to the nearest whole share, (iii) the per share exercise price
under each such Company Option shall be adjusted by dividing the per share
exercise price under such Company Option by the Exchange Ratio and rounding up
to the nearest cent and (iv) any restriction on the exercise of any such Company
Option shall continue in full force and effect and the term, exercisability,
vesting schedule and other provisions of such Company Option shall otherwise
remain unchanged. The Company's 1999 Employee Stock Option Plan (the "Company
Stock Option Plan"), shall be cancelled upon the Merger.
(b) Prior to the Effective Time, the Company shall take all action
that may be necessary (under the plans pursuant to which Company Options are
outstanding and otherwise) to effectuate the provisions of this Section 2.5 and
to ensure that, from and after the Effective Time, holders of Company Options
have no rights in connection with the Merger with respect thereto other than
those specifically provided in this Section 2.5.
(c) Upon the Effective Time, Parent shall honor all Company
Warrants (as defined in Section 3.2 hereof). The Company Warrants shall
thereupon be exercisable in accordance with the terms thereof for such number of
shares of Parent Common Stock as equals (i) the number of Company Shares for
which the Company Warrants were exercisable multiplied by (ii) the Exchange
Ratio. The exercise price for the Company Warrants shall thereupon be the
exercise price for the Company Warrants prior to the Effective Time divided by
the Exchange Ratio and the number of underlying securities shall be
proportionately adjusted and rounded as provided for Company Options unless
otherwise provided in the Company Warrant.
2.6 Merger Sub Ordinary Shares. The ordinary shares of Merger Sub
outstanding or held in treasury immediately prior to the Effective Time shall
not be affected by the Merger but shall be converted into the same number of
shares of the Surviving Corporation without further action.
2.7 Taking of Necessary Action; Further Action. If, at any time after
the Effective Time, any further action is necessary or desirable to carry out
the purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of Company and Merger Sub, the officers and directors of Company
and Merger Sub will take all such lawful and necessary action.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
References herein to the Company Disclosure Schedule shall mean all
of the disclosure schedules required by this Article III, dated as of the date
hereof and referenced to the specific sections and subsections of Article III of
this Agreement, and any other sections or subsections to which it is readily
apparent from a reading of such disclosure, which have been delivered on the
date hereof by the Company to Parent.
The Company hereby represents and warrants to Parent as follows:
3.1 Corporate Organization; Charter Documents.
(a) Each of the Company and its subsidiaries is a corporation duly
organized and validly existing and, where applicable, in good standing, under
the laws of the jurisdiction of its incorporation and has the requisite
corporate power and authority to own, lease and operate its assets and
properties and to carry on its business as it is now being conducted. Each of
the Company and its subsidiaries is duly qualified or licensed as a foreign
corporation to do business, and, where applicable is in good standing, in each
jurisdiction where the character of the properties owned, leased or operated by
it or the nature of its activities makes such qualification or licensing
necessary, except for such failures to be so duly qualified or licensed and in
good standing that would not, either individually or in the aggregate,
reasonably be expected to have a material adverse effect on the Company. Except
as disclosed on the Company Disclosure Schedule, the Company does not, directly
or indirectly, own any stock or other equity interests in, or act as a general
partner or managing member of, any corporation, limited liability company,
partnership, joint venture or other legal entity.
(b) The Company has previously furnished to Parent a complete and
correct copy of its Memorandum of Association and Articles of Association as
amended to the date of this Agreement (together, the "Company Charter
Documents") and a complete and correct copy of the equivalent organizational
documents of its subsidiaries. Such Company Charter Documents and equivalent
organizational documents of each of the Company's subsidiaries are in full force
and effect. The Company is not in violation of any of the provisions of Company
Charter Documents, and no subsidiary of the Company is in violation of its
equivalent organizational documents.
3.2 Capitalization. The authorized capital stock of the Company
consists of 26,500,000 shares of Company Shares. As of the date hereof, there
are 12,706,339 shares of Company Shares issued and outstanding. As of the date
hereof, there are 1,790,078 Company Shares issuable upon exercise of outstanding
stock options under the Company Stock Option Plan. As of the date hereof, there
are no shares of Company Shares issuable upon exercise of outstanding warrants
to purchase shares of Company Shares. The Company Disclosure Schedule 3.2 sets
forth a schedule of all options which may be exercised for issuance of Company
Shares and the terms upon which the options may be exercised (the "Company Stock
Options") and all warrants which may be exercised for issuance of Company Shares
and the terms upon which the warrants may be exercised. The Company has
previously furnished to Parent true and complete copies of the option plans and
grant agreements pursuant to which the Company Stock Options were granted and a
true and complete list of each outstanding Company Stock Option. All issued and
outstanding shares of Company Shares have been duly authorized and validly
issued, are fully paid, nonassessable and free of preemptive rights. Except as
disclosed in the Company Disclosure Schedule, the Company has not granted and is
not bound by any outstanding subscriptions, options, warrants, calls,
commitments or agreements of any character calling for the transfer, purchase,
subscription or issuance of any shares of capital stock of the Company or any
securities representing the right to purchase, subscribe or otherwise receive
any shares of such capital stock or any securities convertible into any such
shares, and there are no agreements or understandings with respect to voting of
any such shares.
3.3 Authority. The Company has all necessary corporate power and
authority to execute and deliver this Agreement and to perform its obligations
hereunder and, subject to obtaining the approval of the shareholders of the
Company to this Agreement, the Merger and the other transactions contemplated by
this Agreement, to consummate the transactions contemplated hereby and thereby.
The execution and delivery of this Agreement by the Company and the consummation
by the Company of the transactions contemplated hereby have been duly and
validly authorized by all necessary corporate action on the part of the Company
and no other corporate proceedings on the part of the Company are necessary to
authorize this Agreement or to consummate the transactions so contemplated
(other than the approval of this Agreement, the Merger and the other
transactions contemplated by this Agreement by the Required Company Shareholder
Vote (as hereinafter defined)). This Agreement has been duly and validly
executed and delivered by the Company and, assuming the due authorization,
execution and delivery by Parent and Merger Sub and the approval of this
Agreement, the Merger and the other transactions contemplated by this Agreement
by the Required Company Shareholder Vote, constitutes a legal and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, except as the enforceability thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting creditors' rights generally and laws relating to the
availability of specific performance, injunctive relief or other equitable
remedies. Subject to the provisions of Section 320(c) of the Israeli Companies
Law, the affirmative vote of 75% (seventy-five percent) of the voting shares of
Company present and voting at the Company Shareholders Meeting (as defined
below) at which a quorum is present is a sufficient vote of the holders of any
Company Shares necessary to approve the Merger (the "Required Company
Shareholder Vote"). The quorum required for the Company Shareholders Meeting is
shareholders holding collectively at least one-third of the issued share capital
of Company (present in person or by proxy). No statutory vote of: (i) any
creditor of Company, (ii) any holder of any option or warrant granted by
Company; or (iii) any shareholder of any of Company's subsidiaries is necessary
in order to approve this Agreement, or to approve or permit the consummation of
the Merger and the other transactions contemplated by this Agreement.
3.4 No Conflict; Required Filings and Consents.
(a) Neither the execution and delivery of this Agreement by the
Company, nor the consummation by the Company of the transactions contemplated
hereby in accordance with the terms hereof, nor compliance by the Company with
any of the terms or provisions hereof, will (i) assuming the Required Company
Shareholder Vote is duly obtained, violate any provision of the Company Charter
Documents, (ii) assuming that the Required Company Shareholder Vote is duly
obtained, violate any statute, code, ordinance, rule, regulation, judgment,
order, writ, decree or injunction applicable to the Company or any of its
properties or assets, or (iii) except as set forth in the Company Disclosure
Schedule, violate, conflict with, result in a breach of any provisions of,
constitute a default (or an event which, with notice or lapse of time, or both,
would constitute a default) under, result in the termination of, accelerate the
performance required by, or result in the creation of any lien, security
interest, charge or other encumbrance upon any of the properties or assets of
the Company under any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, deed of trust, license, lease, agreement or other
instrument or obligation to which the Company is a party or by which the Company
or any of its properties or assets may be bound or affected except, with respect
to (ii) and (iii) above, such as individually or in the aggregate will not have
a material adverse effect on the business, operations, assets, financial
condition or prospects of the Company and which will not prevent or delay the
consummation of the transactions contemplated hereby.
(b) Other than with respect to procedures under the Israeli
Companies Law, the execution and delivery of this Agreement by the Company do
not, and the performance of this Agreement by the Company will not require any
consent, approval, authorization or permit of, or filing with or notification
to, any court, administrative agency, commission, governmental or regulatory
authority, domestic or foreign (a "Governmental Entity") with respect to the
Company or its subsidiaries, except: (i) for: (A) compliance with applicable
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and state
securities laws ("Blue Sky Laws"); (B) consent of the Office of the Chief
Scientist of the Israeli Ministry of Trade & Industry ("OCS") to the change in
ownership of Company to be effected by the Merger (the "OCS Approval"); (C)
filings with, and approval by, the Investment Center of the Israeli Ministry of
Trade & Industry (the "Investment Center") of the change in ownership of Company
to be effected by the Merger (the "Investment Center Approval"); (D) obtaining
the Israeli Tax Ruling (as defined in Section 5.17(c)); (E) obtaining the
Israeli Securities Exemptions (as defined in Section 5.17(d)); and (F) other
filings and recordation as required by Governmental Entities other than those in
the United States or Israel; and (ii) where the failure to obtain such consents,
approvals, authorizations or permits, or to make such filings or notifications:
(A) would not, individually or in the aggregate, reasonably be expected to have
a material adverse effect on the Company, or (B) would not prevent or materially
delay consummation of the Merger or otherwise prevent the parties hereto from
performing their obligations under this Agreement.
3.5 Financial Statements.
(a) The Company Public Filings (as hereinafter defined) set forth
copies of: (i) the balance sheets of the Company as of December 31, 2002 and
December 31, 2001, and the statements of operations, and shareholders' deficit
and cash flows for the years ended December 31, 2002, December 31, 2001 and
December 31, 2000, in each case accompanied by the audit report of E&Y,
independent accountants with respect to the Company, and (ii) the unaudited
balance sheets of the Company as of March 31, 2003 (the "Company March Balance
Sheets") and the unaudited statements of operations, and shareholders' equity
and cash flows for the three-month period ended March 31, 2003 (collectively,
the "Company Financial Statements"). The Company Financial Statements (including
the related notes) have been prepared in accordance with United States generally
accepted accounting principles consistently applied ("GAAP") during the periods
involved (except as may be indicated therein or in the notes thereto), and
present fairly the consolidated financial position of the Company as of the
respective dates set forth therein, and the consolidated results of the
Company's operations and its cash flows for the respective periods set forth
therein in accordance with GAAP (subject, in case of any unaudited interim
financial statements, to normal year-end adjustments).
(b) The books and records of the Company are being maintained in
material compliance with applicable legal and accounting requirements.
(c) Except as and to the extent reflected, disclosed or reserved
against in the Company Financial Statements (including the notes thereto), as of
December 31, 2002, the Company had no liabilities, whether absolute, accrued,
contingent or otherwise, material to the business, operations, assets, financial
condition or prospects of the Company which were required by GAAP (consistently
applied) to be disclosed in the Company's consolidated financial statements as
of December 31, 2002 or the notes thereto. The Company has not incurred any
liabilities except in the ordinary course of business and consistent with past
practice, except as related to the transactions contemplated by this Agreement.
3.6 Absence of Certain Changes or Events.
(a) Except as disclosed in the Company Disclosure Schedule, there
has not been any material adverse change in the business, operations, assets or
financial condition of the Company since March 31, 2003 and, to the best of the
Company's knowledge, no facts or condition exists which the Company believes
will cause such a material adverse change in the future.
(b) Except as set forth in the Company Disclosure Schedule, the
Company has not taken or permitted any of the actions set forth in Section 5.2
hereof between March 31, 2003 and the date hereof and, except for execution of
this Agreement, the Company has conducted its business only in the ordinary
course, consistent with past practice.
3.7 Legal Proceedings. Except as disclosed in the Company
Disclosure Schedule, the Company is not a party to any, and there are no pending
or, to the best of the Company's knowledge, threatened legal, administrative,
arbitral or other proceedings, claims, actions or governmental investigations of
any nature against the Company or any officer or director of the Company in his
or her capacity as such. Except as disclosed in the Company Disclosure Schedule,
the Company is not a party to any pending order, judgment or decree entered in
any lawsuit or proceeding.
3.8 Compliance with Law. The business of the Company has been conducted
in all material respects in accordance with all applicable laws, rules,
regulations, orders and other requirements of governmental and self-regulating
authorities, including, without limitation, all environmental laws, all laws,
regulations and orders relating to anti-trust or trade regulation, employment
practices and procedures, the health and safety of employees and consumer credit
and the United States Foreign Corrupt Practices Act of 1977, except for any
matter otherwise covered by this sentence which could not reasonably be expected
to, individually or in the aggregate, have a material adverse effect on the
business, operations, assets, financial condition or prospects of the Company.
To its knowledge, the Company has not received any notice of alleged violations
of any laws, rules, regulations, orders or other requirements of governmental or
self-regulatory authorities.
3.9 Taxes and Tax Returns.
(a) Filing of Tax Returns and Payment of Taxes. The Company has
timely filed all Tax Returns (as hereinafter defined) required to be filed by
it, each such Tax Return has been prepared in compliance with all applicable
laws and regulations, and all such Tax Returns are true, accurate and complete
in all respects. All Taxes (as hereinafter defined) that have become due and
payable by the Company have been timely paid, and the Company will not be liable
for any additional Taxes in respect of any taxable period or any portion thereof
ending on or before the date of this Agreement in an amount that exceeds the
corresponding reserve therefor separately identified in the Company Disclosure
Schedule, if any, as reflected in the accounting records of the Company, and any
Taxes of the Company arising after such date will be incurred in the ordinary
course of the Company's business. The Company has made available to Parent true,
correct and complete copies of all Tax Returns with respect to income taxes
filed by or with respect to it with respect to taxable periods ended on or after
December 31, 2000, and has delivered or made available to Parent all relevant
documents and information with respect thereto, including without limitation
work papers, records, examination reports, and statements of deficiencies
assessed against or agreed to by the Company.
(b) Deficiencies. No deficiency or proposed adjustment in respect
of Taxes has been proposed, asserted or assessed by any Taxing authority against
the Company.
(c) Liens. There are no liens for Taxes (other than current Taxes
not yet due and payable) on the assets of the Company.
(d) Extensions to Statute of Limitations for Assessment of Taxes.
The Company has not consented to extend the time in which any Tax may be
assessed or collected by any Taxing authority.
(e) Extensions of the Time for Filing Tax Returns. Except as set
forth in the Company Disclosure Schedule, the Company has not requested or been
granted an extension of the time for filing any Tax Return to a date on or after
the date of this Agreement.
(f) Pending Proceedings. There is no action, suit, Taxing authority
proceeding, or audit with respect to any Tax now in progress, pending, or, to
the knowledge of the Company, threatened, against or with respect to the
Company. There are no outstanding adjustments, deficiencies, additional
assessments or refund claims proposed or outstanding with respect to any Tax or
Tax Return of the Company.
(g) No Failures to File Tax Returns. No claim has ever been made by
a Taxing authority in a jurisdiction where the Company does not pay Tax or file
Tax Returns that the Company is or may be subject to Taxes assessed by such
jurisdiction.
(h) Tax Sharing, Allocation, or Indemnity Agreements. The Company
is not a party to or bound by any Tax sharing or allocation agreement and has no
current or potential contractual obligation to indemnify any other person with
respect to Taxes.
(i) Withholding Taxes. The Company has timely withheld and timely
paid all Taxes which are required to have been withheld and paid by it in
connection with amounts paid or owing to any employee, independent contractor,
creditor or other person.
(j) Tax-Free Merger. The Company has not taken any action, nor does
the Company know of any fact, that is reasonably likely to prevent the Merger
from qualifying as a "reorganization" within the meaning of Code Section 368.
(k) Certain Defined Terms. As used in this Agreement:
(i) Tax or Taxes (and with correlative meaning,
Taxable and Taxing) means any United States, Israeli,
federal, provincial, state, local or foreign income, gross
receipts, franchise, estimated, alternative minimum, add-on
minimum, sales, use, transfer, registration, value added,
excise, natural resources, severance, stamp, occupation,
premium, windfall profit, environmental, customs, duties, real
property, personal property, capital stock, net worth,
intangibles, social security, unemployment, disability, payroll,
license, employee, or other tax or similar levy, of any kind
whatsoever, including any interest, penalties, or additions to
tax in respect of the foregoing.
(ii) Tax Return means any return, declaration, report,
claim for refund, information return, or other document
(including any related or supporting estimates, elections,
schedules, statements, or information) filed or required to be
filed in connection with the determination, assessment, or
collection of any Tax or the administration of any laws,
regulations, or administrative requirements relating to any Tax.
3.10 Board Approval. The Board of Directors of the Company has duly:
(a) determined that this Agreement, the Merger and the other transactions
contemplated by this Agreement are fair to, and in the best interests of, the
Company and its shareholders, and that, considering the financial position of
the merging companies, no reasonable concern exists that the Surviving
Corporation will be unable to fulfill the obligations of the Company to its
creditors; (b) approved this Agreement, the Merger and the other transactions
contemplated by this Agreement; and (c) determined to recommend that the
shareholders of the Company approve this Agreement, the Merger and the other
transactions contemplated by this Agreement.
3.11 Transactions With Affiliates. Except as disclosed in the Company
Disclosure Schedule, no affiliate, as such term is defined in Rule 405
promulgated under the Securities Act, of the Company (i) has any material direct
or indirect interest in any entity which transacts business with the Company,
(ii) has any direct or indirect interest in any property, asset or right which
is used by the Company in the conduct of its business, (iii) has any other
contractual relationship with the Company in respect of its business (other than
employment agreements and option agreements in the ordinary course of business),
(iv) owns any asset used by the Company in connection with its business or (v)
has made or received any loans or other debt financing to or from the Company
other than compensation described in the Company Disclosure Schedule or the
documents listed therein.
3.12 Broker's and Other Fees. Except for fees and expenses payable to
(i) Atlantis Equities, Inc. ("Atlantis") pursuant to a finder letter agreement
dated May 1, 2003, as amended on June 30, 2003, a true, correct and complete
copy of which has been provided to Parent and which has not been amended or
modified in any respect, and (ii) ▇▇▇▇ ▇▇▇▇▇▇▇ as a consultant pursuant to an
oral agreement with the Company as disclosed in the Company Disclosure Schedule,
both of which claims the Company shall satisfy, the Company has not incurred,
nor will it incur, directly or indirectly, any liability for brokerage or
finders fees or agent's commissions or any similar charges in connection with
this Agreement or any transaction contemplated hereby, including the Merger.
3.13 Public Filings. The Company has previously made available to
Parent a complete copy of each filing by the Company with the Market Authority
of Nasdaq Europe since December 31, 1999 pursuant to the Nasdaq Europe Rule Book
(collectively, the "Company Public Filings"). Since January 1, 2000, the Company
has timely filed all reports and filings that it was required to file with the
Market Authority of Nasdaq Europe, all of which complied in all material
respects with the rules and regulations thereunder. As of their respective
dates, each such report or other document, including without limitation, any
financial statements or schedules included therein, did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements made therein, in light of the
circumstances under which they were made, not misleading.
3.14 Registration Statement; Prospectus/Proxy Statement. None of the
information supplied or to be supplied by the Company for inclusion or
incorporation by reference in the Registration Statement to be filed with the
SEC by Parent in connection with the issuance of Parent Common Stock in the
Merger (including amendments or supplements thereto) will, at the time the
Registration Statement becomes effective under the Securities Act, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of circumstances under which they are made, not misleading. None of the
information supplied or to be supplied by Company for inclusion in the Proxy
Statement to be filed by Parent and Company with the SEC as part of the
Registration Statement pursuant to Section 1.5(a) hereof will, at the date or
dates mailed to the shareholders of the Company, and at the time of Company
Shareholders Meeting in connection with the transactions contemplated hereby,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. The Proxy Statement will comply as to form in all material respects
with the provisions of the Exchange Act, and the Israeli Companies Law and the
Israeli Securities Law, 1968, and the rules and regulations promulgated
thereunder. If at any time prior to Company Shareholders Meeting, any event
relating to Company or any of its affiliates, officers or directors should be
discovered by the Company which should be set forth in an amendment to the
Registration Statement or a supplement to the Proxy Statement, the Company shall
promptly inform Parent. Notwithstanding the foregoing, the Company makes no
representation or warranty with respect to any information supplied by Parent or
Merger Sub which is contained or incorporated by reference in the Registration
Statement or Proxy Statement.
3.15 Disclosure. No representation or warranty contained in Article III
of this Agreement contains any untrue statement of a material fact or omits to
state a material fact necessary to make the statements herein not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF PARENT AND MERGER SUB
References herein to the Parent Disclosure Schedule shall mean all of
the disclosure schedules required by this Article IV, dated as of the date
hereof and referenced to the specific sections and subsections of Article IV of
this Agreement, and any other sections or subsections to which it is readily
apparent from a reading of such disclosure, which have been delivered on the
date hereof by Parent to the Company.
Parent and Merger Sub hereby jointly and severally represent and
warrant to the Company as follows:
4.1 Corporate Organization.
(a) Parent is a corporation duly organized and validly existing
and, where applicable, in good standing, under the laws of the jurisdiction of
its incorporation and has the requisite corporate power and authority to own,
lease and operate its assets and properties and to carry on its business as it
is now being conducted. Parent is duly qualified or licensed as a foreign
corporation to do business, and, where applicable is in good standing, in each
jurisdiction where the character of the properties owned, leased or operated by
it or the nature of its activities makes such qualification or licensing
necessary, except for such failures to be so duly qualified or licensed and in
good standing that would not, either individually or in the aggregate,
reasonably be expected to have a material adverse effect on Parent. Parent does
not, directly or indirectly, own any stock or other equity interests in, or act
as a general partner or managing member of, any corporation, limited liability
company, partnership, joint venture or other legal entity other than the Merger
Sub. However, Parent is in the process of incorporating a wholly-owned
subsidiary under the laws of the State of Delaware in order to effectuate the
Reincorporation pursuant to Section 1.9 hereof.
(b) Parent has previously furnished to the Company a complete and
correct copy of its Articles of Incorporation and By-laws as amended to the date
of this Agreement (together, the "Parent Charter Documents"). Such Parent
Charter Documents are in full force and effect. Parent is not in violation of
any of the provisions of Parent Charter Documents.
(c) Merger Sub is a corporation duly organized and validly existing
under the laws of Israel.
4.2 Capitalization. The authorized capital stock of Parent consists of
10,000,000 shares of Parent Common Stock and 2,000,000 shares of preferred
stock, no par value per share ("Parent Preferred Stock"). As of the date hereof,
there are 6,159,530 shares of Parent Common Stock issued and outstanding and no
shares of Parent Preferred Stock issued and outstanding. As of the date hereof,
there are 183,500 shares of Parent Common Stock issuable upon exercise of
outstanding stock options under its Stock Option Plan of 2000 (the "Parent Stock
Option Plan"), 35,000 shares of Parent Common Stock issuable upon exercise of
outstanding stock options outside of the Parent Stock Option Plan, and 20,000
shares of Parent Common Stock issuable upon exercise of outstanding warrants to
purchase shares of Parent Common Stock. The Parent Disclosure Schedule sets
forth a schedule of all options and warrants which may be exercised for issuance
of Parent Common Stock and the terms upon which the options and the warrants may
be exercised ("Parent Stock Options"). Parent has previously furnished to the
Company true and complete copies of the option plans and grant agreements
pursuant to which the Parent Stock Options were granted and a true and complete
list of each outstanding Parent Stock Option. All issued and outstanding shares
of Parent Common Stock have been duly authorized and validly issued, are fully
paid, nonassessable and free of preemptive rights. Except for the Parent Stock
Options disclosed in the Parent Disclosure Schedule, Parent has not granted and
is not bound by any outstanding subscriptions, options, warrants, calls,
commitments or agreements of any character calling for the transfer, purchase,
subscription or issuance of any shares of capital stock of Parent or any
securities representing the right to purchase, subscribe or otherwise receive
any shares of such capital stock or any securities convertible into any such
shares, and there are no agreements or understandings with respect to voting of
any such shares.
4.3 Authority. Each of Parent and Merger Sub has all necessary
corporate power and authority to execute and deliver this Agreement and to
perform its obligations hereunder. The execution and delivery of this Agreement
by Parent and by Merger Sub and the performance by each of Parent and Merger Sub
of its obligations hereunder have been duly and validly authorized by all
necessary corporate action on the part of Parent and Merger Sub, and no other
corporate proceedings on the part of Parent or Merger Sub other than a vote by
Parent's shareholders are necessary to authorize this Agreement or for each of
Parent and Merger Sub to perform its obligations hereunder, including the
issuance of Parent Common Stock in connection with the Merger. This Agreement
has been duly and validly executed and delivered by Parent and by Merger Sub
and, assuming the due authorization, execution and delivery by the Company,
constitutes a legal and binding obligation of Parent and of Merger Sub,
enforceable against Parent and Merger Sub in accordance with its terms, except
as the enforceability thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting creditors' rights generally and laws relating to the availability of
specific performance, injunctive relief or other equitable remedies.
4.4 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by Parent and
Merger Sub do not, and the performance of this Agreement by Parent and Merger
Sub will not: (i) conflict with or violate the Parent Charter Documents; (ii)
subject to compliance with the requirements set forth in Section 3.4(b) (or the
Parent Disclosure Schedule) conflict with or violate any law, rule, regulation,
order, judgment or decree applicable to Parent or by which its properties are
bound or affected; or (iii) result in any breach of or constitute a default (or
an event that with notice or lapse of time or both would become a default)
under, or materially impair Parent's rights or alter the rights or obligations
of any third party under, or give to others any rights of termination,
amendment, acceleration or cancellation of, or result in the creation of a Lien
on any of the properties or assets of Parent pursuant to, any material Contract
to which Parent is a party or by which Parent or its properties are bound or
affected, except to the extent such conflict, violation, breach, default,
impairment or other effect would not in the case of clauses (ii) or (iii),
individually or in the aggregate: (A) reasonably be expected to have a material
adverse effect on Parent or (B) prevent or materially delay consummation of the
Merger or otherwise prevent the parties hereto from performing their obligations
under this Agreement.
(b) Other than with respect to procedures under the Israeli
Companies Law, the execution and delivery of this Agreement by Parent and Merger
Sub do not, and the performance of this Agreement by Parent and Merger Sub will
not, require any consent, approval, authorization or permit of, or filing with
or notification to, any Governmental Entity with respect to Parent and Merger
Sub except: (i) for: (A) compliance with applicable requirements of the
Securities Act, the Exchange Act and Blue Sky Laws; (B) the OCS Approval; (C)
obtaining the Investment Center Approval; (D) obtaining the Israeli Tax Ruling
(as defined in Section 5.17(c)); (E) obtaining the Israeli Securities Exemptions
(as defined in Section 5.17(d)); and (F) other filings and recordation as
required by Governmental Entities other than those in the United States or
Israel; and (ii) where the failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications: (A) would
not, individually or in the aggregate, reasonably be expected to have a material
adverse effect on Parent, or (B) would not prevent or materially delay
consummation of the Merger or otherwise prevent the parties hereto from
performing their respective obligations under this Agreement.
4.5 Financial Statements.
(a) The Parent SEC Filings set forth copies of: the balance sheets
of Parent as of March 31, 2003 (the "Parent March Balance Sheet") and March 31,
2002, and the statements of operations, shareholders' equity and comprehensive
income (loss) for the years ended March 31, 2003, March 31, 2002 and March 31,
2001, in each case accompanied by the audit report of KPMG, independent public
accountants with respect to Parent (collectively, the "Parent Financial
Statements"). Parent Financial Statements (including the related notes) have
been prepared in accordance with GAAP during the periods involved (except as may
be indicated therein or in the notes thereto), and present fairly the
consolidated financial position of Parent as of the respective dates set forth
therein, and the consolidated results of Parent's operations and its cash flows
for the respective periods set forth therein in accordance with GAAP (subject,
in case of any unaudited interim financial statements, to normal year end
adjustments).
(b) The books and records of Parent are being maintained in
material compliance with applicable legal and accounting requirements.
(c) Except as and to the extent reflected, disclosed or reserved
against in Parent Financial Statements (including the notes thereto), as of
March 31, 2003, Parent had no liabilities, whether absolute, accrued, contingent
or otherwise, material to the business, operations, assets, financial condition
or prospects of Parent which were required by GAAP (consistently applied) to be
disclosed in Parent's consolidated financial statements as of March 31, 2003 or
the notes thereto. Since March 31, 2003, Parent has not incurred any liabilities
except in the ordinary course of business and consistent with past practice,
except as related to the transactions contemplated by this Agreement.
4.6 SEC Filings. Parent has previously made available to the Company a
complete copy of each filing by Parent with the SEC since December 31, 1999
pursuant to the Securities Act or the Exchange Act (collectively, the "Parent
SEC Filings"). Since January 1, 2000, Parent has timely filed, and will timely
file, all reports, proxy statements, registration statements and filings that
Parent was or will be required to file with the SEC under the Securities Act and
the Exchange Act, all of which complied or will comply in all material respects
with all applicable requirements of the Securities Act or the Exchange Act, as
the case may be, including Regulation S-X. As of their respective dates, the
Parent SEC Filings, as well as each such report, proxy statement, registration
statement, form or other document to be filed by Parent with the SEC after the
date hereof and prior to the Effective Time, including without limitation, any
financial statements or schedules included therein, did not or will not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements made therein,
in light of the circumstances under which they were made, not misleading.
4.7 Absence of Certain Changes or Events.
(a) Except as disclosed in the Parent Disclosure Schedule and the
Parent SEC Filings, there has not been any material adverse change in the
business, operations, assets or financial condition of Parent since March 31,
2003 and, to the best of Parent's knowledge, no facts or condition exists which
Parent believes will cause such a material adverse change in the future.
(b) Except as set forth in the Parent Disclosure Schedule, Parent
has not taken or permitted any of the actions set forth in Section 5.2 hereof
between March 31, 2003 and the date hereof and, except for execution of this
Agreement, Parent has conducted its business only in the ordinary course,
consistent with past practice.
4.8 Legal Proceedings. Except as disclosed in the Parent Disclosure
Schedule, Parent is not a party to any, and there are no pending or, to the best
of Parent's knowledge, threatened legal, administrative, arbitral or other
proceedings, claims, actions or governmental investigations of any nature
against Parent or any officer or director of Parent in his or her capacity as
such. Except as disclosed in the Parent Disclosure Schedule, Parent is not a
party to any order, judgment or decree entered in any lawsuit or proceeding.
4.9 Compliance with Law. The business of Parent has been conducted in
all material respects in accordance with all applicable laws, rules,
regulations, orders and other requirements of governmental and self-regulating
authorities, including, without limitation, all environmental laws, all laws,
regulations and orders relating to anti-trust or trade regulation, employment
practices and procedures, the health and safety of employees and consumer credit
and the United States Foreign Corrupt Practices Act of 1977, except for any
matter otherwise covered by this sentence which could not reasonably be expected
to, individually or in the aggregate, have a material adverse effect on the
business, operations, assets, financial condition or prospects of Parent. To its
knowledge, Parent has not received any notice of alleged violations of any laws,
rules, regulations, orders or other requirements of governmental or
self-regulatory authorities.
4.10 Taxes and Tax Returns.
(a) Filing of Tax Returns and Payment of Taxes. Parent has timely
filed all Tax Returns (as hereinafter defined) required to be filed by it as of
the date hereof, each such Tax Return has been prepared in compliance with all
applicable laws and regulations, and all such Tax Returns are true, accurate and
complete in all respects. All Taxes (as hereinafter defined) that have become
due and payable by Parent have been timely paid, and Parent will not be liable
for any additional Taxes in respect of any taxable period or any portion thereof
ending on or before the date of this Agreement in an amount that exceeds the
corresponding reserve therefor separately identified in the Parent Disclosure
Schedule, if any, as reflected in the accounting records of Parent, and any
Taxes of Parent arising after such date will be incurred in the ordinary course
of Parent's business. Parent has made available to the Company true, correct and
complete copies of all Tax Returns with respect to income taxes filed by or with
respect to it with respect to taxable periods ended on or after March 31, 1999,
and has delivered or made available to the Company all relevant documents and
information with respect thereto, including without limitation work papers,
records, examination reports, and statements of deficiencies assessed against or
agreed to by Parent.
(b) Deficiencies. No deficiency or proposed adjustment in respect
of Taxes has been proposed, asserted or assessed by any Taxing authority against
Parent.
(c) Liens. There are no liens for Taxes (other than current Taxes
not yet due and payable) on the assets of Parent.
(d) Extensions to Statute of Limitations for Assessment of Taxes.
Parent has not consented to extend the time in which any Tax may be assessed or
collected by any Taxing authority.
(e) Extensions of the Time for Filing Tax Returns. Except as set
forth in the Parent Disclosure Schedule, Parent has not requested or been
granted an extension of the time for filing any Tax Return to a date on or after
the date of this Agreement.
(f) Pending Proceedings. There is no action, suit, Taxing authority
proceeding, or audit with respect to any Tax now in progress, pending, or, to
the knowledge of Parent, threatened, against or with respect to Parent. There
are no outstanding adjustments, deficiencies, additional assessments or refund
claims proposed or outstanding with respect to any Tax or Tax Return of Parent.
(g) No Failures to File Tax Returns. No claim has ever been made by
a Taxing authority in a jurisdiction where Parent does not pay Tax or file Tax
Returns that Parent is or may be subject to Taxes assessed by such jurisdiction.
(h) Tax Sharing, Allocation, or Indemnity Agreements. Parent is not
a party to or bound by any Tax sharing or allocation agreement and has no
current or potential contractual obligation to indemnify any other person with
respect to Taxes, except in connection with license agreements.
(i) Withholding Taxes. Parent has timely withheld and timely paid
all Taxes which are required to have been withheld and paid by it in connection
with amounts paid or owing to any employee, independent contractor, creditor or
other person.
(j) Tax-Free Merger. Parent has not taken any action, nor does
Parent know of any fact, that is reasonably likely to prevent the Merger from
qualifying as a "reorganization" within the meaning of Code Section 368.
4.11 Board Approval.
(a) The Board of Directors of Parent has: (a) determined that the
Merger is fair to, and in the best interests of, Parent and its shareholders;
(b) approved this Agreement, the Merger and the other transactions contemplated
by this Agreement; and (c) determined to recommend that the shareholders of
Parent approve this Agreement, the Merger, the Parent Shareholder Proposals and
the other transactions contemplated by this Agreement.
(b) The Board of Directors of Merger Sub has unanimously: (a)
determined that the Merger is fair to, and in the best interests of, Merger Sub
and its sole shareholder, and that, considering the financial position of the
merging companies, no reasonable concern exists that the Surviving Corporation
will be unable to fulfill the obligations of Merger Sub to its creditors; (b)
approved this Agreement, the Merger and the other transactions contemplated by
this Agreement; and (c) determined to recommend that the sole shareholder of
Merger Sub approve this Agreement, the Merger and the other transactions
contemplated by this Agreement.
4.12 Transactions With Affiliates. Except as disclosed in the Parent
Disclosure Schedule, since January 1, 2001, no affiliate, as such term is
defined in Rule 405 promulgated under the Securities Act, of Parent (i) has any
material direct or indirect interest in any entity which transacts business with
Parent, (ii) has any direct or indirect interest in any property, asset or right
which is used by Parent in the conduct of its business, (iii) has any other
contractual relationship with Parent in respect of its business (other than
employment agreements and option agreements in the ordinary course of business),
(iv) owns any asset used by Parent in connection with its business, or (v) has
made or received any loans or other debt financing to or from Parent other than
compensation described in the Parent Disclosure Schedule or the documents listed
therein.
4.13 Broker's and Other Fees. Except for fees and expenses payable to
Belgravia Investment Partners LLC pursuant to a letter agreement dated June 11,
2003, as amended on June 23, 2003, a true, correct and complete copy of which
has been provided to the Company and which has not been amended or modified in
any respect, Parent has not incurred, nor will it incur, directly or indirectly,
any liability for brokerage or finders fees or agent's commissions or any
similar charges in connection with this Agreement or any transaction
contemplated hereby, including the Merger.
4.14 Registration Statement; Proxy Statement. None of the information
supplied or to be supplied by Parent for inclusion or incorporation by reference
in the Registration Statement will, at the time the Registration Statement
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. None of the information
supplied or to be supplied by Parent for inclusion or incorporation by reference
in the Proxy Statement will, at the date or dates mailed to the shareholders of
the Company and Parent and at the time of the Shareholders Meetings, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading. The
Registration Statement and the Proxy Statement will comply as to form in all
material respects with the provisions of the Securities Act. If at any time
prior to the Shareholders Meetings, any event relating to Parent or Merger Sub
should be discovered by Parent which should be set forth in an amendment to the
Registration Statement or a supplement to the Proxy Statement, Parent shall
promptly inform the Company. Notwithstanding the foregoing, neither Parent nor
Merger Sub makes any representation or warranty with respect to any information
supplied by the Company which is contained or incorporated by reference in the
Registration Statement or Proxy Statement.
4.15 Parent Common Stock. At the Effective Time, the Parent Common
Stock to be issued pursuant to the Merger will be duly authorized and validly
issued, fully paid, nonassessable, free of preemptive rights and free and clear
of all liens, encumbrances or restrictions created by or through Parent, with no
personal liability attaching to the ownership thereof. The Parent Common Stock
to be issued pursuant to the Merger will be registered under the Securities Act
and issued without any legend thereon, except as may be required pursuant to
Rule 145 promulgated under the Securities Act (regardless of whether Company
Shares exchanged therefor were legended), in accordance with all applicable
state and federal laws, rules and regulations.
4.16 Disclosure. No representation or warranty contained in Article IV
of this Agreement contains any untrue statement of a material fact or omits to
state a material fact necessary to make the statements herein not misleading.
ARTICLE V
COVENANTS OF THE PARTIES
5.1 Conduct of Business. During the period from the date of this
Agreement to the Effective Time, each of Parent and the Company shall:
(i) conduct its business only in the ordinary course and
consistent with prudent and prior business practice, except for
transactions permitted hereunder, including the Parent's sale of its
operating assets, or with the prior written consent of the other party,
which consent will not be unreasonably withheld; and
(ii) confer on a reasonable basis with each other regarding
operational matters and other matters related to the Merger.
5.2 Prohibited Actions Pending Closing. Except as provided in this
Agreement and as disclosed in either the Company Disclosure Schedule or Parent
Disclosure Schedule, during the period from the date of this Agreement to the
Effective Time, neither the Company nor Parent shall:
(i) amend or otherwise change its Articles of Association or
Articles of Incorporation, as the case may be, or other governing
documents;
(ii) issue or sell or authorize for issuance or sale, or grant any
options or make other agreements with respect to, any shares of their
capital stock or any other of their securities (other than the exercise
of presently outstanding options or warrants);
(iii) declare, set aside, make or pay any dividend or other
distribution to its shareholders, or redeem, purchase or otherwise
acquire, directly or indirectly, any of their capital stock, or
authorize or effect any split-up or any recapitalization or make any
changes in their authorized or issued capital stock;
(iv) sell, license or otherwise dispose of, or agree to sell,
license or dispose of, any of its assets or properties, other than any
assets or properties where such sale, license or disposition occurs or
is to occur in the ordinary course of business consistent with past
practice;
(v) take any action or omit to take any action for the purpose of
preventing, delaying or impeding the consummation of the Merger or the
other transactions contemplated hereby;
(vi) except as disclosed in Sections 3.11 or 4.12, pay any finders
or investment bankers' fees in connection with the transactions
contemplated by this Agreement; or
(vii) take any action prior to the Effective Time which would
materially breach any of the representations and warranties contained
in this Agreement.
5.3 Litigation. Each of Parent and the Company shall promptly notify
the other party of (a) any lawsuits, claims, proceedings or investigations of
which it has knowledge which after the date hereof are threatened or commenced
against it or against any of its officers, directors, employees, consultants,
agents or shareholders with respect to or affecting its business or (b) any
material change in the status of legal proceedings reported in the Company
Disclosure Schedule or the Parent Disclosure Schedule, whichever is applicable.
5.4 Current Information. During the period from the date of this
Agreement to the Effective Time, each of the Company and Parent will cause one
or more of its designated representatives to confer with representatives of the
other party on a monthly basis regarding its business, operations, properties,
assets and financial condition and matters relating to the completion of the
transactions contemplated herein. Each of Parent and the Company shall promptly
notify the other party of any material events regarding its business,
operations, properties, assets and financial condition and matters relating to
the completion of the transactions contemplated herein. Parent shall file its
Exchange Act reports with the SEC on a timely basis, and shall provide copy of
the Exchange Act report in draft form to the Company at least one (1) business
day prior to the proposed filing date. From the period beginning immediately
following the delivery by Parent of the Closing Statement as required by Section
2.3(c) until the Closing Date, Parent shall notify the Company with respect to
any activity in its bank accounts, including, without limitation, uncashed
checks, checks written out to third parties, withdrawals from such accounts or
any other activity which would have the effect of affecting the calculation of
Final Net Available Cash.
5.5 Due Diligence; Access to Properties and Records.
(a) The Company shall permit Parent and its representatives, and Parent
shall permit the Company and its representatives, reasonable access to their
respective properties, and shall disclose and make available to (and allow
copies to be made of) Parent and its representatives, or the Company and its
representatives as the case may be, all books, papers and records relating to
its assets, stock ownership, properties, operations, obligations and
liabilities, including, but not limited to, all books of account (including the
general ledger), tax records, minute books of directors' and shareholders'
meetings, organizational documents, by-laws, material contracts and agreements,
filings with any regulatory authority, accountants' work papers, litigation
files, plans affecting employees, and any other business activities or prospects
in which Parent and its representatives or the Company and its representatives
may have a reasonable interest. Neither party shall be required to provide
access to or to disclose information where such access or disclosure would
violate or prejudice the rights of any customer, would contravene any law, rule,
regulation, order or judgment or would waive any privilege. The parties will use
reasonable efforts to obtain waivers of any such restriction (other than waivers
of the attorney-client privilege) and in any event make appropriate substitute
disclosure arrangements under circumstances in which the restrictions of the
preceding sentence apply.
(b) All information furnished by the parties hereto previously in
connection with transactions contemplated by this Agreement or pursuant hereto
shall be used solely for the purpose of evaluating the Merger contemplated
hereby and shall be treated as the sole property of the party delivering the
information until consummation of the Merger contemplated hereby and shall, in
all respects, be subject to the Confidentiality Agreement previously entered
into between Parent and the Company.
5.6 Governmental Consents. The parties hereto will cooperate with each
other and use all reasonable efforts to prepare, file and diligently pursue all
necessary documentation, to effect all necessary filings and to obtain all
necessary permits, consents, approvals and authorizations of all third parties
and governmental bodies necessary to consummate the transactions contemplated by
this Agreement as soon as possible. The parties shall each have the right to
review in advance all filings with, including all information relating to the
other, as the case may be, which appears in any filing made with, or written
material submitted to, any third party or governmental body in connection with
the transactions contemplated by this Agreement.
5.7 Further Assurances. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use reasonable efforts to take,
or cause to be taken, all action and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to satisfy
the conditions to Closing and to consummate and make effective the transactions
contemplated by this Agreement, including, without limitation, using reasonable
efforts to lift or rescind any injunction or restraining order or other order
adversely affecting the ability of the parties to consummate the transactions
contemplated by this Agreement and using reasonable efforts to prevent the
breach of any representation, warranty, covenant or agreement of such party
contained or referred to in this Agreement and to promptly remedy the same. In
case at any time after the Effective Time any further action is necessary or
desirable to carry out the purposes of this Agreement, the proper officers and
directors of each party to this Agreement shall take all such necessary action.
Nothing in this section shall be construed to require any party to participate
in any threatened or actual legal, administrative or other proceedings (other
than proceedings, actions or investigations to which it is a party or subject or
threatened to be made a party or subject) in connection with consummation of the
transactions contemplated by this Agreement unless such party shall consent in
advance and in writing to such participation and the other party agrees to
reimburse and indemnify such party for and against any and all costs and damages
related thereto.
5.8 Public Announcements. Parent and the Company shall cooperate with
each other in the development and distribution of all news releases and other
public filings and disclosures with respect to this Agreement or the Merger
contemplated hereby, and Parent and the Company agree that unless approved
mutually by them in advance, they will not issue any press release or written
statement for general circulation relating primarily to the transaction
contemplated hereby, except as may be otherwise required by law or regulation in
the opinion of counsel, provided that the party issuing the release will provide
to the other party a draft of the release prior to issuance.
5.9 Disclosure Supplements. From time to time prior to the Effective
Time, each party hereto will promptly supplement or amend (by written notice to
the other) its respective Disclosure Schedules delivered pursuant hereto with
respect to any matter hereafter arising which, if existing, occurring or known
at the date of this Agreement, would have been required to be set forth or
described in such Schedules or which is necessary to correct any information in
such Schedules which has been rendered materially inaccurate thereby. For the
purpose of determining satisfaction of the conditions set forth in Article VI
and subject to Sections 6.2(a) and 6.3(a), no supplement or amendment to such
Schedules shall correct or cure any representation, warranty or covenant which
was untrue when made, but shall enable the disclosure of subsequent facts or
events to maintain the truthfulness of any warranty.
5.10 Tax-Free Merger Status. The parties hereto shall take (or refrain
from taking) any and all actions necessary to ensure that, for United States
federal income tax purposes: (i) the Merger shall qualify as a reorganization
within the meaning of Sections 368(a)(1)(B) of the Code, and (iii) that the tax
consequences to the shareholders of both companies are minimized.
5.11 Nasdaq or Amex Listing. The parties hereto will cooperate with
each other and use all reasonable efforts to prepare, file and diligently pursue
all necessary documentation and take all actions reasonably necessary in an
effort to secure the listing of the Parent Common Stock on The Nasdaq SmallCap
Market or American Stock Exchange, as the case may be.
5.12 Notice of Certain Matters. Parent shall give prompt notice to the
Company, and the Company shall give prompt notice to Parent, as the case may be,
of (i) the occurrence, or non-occurrence, of any event the respective
occurrence, or non-occurrence, of which would be likely to cause any
representation or warranty contained in this Agreement to be materially untrue
or inaccurate and (ii) any material failure of the Company or Parent, as the
case may be, to comply or satisfy any covenant, condition or agreement to be
complied with under this Agreement; provided, however, that the delivery of any
notice pursuant to this Section 5.12 shall not relieve any party giving such
notice of its obligation hereunder.
5.13 Sale of Operating Assets; Available Cash. Parent shall use its
best efforts to sell its operating assets and conduct its business so that, as
of the Effective Time, Parent shall have Net Available Cash in the amount of at
least $2,000,000 net of all liabilities, whether fixed, accrued or contingent.
The agreement with respect to the sale of Parent's operating assets shall be
satisfactory to the Company and shall contain an express assumption of all
liabilities of Parent's operating business.
5.14 Resignation of Officers and Directors. On or prior to the Closing,
Parent shall deliver, or cause to be delivered, to the Company the resignation
of each officer and director of Parent, effective at the Effective Time.
5.15 Merger Proposal. As promptly as practicable after the execution
and delivery of this Agreement: (a) the Company and Merger Sub shall cause a
merger proposal (in the Hebrew language) in the form of Exhibit D (the "Merger
Proposal") to be executed in accordance with Section 316 of the Israeli
Companies Law; (b) the Company and Merger Sub shall call the Company
Shareholders Meeting and a general meeting of Merger Sub's shareholders,
respectively, and (c) each of Company and Merger Sub shall deliver the Merger
Proposal to the Companies Registrar within three (3) days from the calling of
such shareholders meetings. The Company and Merger Sub shall cause a copy of the
Merger Proposal to be delivered to each of their respective secured creditors,
if any, no later than three (3) days after the date on which the Merger Proposal
is delivered to the Companies Registrar and shall promptly inform their
respective non-secured creditors of the Merger Proposal and its contents in
accordance with Section 318 of the Israeli Companies Law and the regulations
promulgated thereunder and as set forth in subsections (a) and (b) below.
Promptly after the Company and Merger Sub shall have complied with the preceding
sentence and with subsections (a) and (b) below, but in any event no more than
three (3) business days following the date on which such notice was sent to the
creditors, the Company and Merger Sub shall inform the Companies Registrar, in
accordance with Section 317(b) of the Companies Law, that notice was given to
their respective creditors under Section 318 of the Israeli Companies Law and
the regulations promulgated thereunder. Without derogating from the above, each
of the Company and, if applicable, Merger Sub, shall:
(a) Publish a notice to its creditors, stating that a Merger Proposal
was submitted to the Companies Registrar and that the creditors may review the
Merger Proposal at the office of the Companies Registrar, the Company's
registered offices or Merger Sub's registered offices, as applicable, and at
such other locations as the Company or Merger Sub, as applicable, may determine,
in (A) two (2) daily Hebrew newspapers, on the day that the Merger Proposal is
submitted to the Companies Registrar, (B) a widespread newspaper in Belgium, no
later than three (3) business days following the day on which the Merger
Proposal was submitted to the Companies Registrar, and (C) if required, in such
other manner as may be required by applicable law and regulations;
(b) Within four (4) business days from the date of submitting the
Merger Proposal to the Companies Registrar, send a notice by registered mail to
all of the "Substantial Creditors" (as such term is defined in the regulations
promulgated under the Israeli Companies Law) that the Company or Merger Sub, as
applicable, is aware of, in which it shall state that a Merger Proposal was
submitted to the Companies Registrar and that the creditors may review the
Merger Proposal at such additional locations, if such locations were determined
in the notice referred to in subsection (i) above; and
(c) If it employs 50 or more persons, send to the "employees committee"
or display in a prominent place at the Company's premises, a copy of the notice
published in a daily Hebrew newspaper (as referred to in subsection (i)(A)
above), no later than three (3) business days following the day on which the
Merger Proposal was submitted to the Companies Registrar.
5.16 Shareholders Meetings.
(a) The Company shall take all steps necessary to duly call, give
notice of, convene and hold the Company Shareholders Meeting for the purpose set
forth in Section 1.4(a) hereof.
(b) Parent shall take all steps necessary to duly call, give notice of,
convene and hold the Parent Shareholders Meeting for the purpose set forth in
Section 1.4(b) hereof and, in its capacity as the sole shareholder of Merger
Sub, shall approve and adopt this Agreement and the transactions contemplated
hereby as set forth in Section 1.4(c) hereof.
5.17 Israeli Approvals.
(a) Government Filings.
(i) The parties hereto shall respond as promptly as practicable to
any inquiries or requests received from the Commissioner of Israeli
Restrictive Trade Practices for additional information or
documentation;
(ii) Each party to this Agreement shall use all reasonable efforts
to deliver and file, as promptly as practicable after the date of this
Agreement, each notice, report or other document required to be
delivered by such party to, or filed by such party with, any Israeli
Governmental Entity with respect to the Merger. Without limiting the
generality of the foregoing, the Company and Parent shall use all
reasonable efforts to obtain, as promptly as practicable after the date
of this Agreement, the following consents and approvals, and any other
consents and approvals that may be required pursuant to Israeli legal
requirements in connection with the Merger: (i) the OCS Approval; and
(ii) the Investment Center Approval. In this connection, Parent shall
provide to the OCS and the Investment Center any information, and shall
execute any undertakings, customarily requested by such authorities as
a condition to the OCS Approval or Investment Center Approval
(including, without limitation, if requested, the standard undertaking
with respect to the observance by Parent, as shareholder of Company or
the Surviving Corporation, of the requirements of The Encouragement of
Research and Development in Industry Law, 5744-1984 of the State of
Israel, as amended from time to time (the "R&D Law") as well as the
regulations issued pursuant to the R&D Law, including in respect of the
transfer outside Israel of know how or production rights developed with
financing from the OCS, or any other standard undertaking that may be
required pursuant to any amendment of the R&D Law).
(b) Legal Proceedings. Each party to this Agreement shall: (i) give the
other parties prompt notice of the commencement of any legal proceeding by or
before any Israeli Governmental Entity with respect to the Merger; (ii) keep the
other parties informed as to the status of any such legal proceeding; and (iii)
promptly inform the other parties of any communication to the Commissioner of
Israeli Restrictive Trade Practices, the OCS, the Investment Center, the Israeli
Securities Authority, the Israeli Income Tax Commission, the Companies Registrar
or any other Israeli Governmental Entity regarding the Merger. The parties to
this Agreement will consult and cooperate with one another, and will consider in
good faith the views of one another, in connection with any analysis,
appearance, presentation, memorandum, brief, argument, opinion or proposal made
or submitted in connection with any Israeli legal proceeding relating to the
Merger pursuant to a joint defense agreement separately agreed to.
(c) Israeli Tax Rulings. As promptly as practically possible after the
execution and delivery of this Agreement, the Company shall apply to the Israeli
Income Tax Commissioner for a tax ruling certifying that for Israeli income tax
purposes (i) the Company and its shareholders shall not recognize any gain or
loss as a result of the Merger, (ii) the Company shareholders shall (a) have a
carryover basis with respect to the Parent Common Stock received in connection
with the Merger, (b) include the period for which they have held the Company
Ordinary Shares converted in connection with the Merger in determining the
period for which they hold Parent Common Stock received in connection with the
Merger, and (c) upon disposition of the Parent Common Stock received in
connection with the Merger, be subject to the same Israeli income tax rates that
would have applied had no tax ruling been obtained, and (iii) the Company
employees whose Company Options shall be converted into the rights to purchase
Parent Common Stock pursuant to Section 2.5, shall not be subject to Israeli
income tax as a result of such conversion.
(d) Israeli Securities Law Exemption. Parent shall use its reasonable
best efforts to either: (i) obtain an exemption from the Israeli Securities
Authority (the "ISA") from any prospectus requirements with respect to the
exchange of Company Shares and Company Options held by Israeli residents or (ii)
comply with respect to the foregoing with the prospectus requirements of the
Israeli Securities Law, 1968 and the regulations adopted thereunder, as such
requirements may be modified by the ISA.
5.18 Termination of Parent Employee Benefit Plans. Prior to the
Effective Time, Parent shall terminate all of its employee benefit plans, except
with respect to its outstanding stock options.
ARTICLE VI
CLOSING CONDITIONS
6.1 Conditions of Each Party's Obligations Under This Agreement. The
respective obligations of each party under this Agreement to consummate the
Merger shall be subject to the satisfaction, or, where permissible under
applicable law, waiver at or prior to the Effective Time of the following
conditions:
(a) Approval of Shareholders; SEC Registration. This Agreement and
the transactions contemplated hereby shall have been approved by the requisite
vote of the shareholders of the Company and of Parent, and all of the Parent
Shareholder Proposals shall have been approved by the requisite vote of the
shareholders of Parent. The Registration Statement shall have been declared
effective by the SEC and shall not be subject to a stop order or any threatened
stop order, and the issuance of the Parent Common Stock shall have been
qualified in every state where such qualification is required under the
applicable state securities laws.
(b) Suits and Proceedings. No order, judgment or decree shall be
outstanding against a party hereto or a third party that would have the effect
of preventing completion of the Merger or any of the other transactions
contemplated hereby; and no suit, action or other proceeding shall be pending or
threatened by any governmental body in which it is sought to restrain or
prohibit the Merger or any other transactions contemplated hereby.
(c) Israeli Governmental Entity Approvals. All Israeli
Governmental Entity approvals required pursuant to Israeli legal requirements
for the consummation of the Merger and the other transactions contemplated by
this Agreement shall have been obtained, including, without limitation, the OCS
Approval, the Investment Center Approval, the tax ruling contemplated in
Subsection 5.17(c)(i) and (ii), the Israeli Securities Exemption (or compliance
with prospectus requirements), and the issuance by the Companies Registrar of a
certificate evidencing the completion of the Merger in accordance with Section
323(5) of the Israeli Companies Law.
(d) Nasdaq Europe and Belgian Law Approvals. All approvals
required pursuant to the rules and regulations of Nasdaq Europe and the laws of
Belgium for the consummation of the Merger and the other transactions
contemplated by this Agreement shall have been obtained, including, without
limitation, the approval of the Belgian Banking and Finance Commission.
6.2 Conditions To the Obligations of Parent and Merger Sub Under This
Agreement. The obligations of Parent and Merger Sub under this Agreement shall
be further subject to the satisfaction or waiver, at or prior to the Effective
Time, of the following conditions:
(a) Representations and Warranties; Performance of Obligations of
the Company. Except for those representations which are made as of a particular
date, the representations and warranties of the Company contained in this
Agreement shall be true and correct in all material respects on the Closing Date
as though made on and as of the Closing Date. The Company shall have performed
in all material respects the agreements, covenants and obligations to be
performed by it prior to the Closing Date. With respect to any representation or
warranty which as of the Closing Date has required a supplement or amendment to
the Company Disclosure Schedule to render such representation or warranty true
and correct in all material respects as of the Closing Date, the representation
and warranty shall be deemed true and correct as of the Closing Date only if (i)
the information contained in the supplement or amendment to the Disclosure
Schedule related to events occurring following the execution of this Agreement
and (ii) the facts disclosed in such supplement or amendment would not either
alone, or together with any other supplements or amendments to the Company
Disclosure Schedule, materially adversely effect the representation as to which
the supplement or amendment relates.
(b) Opinions of Counsel. Parent shall have received (i) an opinion
of ▇▇▇▇▇ ▇▇▇▇▇▇▇ & Co., Israeli counsel to the Company, dated the Closing Date,
in form and substance reasonably satisfactory to Parent, as to the matters set
forth in Sections 3.1, 3.2, 3.3 and 3.4 of this Agreement with respect to the
Company only, and with the exception of certain factual matters set forth in
Subsections 3.1(a), 3.2 and 3.4(a), and (ii) an opinion of ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇▇▇, P.C., U.S. counsel to the Company, to the effect that
for United States federal income tax purposes the Merger will qualify as a
tax-free reorganization within the meaning of the Code, and such other matters
as are reasonably requested by Parent and its counsel.
(c) Officers' Certificate. The Company shall have furnished Parent
with an Officer's Certificate, duly executed by the Company's Chief Executive
Officer and Chief Financial Officer and dated as of the Closing Date, stating
that the conditions to the Closing set forth in Section 6.2 have been satisfied.
(d) Regulatory Filings. All necessary regulatory or governmental
approvals and consents required to consummate the transactions contemplated
hereby (other than immaterial government permits) shall have been obtained
without any term or condition which would materially impair the value of the
Company. All conditions required to be satisfied prior to the Effective Time by
the terms of such approvals and consents shall have been satisfied, and any and
all statutory waiting periods in respect thereof shall have expired.
(e) Voting Agreements. Each shareholder of the Company who
beneficially owns at least five percent (5%) of the outstanding capital stock of
the Company shall each have executed and delivered to Parent a Voting Agreement,
in the form attached as Exhibit B hereto, to the effect that each such
shareholder shall vote in favor of the Merger and any other matters to be
submitted to the shareholders of the Company pursuant to this Agreement.
(f) Lock-Up Agreements. Each executive officer and director of the
Company, and each of their respective affiliates, and each shareholder of the
Company who will be a holder of at least five percent (5%) of the outstanding
capital stock of Parent upon Closing, shall each have executed and delivered to
Parent a written lock-up agreement, in substantially the form attached hereto as
Exhibit C whereby each such person shall agree not to offer to sell or sell,
dispose of, loan, pledge, hypothecate or grant any rights with respect to, any
shares of Parent Common Stock, or any securities convertible into or
exchangeable for shares thereof, for a period of three (3) months after the
Effective Time and thereafter, such person may dispose of up to 25% of his or
her shares every three (3) months.
(g) Comfort Letter. The Company Comfort Letter shall have been
delivered to Parent.
(h) Directors. Two (2) directors designated by Parent shall have
been elected, as of the Effective Time, to be members of the Boards of Directors
of Parent.
(i) Company Material Adverse Change. From the date of this
Agreement to the Closing Date, there shall not have occurred a Company Material
Adverse Change. For the purposes of this Agreement, a Company Material Adverse
Change shall mean (i) termination of either or both of the Company's agreements
with the Department of Resources Maintenance of Ministry of Internal Affairs of
Ukraine (Contract numbers 20-12-15/30 and 10-82), (ii) the Company having cash
or cash equivalents of less than $2,000,000 as of June 30, 2003 as reported in
its quarterly report for such period, or (iii) a formal Israeli governmental
investigation of the Company that has a material adverse effect on the business,
financial condition and results of operations of the Company.
6.3 Conditions To the Obligations of the Company Under This Agreement.
The obligations of the Company under this Agreement shall be further subject to
the satisfaction or waiver, at or prior to the Effective Time, of the following
conditions:
(a) Representations and Warranties; Performance of Obligations of
Parent. Except for those representations which are made as of a particular date,
the representations and warranties of Parent and Merger Sub contained in this
Agreement shall be true and correct in all material respects on the Closing Date
as though made on and as of the Closing Date. Parent shall have performed in all
material respects, the agreements, covenants and obligations to be performed by
it prior to the Closing Date. With respect to any representation or warranty
which as of the Closing Date has required a supplement or amendment to the
Parent Disclosure Schedule to render such representation or warranty true and
correct in all material respects as of the Closing Date, the representation and
warranty shall be deemed true and correct as of the Closing Date only if (i) the
information contained in the supplement or amendment to the Disclosure Schedule
related to events occurring following the execution of this Agreement and (ii)
the facts disclosed in such supplement or amendment would not either alone, or
together with any other supplements or amendments to the Parent Disclosure
Schedule, materially adversely effect the representation as to which the
supplement or amendment relates.
(b) Opinion of Counsel. The Company shall have received an opinion
of ▇▇▇▇▇▇▇ & Masyr, LLP, outside counsel to Parent, dated the Closing Date, in
form and substance reasonably satisfactory to the Company, as to the matters set
forth in Sections 4.1 (except as to the Merger Sub), 4.2, 4.3 and 4.4 (except as
to the Merger Sub) of this Agreement and to the effect that for United States
federal income tax purposes the Merger will qualify as a tax-free reorganization
within the meaning of the Code, and such other matters as are reasonably
requested by the Company and its counsel.
(c) Officers' Certificate. Parent and Merger Sub shall have
furnished the Company with an Officer's Certificate, duly executed by Parent's
Chief Executive Officer and Chief Financial Officer and dated as of the Closing
Date, stating that the conditions to the Closing set forth in this Section 6.3
have been satisfied.
(d) Regulatory Filings. All necessary regulatory or governmental
approvals and consents required to consummate the transactions contemplated
hereby (other than immaterial government permits) shall have been obtained
without any term or condition which would materially impair the value of Parent.
All conditions required to be satisfied prior to the Effective Time by the terms
of such approvals and consents shall have been satisfied, and any and all
statutory waiting periods in respect thereof shall have expired.
(e) Voting Agreements. Each officer and director of Parent, and
each of their respective affiliates, and certain shareholders of Parent who
beneficially owns at least five percent (5%) of the outstanding capital stock of
Parent as listed in Schedule 6.3(e) hereto shall each have executed and
delivered to the Company a Voting Agreement, in the form attached as Exhibit A
hereto, to the effect that each such shareholder shall vote in favor of the
Merger and any other matters to be submitted to the shareholders of Parent
pursuant to this Agreement.
(f) Lock-Up Agreements. Each officer and director of Parent, and
each of their respective affiliates, and certain of the shareholders of Parent
who will be a holder of at least five percent (5%) of the outstanding capital
stock of Parent upon Closing as listed on Schedule 6.3(f) hereto, shall each
have executed and delivered to Parent a written lock-up agreement, in
substantially the form attached hereto as Exhibit C, whereby each such person
shall agree not to offer to sell or sell, dispose of, loan, pledge, hypothecate
or grant any rights with respect to, any shares of Parent Common Stock, or any
securities convertible into or exchangeable for shares thereof, for a period of
three (3) months after the Effective Time and thereafter, such person may
dispose of up to twenty-five (25%) of his or her shares every three (3) months;
provided that (i) ▇▇. ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ may dispose of up to fifty percent
(50%) of his shares following the initial three-month period and up to
twenty-five (25%) of such shares every three (3) months thereafter and (ii)
100,000 shares held by Digital Trust shall be subject to the same lock-up
agreement as ▇▇. ▇▇▇▇▇▇▇▇▇▇.
(g) Comfort Letter. The Parent Comfort Letter shall have been
delivered to the Company.
(h) Directors. Six (6) directors designated by the Company shall
have been elected, as of the Effective Time, to be members of the Boards of
Directors of Parent.
(i) Sale of Parent's Operating Assets; Final Net Available Cash.
Parent (i) shall have disposed of its operating assets, (ii) shall have Final
Net Available Cash, as calculated in accordance with Section 2.3(c), of at least
$1,500,000, and (iii) shall have no material liabilities, whether fixed, accrued
or contingent, which in any event shall not exceed $50,000 in the aggregate.
(j) Dissenters' Rights. Holders of no more than ten percent (10%)
of the outstanding shares of Parent Common Stock shall have exercised and
perfected dissenters' rights under the California Business Corporation Law in
connection with the Merger.
ARTICLE VII
NO SOLICITATION;
TERMINATION, AMENDMENT AND WAIVER
7.1 No Solicitation.
(a) Unless and until this Agreement shall have been terminated
pursuant to and in compliance with Section 7.2 hereof, neither Parent nor the
Company shall (whether directly or indirectly through its respective advisors,
agents or other intermediaries), nor shall the Company or Parent authorize or
permit any of its respective officers, directors, agents, employees,
representatives or advisors to (i) solicit, initiate, encourage (including by
way of furnishing information) or take any action to facilitate the submission
of any inquiries, proposals or offers (whether or not in writing) from any
person (other than Parent or the Company, as the case may be, and its respective
affiliates) relating to (A) any acquisition or purchase of any of the assets of
the Company or Parent, as the case may be, or of any class of equity securities
of the Company or Parent, as the case may be, (B) any tender offer (including a
self tender offer) or exchange offer, (C) any merger, consolidation, business
combination, sale of substantially all assets, recapitalization, liquidation,
dissolution or similar transaction involving the Company or Parent, as the case
may be, or (D) any other transaction the consummation of which would or would
reasonably be expected to impede, interfere with, prevent or materially delay
the Merger or which would or would reasonably be expected to materially dilute
the benefits to the other party hereto of the transactions contemplated by this
Agreement (collectively, "Acquisition Proposals"), or agree to, recommend or
endorse any Acquisition Proposal, (ii) enter into or execute any agreement with
respect to any of the foregoing or (iii) enter into or participate in any
discussions or negotiations regarding any of the foregoing, or furnish to any
other person any information with respect to its business, properties or assets
in connection with the foregoing, or otherwise cooperate in any way with, or
participate in or assist, facilitate, or encourage, any effort or attempt by any
other person (other than the Company or Parent, as the case may be, and its
respective affiliates) to do or seek any of the foregoing. Notwithstanding
anything in this Section 7.1 to the contrary, Parent may solicit, negotiate and
agree to an offer to purchase its operating assets or business.
(b) Nothing contained in this Agreement shall prohibit the Company
or Parent (i) from complying with Rule 14e-2 and Rule 14d-9 under the Exchange
Act with respect to a bona fide tender offer or exchange offer or Section 329 of
the Israeli Companies Law, (ii) from making any disclosure of an Acquisition
Proposal to its respective shareholders or otherwise if its respective Board of
Directors concludes in good faith, within five (5) business days after
consultation with its outside legal counsel, that such disclosure is necessary
under applicable law or the failure to make such disclosure would be
inconsistent with its fiduciary duties to its respective shareholders under
applicable law or (iii) from participating in negotiations or discussions with
or furnishing information to any person in connection with an Acquisition
Proposal not solicited after the date hereof in breach of Section 7.1(a) above
and which is submitted in writing by such person to the Board of Directors of
the Company or Parent, as the case may be, after the date of this Agreement;
provided, however, that prior to participating in any such discussions or
negotiations or furnishing any information, within five (5) business days after
its receipt of the Acquisition Proposal, the Board of Directors of Parent or the
Company, as the case may be, shall have concluded in good faith, after
consultation with its outside legal counsel and financial advisors, that such
Acquisition Proposal is reasonably likely to lead to a Superior Proposal (as
hereinafter defined) and, after consultation with its outside legal counsel,
that failure to participate in such negotiations or discussions or furnishing
such information would be inconsistent with its fiduciary duties to the
shareholders of Parent or the Company, as the case may be, under applicable law.
The Company or Parent, as the case may be, shall (i) promptly notify the other
party hereto (but in no event later than two (2) business days thereafter) if
any Acquisition Proposal or inquiries regarding a potential Acquisition Proposal
are received by, any information with respect to an Acquisition Proposal or a
potential Acquisition Proposal is requested from, or any discussions or
negotiations with respect to an Acquisition Proposal or a potential Acquisition
Proposal are sought to be initiated or continued with, it or any of its
representatives indicating, in connection with such notice, the name of the
person or entity involved and a copy of any such Acquisition Proposal, with the
intent of enabling such other party to make a matching offer so that the
transactions contemplated hereby may be effected. The Company or Parent, as the
case may be, shall thereafter keep the other party hereto informed, on a current
basis, of the status and terms of any such inquiries or Acquisition Proposals
and the status of any such negotiations or discussions,. The Company or Parent,
as the case may be, shall promptly furnish the other party hereto with copies of
any written information (and advise it orally of any non-written information)
provided to or by any person relating to an Acquisition Proposal to the extent
such information has not previously been provided to such other party hereto.
(c) Prior to the Effective Time, in the event the Board of
Directors of the Company or Parent, as the case may be, by majority vote of all
its members, determines in good faith that it has received a Superior Proposal
and determines in good faith that taking the following actions would be
inconsistent with its fiduciary duties to the Company or Parent, as the case may
be, under applicable law, the Company or Parent, as the case may be, and its
respective Board of Directors may (i) withdraw, modify or change the Board of
Directors' approval or recommendation of this Agreement or the Merger,
(ii) approve or recommend such Superior Proposal to its shareholders,
(iii) terminate this Agreement and pay the Break-Up Fee (as defined in Section
7.3 hereof) and (iv) publicly announce the Board of Directors' intention to do
any or all of the foregoing.
(d) The Company and Parent will immediately cease and cause its
respective advisors, agents and other intermediaries to cease any and all
existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any Acquisition Proposal. Each of the Company and
Parent agrees not to release any third party from or waive any provisions of
confidentiality in any confidentiality agreement to which it is a party.
(e) "Superior Proposal" means a proposal with respect to any of
the transactions described in clause (A), (B), (C) or (D) of the definition of
Acquisition Proposal which the Board of Directors shall have concluded in good
faith after receiving an opinion from its outside legal counsel, (i) is
reasonably likely to be completed, taking into account all legal, financial,
regulatory and other aspects of the Acquisition Proposal and the person making
the proposal, (ii) if consummated, would result in a transaction more favorable
to the shareholders of the Company or Parent, as the case may be, from a
financial point of view than the transactions contemplated by this Agreement
(taking into account any and all modifications proposed by the Company or
Parent, as the case may be) and (iii) is fully financed (or, based on a good
faith determination of the Board of Directors, is readily financable).
7.2 Termination. This Agreement may be terminated prior to the
Effective Time:
(a) by mutual written consent of the parties hereto;
(b) by Parent or the Company (i) if the Effective Time shall not
have occurred on or prior to January 1, 2004 (the "Deadline Date") unless the
failure of such occurrence shall be due to the failure of the party seeking to
terminate this Agreement to perform or observe its agreements set forth herein
to be performed or observed by such party at or before the Effective Time;
(c) by Parent or the Company (provided that the party seeking to
terminate the Agreement shall not be in material breach of any of its
obligations herein), upon written notice to the other if any application for
regulatory or governmental approval necessary to consummate the Merger and the
other transactions contemplated hereby shall have been denied or withdrawn at
the request or recommendation of the applicable regulatory agency or
governmental authority despite the reasonable efforts of the party seeking to
terminate this Agreement to avoid such result, or if a court of competent
jurisdiction has issued a final, non-appealable order prohibiting, restraining
or enjoining the Merger and the other transactions contemplated hereby;
(d) by Parent, if a vote of the shareholders of the Company is
taken and such shareholders fail to approve this Agreement at the meeting (or
any adjournment thereof) held for such purpose;
(e) by the Company, if a vote of the shareholders of Parent is
taken and such shareholders fail to approve any of the Parent Shareholder
Proposals listed in Section 1.4(b) hereof, at the meeting (or any adjournment
thereof) held for such purpose;
(f) by Parent, if there was a material breach in any
representation, warranty, covenant, agreement or obligation of the Company
hereunder and such breach (provided it is curable and the Company promptly
commences its effort to cure) shall not have been remedied within thirty (30)
days after receipt by the Company of notice in writing from Parent to the
Company specifying the nature of such breach and requesting that it be remedied;
(g) by the Company, if there was a material breach in any
representation, warranty, covenant, agreement or obligation of Parent hereunder
and such breach (provided it is curable and Parent promptly commences its effort
to cure) shall not have been remedied within thirty (30) days after receipt by
Parent of notice in writing from the Company specifying the nature of such
breach and requesting that it be remedied;
(h) by Parent, if the conditions set forth in Section 6.2 are not
satisfied and are not capable of being satisfied by the Deadline Date;
(i) by the Company, if the conditions set forth in Section 6.3 are
not satisfied and are not capable of being satisfied by the Deadline Date; or
(j) by Parent or the Company, if (i) the other party hereto
approves or enters into an agreement providing for it to engage in a Superior
Proposal, (ii) the other party has taken any action pursuant to Section 7.1(c)
or (iii) ten (10) business days has elapsed since the Board of Directors of the
other party has determined that an Acquisition Proposal is a Superior Proposal
pursuant to Section 7.1(b)(iii) and such Board of Directors has not withdrawn
its prior determination that such Acquisition Proposal was a Superior Proposal
nor has it advised management to terminate, and caused any representative of the
other party to terminate, discussions or negotiations with or furnishing
information to the person, or any of affiliates or representatives of such
person, that had made the Acquisition Proposal.
7.3 Break-Up Fee.
(a) If the Company terminates this Agreement pursuant to Section
7.2(e), 7.2(g), 7.2(i) or 7.2(j) hereof, or Parent terminates this Agreement
pursuant to Section 7.1(c) hereof, then Parent will immediately (but in any
event within three (3) business days after Parent receives notice of
termination) pay to the Company a termination fee equal to $250,000 in cash (the
"Cash Break-Up Fee") plus the fees and expenses incurred by the Company not to
exceed $250,000; provided, however, if the Company terminates this Agreement
pursuant to Section 7.2(i) pursuant to the non-satisfaction of the condition set
forth in Section 6.3(i), then Parent shall pay to the Company the Cash Break-Up
Fee, plus an additional $100,000, plus the fees and expenses incurred by the
Company.
(b) If Parent terminates this Agreement pursuant to: Section
7.2(d); 7.2(f); 7.2(h) (except pursuant to the non-satisfaction of the condition
set forth in Section 6.2(i)); or 7.2(j) hereof; or the Company terminates this
Agreement pursuant to Section 7.1(c) hereof, then the Company will immediately
(but in any event within three business days after the Company receives notice
of termination) pay to Parent the Cash Break-Up Fee plus the fees and expenses
incurred by Parent not to exceed $250,000.
7.4 Effect of Termination. In the event of the termination and
abandonment of this Agreement by either Parent or the Company pursuant to
Section 7.2, this Agreement (other than Sections 8.1, 8.9 and 8.12 which shall
survive termination) shall forthwith become void and have no effect, without any
liability on the part of any party or its officers, directors or shareholders,
except pursuant to Section 7.3 above. Nothing contained herein, however, shall
relieve any party from any liability for any breach of this Agreement.
ARTICLE VIII
MISCELLANEOUS
8.1 Expenses.
(a) Except as otherwise expressly stated herein, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby (including legal, accounting and investment banking fees and
expenses) shall be borne by the party incurring such costs and expenses. Parent
and the Company shall each pay 50% of all expenses and fees related to filing of
the Registration Statement (including the Proxy Statement included therein) and
related documents with the SEC and filings pursuant to state blue sky laws and
regulations in connection with the Merger.
(b) Notwithstanding any provision in this Agreement to the
contrary, in the event that either of the parties shall willfully default in its
obligations hereunder, the non-defaulting party may pursue any remedy available
at law or in equity to enforce its rights and shall be paid by the willfully
defaulting party for all damages, costs and expenses, including without
limitation reasonable legal, reasonable accounting and reasonable printing
expenses, incurred or suffered by the non-defaulting party in connection
herewith or in the enforcement of its rights hereunder, including reasonable
legal fees and expenses incurred in enforcing such rights.
8.2 Survival. The respective representations, warranties, covenants and
agreements of the parties to this Agreement shall not survive the Effective
Time, but shall terminate as of the Effective Time.
8.3 Notices. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered personally
or by reputable overnight courier or sent by registered or certified mail,
postage prepaid, as follows:
If to Parent or Merger Sub, to:
PerfectData Corporation
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Chief Executive Officer
Copy to:
▇▇▇▇▇▇▇ & Masyr, LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
If to the Company, to:
SuperCom Ltd.
Millennium ▇▇▇▇▇▇▇▇
▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇.▇. ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇
Attn: Avi ▇▇▇▇▇▇▇▇▇
Chief Executive Officer
Copy to:
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
Chrysler Center
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇, Esq.
and:
▇▇▇▇▇ ▇▇▇▇▇▇▇ & Co.
3 ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇▇▇, ▇▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇▇▇▇▇▇▇, Adv.
or such other addresses as shall be furnished in writing by any party, and
any such notice or communications shall be deemed to have been given as of
the date actually received.
8.4 Parties In Interest. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors.
Nothing in this Agreement is intended to confer, expressly or by implication,
upon any other person any rights or remedies under or by reason of this
Agreement, other than Section 1.7(c) (which is intended to be for the benefit of
the persons covered thereby and may be enforced by such persons).
8.5 Entire Agreement. This Agreement, which includes the Disclosure
Schedules hereto and the other documents, agreements and instruments executed
and delivered pursuant to or in connection with this Agreement, contains the
entire Agreement between the parties hereto with respect to the transactions
contemplated by this Agreement and supersedes all prior negotiations,
arrangements or understandings, written or oral, with respect thereto.
8.6 Amendment. Subject to applicable law, this Agreement may be amended
by action taken by the parties hereto at any time before or after adoption of
this Agreement by the shareholders of the Company but, after any such adoption,
no amendment shall be made which reduces the amount or changes the form of the
consideration to be delivered to the shareholders of the Company or adversely
affects the shareholders of Parent, without the approval of the affected
shareholders. This Agreement may not be amended except by an instrument in
writing signed on behalf of all the parties hereto.
8.7 Extension; Waiver. The parties may, at any time prior to the
Effective Time of the Merger, (i) extend the time for the performance of any of
the obligations or other acts of the other parties hereto; (ii) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant thereto; or (iii) waive compliance with any of the
agreements or conditions contained herein. Any agreement on the part of any
party to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party against which the waiver is
sought to be enforced.
8.8 Descriptive Headings. The descriptive headings of this Agreement
are for convenience only and shall not control or affect the meaning or
construction of any provision of this Agreement.
8.9 Applicable Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of New York; provided,
however, that (a) any matter involving the internal corporate affairs of Parent
or any other party shall be governed by the provisions of the jurisdictions of
its incorporation and (b) the form and content of the Merger and the
consequences of the filing thereof shall be governed by the Israeli Companies
Law. Each of the parties hereto irrevocably consents to the exclusive
jurisdiction and venue of any court within the County and the State of New York,
in connection with any matter based upon or arising out of this Agreement or the
matters contemplated herein, agrees that process may be served upon them in any
manner authorized by the laws of the State of New York for such persons and
waives and covenants not to assert or plead any objection which they might
otherwise have to such jurisdiction, venue and such process except that either
party may move to remove the action from state to the federal court or vice
versa in the County and State of New York.
8.10 Waiver of Jury Trial. Each party hereto waives any right to trial
by jury with respect to any action related to or arising out of this Agreement
or any transaction contemplated hereby.
8.11 Severability. If any term or other provision of this Agreement is
held to be invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that transactions contemplated hereby are fulfilled to the extent possible.
8.12 Enforcement. The parties hereto agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in the state courts in the State of
New York, this being in addition to any other remedy to which they are entitled
at law or in equity.
8.13 Remedies Cumulative. All rights and remedies existing under this
Agreement are cumulative to, and not exclusive to, and not exclusive of, any
rights or remedies otherwise available.
8.14 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
each of which shall be deemed an original.
IN WITNESS WHEREOF, Parent and the Company have caused this Agreement to be
executed by their duly authorized officers as of the day and year first above
written.
PerfectData Corporation
By: _____________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Chief Executive Officer and
Chairman of the Board
SuperCom Ltd.
By: _____________________________
Avi ▇▇▇▇▇▇▇▇▇
Chief Executive Officer and President
By: _____________________________
▇▇▇ ▇▇▇▇▇
Chairman
PerfectData Merger Sub Ltd.
By: _____________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Director
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER AND REORGANIZATION]
Schedule 2.3(b)
ADJUSTMENT OF EXCHANGE RATIO IF PERFECTDATA HAS FINAL NET AVAILABLE CASH OF
LESS THAN $2,000,000 AT THE EFFECTIVE TIME
A = PerfectData fully-diluted shares of common stock
B = SuperCom fully-diluted shares of common stock
X = Total number of PerfectData shares to be received by SuperCom shareholders
and finders in Merger
Y = Final Net Available Cash
$2,000,000
In the event that PerfectData's cash and cash equivalents are less than
$2,000,000, the base percentages used to calculate the adjusted exchange ratio
shall reflect the agreement between the parties that the Finders' fees as a
percentage of the total post-merger fully diluted shares will be reduced to an
aggregate of 5.5% (from 6%) and the resulting PerfectData shareholders
percentage ownership will be increased to 22% (from 21.5%).
FORMULA:
X = 1 - (.22 x Y)
---------------
X + A
Adjusted Exchange Ratio = X - [(X + A) x (.055 x Y)]
------------------------------
B
______________________________________________________________________________
Assuming that PerfectData has 6,598,030 fully-diluted shares and SuperCom has
14,496,417 fully-diluted shares:
If Final Net Available Cash is $1,500,000: Adjusted Exchange Ratio = 2.1895426
Post-merger percentage ownership
SuperCom: 79.375%
PerfectData: 16.5%
Finders: 4.125%
If Final Net Available Cash is $1,600,000: Adjusted Exchange Ratio = 2.0171376
Post-merger percentage ownership
SuperCom: 78.0%
PerfectData: 17.6%
Finders: 4.4%
If Final Net Available Cash is $1,750,000: Adjusted Exchange Ratio = 1.7954742
Post-merger percentage ownership
SuperCom: 75.9%
PerfectData: 19.25%
Finders: 4.8125%
Schedule 6.3(e)
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Digital Trust
Schedule 6.3(f)
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Digital Trust
