EXHIBIT 2.1
Share Purchase Agreement
Dated as of March 21, 2000
among
Virata Corporation
and
▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇ Student
▇▇▇▇▇ St. ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇
Holland Venture B.V.
Docor International B.V.
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TABLE OF CONTENTS
Page
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ARTICLE I DEFINITIONS 1
ARTICLE II PURCHASE AND SALE OF SHARES 6
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS 7
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS 8
REGARDING THE COMPANY AND INVERNESS-U.S.
Section 4.1 Organization and Qualification; Subsidiaries; Investments 8
Section 4.2 Capitalization of the Company and its Subsidiaries 9
Section 4.3 Financial Statements 9
Section 4.4 Consents and Approvals; No Violations 10
Section 4.5 No Default 10
Section 4.6 No Undisclosed Liabilities; Absence of Changes 11
Section 4.7 Indebtedness; Bank Accounts; Receivables; Customers 12
Section 4.8 Litigation 13
Section 4.9 Compliance with Applicable Law 13
Section 4.10 Title to Properties; Absence of Liens and Encumbrances 13
Section 4.11 Employee Benefit Placs; Labor Matters 14
Section 4.12 Agreements, Scheduled Contracts and Commitments 16
Section 4.13 Interested Party Transactions 18
Section 4.14 Environmental Laws and Regulations 19
Section 4.15 Taxes 20
Section 4.16 Intellectual Property 21
a
Section 4.17 Insurance 27
Section 4.18 Certain Business Practices 27
Section 4.19 Restrictions on Business Activities 27
Section 4.20 Product and Service Warranties 27
Section 4.21 Suppliers 28
Section 4.22 Brokers 28
Section 4.23 28
ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT 28
Section 5.1 Organization 28
Section 5.2 Capitalization of Parent and its Subsidiaries 29
Section 5.3 Authority Relative to this Agreement 29
Section 5.4 SEC Reports; Financial Statements 30
Section 5.5 Consents and Approvals; No Violations 31
Section 5.6 Sophisticated Investor 31
Section 5.7 Access to Information 31
Section 5.8 Brokers 31
ARTICLE VI COVENANTS 31
Section 6.1 Conduct of Business of the Company 31
Section 6.2 No Solicitation or Negotiation 35
Section 6.3 Comfort Letter 36
Section 6.4 Access to Information 36
Section 6.5 Certain Filings; Reasonable Efforts 37
Section 6.6 Public Announcements 37
b
Section 6.7 Conduct of Business of Parent 37
Section 6.8 Notification of Certain Matters 38
Section 6.9 Additional to and Modifications of Disclosed Schedule 38
Section 6.10 Employee Matters 38
ARTICLE VII CONDITIONS TO CONSUMMATION OF THE TRANSACTIONS
CONTEMPLATED HEREBY 39
Section 7.1 Conditions to Each Party's Obligations to Effect the Transactions 39
Section 7.2 Conditions to the Obligations of the Shareholder 40
Section 7.3 Conditions to the Obligations of Parent 40
ARTICLE VIII TERMINATION; AMENDMENT; WAIVER 42
Section 8.1 Termination 42
Section 8.2 Effect of Termination 43
Section 8.3 Fees and Expenses 44
Section 8.4 Amendment 45
Section 8.5 Extension; Waiver 45
ARTICLE IX INDEMNIFICATION 45
Section 9.1 General Survival 45
Section 9.2 Indemnification Provisions in General 46
Section 9.3 Manner of Indemnification 47
Section 9.4 Shareholders' Agent 47
Section 9.5 Third-Party Claims 48
Section 9.6 Special Tax Indemnification 49
ARTICLE X MISCELLANEOUS 49
Section 10.1 Entire Agreement; Assignment 49
c
Section 10.2 Validity 49
Section 10.3 Notices 50
Section 10.4 Governing Law; Venue; Specific Performance; Waiver of Jury Trial 51
Section 10.5 Descriptive Headings and Section References 52
Section 10.6 Parties in Interest 52
Section 10.7 Personal Liability 52
Section 10.8 Counterparts 52
d
SHARE PURCHASE AGREEMENT
------------------------
This Share Purchase Agreement (this "Agreement") is made and entered into
this 21st day of March 2000 by and between Virata Corporation, a California
corporation ("Parent") and ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ("JMasel"), ▇▇▇▇▇▇ ▇▇▇▇▇ ("▇▇▇▇▇▇
▇▇▇▇▇"), ▇▇▇▇▇▇▇▇ Student ("MStudent"), ▇▇▇▇▇ St. ▇▇▇▇▇▇▇ ("DSt.▇▇▇▇▇▇▇"), ▇▇▇▇▇
▇▇▇▇▇ ("PSimon"), Holland Venture B.V. ("HVenture") and Docor International B.V.
("DInternational and, together with JMasel, ▇▇▇▇▇▇ ▇▇▇▇▇, MStudent, DSt.▇▇▇▇▇▇▇,
PSimon and HVenture, individually a "Shareholder" and collectively the
"Shareholders").
RECITALS:
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1. The Shareholders are the shareholders of Inverness Systems Ltd., an
Israeli company (company no. 51-178660-0) (the "Company").
2. Each of the Shareholders owns the number of the issued ordinary and
preferred shares of the Company, nominal value NIS0.01 per share (collectively,
the "Shares"), of the Company set opposite his name in Schedule 4.2 hereto,
which Shares in the aggregate represent all of the issued shares of the Company.
3. The Parent desires to purchase from the Shareholders, and the
Shareholders desire to sell to Parent, the Shares on the terms and conditions
hereinafter set forth.
AGREEMENT:
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NOW, THEREFORE, in consideration of the foregoing recitals and
representations, warranties and covenants herein set forth, the parties hereto
agree as follows:
ARTICLE I
Definitions
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The following terms shall have the following meanings when used in this
Agreement:
"affiliate" means a person that, directly or indirectly, through one or
more intermediaries controls, or is controlled by or is under common control
with the first-mentioned person; for the purposes of this definition, "control"
will mean, as to any person, the power to direct or cause the direction of the
management and policies of such person, whether through the members of the
voting securities or memberships on the board of directors, by contract or
otherwise;
"Agreement" has the meaning specified in the Preamble;
"Bid" has the meaning specified in Section 4.12(c)(ii);
"business day" means any day other than a day on which the Nasdaq National
Market or banks in Tel Aviv are closed;
"Business System" has the meaning specified in Section 4.16(o);
1
"Closing" has the meaning specified in Section 2.3;
"Closing Date" has the meaning specified in Section 2.3;
"Code" has the meaning specified in Section 4.15(b);
"Company" has the meaning specified in the Recitals;
"Company Balance Sheet" has the meaning specified in Section 4.3(a);
"Company Balance Sheet Date" has the meaning specified in Section 4.3(a);
"Company Securities" has the meaning specified in Section 4.2(a);
"Contaminant" has the meaning specified in Section 4.16(r);
"Contingent Obligation" has the meaning specified in Section 4.7(a);
"Copyrights" has the meaning specified in Section 4.16(a);
"Disabling Code" has the meaning specified in Section 4.16(r);
"Disclosure Schedule" has the meaning specified in the preamble to Article
IV;
"ERISA" means the U.S. Employee Retirement and Income Security Act of 1974,
as amended;
"ERISA Affiliate" means any trade or business (whether or not incorporated)
that is a member of a controlled group including the Company or that is under
common control with the Company within the meaning of Section 414 of the Code;
"Escrow Agent" has the meaning specified in the Share Purchase
Indemnification Escrow Agreement;
"Environmental Laws" has the meaning specified in Section 4.14(a);
"Environmental Claim" has the meaning specified in Section 4.14(a);
"Final Date" has the meaning specified in Section 8.1(b);
"Financial Statements" has the meaning specified in Section 4.3(a);
"Floor" has the meaning specified in Section 9.2(c);
"Government Contract" has the meaning specified in Section 4.12(c)(iii);
"Governmental Entity" has the meaning specified in Section 4.4;
"Hazardous Substance" has the meaning specified in Section 4.14(c);
2
"Inbound License Agreements" has the meaning specified in Section 4.16(e);
"include" or "including" means "include, without limitation" or "including,
without limitation," as the case may be, and the language following "include" or
"including" shall not be deemed to set forth an exhaustive list;
"Indebtedness" has the meaning specified in Section 4.7(a);
"Indemnitees" has the meaning specified in Section 9.2(a);
"Insurance Policies" has the meaning specified in Section 4.17;
"Intellectual Property" has the meaning specified in Section 4.16(a);
"Inverness Permits" has the meaning specified in Section 4.9;
"Inverness-US" has the meaning specified in Section 4.1(a);
"JMasel" has the meaning specified in the Preamble;
"Joint Tax Escrow Agents" has the meaning specified in Section 2.2;
"knowledge" or "known" means, with respect to any fact, circumstance, event
or other matter in question, the knowledge of such fact, circumstance, event or
other matter, in the case of the Shareholders, of JMasel JMasel will be deemed
to have knowledge of a particular fact, circumstance, event or other matter if
(i) he has actual knowledge of such fact, circumstance, event or other matter,
(ii) such fact, circumstance, event or other matter is reflected in one or more
documents (whether written or electronic, including e-mails sent to or by him)
in, or that have been in, his possession, including his personal files, or (iii)
such fact, circumstance, event or other matter is reflected in one or more
documents (whether written or electronic) contained in books and records of the
Company that would reasonably be expected to be reviewed by a person who has the
duties and responsibilities of JMasel in the customary performance of such
duties and responsibilities;
"Lien" means, with respect to any asset (including any security), any
mortgage, lien, pledge, charge, security interest or encumbrance of any kind in
respect of such asset; provided, however, that the term "Lien" shall not include
(i) statutory liens for Taxes that are not yet due and payable or are being
contested in good faith by appropriate proceedings or that are otherwise not
material and are fully reserved against in the Financial Statements, (ii)
statutory or common law liens to secure obligations to landlords, lessors or
renters under leases or rental agreements confined to the premises rented, (iii)
deposits or pledges made in connection with, or to secure payment of, workers'
compensation, unemployment insurance, old age pension or other social security
programs mandated under applicable laws, (iv) statutory or common law liens in
favor of carriers, warehousemen, mechanics and materialmen, to secure claims for
labor, materials or supplies and other like liens, and (v) restrictions on
transfer of securities imposed by applicable state and federal securities laws;
"Losses" has the meaning specified in Section 9.2(a)(ii);
3
"Material Adverse Effect on the Company" has the meaning specified in
Section 4.1(b);
"Material Adverse Effect on Parent" has the meaning specified in Section
5.1(b);
"Outbound License Agreements" has the meaning specified in Section 4.16(e);
"Owned Software" has the meaning specified in Section 4.16(l);
"Parent" has the meaning specified in the preamble;
"Parent Common Stock" means the fully paid and nonassessable shares of
common stock of the Parent, par value $0.001 per share;
"Parent Interim Financial Statements" has the meaning specified in Section
5.4(b);
"Parent Reserved Shares" has the meaning specified in Section 5.2(a);
"Parent SEC Reports" has the meaning specified in Section 5.4(a);
"Parent Securities" has the meaning specified in Section 5.2(a);
"Parent Shares" has the meaning specified in Section 2.2;
"Patents" has the meaning specified in Section 4.16(a);
"person" means an individual, corporation, partnership, limited liability
company, association, trust, unincorporated organization or other legal entity
including any Governmental Entity;
"Prohibited Action" has the meaning specified in Section 6.1;
"Receivables" has the meaning specified in Section 4.7(c);
"Registration Rights Agreement" has the meaning specified in Section
7.1(d);
"Ruling" has the meaning specified in Section 7.2(e);
"Scheduled Contract" has the meaning specified in Section 4.12(d);
"SEC" has the meaning specified in Section 5.4(a);
"Share Purchase Indemnification Escrow Agreement" has the meaning specified
in Section 2.2;
"Share Purchase Indemnification Escrow Amount" has the meaning specified in
Section 2.2;
"Shareholder" has the meaning specified in the preamble;
4
"Shareholders" has the meaning specified in the preamble;
"Shareholders' Agent" has the meaning specified in Section 9.4;
"Shares" has the meaning specified in the Recitals;
"Software" has the meaning specified in Section 4.16(l);
"Software Products" has the meaning specified in Section 4.16(m);
"subsidiary" or "subsidiaries" of the Company or Parent or any other person
means any corporation, partnership, limited liability company, association,
trust, unincorporated association or other legal entity of which the Company or
Parent or any such other person, as the case may be (either alone or through or
together with any other subsidiary), owns, directly or indirectly, 50% or more
of the shares the holders of which are generally entitled to vote for the
election of the board of directors or other governing body of such corporation
or other legal entity;
"Survival Period" has the meaning specified in Section 9.1;
"Survival Period Indemnification Claim" has the meaning specified in
Section 9.2(b);
"Systems" has the meaning specified in Section 4.16(r);
"Tax or Taxes" has the meaning specified in Section 4.15(a)(i);
"Tax Returns" has the meaning specified in Section 4.15(a)(ii);
"Tax Escrow Agreement" has the meaning specified in Section 2.2;
"Tax Escrowed Shares" has the meaning specified in Section 2.2.;
"Three Day Average Trailing Price" has the meaning specified in Section
2.2;
"Trademarks" has the meaning specified in Section 4.16(a);
"Trade Secrets" has the meaning specified in Section 4.16(a);
"Transaction Documents" means, collectively, this Agreement (including the
Schedules and Exhibits hereto), the Share Purchase Indemnification Escrow
Agreement, the Tax Escrow Agreement, the Registration Rights Agreement and each
of the other agreements, documents, exhibits, schedules and instruments
contemplated hereby and thereby;
"U.S. Exchange Act" has the meaning specified in Section 5.4(a);
"U.S. Securities Act" has the meaning specified in Section 5.4(a);
"Year 2000 Compliant" has the meaning specified in Section 4.16(o);
5
ARTICLE II
Purchase and Sale of Shares
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2.1 Purchase of Shares from Shareholders. On the terms and subject
------------------------------------
to the conditions set forth herein, at the Closing (as that term is defined in
Section 2.3 hereof), each Shareholder shall sell, transfer, convey, assign and
deliver to Parent, and Parent shall purchase, acquire and accept from each
Shareholder, all the Shares owned by such Shareholder. At the Closing, each
Shareholder shall deliver to Parent certificates representing the Shares owned
by such Shareholder accompanied by duly signed share transfer deeds dated the
Closing Date and Parent shall be registered as the owner of the Shares in the
membership registry of the Company. The purchase price for the Shares shall be
paid in accordance with the terms of Section 2.2 hereof.
2.2 Purchase Price for Shares. Subject to the two next succeeding
-------------------------
sentences, the aggregate purchase price to be paid by Parent for the Shares
shall be equal to 850,000 fully paid and nonassessable shares of common stock,
par value U.S.$0.001 per share, of Parent (collectively, the "Parent Shares").
If the average of the NASDAQ Market System closing prices for the shares of
common stock of Parent during the three trading days prior to the Closing Date
(the "Three Day Trailing Average Price") is (a) less than $115 per share, the
number of Parent Shares to be issued to the Shareholders shall be increased to
an amount equal to the product of 850,000 multiplied times the quotient of (i)
----------------
U.S.$115 divided by (ii) the Three Day Trailing Average Price; or (b) greater
than U.S.$165 per share, the number of Parent Shares to be issued to the
Shareholders shall be decreased to an amount equal to the product of 850,000
multiplied times the quotient of (i) U.S.$165, adjusted for any split of
----------------
Parent's common stock effected after the date of this Agreement and before the
Closing Date, divided by (ii) the Three Day Trailing Average Price.
Notwithstanding the preceding sentence, if the Closing does not occur prior to
or on April 25, 2000, the number of Parent Shares to be issued to the
Shareholders on the Closing Date shall be fixed in accordance with the two
immediately preceding sentences as though the Closing occurred on April 25,
2000.
A number of the Parent Shares equal to 10% thereof of the Parent
Shares issued to each of the Shareholders other than JMasel and 15% of the
Parent Shares issued to JMasel (the "Share Purchase Indemnification Escrow
Amount") shall be delivered to the Escrow Agent to be held for the period of
time and subject to the other terms of an escrow agreement substantially in the
form of Exhibit A (the "Share Purchase Indemnification Escrow Agreement").
Subject to the provisions of the next succeeding paragraph, the remaining
balance of the Parent Shares shall be distributed to the Shareholders pro rata
based upon the Shareholders' ownership of the Shares as set forth in Schedule
4.2 hereof.
Parent shall withhold upon consummation of the transactions
contemplated hereby all amounts required by law to be withheld unless Parent
shall have received confirmation to its satisfaction that it can withhold any
lower amount (including exemption from withholding) for Israeli taxes.
If any of HVenture, DInternational or DSt.▇▇▇▇▇▇▇ do not deliver such
confirmation, an amount of Parent Shares equal to 25% of the total member of
Parent Shares issued to HVenture, DInternational or DSt.▇▇▇▇▇▇▇ respectively,
(in each case, the "Tax Escrowed Shares"), as the
6
case may be, shall be delivered to ▇▇▇▇▇▇, ▇▇▇ & ▇▇▇▇▇▇ and Eitan, Pearl, ▇▇▇▇▇▇
& ▇▇▇▇▇ Zedek, acting as joint escrow agents (the "Joint Tax Escrow Agents")
pursuant to the tax escrow agreement which is satisfactory in form and substance
to Parent (the "Tax Escrow Agreement").
Parent shall be entitled to take all necessary steps, including a sale
of any part of the Parent Shares due to any Shareholder, in order to meet its
withholding obligation, provided that at least five days prior notice has been
provided to the Shareholders whose Shares are contemplated to be sold and such
Shareholder does not provide Parent with confirmation to Parent's satisfaction
that it can withhold any lower amount (including exemption from withholding) for
Israeli taxes.
2.3 Closing; Closing Date. The closing of the transactions
---------------------
contemplated hereby (the "Closing") shall take place on such date (the "Closing
Date") as soon as practicable after the date of this Agreement and at such time
and place as are agreed by Parent and the Shareholders' Agent. All transactions
contemplated hereunder including without limitation the exchange of the Shares
for the Parent Shares shall be deemed to occur simultaneously at, and subject
to, the completion of the Closing.
ARTICLE III
Representations and Warranties of the Shareholders Regarding the Shares
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3. Each Shareholder individually on his own behalf and not jointly
with any other Shareholder represents and warrants to Parent that:
(a) Such Shareholder has good and marketable title to the Shares
which are to be transferred to the Parent by such Shareholder pursuant hereto,
free and clear of any and all covenants, conditions, restrictions, voting trust
arrangements or Liens, options or adverse claims or rights whatsoever;
(b) Such Shareholder has the full right, power and authority to
enter into this Agreement and to transfer, convey and sell to Parent at the
Closing the Shares to be sold to the Parent by such Shareholder hereunder at the
Closing, the Parent will acquire from such Shareholder good and marketable title
to the Shares to be sold to the Parent by such Shareholder, free and clear of
all covenants, conditions, restrictions, voting trust arrangements or Liens,
options or adverse claims or rights whatsoever;
(c) Other than as set forth in Section 3(c) of the Disclosure
Schedule, such Shareholder is not a party to, subject to or bound by any
agreement or judgment, order, writ, prohibition, injunction or decree of any
court or other governmental body which would prevent the execution or delivery
of this Agreement by such Shareholder to the Parent or the transfer, conveyance
and sale of the Shares to be sold by such Shareholder to the Parent pursuant to
the terms hereof;
(d) No broker or finder has acted for such Shareholder in
connection with this Agreement or the transactions contemplated hereby, and no
broker or finder is entitled to any brokerage or finder's fees or other
commissions in respect of such transactions based in any way
7
on agreements, arrangements or understandings made by or on behalf of such
Shareholder; and
(e) Any rights of first refusal affecting the Shares to be sold to
the Parent by such Shareholder, whether set out in the Constitutional Documents
of the Company or otherwise have been waived in writing by all parties holding
such rights and copies of such waivers have been delivered to the Parent.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS REGARDING THE COMPANY AND
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INVERNESS-U.S.
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The Shareholders hereby represent and warrant severally to Parent, subject
to the exceptions set forth in the Disclosure Schedule (the "Disclosure Schedule
delivered by the Shareholders to the Parent (which exceptions, to the best
efforts of the Shareholders, shall specifically identify a Section or subsection
hereof, as applicable, to which such exception relates, it being understood that
notwithstanding such best efforts, except in the case of any exception which
relates to Section 4.1, Section 4.2, Section 4.3, Section 4.4, Section 4.6,
Section 4.10, Section 4.11, Section 4.15, Section 4.16 or Section 4.19, any
failure to so specifically identify the section or subsection in respect of an
exception shall not precipitate a breach of a representation or warranty so long
as such exception is listed elsewhere in the Disclosure Schedule) that:
Section 4.1. Organization and Qualification; Subsidiaries;
---------------------------------------------
Investments.
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(a) Section 4.1(a) of the Disclosure Schedule sets forth, as of the
date of this Agreement, a true and complete list of the authorized and issued
shares of Inverness Systems, Inc., a Delaware corporation ("Inverness-U.S.").
Each of the Company and Inverness-U.S. is duly organized and validly subsisting
under the laws of the jurisdiction of its incorporation and has all requisite
power and authority to own, lease and operate its properties and to carry on its
businesses as now being conducted. The Company has heretofore delivered to the
Parent accurate and complete copies of the Constitutional Documents, as
currently in full force and effect, of the Company and Inverness-U.S. The
Company has no subsidiaries other than Inverness-U.S. and has no equity
investments in any other person.
(b) Other than as set forth in Section 4.1(b) of the Disclosure
Schedule, each of the Company and Inverness-U.S. is duly qualified or licensed
and in good standing to do business in each jurisdiction in which the property
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification or licensing necessary, except in such jurisdictions
where the failure to be so duly qualified or licensed and in good standing would
not, individually or in the aggregate, have a Material Adverse Effect on the
Company. The term "Material Adverse Effect on the Company" means any
circumstance, change in, or effect on the Company and Inverness-U.S., taken as a
whole, (i) that is, or is reasonably likely in the future to be, materially
adverse to the operations, assets or liabilities (including contingent
liabilities), earnings or results of operations, the business (financial or
otherwise) or prospects of the Company and Inverness-U.S., taken as a whole or
(ii) that would reasonably be expected to prevent or materially delay or impair
the ability of the Shareholders to consummate the
8
transactions contemplated hereby; provided, however, that such term shall not
include any circumstance or change related to (i) general economic conditions;
or (ii) any material adverse effect in relationships with customers arising from
the announcement of the transactions contemplated hereby.
Section 4.2. Capitalization of the Company and its Subsidiaries.
--------------------------------------------------
(a) The authorized capitalization of the Company, the number of shares
of each class of the Company which are issued (and which collectively constitute
the Shares) and the holders of such shares are set forth in Schedule 4.2 of the
Disclosure Schedule. All of the Shares have been validly issued and are fully
paid, nonassessable and free of preemptive rights, or alternatively, all such
preemptive rights have been waived in respect to the Shares. As of the date
hereof, 300,000 shares of the Company are reserved for issuance and are issuable
upon or otherwise deliverable in connection with the exercise of outstanding
share options issued pursuant to the Company's share option plan(s). As of the
date hereof, there are outstanding 375,000 Company share options. The
outstanding Company share options are owned of record by those persons, in the
amounts, at the exercise price and on the vesting schedule, all as set forth in
Section 4.2 of the Disclosure Schedule. Except as set forth above or in Section
4.2 of the Disclosure Schedule, there are outstanding (i) no shares or other
voting securities of the Company, (ii) no securities of the Company or
Inverness-U.S. convertible into or exchangeable or exercisable for shares of the
Company, (iii) no options or other rights to acquire from the Company or
Inverness-U.S., and no obligations of the Company or Inverness-U.S. to issue,
any shares, capital stock or securities convertible into or exchangeable or
exercisable for shares of the Company and (iv) no equity equivalent interests in
the ownership or earnings of the Company or Inverness-U.S. or other similar
rights (collectively "Company Securities"). Except as set forth in Section 4.2
of the Disclosure Schedule, as of the date hereof, there are no outstanding
rights or obligations of the Company or Inverness-U.S. to repurchase, redeem or
otherwise acquire any Company Securities and there are no shareholder
agreements, voting trusts or other agreements or understandings to which the
Company or any Shareholder is a party or by which it is bound relating to the
voting or registration of any shares of the Company.
(b) All of the outstanding shares of Inverness-U.S. are owned by the
Company, directly, free and clear of any Lien or any other limitation or
restriction (including any restriction on the right to vote or sell the same
except as may be provided as a matter of law).
Section 4.3. Financial Statements.
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(a) The Company has delivered to Parent copies of financial statements
(hereinafter collectively called the "Financial Statements"as set forth in
Exhibit B, which have been prepared in all material respects in accordance with
U.S. generally accepted accounting principles consistently applied and
maintained throughout the periods indicated and fairly present the consolidated
financial condition of the Company and at their respective dates and the results
of its operations for the periods covered thereby (subject to normal year-end
adjustments and except that any unaudited financial statements do not contain
all required footnotes) as follows: (i) preliminary consolidated balance sheet
of the Company at December 31, 1999; (ii) the consolidated related statement of
earnings/operations for the fiscal year ended December 31, 1999; and (iii)
audited consolidated balance sheets of the Company as at
9
December 31, 1997 and 1998 and the related consolidated statements of operations
for the years ended December 31, 1997 and 1998, accompanied by the audit
opinions thereon of Ernst & Young, the Company's independent public accountants.
The consolidated balance sheet of the Company at December 31, 1999 is referred
to herein as the "Company Balance Sheet and the date thereof is referred to
herein as the "Company Balance Sheet Date."
Except as set forth in the Financial Statements, with respect to the
Financial Statements other than the unaudited financial statements for the year
ended December 31, 1999, such statements of earnings/operations do not contain
any items of special or nonrecurring revenue or any other income not earned in
the ordinary course of business except as expressly specified therein, and the
interim financial statements include all adjustments, which consist only of
normal recurring accruals, necessary for a fair presentation. All inventories
of raw materials, work-in-process and finished goods set forth and reflected in
the Company Balance Sheet, as well as any inventory the Company has directed any
of its manufacturing subcontractors to procure and manufacture on the Company's
behalf, were acquired in the ordinary course of business consistent with past
practice. All such inventories consist of a quality and quantity usable and
saleable (free of any material defect or deficiency) in the ordinary course of
business, consistent with past practice, except for slow-moving, damaged or
obsolete items and materials of below standard quality, all of which have been
written down to net realizable value or in respect of which adequate reserves
have been provided, in each case as fully reflected in the Company Balance
Sheet.
Section 4.4. Consents and Approvals; No Violations. Except as set forth
-------------------------------------
in Section 4.4 of the Disclosure Schedule, no filing with or notice to and no
permit, authorization, consent or approval of any relevant court or tribunal, or
relevant administrative, governmental or regulatory body, agency or authority (a
"Governmental Entity") is necessary for the execution and delivery by the
Shareholders of this Agreement or any of the other Transaction Documents to
which any Shareholder is a party or the consummation by the Shareholders of the
transactions contemplated hereby and thereby. Neither the execution, delivery
and performance of this Agreement or any of the other Transaction Documents to
which any Shareholder is a party nor the consummation by the Shareholders of the
transactions contemplated hereby and thereby will (i) conflict with or result in
any breach of any provision of the Constitutional Documents of the Company or
Inverness-U.S., (ii) except as set forth in Section 4.4 of the Disclosure
Schedule, result in a violation or breach of or constitute (with or without due
notice or lapse of time or both) a default (or give rise to any right of
termination, amendment, cancellation or acceleration or Lien) under any note,
bond, mortgage, indenture, lease, license, contract, agreement or other
instrument or obligation to which the Company or Inverness-U.S. is a party or by
which any of them or any of their respective properties or assets may be bound
or (iii) violate any order, writ, injunction, decree, law, statute, rule or
regulation applicable to the Company or Inverness-U.S. or any of their
respective properties or assets.
Section 4.5. No Default. Except as set forth in Section 4.5 of the
----------
Disclosure Schedule, neither the Company nor Inverness-U.S. is in breach,
default or violation (and no event has occurred that with notice or the lapse of
time or both would constitute a breach, default or violation) of any term,
condition or provision of (i) its Constitutional Documents, (ii) any note, bond,
mortgage, indenture, or license or other material, contract, agreement or
instrument or obligation to which the Company or Inverness-U.S. is now a party
or by which it or any of its
10
properties or assets may be bound or (iii) any order, writ, injunction, decree,
law, statute, rule or regulation applicable to the Company or Inverness-U.S. or
any of its properties or assets.
Section 4.6. No Undisclosed Liabilities; Absence of Changes. Except as
----------------------------------------------
and to the extent set forth in Section 4.6 of the Disclosure Schedule or as and
to the extent expressly set forth or provided for or reserved against in the
Company Balance Sheet, neither the Company nor Inverness-U.S. has any
liabilities or obligations of any nature, whether or not accrued, contingent or
otherwise, that would be required by generally accepted accounting principles to
be reflected on a balance sheet of the Company (including the notes thereto),
other than liabilities and obligations which, individually or in the aggregate,
will not have a Material Adverse Effect on the Company, liabilities or
obligations incurred in the ordinary course of business since the Company
Balance Sheet Date, and liabilities and obligations incurred in connection with
this Agreement. Except as and to the extent set forth in Section 4.6 of the
Disclosure Schedule, since the Company Balance Sheet Date, there have been no
events, changes or effects with respect to the Company or Inverness-U.S. that
have had or would reasonably be expected to have a Material Adverse Effect on
the Company. Without limiting the generality of the foregoing, except as and to
the extent as set forth in Section 4.6 of the Disclosure Schedule, since the
Company Balance Sheet Date, the Company and Inverness-U.S. have conducted their
respective businesses in all material respects only in, and have not engaged in
any material transaction other than according to, the ordinary and usual course
of such businesses consistent with past practices, and there has not been any
(i) material adverse change in the financial condition, properties, business,
results of operations or prospects of the Company and Inverness-U.S.; (ii)
material damage, destruction or other casualty loss with respect to any material
asset or property owned, leased or otherwise used by the Company or Inverness-
U.S., not covered by insurance; (iii) declaration, setting aside or payment of
any dividend or other distribution in respect of any shares of the Company or
Inverness-U.S. (other than to the Company) or any repurchase, redemption or
other acquisition by the Company or Inverness-U.S. of any outstanding shares or
other securities of, or other ownership interests in, the Company or Inverness-
U.S.; (iv) amendment of any material term of any outstanding security of the
Company or Inverness-U.S.; (v) incurrence, assumption or guarantee by the
Company or Inverness-U.S. of any indebtedness for borrowed money other than in
the ordinary course of business and in amounts and on terms consistent with past
practices (but in all events not exceeding U.S.$50,000 or the equivalent thereof
in the aggregate); (vi) creation or assumption by the Company or Inverness-U.S.
of any Lien on any material asset other than in the ordinary course of business
consistent with past practices (not exceeding U.S.$50,000 or the equivalent
thereof in the aggregate with respect to the Indebtedness underlying such
Liens); (vii) loan, advance or capital contributions made by the Company or
Inverness-U.S. to, or investment in, any person other than (x) loans or advances
to employees in connection with business-related travel, (y) loans made to
employees consistent with past practices that are not in the aggregate in excess
of U.S.$50,000 or the equivalent thereof, and (z) loans, advances or capital
contributions to or investments by the Company in Inverness-U.S., and in each
case made in the ordinary course of business consistent with past practices;
(viii) any transaction or commitment made, or any contract or agreement entered
into, by the Company or Inverness-U.S. relating to any of its assets or business
(including the acquisition or disposition of any assets) or any relinquishment
by the Company or Inverness-U.S. of any contract, agreement or other right, in
any case, material to the Company and Inverness-U.S., taken as a whole, other
than transactions and commitments in the ordinary course of business consistent
with past practices and those contemplated by this Agreement; or
11
(ix) change by the Company or Inverness-U.S. in its accounting principles,
practices or methods. Since the Company Balance Sheet Date, except for increases
in the ordinary course of business consistent with past practices, there has not
been any increase in the compensation payable or that could become payable by
the Company or Inverness-U.S. to (a) officers of the Company or Inverness-U.S.
or (b) any employee of the Company or Inverness-U.S. whose annual cash
compensation is the equivalent of U.S.$110,000 or more.
Section 4.7. Indebtedness; Bank Accounts; Receivables; Customers.
----------------------------------------------------
(a) Section 4.7(a) of the Disclosure Schedule provides accurate and
complete information (including amount and name of payee) with respect to all
Indebtedness of the Company or Inverness-U.S.. For purposes hereof,
"Indebtedness" of any person means all items of indebtedness of such person for
borrowed money and purchase money indebtedness, including without limitation
capitalized lease obligations, which in accordance with generally accepted
accounting principles, would be included in determining liabilities as shown on
the liability side of the balance sheet of such person as of the date as of
which indebtedness is to be determined, and also includes all Contingent
Obligations. For purposes hereof, "Contingent Obligation" means, as applied to
any person, any liability, contingent or otherwise, of that person with respect
to any Indebtedness, capital lease (other than as lessor), dividend, letter of
credit, surety bond, or other obligation of another, including, without
limitation, any such obligation guaranteed, endorsed (other than for collection
or deposit in the ordinary course of business), co-made or discounted or sold
with recourse by that person, or in respect of which that person is otherwise
liable. The amount of any Contingent Obligation shall be equal to the amount of
the obligation so guarantied or otherwise supported.
(b) Section 4.7(b) of the Disclosure Schedule provides the account
numbers, type of account and names of all individuals authorized to draw on or
make withdrawals from each account maintained by or for the benefit of the
Company or Inverness-U.S. at any bank or other financial institution.
(c) Section 4.7(c) of the Disclosure Schedule provides an accurate and
complete breakdown and aging of all accounts receivable, notes receivable and
other receivables of the Company or Inverness-U.S. (collectively, "Receivables")
as of the Company Balance Sheet Date. Except as set forth in Section 4.7(c) of
the Disclosure Schedule, all existing Receivables (including those Receivables
reflected on the Company Balance Sheet that have not yet been collected and
those Receivables that have arisen since the Company Balance Sheet Date and have
not yet been collected) (i) represent valid obligations of customers of the
Company or Inverness-U.S. arising from bona fide transactions entered into in
the ordinary course of business, and (ii) have been collected or are current and
will be collected by the Company or Inverness-U.S. (without any counterclaim or
set-off) within ninety (90) days after the date due or, with respect to those
Receivables already more than 90 days past due, 45 days after the Closing Date,
in each case net of an allowance for doubtful accounts not to exceed amounts
reserved for on the Company Balance Sheet.
(d) Section 4.7(d) of the Disclosure Schedule identifies and provides
an accurate and complete breakdown of the revenues received from each customer
or other person that accounted for more than U.S.$50,000 or the equivalent
thereof of the revenues of the
12
Company or Inverness-U.S. in the fiscal year ended on the Company Balance Sheet
Date, and identifies each customer that is obligated to make payments to the
Company or Inverness-U.S. in an aggregate amount exceeding U.S.$50,000 or the
equivalent thereof per year. Neither the Company nor Inverness-U.S. has received
any written notice indicating that any customer or other person identified in
Section 4.7(d) of the Disclosure Schedule intends or expects to cease dealing
with the Company or Inverness-U.S. or to effect a material reduction in the
volume of business transacted by such person with the Company or Inverness-U.S.
below historic levels.
(e) The Shareholders are not aware of any customer of the Company or
Inverness-U.S. with a current claim for refund of all or part of the price paid
for the Company's or Inverness-U.S.'s services or products.
Section 4.8. Litigation. There is no suit, claim, action, proceeding or
----------
investigation pending or, to the knowledge of the Shareholders, threatened
against the Company or Inverness-U.S. or any of their respective properties or
assets before any Governmental Entity. Neither the Company nor Inverness-U.S.
is subject to any outstanding order, writ, injunction or decree other than as
may have been issued ex parte of which the Shareholders have no knowledge.
Section 4.9. Compliance with Applicable Law. The Company and Inverness-
------------------------------
U.S. hold all permits, licenses, variances, exemptions, orders and approvals of
all Governmental Entities necessary for the lawful conduct of their respective
businesses (the "Inverness Permits"), except for failures to hold such permits,
licenses, variances, exemptions, orders and approvals that would reasonably be
expected to, individually or in the aggregate, not have a Material Adverse
Effect on the Company. The Company and Inverness-U.S. are in compliance with
the terms of the Inverness Permits, except where the failure so to comply would
not, individually or in the aggregate, have a Material Adverse Effect on the
Company. The businesses of the Company and Inverness-U.S. are not being
conducted in violation of any applicable law, ordinance or regulation the
violation of which could reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect on the Company. No investigation
or review by any Governmental Entity with respect to the Company or Inverness-
U.S. is pending or, to the knowledge of the Company, threatened, nor, to the
knowledge of the Company, has any Governmental Entity indicated an intention to
conduct the same, except as set forth in Section 4.9 of the Disclosure Schedule.
Section 4.10. Title to Properties; Absence of Liens and Encumbrances
------------------------------------------------------
(a) Neither the Company nor Inverness-U.S. owns any fee interest in
any real property nor has it ever owned any fee interest in any real property.
Section 4.10(a) of the Disclosure Schedule sets forth a list of all real
property currently leased by the Company or Inverness-U.S., the name of the
lessor and the date of the lease and each amendment thereto. All such current
real property leases are in full force and effect and are valid and effective in
accordance with their respective terms against the Company or Inverness U.S., as
the case may be. There is not under any of such leases, any existing material
default or event of default (or event which with notice or lapse of time, or
both, would constitute a default) by or with respect to the Company or
Inverness-U.S., or to the Shareholders' knowledge, by or with respect to any
third party. Copies of such leases in effect on the date hereof have been
delivered to Parent.
13
(b) The Company and Inverness-U.S. have good and marketable title to
or, in the case of leased properties and assets, valid leasehold interests in,
all of their material properties and material assets, whether tangible or
intangible (including Intellectual Property), real, personal and mixed, free and
clear of any Liens except as reflected in the Financial Statements or in Section
4.10(b) of the Disclosure Schedule.
Section 4.11. Employee Benefit Plans; Labor Matters.
-------------------------------------
(a) Section 4.11(a) of the Disclosure Schedule sets forth a list as of
the date hereof of (i) all directors, officers or employees of the Company or
Inverness-U.S. and correctly reflects the current salary and any other
compensation payable to such directors, officers, or employees (including
compensation payable pursuant to bonus, deferred compensation or commission
arrangements or in connection with any manager's insurance, education fund and
health fund other than payments not included thereon as are required by law) and
such employee's employer, and position; (ii) all agreements with consultants who
are individuals obligating the Company or Inverness-U.S. to make annual cash
payments in an amount exceeding U.S.$50,000 or the equivalent thereof; (iii) all
severance agreements, programs and policies of the Company or Inverness-U.S.
with or relating to its employees except such programs and policies required to
be maintained by law; and (iv) all plans, programs, agreements and other
arrangements of the Company or Inverness-U.S. with or relating to its employees
that contain change in control provisions other than the Company's employee
stock option plan and option agreements issued thereunder or other options
issued by the Company. The Company has made available to Parent copies (or
descriptions in detail reasonably satisfactory to Parent) of all such
agreements, plans, programs and other arrangements.
(b) Neither the Company nor Inverness-U.S. is a party to any
collective labor agreement or any other contract or arrangement with any trade
union or other body representing any of its employees other than as set forth in
Section 4.11(b) of the Disclosure Schedule, and neither the Company nor
Inverness-U.S. has recognized or received a demand for recognition from any
collective bargaining representative with respect to any of its or their
employees as would constitute a likely possibility of the appointment or
nomination of a collective bargaining representative on behalf of the employees
of the Company or Inverness U.S. Other than as set forth in Section 4.11(b) of
the Disclosure Schedule, neither the Company nor Inverness-U.S. is subject to
any contract arrangement or custom with regard to employment (including without
limitation the termination thereof) except, in relation to the Company, for such
customs as are standard in Israel, for companies engaging in businesses similar
to that of the Company. Other than extension orders (tzavei harchava) of
general application to all employees in Israel, the Company is not subject to
any extension order.
(c) Except for the employment agreements listed in Section 4.11(c) of
the Disclosure Schedule, there are no contracts or arrangements between the
Company or Inverness-U.S. and any of its directors, officers, executives or
employees which cannot be terminated by such corporation by three months notice
or less without giving rise to a claim for damages or compensation (except for
statutory severance pay).
(d) There is no outstanding claim or complaint (including, without
limitation, any claim resulting from a bonus arrangement) against the Company or
Inverness-U.S., other
14
than claims and complaints demanding solely pecuniary damage in an aggregate
amount not greater than $50,000, by any person who is now or has been an officer
or employee of such company. Without limiting the generality of the above, there
are no unfair labor practice claims or charges pending, or to the knowledge of
the Company, threatened against any of the Company or Inverness-U.S.
(e) There is no labor strike, slowdown or stoppage pending (or, to the
best knowledge of the Company, any labor strike or stoppage threatened or
contemplated) against or affecting the Company or Inverness-U.S. and there have
been no disputes between the Company or Inverness-U.S. and any number or
category of employees and there are no present circumstances which are
reasonably likely to give rise to any such dispute.
(f) The severance pay due to the employees of the Company and
Inverness-U.S. is fully funded or provided for in accordance with both Israeli
GAAP and U.S. GAAP, all liabilities of the Company or Inverness-U.S. in
connection with their respective employees (excluding illness pay) were
adequately accrued in the Financial Statements and, other than as set forth in
Section 4.11(f) of the Disclosure Schedule, the Company is not aware of any
circumstance whereby any employee might demand (whether legally entitled to or
not) any claim for compensation on termination of employment beyond the
statutory severance pay to which such employee is entitled. All obligations of
the Company or Inverness-U.S. with respect to statutorily required severance
payments have been fully satisfied or have been funded by contributions to
appropriate insurance funds.
(g) All amounts which the Company or Inverness-U.S. are legally or
contractually required to either (i) deduct from their employees' salaries
and/or transfer to such employees' pension or provident, life insurance,
incapacity insurance, continuing education fund or otherwise or (ii) withhold
from their employees' salaries and pay to any government, governmental agency or
instrumentality thereof as required by the Israeli Income Tax Ordinance [New
Version] or otherwise have, in each case, been duly deducted, withheld and paid,
and neither the Company nor Inverness-U.S. has any outstanding obligation to
make any such transfer or provision, except in the ordinary course of business.
(h) Each of the Company and Inverness-U.S. is in compliance in all
material respects with all other applicable legal requirements and contracts
relating to employment, employment practices, wages, bonuses and terms and
conditions of employment, including employee compensation matters.
(i) The Shareholders have no knowledge of any facts indicating that
(i) the consummation of the transactions contemplated hereunder will have a
material adverse effect on the labor relations of the Company or Inverness-U.S.,
or (ii) except as set forth on the Disclosure Schedule and limited to the period
immediately prior to the announcement of the existence of this Agreement, any of
the employees of the Company or Inverness-U.S. intends to terminate his or her
employment with such company.
(j) Except under the Company's stock option plan, the options issued
thereunder and the 35,000 options issued by the Company to ▇▇▇▇▇ ▇▇▇▇▇▇, neither
the execution, delivery or performance of this Agreement nor the consummation of
the transactions
15
contemplated hereunder will result in any bonus, golden parachute, severance or
other payment or obligation to any current or former employee or director of any
of the Company or Inverness-U.S., or materially increase the benefits payable or
provided to any current or former employee or director of any of the Company or
Inverness-U.S., or result in any acceleration of the time of payment, provision
or vesting of any such benefits. Without limiting the generality of the
foregoing, but subject to the proviso in the first sentence of this subsection,
the consummation of the transactions contemplated hereunder will not result in
the acceleration of vesting of any unvested options outstanding under any option
plan or other incentive plan of any of the Company or Inverness-U.S.
(k) No employee benefit plan of Inverness-U.S. that is a welfare
benefit plan within the meaning of Section 3(1) of ERISA provides benefits to
former employees of the Company or its ERISA Affiliates other than pursuant to
Section 4980B of the Code or similar state laws.
Section 4.12. Agreements, Scheduled Contracts and Commitments
-----------------------------------------------
(a) Scheduled Contracts. Except as set forth in Section 4.12(a) of
-------------------
the Disclosure Schedule and in the Company's employment and consulting
agreements as are listed in Schedule 4.11 and in the Company's employee stock
option plan, the option agreements issued thereunder and the other options
issued by the Company all as are described in Schedule 4.11, neither the Company
nor Inverness-U.S. has, is a party to or is bound by:
(i) any collective bargaining agreements;
(ii) any agreements or arrangements that contain any severance
pay or post-employment liabilities or obligations;
(iii) any bonus, deferred compensation, sales compensation plan,
pension, profit sharing or retirement plans, or any other employee benefit plans
or arrangements or agreements to change any such plans whether written or oral;
(iv) any employment or consulting agreement with an employee or
individual consultant, or any consulting or sales agreement under which a firm
or other organization provides services to the Company or Inverness-U.S. in any
case involving aggregate payments in excess of U.S.$50,000 or the equivalent
thereof in one year;
(v) any agreement or plan, including any stock option plan,
stock appreciation rights plan or stock purchase plan, any of the benefits of
which will be increased, or the vesting of benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be calculated on the
basis of any of the transactions contemplated by this Agreement;
(vi) any fidelity or surety bond or completion bond;
(vii) any lease of personal property having a value individually
in excess of U.S.$50,000 or the equivalent thereof other than Company cars and
equipment used in the ordinary course of the Company's business;
16
(viii) any agreement of indemnification or guaranty other than
expressly set forth in the Scheduled Contracts other than in the Company's
agreements with customers as are executed by the Company in the ordinary course
of business
(ix) any agreement pursuant to which the Company or Inverness-U.S.
has granted, or may grant in the future, to any party a source-code license or
option or other right to use or acquire source-code; provided that the Parent
acknowledges that the business of the Company is to sell licenses to source
code;
(x) any agreement relating to capital expenditures and involving
future payments in excess of U.S.$50,000 or the equivalent thereof;
(xi) any agreement relating to the disposition or acquisition of
assets, property or any interest with a value in excess of $50,000 in any
business enterprise outside the ordinary course of the Company's or Inverness-
U.S.'s business;
(xii) any mortgage, indenture, loan or credit agreement, security
agreement or other agreement or instrument relating to the borrowing of money or
extension of credit, including any guaranty referred to in clause (viii) of this
Section 4.12(a);
(xiii) any purchase order or contract for the purchase of raw
materials or services involving U.S.$50,000 or the equivalent thereof or more;
(xiv) any construction contract;
(xv) any distribution, joint marketing or development agreement
that is in effect;
(xvi) any other agreement that involves payment or receipt by the
Company or Inverness-U.S. of U.S.$50,000 or the equivalent thereof or more or
is not cancelable without penalty upon notice of thirty (30) days or less;
(xvii) any contract under which the Company or Inverness-U.S.
provides services to third parties for which it will receive payments in excess
of U.S.$50,000 or the equivalent thereof in a period of 12 consecutive months;
or
(xviii) any contract that contains a liquidated damages provision for
failure to meet performance or quality milestones.
(b) Loss Contracts. Section 4.12(b) of the Disclosure Schedule identifies
--------------
all contracts (whether fixed price or time and materials with a price cap or
other contract having similar effect) under which the Company or Inverness-U.S.
provides products or services to a third party and as to which the cost of
performance has exceeded or is likely to exceed the contract price by more than
$50,000 and also sets forth, with respect to each such contract, the amount by
which such cost of performance exceeds such contract price. Except as set forth
in Section 4.12(b) of the Disclosure Schedule, the Shareholders believe that all
contracts under which the Company or Inverness-U.S. provides services to a third
party are capable of being performed at a cost equal to not more than $50,000 in
excess of the contract price.
17
(c) No Government Contracts.
-----------------------
(i) Except to the extent set forth in Section 4.12(c) of the
Disclosure Schedule, neither the Company nor Inverness-U.S. is or ever was a
party to any Government Contract or outstanding Bid.
(ii) For purposes hereof, "Bid" means any quotation, bid or proposal
by the Company or Inverness-U.S. which, if accepted or awarded, would lead to a
Government Contract for the design, manufacture or sale of products or the
provision of services by the Company or Inverness-U.S..
(iii) For purposes hereof, "Government Contract" means any prime
contract, subcontract, teaming agreement or arrangement, joint venture, basic
ordering agreement, letter contract, purchase order, delivery order, Bid, change
order, arrangement or other commitment of any kind relating to the business of
the Company or Inverness-U.S. between the Company or Inverness-U.S. and (A) any
government, governmental agency or instrumentality thereof other than telephone
or communication companies which may be partially owned by governments, (B) any
prime contractor to any government, governmental agency or instrumentality
thereof in respect of a contract for a governmental agency, or (C) any
subcontractor to any government, governmental agency or instrumentality thereof,
in respect of the contract for such governmental agency or instrumentality.
(d) No Contract Breaches. Except for such alleged breaches,
--------------------
violations and defaults, and events that would constitute a breach, violation or
default with the lapse of time, giving of notice, or both, as are all noted in
Section 4.12(d) of the Disclosure Schedule, neither the Company nor Inverness-
U.S. has in any material respect breached, violated or defaulted under, or
received notice that it has materially breached, violated or defaulted under,
any of the terms or conditions of any agreement, contract or commitment required
to be set forth in Section 4.12(a), Section 4.12(b) or Section 4.12(c) of the
Disclosure Schedule (any such agreement, contract or commitment, regardless of
whether it is set forth on such schedule, a "Scheduled Contract"). Each
Scheduled Contract is in full force and effect and, except as otherwise
disclosed in Section 4.12(d) of the Disclosure Schedule, is not subject to any
default thereunder of which the Shareholders have knowledge by any party
obligated to the Company or Inverness-U.S. pursuant thereto.
(e) Consulting Agreements. With respect to any consulting agreements
---------------------
of the Company and Inverness-U.S. listed in Section 4.12(a) of the Disclosure
Schedule, (i) all of the agreements and understandings of the Company or
Inverness-U.S., on the one hand, and each of the respective third parties, on
the other hand, are set forth in the copies of such agreements provided to
Parent, (ii) there are no other agreements changing the rights or obligations of
the Company or Inverness-U.S. thereunder and (iii) except as set forth on
Section 4.12(e) of the Disclosure Schedule, the Company or Inverness-U.S. has
retained all rights to its Intellectual Property developed by consultants under
such agreements and the third parties do not have any ownership interest,
jointly or otherwise, in such Intellectual Property.
Section 4.13. Interested Party Transactions Except as set forth in
-----------------------------
Section 4.13 of the Disclosure Schedule, no member, manager, officer or
affiliate of the Company or ▇▇▇▇▇▇▇▇▇-▇.▇.
▇▇
(▇▇▇, to the knowledge of the Company, any ancestor, sibling, descendant or
spouse of any of such persons, or any trust, partnership or corporation in which
any of such persons has or has had an economic interest), has or has had,
directly or indirectly, (i) an economic interest in any Person other than the
Company or Inverness U.S. which has furnished or sold, or furnishes or sells,
services or products that the Company or Inverness-U.S. furnishes or sells, or
proposes to furnish or sell, (ii) an economic interest in any Person that
purchases from or sells or furnishes to, the Company or Inverness-U.S., any
goods or services, (iii) a beneficial interest in any Scheduled Contract or (iv)
any contractual or other arrangement with the Company or Inverness-U.S.;
provided, however, that ownership of no more than one percent (1%) of the
outstanding voting stock of a publicly traded corporation shall not be deemed an
"economic interest in any person" for purposes of this Section 4.13.
Section 4.14. Environmental Laws and Regulations.
----------------------------------
(a) Each of the Company and Inverness-U.S. is in material compliance
with all applicable national, state and local laws and regulations relating to
pollution or protection of human health or the environment (including ambient
air, surface water, ground water, land surface or subsurface strata)
(collectively "Environmental Laws"), which compliance includes, but is not
limited to, the possession by the Company and Inverness-U.S. of all material
permits and other governmental authorizations required under applicable
Environmental Laws and compliance with the terms and conditions thereof.
Neither the Company nor Inverness-U.S. has received written notice of or is the
subject of any action, cause of action, claim, investigation, demand or notice
by any person alleging liability under or non-compliance with any Environmental
Law (an "Environmental Claim"). To the knowledge of the Shareholders, there are
no existing facts that are reasonably likely to prevent or interfere with such
material compliance in the future. Neither the Company nor Inverness-U.S. is
subject to any orders, decrees, injunctions or other arrangements with any
Governmental Entity or is subject to any indemnity or other agreement with any
third party relating to liability under any Environmental Law.
(b) There are no Environmental Claims that are pending or, to the
knowledge of the Shareholders, threatened against the Company or Inverness-U.S.
or, to the knowledge of the Shareholders, against any person whose liability for
any Environmental Claim the Company or Inverness-U.S. has or may have retained
or assumed either contractually or by operation of law.
(c) The properties currently operated by the Company and Inverness-
U.S. (including soils, groundwater, surface water, buildings or other
structures) are not contaminated with any Hazardous Substances. The properties
formerly operated by the Company or any subsidiary were not contaminated with
any Hazardous Substances during the period of ownership or operation of the
Company or Inverness-U.S. Neither the Company nor Inverness-U.S. is subject to
liability for any Hazardous Substance disposal or contamination on any third
party property.
For purposes hereof, "Hazardous Substance" means any substance that is: (i)
listed, classified or regulated pursuant to any Environmental Law; (ii) any
petroleum product or by-product, asbestos-containing material, lead-containing
paint or plumbing, polychlorinated biphenyls,
19
radioactive materials or radon; or (iii) any other substance which is the
subject of regulatory action by any Governmental Entity pursuant to any
Environmental Law.
Section 4.15. Taxes.
-----
(a) Definitions. For purposes of this Agreement:
-----------
(i) the term "Tax" (including "Taxes") means (A) all national,
state or local taxes of any kind, including, without limitation, taxes computed
by reference to income, profits, capital, property, employment or sales,
together with any interest and any penalties, or withholding additions to tax or
additional amounts with respect thereto, (B) any liability for the payment of
amounts described in clause (A) whether as a result of transferee liability, of
being a member of an affiliated, consolidated, combined or unitary group for any
period, or otherwise through operation of law, and (C) any liability for the
payment of amounts described in clauses (A) or (B) as a result of any tax
sharing, tax indemnity or tax allocation agreement or any other express or
implied agreement to indemnify any other person; and
(ii) the term "Tax Return" means any return, declaration, report,
statement, information statement or other document required to be filed with
respect to Taxes.
(b) The Company and Inverness-U.S have timely filed all material Tax
Returns they are required to have filed; and such Tax Returns are accurate and
correct in all material respects and do not contain a disclosure statement under
Section 6662 of the U.S. Internal Revenue Code of 1986, as amended (the "Code")
(or any predecessor provision or comparable provision of state, local or Israeli
law).
(c) The Company and Inverness-U.S have paid or adequately provided in
the most recent Financial Statements for all Taxes (whether or not shown on any
Tax Return) they are required to have paid or to pay or for which they are
liable. All Taxes that the Company and Inverness-U.S have been required to
collect and withhold have been duly withheld or collected and, to the extent
required, have been paid to the proper taxing authority. There are no Liens for
Taxes upon the assets of the Company except for Taxes that are not yet payable.
(d) No material claim for assessment or collection of Taxes is
presently being asserted against the Company or Inverness-U.S and neither the
Company nor Inverness-U.S is a party to any pending action, proceeding, or
investigation by any taxing authority nor do the Shareholders have knowledge of
any such threatened action, proceeding or investigation.
(e) Inverness-U.S is not a party to any agreement, contract,
arrangement or plan that has resulted or would result, individually or in the
aggregate, in connection with this Agreement or any change of control of the
Company or of Inverness-U.S, in the payment of any "excess parachute payments"
within the meaning of Section 28OG of the Code.
(f) Neither the Company nor Inverness-U.S is a party to any Tax
allocation or sharing agreement, other than any agreement entered into in the
ordinary course of business with customers, vendors, suppliers and lessors with
respect to Taxes other than net income taxes.
20
(g) Inverness-U.S has not been a member of an affiliated group filing
a consolidated U.S. federal income Tax Return and does not have any liability
for the Taxes of another person (i) under Section 1.1502-6 of the U.S. Treasury
Regulations promulgated under the Code (or any similar provision of any other
law) or (b) as a transferee or successor.
Section 4.16. Intellectual Property.
---------------------
(a) Section 4.16(a) of the Disclosure Schedule sets forth, for the
Intellectual Property owned, in whole or in part, including jointly with others,
by the Company or Inverness-U.S., a complete and accurate list of all (a)
patents and patent applications; (b) Trademark registrations and applications
and material unregistered Trademarks; and (c) copyright registrations and
applications, indicating for each, the applicable jurisdiction, registration
number (or application number), and date issued (or date filed). For purposes
of this Agreement, "Intellectual Property" means: trademarks and service marks
(whether registered or unregistered), trade names, designs and general
intangibles of like nature, together with all goodwill related to the foregoing
(collectively, "Trademarks"); patents (including any continuations,
continuations in part, reissue patents, reexamination certificates and
applications for any of the foregoing) (collectively "Patents"); copyrights
(including any registrations and applications therefor)(collectively
"Copyrights"); computer software; databases; works of authorship; mask works;
technology; trade secrets and other confidential information, know-how,
proprietary processes, formulae, algorithms, models, user interfaces, customer
lists, inventions, discoveries, concepts, ideas, techniques, methods, source
codes, object codes, methodologies and, with respect to all of the foregoing,
related confidential data or information (collectively, "Trade Secrets").
(b) Trademarks.
----------
(i) All Trademark registrations are currently in compliance in
all material respects with all legal requirements (including the timely post-
registration filing of affidavits of use and incontestability and renewal
applications) other than any requirement that, if not satisfied, would not
result in a cancellation of any such registration or otherwise materially affect
the priority and enforceability of the Trademark in question.
(ii) No registered Trademark has been within the last three (3)
years or is now involved in any opposition or cancellation proceeding before any
Governmental Entity. No such action has been threatened within the one-year
period prior to the date of this Agreement.
(iii) There has been no prior use of any material Trademark by
any third party which would confer upon said third party superior rights in any
such Trademark.
(iv) All material Trademarks registered in the United States
have been in continuous use by the Company or Inverness-U.S.
(v) The Company and Inverness-U.S. have taken the actions
described in Section 4.16(b) of the Disclosure Schedule to police the Trademarks
that are used in the United States against third party infringement of which the
Company is aware.
21
(c) Patents.
-------
(i) All Patents are currently in compliance with legal
requirements (including payment of filing, examination, and maintenance fees and
proofs of working or use) other than any requirement that, if not satisfied,
would not result in a revocation or otherwise materially affect the
enforceability of the Patent in question. Section 4.16(c) of the Disclosure
Schedule, sets forth a complete and accurate list of the patents owned, or
previously owned, by the Company or Inverness-U.S.
(ii) No Patent has been or is now involved in any interference,
reissue, reexamination or opposing proceeding before any Governmental Entity. To
the Company's knowledge, no such action has been threatened within the one-year
period prior to the date of this Agreement.
(iii) There is no patent, patent application, printed
publication or other prior art of any person that conflicts in any material
respect with any Patent.
(d) Trade Secrets.
-------------
(i) The Company has taken the steps described in Section
4.16(d) of the Disclosure Schedule to protect the Company's rights in
confidential information and Trade Secrets of the Company.
(ii) Without limiting the generality of Section 4.16(d)(i) and
except as would not be materially adverse to the Company or its business, the
Company enforces a policy of requiring each relevant employee, consultant and
contractor to execute proprietary information, confidentiality and assignment
agreements substantially in the Company's standard forms, a copy of which has
been furnished to Parent, and, except under confidentiality obligations, there
has been no disclosure by the Company or any subsidiary of material confidential
information or Trade Secrets.
(e) License Agreements. Section 4.16(e)(i) of the Disclosure Schedule
------------------
sets forth a complete and accurate list of all license agreements granting to
the Company or Inverness-U.S. any material right to use or practice any rights
under any Intellectual Property other than office automation software used
generally in the Company's or Inverness-U.S.'s operations and other software
that is not used in connection with the design, development, use, maintenance
and support, testing, assembly and manufacture of the Company's or Inverness-
U.S.'s products and is commercially available on reasonable terms to any person
for a license fee of no more than U.S.$50,000 or the equivalent thereof
(collectively, the "Inbound License Agreements"), indicating for each the title
and the parties thereto and the amount of any future royalty or license fee
payable thereunder. Section 4.16(e)(ii) of the Disclosure Schedule sets forth a
complete and accurate list of all license agreements under which the Company or
Inverness-U.S. licenses software or grants other rights in to use or practice
any rights under any Intellectual Property, excluding licenses with customers
that in the twelve-month period prior to the date hereof have purchased or
licensed products for which the total payments to the Company and Inverness-U.S.
did not exceed U.S.$50,000 or the equivalent thereof (collectively, the
"Outbound License Agreements"), indicating for each the title and the parties
thereto. There
22
is no material outstanding or, to the Shareholders' knowledge, threatened
dispute or disagreement with respect to any Inbound License Agreement or any
Outbound License Agreement.
(f) Ownership; Sufficiency of IP Assets. Except as set forth in
-----------------------------------
Section 4.16(f) of the Disclosure Schedule, the Company or Inverness-U.S. owns
or possesses adequate licenses or other rights to use, free and clear of Liens,
orders and arbitration awards, all of its Intellectual Property used in and
necessary to the current conduct of its business. The Intellectual Property
identified in Section 4.16(a) of the Disclosure Schedule, together with the
Company's and Inverness-U.S.'s unregistered copyrights and the Company's and
Inverness-U.S.'s rights under the licenses granted to the Company or Inverness-
U.S. under the Inbound License Agreements together with all Company know-how,
technology; trade secrets and other confidential information, proprietary
processes, formulae, algorithms, models, user interfaces, customer lists,
concepts, ideas, techniques, methods, source codes, object codes and
methodologies that are by law the property of the Company but that may not be
subject to copyright protection, constitute all the material Intellectual
Property rights used in the operation of the Company's and Inverness-U.S.'s
businesses as they are currently conducted and are all the Intellectual Property
rights necessary to operate such businesses after the Closing Date in
substantially the same manner as such businesses have been operated by the
Company prior thereto.
(g) Protection of IP. The Company has taken those steps set forth in
----------------
Section 4.16(g) of the Disclosure Schedule to protect the Intellectual Property
of the Company and Inverness-U.S..
(h) No Infringement by the Company. The products used, manufactured,
------------------------------
marketed, sold or licensed by the Company and Inverness-U.S., and all
Intellectual Property used in the conduct of the Company's and Inverness-U.S.'s
businesses as currently conducted, do not infringe upon, violate or constitute
the unauthorized use of any rights owned or controlled by any third party,
including any Intellectual Property of any third party.
(i) No Pending or Threatened Infringement Claims. No litigation is
--------------------------------------------
now or, within the three (3) years prior to the date of this Agreement, was
pending and, to the Company's knowledge, no notice or other claim in writing has
been received by the Company within the one (1) year period prior to the date of
this Agreement, (i) alleging that the Company Inverness-U.S. has engaged in any
activity or conduct that infringes upon, violates, or constitutes the
unauthorized use of the Intellectual Property rights of any third party or (ii)
challenging the ownership, use, validity or enforceability of any Intellectual
Property owned or exclusively licensed by the Company. Except as specifically
disclosed in one or more Sections of the Disclosure Schedules pursuant to this
Section 4.16, no Intellectual Property owned or licensed by the Company or
Inverness-U.S. is subject to any outstanding order, judgment, decree,
stipulation or agreement (other than Inbound License Agreements) restricting the
use thereof by the Company or Inverness-U.S. or, in the case of any Intellectual
Property licensed to others, restricting the sale, transfer, assignment or
licensing thereof by the Company or Inverness-U.S. to any person.
23
(j) No Infringement by Third Parties. To the Shareholder's knowledge,
--------------------------------
no person is misappropriating, infringing, diluting, or violating any
Intellectual Property owned or exclusively licensed by the Company or Inverness-
U.S., and no such claims have been brought against any person by the Company or
Inverness-U.S.
(k) Assignment; Change of Control. The execution, delivery and
-----------------------------
performance by the Shareholders of this Agreement, and the consummation by the
Shareholders of the transactions contemplated hereby, will not result in the
loss or impairment of, or give rise to any right of any third party to
terminate, any of the Company's or Inverness-U.S.'s rights to own any of its
Intellectual Property or their respective rights under the License Agreements,
nor require the consent of any Governmental Entity or third party in respect of
any such Intellectual Property, other than (i) the consent of the Chief
Scientist of Israel's Ministry of Trade and Industry; (ii) the right of
Motorola, Inc. ("Motorola") to terminate the Software License Agreement dated
January 26, 1998 between Inverness-U.S. and Motorola; and (iii) as set forth in
Section 4.16(j) of the Disclosure Schedule.
(l) Software. The Software owned or purported to be owned by the
--------
Company or Inverness-U.S. that is used in its business ("Owned Software") set
forth in Section 4.16(l) of the Disclosure Schedule, was either (i) developed by
employees of Seller or Inverness-U.S. within the scope of their employment; (ii)
developed by independent contractors who have assigned their rights to the
Company or Inverness-U.S. pursuant to written agreements; or (iii) otherwise
acquired by the Company or Inverness-U.S. from a third party. The Owned
Software does not contain any programming code, documentation or other materials
or development environments that embody Intellectual Property rights of any
person other than the Company or Inverness-U.S., except for such materials or
development environments obtained by the Company or Inverness-U.S. from other
persons who make such materials or development environments generally available
to all interested purchasers or end-users on standard commercial terms or as
negotiated between the Company and any such other person. For purposes hereof,
"Software" means any and all (i) computer programs, including any and all
software implementations of algorithms, models and methodologies, whether in
source code or object code, (ii) databases and compilations, including any and
all data and collections of data, whether machine readable or otherwise, (iii)
descriptions, flow-charts and other work product used to design, plan, organize
and develop any of the foregoing, and (iv) all documentation, including user
manuals and training materials, relating to any of the foregoing.
(m) Performance of Existing Software Products. Section 4.16(m) of the
-----------------------------------------
Disclosure Schedule contains a list of (i) the Software products that are
manufactured by the Company or Inverness-U.S. and (ii) any Software products
marketed by the Company or Inverness-U.S. as to which the Company or any such
subsidiary warrants performance to the end user thereof (collectively "Software
Products"). All of such Software Products listed and described in Section
4.16(m) of the Disclosure Schedule which are generally available to customers
perform in all material respects free of significant bugs (i.e. bugs which
result in obvious impairment of functionality) applicable to the product, and
any agreed specifications or end user documentation or other information
provided to customers of the Company on which such customers relied when
licensing or otherwise acquiring such products. Further, where the Company or
Inverness-U.S. have represented such Software products to be compliant with any
24
protocol or standard adopted by an applicable standards setting body (such as
the IEEE or the ITU), said Software is compliant with that protocol or standard.
(n) Documentation. The Company and Inverness-U.S. have taken all
-------------
actions customary in the software industry to document the Software and its
operation, such that the materials comprising the Software, including the source
code and documentation, have been written in a clear and professional manner so
that they may be understood, modified and maintained in an efficient manner by
reasonably competent programmers.
(o) Year 2000 Compliance.
--------------------
(i) All of the Company's and Inverness-U.S.'s Software Products
that are listed in Section 4.16(m) of the Disclosure Schedule record, store,
process and calculate and present calendar dates falling on and after December
31, 1998, and will calculate any information dependent on or relating to such
dates in the same manner and with the same functionality, data integrity and
performance as the products record, store, process, calculate and present
calendar dates on or before December 31, 1998, or calculate any information
dependent on or relating to such dates (collectively "Year 2000 Compliant). None
of the material products of the Company or Inverness-U.S. have lost or will lose
significant functionality with respect to the introduction of records containing
dates falling on or after December 31, 1998 and all of the internal computer
systems of the Company or Inverness-U.S. comprised of software, hardware,
databases or embedded control systems (microprocessor controlled, robotic or
other device) related to the Company's and Inverness-U.S.'s businesses
(collectively, a "Business System"), that constitutes any material part of, or
is used in connection with the use, operation or enjoyment of, any material
tangible or intangible asset or real property of the Company and Inverness-U.S.,
including its accounting systems, are Year 2000 Compliant. The current versions
of the Company's and Inverness-U.S.'s software and all other Intellectual
Property may be used after December 31, 1998, such that such Software and
Intellectual Property will operate after such time period without error caused
by date data that represents or references different centuries or more than one
century.
(ii) To the knowledge of the Shareholders, all of the Company's
products and the conduct of the Company's business with customers and suppliers
will not be materially adversely affected by the advent of the year 2000, the
advent of the twenty-first century or the transition from the twentieth century
through the year 2000 and into the twenty-first century. Except as set forth in
Section 4.16(o) of the Disclosure Schedule, neither the Company nor Inverness-
U.S. is reasonably likely to incur material expenses arising from or relating to
the failure of any of its Business Systems or any products (including all
products sold on or prior to the date hereof) as a result of the advent of the
year 2000, the advent of the twenty-first century or the transition from the
twentieth century through the year 2000.
(p) Employee Confidentiality Agreements. Except as set forth in
-----------------------------------
Section 4.16(p) of the Disclosure Schedule, all current and former employees and
consultants of the Company or Inverness-U.S. have entered into confidentiality,
invention assignment and proprietary information agreements with the Company or
Inverness-U.S. in the form provided to Parent. To the Shareholders' knowledge,
no employee or consultant of the Company or Inverness-U.S. is obligated under
any agreement (including licenses, covenants or commitments
25
of any nature) or subject to any judgment, decree or order of any court or
administrative agency, or any other restriction that would interfere with the
use of his or her best efforts to carry out his or her duties for the Company or
Inverness-U.S. (other than time commitments of independent contractors to their
other clients) or that would conflict with the Company's or Inverness-U.S.'s
business. The carrying on of the Company's and Inverness-U.S.'s business by such
employees and contractors of the Company or Inverness-U.S. and the conduct of
the Company's and Inverness-U.S.'s business as presently proposed, will not, to
the Shareholder's knowledge, conflict with or result in a breach of the terms,
conditions or provisions of, or constitute a default under, any contract,
covenant or instrument under which any of such employees or consultants or the
Company or Inverness-U.S. is now obligated. Except as set forth in Section
4.16(p) of the Disclosure Schedule, it is not necessary to utilize any
inventions or any other Intellectual Property of any employees of or consultants
to the Company or Inverness-U.S. (or persons the Company or Inverness-U.S.
currently intends to hire) acquired prior to their employment by the Company or
Inverness-U.S. in order to carry on the business of the Company and Inverness-
U.S. as presently conducted. To the Shareholder's knowledge, except to the
extent set forth in Section 4.16(p) of the Disclosure Schedule and except for
grants received from the Chief Scientist of the Israel's Ministry of Industry
and Trade, at no time during the conception of or reduction to practice of any
of Intellectual Property owned by the Company or Inverness-U.S. was any
developer, inventor or other contributor to such Intellectual Property operating
under any grants from any Governmental Entity or private source, performing
research sponsored by any Governmental Entity or private source or subject to
any employment agreement or invention assignment or nondisclosure agreement or
other obligation with any third party that could adversely affect the Company's
or Inverness-U.S.'s rights in such Intellectual Property. Section 4.16(p) of the
Disclosure Schedule lists each present and past employee, independent contractor
and consultant who participated in a material way in the creation or development
of any Owned Software or any other material Intellectual Property, indicating,
in the case of any such employee, whether such employee is a present or past
employee and, if a past employee and to the extent known by the Shareholder, the
name of the current employer of such past employee. Without limiting the
generality of the foregoing, Section 4.16(p) of the Disclosure Schedule
specifically identifies each inventor named in any Patents (either individually
or jointly with others), and indicates whether such inventor is a current
employee of the Company or Inverness-U.S. and, if not a current employee of the
Company or Inverness-U.S., (i) the relationship of such inventor to the Company
or Inverness-U.S. at the time the respective invention was made and the present
relationship, if any, of such inventor with the Company or Inverness-U.S. and
(ii) to the extent known by the Shareholder, the employer and current position
of such inventor with such employer.
(q) Export Restrictions. Neither the Company nor Inverness-U.S. has
-------------------
exported or transmitted Software or other material in connection with the
Company's or Inverness-U.S.'s business to any country to which such export or
transmission is restricted by any applicable law, without first having obtained
all necessary and appropriate government licenses or permits.
(r) Disabling Code and Contaminants. The Owned Software is free of
-------------------------------
any disabling codes or instructions (a "Disabling Code), and any virus or other
intentionally created, undocumented contaminant (a "Contaminant), that may, or
may be used to, access, modify, delete, damage or disable any Systems (as
defined below) or that may result in damage thereto.
26
The Company and Inverness-U.S. have taken reasonable steps and implemented
reasonable procedures to ensure that its and their internal computer systems
used in connection with the Company's and Inverness-U.S.'s business (consisting
of hardware, software, databases or embedded control systems, "Systems"are free
from Disabling Codes and Contaminants. The Licensed Software is free of any
Disabling Codes or Contaminants that may, or may be used to, access, modify,
delete, damage or disable any of the Systems or that might result in damage
thereto. Except as may be set forth in Section 4.16(r) of the Disclosure
Schedule, the Company and Inverness-U.S. have taken all reasonable steps to
safeguard their respective Systems and restrict unauthorized access thereto.
Section 4.17. Insurance. Each of the Company and Inverness-U.S. maintains
---------
insurance policies (the "Insurance Policies) against all risks of a character
and in such amounts as are usually insured against by similarly situated
companies in the same or similar businesses. Each Insurance Policy is in full
force and effect and is valid, outstanding and enforceable, and all premiums due
thereon have been paid in full. None of the Insurance Policies will terminate
or lapse (or be affected in any other materially adverse manner) by reason of
the transactions contemplated by this Agreement. Each of the Company and
Inverness-U.S. has complied with the provisions of each Insurance Policy under
which it is the insured party. No insurer under any Insurance Policy has
canceled or generally disclaimed liability under any such policy or, to the
Shareholders' knowledge, indicated any intent to do so or not to renew any such
policy. All material claims under the Insurance Policies have been filed in a
timely fashion.
Section 4.18. Certain Business Practices. None of the Company, Inverness-
--------------------------
U.S. or any directors, officers, agents or employees of the Company or
Inverness-U.S. has (i) used any funds for unlawful contributions, gifts,
entertainment or other unlawful expenses related to political activity, (ii)
made any unlawful payment to foreign or domestic government officials or
employees or to foreign or domestic political parties or campaigns or violated
any provision of applicable law, including, but not limited to, the U.S. Foreign
Corrupt Practices Act of 1977, as amended, or (iii) made any other unlawful
payment.
Section 4.19. Restrictions on Business Activities. Except as set forth in
-----------------------------------
Section 4.19 of the Disclosure Schedule, there is no agreement (noncompete or
otherwise), judgment, injunction, order or decree to which the Company or
Inverness-U.S. is a party or otherwise binding upon the Company or Inverness-
U.S. that has or is reasonably likely to have the effect of prohibiting or
impairing any business practice of the Company or Inverness-U.S., any
acquisition of property (tangible or intangible) by the Company or Inverness-
U.S. or the conduct of business by the Company or Inverness-U.S.. Without
limiting the foregoing, except as set forth in Section 4.19 of the Disclosure
Schedule, neither the Company nor Inverness-U.S. has entered into any agreement
under which the Company or any such subsidiary is restricted from selling,
licensing or otherwise distributing any of its products or providing services to
any class of customers, in any geographic area, during any period of time or in
any segment of the market.
Section 4.20. Product and Service Warranties. Section 4.20 of the
------------------------------
Disclosure Schedule sets forth a summary of the written warranties and
guaranties by the Company or Inverness-U.S. currently in effect with respect to
any of its products or services, complete and accurate copies of which have been
delivered to Parent. There have not been any material deviations from such
warranties and guaranties, and neither the Company, Inverness-U.S. nor any of
their respective
27
salesmen, employees, distributors and agents is authorized to undertake warranty
and guaranty obligations to any customer or to other third parties in excess of
such warranties or guaranties.
Section 4.21. Suppliers. The documents and information supplied by the
---------
Company to Parent or any of its representatives in connection with this
Agreement with respect to relationships and volumes of business done with its
significant suppliers are accurate in all material respects. During the last
twelve (12) months, the Company has received no notices of termination or
written threats of termination from any of the five (5) largest suppliers of the
Company and Inverness-U.S., taken as a whole.
Section 4.22. Brokers. No broker, finder or investment banker is entitled
-------
to any brokerage finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company or any of the Shareholders.
Section 4.23. Minute Books. The minute books of the Company and Inverness-
------------
U.S. made available to Parent are the only minute books of the Company and
Inverness-U.S. and contain a reasonably accurate summary of all actions taken at
meetings of the Board of Directors of the Company or Inverness-U.S. (or
committees thereof) or actions by written consent since the time of organization
of the Company and Inverness-U.S., respectively.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT
----------------------------------------
Parent hereby represents and warrants to the Shareholders as follows:
Section 5.1. Organization.
------------
(a) Parent is duly organized, validly existing and in good standing
under the laws of its jurisdiction of incorporation and has all requisite power
and authority to own, lease and operate its properties and to carry on its
businesses as now being conducted. Parent has heretofore made available to the
Shareholders accurate and complete copies of its Constitutional Documents as
currently in full force and effect.
(b) Parent is duly qualified or licensed and in good standing to do
business in each jurisdiction in which the property owned, leased or operated by
it or the nature of the business conducted by it makes such qualification or
licensing necessary, except in such jurisdictions where the failure to be so
duly qualified or licensed and in good standing would not have a Material
Adverse Effect on Parent. The term "Material Adverse Effect on Parent" means
any circumstance, change in, or effect on Parent and Inverness-U.S., taken as a
whole, (i) that is, or is reasonably likely in the future to be, materially
adverse to the operations, assets or liabilities (including contingent
liabilities), earnings or results of operations or business (financial or
otherwise) of Parent and Inverness-U.S., taken as a whole or (ii) that would
reasonably be expected to prevent or materially delay or impair the ability of
Parent to consummate the transactions contemplated hereby; provided, however,
that such term shall not include any circumstance or change related to (A)
general economic conditions, (B) securities markets
28
generally or (C) fluctuations in the price of Parent Common Stock unrelated to
any event that would otherwise constitute a Material Adverse Effect on Parent.
Section 5.2. Capitalization of Parent and its Subsidiaries.
---------------------------------------------
(a) The authorized capital stock of Parent consists of Forty Million
(40,000,000) shares of Parent Common Stock, of which Twenty Million, Four
Hundred Twenty Two Thousand and Forty Eight (20,422,048) shares of Parent Common
Stock were issued and outstanding as of December 31, 1999, and Five Million
(5,000,000) shares of preferred stock, $0.001 par value per share, none of which
are outstanding. All of the outstanding shares of Parent Common Stock have been
validly issued and are fully paid, nonassessable and free of preemptive rights.
As of December 31, 1999, Five Million, Eight Hundred Thirty-Three Thousand, Two
Hundred and Forty-Five (5,833,245) shares of Parent Common Stock were reserved
for issuance (excluding automatic future re-loads under Parent's option or
employee stock purchase plans, "Parent Reserved Shares") and Three Million,
Seven Hundred Forty Thousand, One Hundred and Sixty-Four (3,740,164) were
issuable upon or otherwise deliverable in connection with the exercise of
outstanding options, warrants and convertible securities. Between December 31,
1999 and the date hereof, no shares of Parent's capital stock have been issued,
other than (i) pursuant to the exercise of stock options, warrants and
convertible securities that entitled the holders thereof to purchase Parent
Reserved Shares; (ii) grants of stock options to employees, officers and
directors made in the ordinary course of business and consistent with past
practice that would entitle the holders thereof to purchase Parent Reserved
Shares; and (iii) the issuance of 2,448,413 shares of Parent Common Stock
pursuant to the acquisition of D2 Technologies, Inc. Except as set forth above,
as of the date hereof, there are outstanding (A) no shares of capital stock or
other voting securities of Parent (B) no securities of Parent or its
subsidiaries convertible into or exchangeable for shares of capital stock, or
voting securities of Parent (C) no options or other rights to acquire from
Parent or its subsidiaries and no obligations of Parent or its subsidiaries to
issue any capital stock, voting securities or securities convertible into or
exchangeable for capital stock or voting securities of Parent, and (D) no equity
equivalent interests in the ownership or earnings of Parent or its subsidiaries
or other similar rights (collectively, "Parent Securities"). As of the date
hereof, there are no outstanding obligations of Parent or its subsidiaries to
repurchase, redeem or otherwise acquire any Parent Securities. There are no
shareholder agreements, voting trusts or other agreements or understandings to
which Parent is a party or by which it is bound relating to the voting of any
shares of capital stock of Parent. The forms of Certificate of Incorporation
and Bylaws of Parent filed with the SEC as exhibits to Parent's S-1 Registration
Statement for its initial public offering have not been amended as of the date
hereof.
(b) The Parent Common Stock constitutes the only classes of equity
securities of Parent or its subsidiaries registered or required to be registered
under the U.S. Exchange Act.
(c) At the Closing Date, the Parent Shares issuable to the
Shareholders pursuant to Article II shall be validly issued, fully paid,
nonassessable and free of preemptive rights of any stockholders of Parent.
Section 5.3. Authority Relative to this Agreement. Parent has all
------------------------------------
necessary corporate power and authority to execute and deliver this Agreement
and each of the other Transaction
29
Documents to which it is a party, to perform its obligations under this
Agreement and each of the other Transaction Documents to which it is a party and
to consummate the transactions contemplated hereby and thereby. The execution
and delivery of this Agreement and each of the other Transaction Documents to
which Parent is a party, and the consummation of the transactions contemplated
hereby and thereby, have been duly and validly authorized by the boards of
directors of Parent and no other corporate proceedings on the part of Parent are
necessary to authorize this Agreement or any of the other Transaction Documents
to which it is a party or to consummate the transactions contemplated hereby and
thereby. This Agreement and each of the other Transaction Documents to which
Parent is a party have been (in the case of this Agreement) or shall be (in the
case of the other Transaction Documents) duly and validly executed and delivered
by the Parent and constitute or will constitute, assuming the due authorization,
execution and delivery hereof by the Shareholder, the valid, legal and binding
agreements of Parent enforceable against Parent in accordance with their
respective terms, subject to any applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws now or hereafter in effect relating
to creditors' rights generally or to general principles of equity.
Section 5.4. SEC Reports; Financial Statements.
---------------------------------
(a) Parent filed with the Securities and Exchange Commission (the
"SEC") its final prospectus dated November 16, 1999 pursuant to Rule 424(b)
under the U.S. Securities Act, as defined below (the "Parent SEC Reports) which
complied at the time of filing in all material respects with all applicable
requirements of the U.S. Securities Act of 1933, as amended (the "U.S.
Securities Act"), and the U.S. Securities Exchange Act of 1934, as amended (the
"U.S. Exchange Act"), each law as in effect on the dates such forms reports and
documents were filed. None of such Parent SEC Reports, including any financial
statements or schedules included or incorporated by reference therein, contained
when filed any untrue statement of a material fact or omitted to state a
material fact required to be stated or incorporated by reference therein or
necessary in order to make the statements therein in light of the circumstances
under which they were made not misleading, except to the extent superseded by a
Parent SEC Report filed subsequently and prior to the date hereof. The audited
and any unaudited consolidated financial statements of Parent included in the
Parent SEC Reports fairly present in conformity in all material respects with
generally accepted accounting principles applied on a consistent basis (except
as may be indicated in the notes thereto and except for the absence of footnotes
in the unaudited financial statements), the consolidated financial position of
Parent and its consolidated subsidiaries as of the dates thereof and their
consolidated results of operations and changes in financial position for the
periods then ended (subject, in the case of any interim financial statements, to
normal year-end adjustments).
(b) Parent has delivered to the Shareholders copies of an unaudited
balance sheet of Parent as of January 2, 2000 and the related statement of
operations as of January 2, 2000, which have been prepared in all material
respects in accordance with United States generally accepted accounting
principles consistently applied, and fairly present the financial condition of
Parent as of January 2, 2000 and the results of its operations for the period
covered thereby (subject to normal year-end adjustments and except that such
financial statements do not contain all required footnotes) (the "Parent Interim
Financial Statements".
30
(c) Except as disclosed in the Parent Interim Financial Statements, no
change in the business, assets, liabilities, condition (financial or other), or
results of operations of Parent has occurred between the date of filing of the
Parent SEC Reports filed prior to the date hereof with the SEC and the date
hereof that would cause such Parent SEC Reports, including the financial
statements and schedules included or incorporated by reference therein, to
contain, as of the date hereof, any untrue statement of a material fact or to
omit to state a material fact that would be required to be stated or
incorporated by reference therein or that would be necessary in order to make
the statements contained therein, as of the date hereof, not misleading.
Section 5.5. Consents and Approvals; No Violations. Except for such
-------------------------------------
filings, permits, authorizations, consents, and approvals as are referred to in
Section 7.1(b) hereto, no filing with or notice to, and no permit,
authorization, consent or approval of any Governmental Entity is necessary for
the execution and delivery by Parent of this Agreement or any of the other
Transaction Documents to which it is a party or the consummation by Parent of
the transactions contemplated hereby and thereby. Neither the execution,
delivery and performance of this Agreement or any of the other Transaction
Documents to which it is a party by Parent nor the consummation by Parent of the
transactions contemplated hereby and thereby will (i) conflict with or result in
any breach of any provision of the respective Constitutional Documents of Parent
or any of Parent's subsidiaries, (ii) result in a violation or breach of or
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, amendment, cancellation or acceleration
or Lien) under any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, lease, license, contract, agreement or other instrument or
obligation to which Parent or any of Parent's subsidiaries is a party or by
which any of them or any of their respective properties or assets may be bound
or (iii) violate any order, writ, injunction, decree, law, statute, rule or
regulation applicable to Parent or any of Parent's subsidiaries or any of their
respective properties or assets.
Section 5.6. Sophisticated Investor. Parent is a sophisticated investor
----------------------
and has the capacity to evaluate both the merits and the risks involved in
purchasing the Shares.
Section 5.7. Access to Information. Parent has been given the opportunity
---------------------
to ask questions and obtain information concerning the financial condition,
results of operation, operations, assets and liabilities of the Company and
Inverness-U.S., provided, however, that the foregoing representation and
warranty shall have no effect upon the rights of Parent under either Article
VIII or Article IX hereof.
Section 5.8. Brokers. No broker finder or investment banker is entitled
-------
to any brokerage finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Parent.
ARTICLE VI
COVENANTS
---------
Section 6.1. Conduct of Business of the Company. Except as contemplated
----------------------------------
by this Agreement or as expressly consented to by the Parent, during the period
from the date hereof to
31
the Closing Date, the Shareholders shall not cause the Company or Inverness-U.S.
to take any of the Prohibited Actions and the Shareholders shall not take any
action that would impair the Company's ability to, and the Shareholders shall
not omit, refrain or neglect the taking of any action that would be required to,
allow the Company and Inverness U.S. to conduct its operations in the ordinary
course of business consistent with past practice, with diligence and effort and
in substantially the same manner as such business was conducted prior to the
date hereof, and to use its commercially reasonable efforts to preserve intact
its current business organizations, keep available, the service of its current
officers and employees and preserve its relationships with customers, suppliers,
distributors, lessors, creditors, employees, contractors and others having
business dealings with it, to the end that its goodwill and ongoing businesses
shall be unimpaired at the Closing Date.
Without limiting the generality of the foregoing, except as otherwise
expressly provided in this Agreement, prior to the Closing Date and unless this
Agreement is terminated in accordance with Article VIII, the Shareholders shall
not cause or permit the Company or Inverness-U.S. to, without the prior written
consent of Parent to take any of the following actions (each such action a
"Prohibited Action"):
(a) amend its Constitutional Documents;
(b) authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise) any
shares of any class or any debt or equity securities or equity equivalents
(including any share options or share appreciation rights) except for the
issuance and sale of Shares upon the exercise of share options granted under the
Company's share option plan(s) prior to the date hereof;
(c) split, combine or reclassify any shares of its capital stock,
declare, set aside or pay any dividend or other distribution (whether in cash,
stock or property or any combination thereof) in respect of its shares, make any
other actual, distribution in respect of its shares or otherwise make any
payments to shareholders in their capacity as such and other than in their
capacity as officers, directors or consultants of the Company, or redeem or
otherwise acquire any of its securities or any securities of Inverness-U.S.;
(d) adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other reorganization
of the Company or Inverness-U.S.;
(e) alter through merger, liquidation, reorganization, restructuring
or any other fashion the corporate structure or ownership of Inverness-U.S.;
(f) (i) incur or assume any long-term or short-term Indebtedness or
issue any debt securities, in each case, except for borrowings under existing
lines of credit in the ordinary course of business and consistent with past
practices, or modify or agree to any amendment of the terms of any of the
foregoing; (ii) assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, contingently or otherwise) for the obligations of
any other person; (iii) make any loans, advances or capital contributions to or
investments in any other person
32
(other than customary loans or advances to employees in each case in the
ordinary course of business consistent with past practice not to exceed
US$50,000 or the equivalent thereof in the aggregate); (iv) charge, pledge or
otherwise encumber shares of capital stock of the Company or Inverness-U.S.; or
(v) mortgage, charge or pledge any of its material assets, tangible or
intangible, or create or suffer to exist any material Lien thereupon;
(g) except as may be required by applicable law or as expressly
contemplated by this Agreement, enter into, adopt or amend or terminate any
bonus, profit sharing, special remuneration, compensation, severance,
termination, stock option, stock appreciation right, restricted stock,
performance unit, stock equivalent, stock purchase agreement, pension,
retirement, deferred compensation, employment, health, life, or disability
insurance, dependent care, severance or other employee benefit plan agreement,
trust, fund or other arrangement for the benefit or welfare of any director,
officer, employee or consultant in any manner or increase in any manner the
compensation or fringe benefits of any director, officer or employee or pay any
benefit not required by any plan and arrangement as in effect as of the date
hereof (including the granting of stock appreciation rights or performance
units);
(h) grant any severance or termination pay to any director, officer,
employee or consultant, except payments made pursuant to written agreements in
effect on the date hereof, the terms of which are in all material respects
completely and correctly disclosed in Section 4.11 of the Disclosure Schedule or
as required by applicable national, state or local applicable law or
regulations;
(i) except as expressly contemplated by this Agreement, enter into or
amend any employment agreements, oral or written, increase the compensation
payable or to become payable by it to any of its officers, shareholders,
directors, employees or consultants, or adopt or amend any employee benefit plan
or arrangement, oral or written (including any amendment to the Company's share
option plan(s) or the agreements thereunder), or increase the salaries or wage
rates of its officers, shareholders, directors, employees or consultants;
(j) terminate the employment of any manager or officer or other
employee or grant any severance or termination pay to any member, manager,
officer or any other employee, except payments made pursuant to written
agreements or other legally binding commitments disclosed to Parent in writing
and in effect on the date hereof or as may be required by law
(k) accelerate the vesting of any Company Stock Option as a result of
the transactions contemplated hereby, any other change of control of the Company
(as defined in the Company Plans) or otherwise except as may be called for under
the Company's Stock Option plan, the agreements executed thereunder or other
option agreements executed by the Company;
(l) other than in the ordinary course of business and consistent with
past practices, (i) acquire, sell, lease, license, transfer or otherwise dispose
of any assets in any single transaction or series of related transactions having
a fair market value in excess of U.S.$50,000 or the equivalent thereof in the
aggregate; (ii) enter into any exclusive license, distribution, marketing, sales
or other agreement, (iii) enter into a "development services" or other similar
agreement, or (iv) acquire, sell, lease, license, transfer or otherwise dispose
of any Intellectual Property, provided that Parent acknowledges that the
business of the Company entails the
33
provision of development services and the transfer of rights in Intellectual
Property including without limitation the transfer of source code written by the
Company;
(m) except as may be required as a result of a change in applicable
law or in generally accepted accounting principles, change any of the accounting
principles, practices or methods used by it;
(n) revalue in any material respect any of its assets, including
writing down the value of inventory or writing-off notes or accounts receivable,
other than in the ordinary course of business and consistent with past
practices;
(o) (i) acquire (by merger, consolidation or acquisition of shares or
assets) any corporation, partnership or other business organization or entity or
division thereof or any equity interest therein; (ii) enter into any contract or
agreement other than in the ordinary course of business consistent with past
practice that would be material to the Company and Inverness-U.S., taken as a
whole; (iii) amend, modify or waive any right under any Scheduled Contract or
any other material contract of the Company or Inverness-U.S. other than in the
ordinary course of business and consistent with past practices; (iv) commit any
breach or other violation of the terms of any Scheduled Contracts; (v) modify
its standard warranty terms for its products or amend or modify any product
warranties in effect as of the date hereof in any material manner that is
adverse to the Company or Inverness-U.S.; or (v) authorize any new or additional
capital expenditure or expenditures in excess of $25,000 for any single
expenditure, if any such expenditure or expenditures are not listed in the
capital budget attached as Section 6.1(o) of the Disclosure Schedule; or (vi)
authorize any new or additional manufacturing capacity expenditure or
expenditures in excess of $50,000 for any single expenditure and $100,000 in the
aggregate, for any manufacturing capacity contracts or arrangements;
(p) make or revoke any tax election or settle or compromise any income
tax liability other than as would not have a material adverse effect on the
Company or Inverness U.S. or as would not have a material effect on the value of
the Company or Inverness U.S. to Parent, or permit any insurance policy naming
it as a beneficiary or loss-payee to expire, or to be canceled or terminated,
unless a comparable insurance policy reasonably acceptable to Parent is obtained
and in effect;
(q) allow any insurance policy relating to the Company's or Inverness-
U.S.'s assets, properties or business to be amended or terminated without
replacing such policy with a policy providing at least equal coverage, insuring
comparable risks and issued by an insurance company financially comparable to
the prior insurance company;
(r) fail to file any Tax Returns when due (or, alternatively, fail to
file for available extensions) or fail to cause such Tax Returns when filed to
be complete and accurate in all material respects;
(s) fail to pay any Taxes or other material debts when due other than
any Taxes or other material debts which are contested by the Company or
Inverness-U.S. in good faith;
34
(t) commence any litigation or any binding dispute resolution process
(other than in respect of any breach of or claim arising under this Agreement),
or settle or compromise any pending or threatened suit, action, claim or other
dispute that (i) relates to the transactions contemplated hereby or (ii) the
settlement or compromise of which would involve more than U.S.$50,000 or the
equivalent thereof or that would otherwise be material to the Company and
Inverness-U.S., taken as a whole, or relates to any Intellectual Property
matters;
(u) take any action or fail to take any action that could reasonably
be expected to (i) limit the utilization of any of the net operating losses,
built-in losses, tax credits or other similar items of the Company or Inverness-
U.S. under Section 382, 383, 384 or 1502 of the U.S. Code and the Treasury
Regulations thereunder, or (ii) cause any transaction in which the Company or
Inverness-U.S. was a party that was intended to be treated as a reorganization
under Section 368(a) of the Code to fail to qualify as a reorganization under
Section 368(a) of the Code;
(v) except as set forth in Section 6.1(v) of the Disclosure Schedule
and except as may be conducted in the ordinary course of business and consistent
with past practices, enter into any licensing, distribution, sponsorship,
advertising or other similar contracts, agreements, or obligations which may not
be canceled without penalty by the Company or Inverness-U.S. upon notice of 30
days or less or which provide for payments by or to the Company or Inverness-
U.S. in an amount in excess of U.S.$50,000 or the equivalent thereof over the
term of the agreement;
(w) engage in any willful action with the intent to directly or
indirectly adversely impact any of the transactions contemplated by this
Agreement; or
(x) take or agree in writing or otherwise to take any of the actions
described in this Section 6.1 that it is prohibited from taking (and it shall
use all reasonable efforts not to take any action that would make any of the
representations or warranties of the Shareholder contained in this Agreement
(including the Exhibits hereto) untrue or incorrect).
Notwithstanding any other provision of this Section 6.1 to the contrary, it
is expressly agreed and understood that, subject to the prior approval of the
Board of Directors of the Company and each of the Chief Executive Officers and
the Chief Financial Officer of Parent, the Shareholders may cause or permit the
Company to distribute up to an aggregate of the equivalent of U.S.$1,000,000 in
employee bonuses and management fees prior to the Closing Date.
Section 6.2. No Solicitation or Negotiation. Between the date hereof and
------------------------------
the earlier of the termination of this Agreement and the Closing Date, the
Shareholders shall not (nor shall the Shareholders cause the Company or
Inverness-U.S. to or authorize or in any other way approve the Company or
Inverness-U.S. or any of the Company's or Inverness-U.S.'s officers, directors,
employees, agents, representatives, or affiliates or cause any person on behalf
of the Shareholders to) directly or indirectly, take any of the following
actions with any person other than Parent:
(a) solicit, initiate, entertain or encourage any proposals or offers
from, or conduct discussions with or engage in negotiations with any person
relating to any possible
35
acquisition of the Company or Inverness-U.S. (whether by way of merger, purchase
of shares, purchase of assets or otherwise);
(b) provide any nonpublic information with respect to the Company or
Inverness-U.S. to any person, other than Parent, relating to, or otherwise
cooperate with, facilitate or encourage any effort or attempt by any such person
with regard to, any possible acquisition of the Company or Inverness-U.S.
(whether by way of merger, purchase of shares, purchase of assets or otherwise);
or
(c) enter into any agreement with any person providing for the
possible acquisition of the Company or Inverness-U.S. (whether by way of merger,
purchase of shares, purchase of assets or otherwise).
Each Shareholder shall, and it shall cause the Company and Inverness-U.S. to,
promptly notify the Parent in the event it receives any proposal or inquiry from
a third party concerning a proposed acquisition of the Company or Inverness-
U.S., including the terms and conditions thereof and the identity of the party
submitting such proposal, and shall advise Parent from time to time of the
status and any material developments concerning the same.
Section 6.3. Comfort Letter. The Shareholders shall use all reasonable
--------------
efforts, subject to reasonable cost demands, to cause Ernst & Young to deliver a
letter dated not more than five (5) days prior to the Closing Date and addressed
to Parent and its Board of Directors in form and substance reasonably
satisfactory to Parent and customary in scope and substance for agreed-upon
procedures letters delivered by independent public accountants in connection
with the transactions contemplated by this Agreement.
Section 6.4. Access to Information.
---------------------
(a) Between the date hereof and the Closing Date, the Shareholders
will give Parent and its authorized representatives reasonable access to all
employees, plants, offices, warehouses and other facilities and to all books and
records and personnel files of current employees of the Company and Inverness-
U.S. as Parent may reasonably require, and will cause its officers and those of
Inverness-U.S. to furnish Parent or its authorized representatives with such
financial and operating data and other information with respect to the business
and properties of the Company and Inverness-U.S. as Parent may from time to time
reasonably request.
(b) Between the date hereof and the Closing Date, the Shareholders
shall furnish to Parent (i) within two (2) business days following preparation
thereof (and in any event within twenty (20) business days after the end of each
calendar month, commencing with March 2000), an unaudited balance sheet as of
the end of such month and the related statements of earnings, shareholders'
equity (deficit) and cash flows and (ii) within two (2) business days following
preparation thereof (and in any event within twenty (20) business days after the
end of each fiscal quarter) an unaudited balance sheet as of the end of such
quarter and the related statements of earnings, shareholders' equity (deficit)
and cash flows for the quarter then ended, all of such financial statements
referred to in clauses (i) and (ii) to be prepared in accordance with in
conformity with the practices consistently applied by the Company with respect
to such
36
monthly and quarterly financial statements. All the foregoing shall be in
accordance with the books and records of the Company and shall fairly present
its financial position (taking into account the differences between the monthly,
quarterly and annual financial statements prepared by the Company in conformity
with its past practices) as of the last day of the period then ended.
Section 6.5. Certain Filings; Reasonable Efforts. Subject to the terms
-----------------------------------
and conditions herein provided, each of the parties hereto agrees to use all
commercially reasonable efforts to take or cause to be taken all action and to
do or cause to be done all things reasonably necessary, proper or advisable
under applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement, including using all reasonable
efforts to do the following, (i) obtain consents of all third parties and
Governmental Entities necessary, proper or advisable or reasonably requested by
Parent or the Shareholder for the consummation of the transactions contemplated
by this Agreement; (ii) contest any legal proceeding relating to the
transactions contemplated hereby; and (iii) execute any additional instruments
necessary to consummate the transactions contemplated hereby. Subject to the
terms and conditions of this Agreement, Parent agrees to use all commercially
reasonable efforts to cause the Closing Date to occur as soon as practicable
after the date of this Agreement. The Shareholders agree to use all reasonable
efforts to encourage the employees of the Company and Inverness-U.S. to accept
any offers of continued employment extended by Parent. If at any time after the
Closing Date any further action is necessary to carry out the purposes of this
Agreement the party hereto shall take all such necessary action. Parent and
Shareholders shall cause the Company to use all commercially reasonable efforts
to resolve any objections as may be asserted by any Governmental Entities, with
respect to the transactions contemplated by this Agreement, including in respect
of the Office of the Chief Scientist of Israel's Ministry of Industry and Trade,
and the undertaking required by such office to be undertaken by an acquirer of
all of the shares of an Israeli entity, substantially form of Exhibit C;
provided, however, that the Company shall not be required to modify the method
-------- -------
in which it conducts its business or to cease conducting any portion of its
business.
Section 6.6. Public Announcements. None of the Shareholders shall, or
--------------------
shall cause or permit the Company or Inverness-U.S. to issue any press release
or otherwise make any public statements with respect to the transactions
contemplated by this Agreement without the prior consent of Parent.
Section 6.7. Conduct of Business of Parent. Except as contemplated by
-----------------------------
this Agreement, from the date hereof to the Closing Date, the Parent shall not,
without the prior written consent of the Shareholders:
(a) amend its Constitutional Documents in any manner that would
reasonably be expected to materially and adversely affect the Shareholders;
provided that nothing contained in this Section 6.7(a) shall prohibit Parent
from adopting a rights plan or similar "poison pill" plan;
(b) adopt a plan of complete or partial liquidation or dissolution of
Parent; provided that nothing contained in this Section 6.7 shall prohibit
Parent from merging with or into or being acquired or purchased by any person
subject to the assumption of such person of the obligations of the Parent
herein; or
37
(c) take or agree in writing or otherwise to take any of the
actions described in this Section 6.7 that it is prohibited from taking (and it
shall use all reasonable efforts not to take any action that would make any of
the representations or warranties of Parent contained in this Agreement
(including the Exhibits hereto) untrue or incorrect).
Section 6.8. Notification of Certain Matters. From and after the date
-------------------------------
hereof and until the earlier of the Closing Date or the termination hereof, and
subject to the actual knowledge of any Shareholder, the Shareholders shall give
prompt notice to Parent, and Parent shall give prompt notice to the Shareholder,
of (i) the occurrence or nonoccurrence of any event the occurrence or
nonoccurrence of which has caused or would be likely to cause any representation
or warranty contained in this Agreement to be untrue or inaccurate in any
material respect at or prior to the Closing Date and (ii) any material failure
of the Company or Parent, as the case may be, to comply with or satisfy in any
material respect any covenant condition or agreement to be complied with or
satisfied by it hereunder; provided, however, that the delivery of any notice
pursuant to this Section 6.8 shall not cure such breach or non-compliance or
limit or otherwise affect the remedies available hereunder to the party
receiving such notice
Section 6.9. Additions to and Modification of Disclosure Schedule.
----------------------------------------------------
Concurrently with the execution and delivery of this Agreement, the Shareholders
have delivered to Parent a Disclosure Schedule that includes all of the
information required by the relevant provisions of this Agreement. Parent
acknowledges that the Shareholders have proposed to include documents in the
Disclosure Schedule which Parent has not previously had the opportunity to
review and therefore Parent has requested that such documents not be included as
part of the Disclosure Schedule on the date hereof. The Shareholders shall
modify the Disclosure Schedule in such manner as the Shareholders believe to be
appropriate to reflect such documents after Parent has completed its review of
such documents. In addition, the Shareholders shall deliver to Parent such
additions to or modifications of any Sections of the Disclosure Schedule of
which they become aware and which are necessary to make the information set
forth therein true, accurate and complete in all material respects as soon as
practicable after such information is available to the Shareholders after the
date of execution and delivery of this Agreement; provided, however, that none
of the foregoing additional disclosure shall be deemed to constitute an
exception to its representations and warranties under Article IV, nor limit the
rights and remedies of Parent under this Agreement for any breach by the
Shareholders of such representation and warranties.
Section 6.10. Employee Matters.
----------------
(a) Except for any employee who (i) resigns from his or her
employment prior to the Closing Date or (ii) is terminated for cause by the
Company or Inverness-U.S., all employees of the Company or Inverness-U.S.
immediately prior to the Closing will continue to be employees of the Company or
Inverness-U.S. immediately after the Closing on the same terms and conditions as
are in effect immediately prior to the Closing.
(b) Subject to the execution of an amendment of each option
holder's option agreement by such option holder, Parent shall assume all of the
options for the purchase of shares of Inverness referred to in Section 4.2
hereof which remain unexercised on the Closing Date so that such option holders
shall be entitled to purchase shares of Parent's common stock.
38
The methodology which will be used to calculate the number of shares of Parent's
Common Stock which will be so purchasable and the exercise price thereof is
reflected in Schedule 6.10.
(c) After the Closing Date, each employee of Inverness who is the
holder of share options under the Company's share option plan shall be eligible,
together with all Parent's employees, to sell such percentage of Parent Shares
purchasable upon the exercise of such options under a Registration Statement on
Form S-8 under the U.S. Securities Act as is determined to be permissible by the
Board of Directors of Parent with respect to the options held by Parent's
employees and the employees of other subsidiaries of Parent.
ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE TRANSACTIONS
----------------------------------------------
CONTEMPLATED HEREBY
-------------------
Section 7.1. Conditions to Each Party's Obligations to Effect the
----------------------------------------------------
Transactions. The respective obligations of each party hereto to consummate the
------------
transactions contemplated hereby are subject to the satisfaction at or prior to
the Closing Date of the following conditions and each party shall use all
commercially reasonable efforts to achieve the satisfaction of such conditions:
(a) no statue, rule, regulation, executive order, decree, ruling
or injunction shall have been enacted, entered, promulgated or enforced by any
court or any relevant Governmental Entity that prohibits, restrains, enjoins or
restricts the consummation of the transactions contemplated hereby; in the event
of any such order or injunction, each party hereto agrees to use its
commercially reasonable efforts to have such injunction or order lifted;
provided, however, that, in connection therewith, Parent shall not be required
-----------------
to (i) incur any financial obligation; or (ii) divest itself of, cease
conducting or modify the manner in which it or any of its subsidiaries conduct
any portion of its business;
(b) the consents of the Office of the Chief Scientist, the
Investment Centre, and any other governmental or regulatory notices, approvals
or other requirements necessary to consummate the transactions contemplated
hereby and to continue to operate the businesses of the Company and Inverness-
U.S. after the Closing Date in all material respects as they were operated prior
thereto and as it is presently contemplated to be conducted in the future in
accordance with the written business plan of the Company submitted to the Parent
prior to date hereof, shall have been given, obtained or complied with, as
applicable, and such consents or approvals shall be in form and substance
reasonably satisfactory to Parent;
(c) Parent shall have received all U.S. state securities laws or
"blue sky" permits and authorizations necessary to issue Parent Shares in
exchange for the Shares pursuant to this Agreement; and
(d) the Share Purchase Indemnification Escrow Agreement, Tax
Escrow Agreement and a registration rights agreement substantially in the form
of Exhibit D (the "Registration Rights Agreement") shall have been executed by
all of the parties thereto;
39
Section 7.2. Conditions to the Obligations of the Shareholder. The
------------------------------------------------
obligations of the Shareholder to sell the Shares to the Parent are subject to
the satisfaction at or prior to the Closing Date of the following conditions:
(a) the representations and warranties of Parent contained in this
Agreement shall be true and correct, except to the extent that the aggregate of
all breaches thereof would not have a Material Adverse Effect on Parent, as of
the date hereof and at and as of the Closing Date with the same effect as if
made at and as of the Closing Date (except to the extent such representations
and warranties specifically relate to an earlier date, in which case such
representations and warranties shall be true and correct as of such earlier date
and, in any event, subject to the foregoing Material Adverse Effect
qualification) and, at the Closing, Parent shall have delivered to the Company a
certificate to that effect, executed by two (2) executive officers of Parent;
(b) each of the material covenants and obligations of Parent to be
performed at or before the Closing Date pursuant to the terms of this Agreement
shall have been duly performed in all material respects at or before the Closing
Date and, at the Closing, Parent shall have delivered to the Shareholders a
certificate to that effect, executed by two (2) executive officers of Parent;
provided, however, that in connection with the compliance by Parent with any
applicable law or obtaining the consent or approval of any Governmental Entity
whose consent or approval may be required to consummate the transactions
contemplated by this Agreement, Parent shall not be (i) required, or be
construed to be required, to sell or divest any material assets or business or
to restrict in any material respect any business operations in order to obtain
the consent or successful termination of any review of any such Governmental
Entity regarding the transactions contemplated hereby or (ii) prohibited from
owning, and no material limitation shall be imposed on Parent's ownership of,
any material portion of the Company's or Inverness-U.S.'s business or assets;
(c) the Shareholders shall have received the opinion of legal
counsel to Parent reasonably satisfactory in substance and form to the
Shareholders' Agent;
(d) there shall have occurred no Material Adverse Effect on
Parent;
(e) The Shareholders shall have received a ruling from the Israeli
Income Tax Commission (the "Ruling") reasonably satisfactory to them, which
Ruling shall provide that the exchange of the Shares for Parent Shares will not
result in a requirement for an immediate Israeli tax payment and such Israeli
tax payment will be deferred until the earlier of (x) actual sale of the Parent
Shares by the Shareholders, or (y) two years from the date of the Closing and be
calculated based on the value of Parent Shares at such deferred date; provided
further that any Ruling that is substantially similar to the foregoing will be
sufficient to comply with the Closing condition set forth in this sub clause
(e).
Section 7.3. Conditions to the Obligations of Parent. The respective
---------------------------------------
obligations of Parent to consummate the transactions contemplated hereby are
subject to the satisfaction at or prior to the Closing Date of the following
conditions:
40
(a) the representations and warranties of the Shareholders contained
in this Agreement shall be true and correct, except to the extent that the
aggregate of all breaches thereof would not have a Material Adverse Effect on
the Company, in each case as of the date hereof and at and as of the Closing
Date with the same effect as if made at and as of the Closing Date (except to
the extent such representations and warranties specifically relate to an earlier
date, in which case such representations and warranties shall be true and
correct as of such earlier date and, in any event, subject to the foregoing
Material Adverse Effect qualification) and, at the Closing, the Shareholders
shall have delivered to Parent a certificate to that effect, executed by the
Shareholders' Agent; provided, however, that the Shareholders shall not be
deemed to have failed to satisfy this condition precedent if the representation
and warranty set forth in Section 4.2 is not true and correct at and as of the
Closing Date because any holder of vested share options has exercised such
vested options provided further that such holder has become a party to the
Transaction Documents and has become a Shareholder on the same terms and
conditions as JMasel;
(b) each of the material covenants and obligations of the
Shareholders to be performed at or before the Closing Date pursuant to the terms
of this Agreement shall have been duly performed in all material respects at or
before the Closing Date and, at the Closing, the Shareholders' Agent shall have
delivered to Parent a certificate to that effect, executed by the Shareholders'
Agent;
(c) there shall not have occurred a Material Adverse Effect on the
Company;
(d) Parent shall have received the opinion of legal counsel to the
Company reasonably satisfactory in form and substance to Parent; ;
(e) the Board of Directors of the Company shall have approved the
transfer of the Shares from the Shareholders to Parent;
(f) the Board of Directors of the Company appointed by the
Shareholders shall have tendered their resignations from the Board of Directors
with effect immediately upon the Closing;
(g) all of the Shareholders shall have delivered to Parent
certificates representing their Shares, together with executed share transfer
deeds in respect of such Shares and Parent shall have been registered as the
owner of the Shares in the Company's membership registry with effect immediately
upon the Closing;
(h) JMasel and the Company shall have executed an Employment
Agreement satisfactory in substance and form to Parent and Parent shall have
received a certified English translation of the Employment Agreement between the
Company and ▇▇▇ ▇▇▇▇▇▇▇▇ and the Company and (i) all of the persons listed on
Schedule 7.3(h); and (ii) at least 75% of the other employees of the Company and
Inverness-U.S. shall have executed employee non-disclosure agreements
satisfactory in substance and form to Parent;
(i) The Shareholders shall have delivered to Parent the final audited
consolidated financial statements of the Company as at and for the year ended
December 31, 1999, and such final audited financial statements shall not
disclose a negative variance of in
41
excess of 10% of retained earnings from the unaudited consolidated balance sheet
of the Company as at December 31, 1999 included in the Financial Statements or a
negative variance of in excess of 5% of revenues from the unaudited consolidated
statement of earnings/operations of the Company for the fiscal year ended
December 31, 1999 included in the Financial Statements;
(j) Parent shall have received from Ernst & Young a letter dated
not earlier than five days prior to the Closing Date addressed to Parent in form
and substance satisfactory to Parent and customary in scope and substance for
agreed-upon procedures letters delivered by independent public accountants in
connection with the transactions contemplated by this Agreement;
(k) The Company's employees, directors and consultants (the
"Optionees") shall have received a ruling from the Income Tax Commission that
the exchange of the options to acquire Shares of the Company for options to
acquire Parent Shares (the "New Options") will not result in a requirement for
an immediate Israeli tax payment and the Israeli taxation will be deferred until
the exercise of the New Options or in the event of New Options which are part of
a Section 102 Plan the actual sale of the Parent Shares by the Optionees
provided further that any Ruling that is substantially similar to the foregoing
will be sufficient to comply with the Closing condition set forth in this sub
clause (k);
(l) The Company's share option plan and each option agreement
outstanding under the Company's share option plan shall have been amended to
provide that (i) neither the consummation of the transactions contemplated by
this Agreement nor any future liquidation of the Company shall result in any
acceleration of the vesting of the share options granted thereunder; and (ii)
any share options granted thereunder that are exercised from and after the
Closing Date shall be exercisable for shares of common stock of the Parent, the
methodology of calculating the number of shares of which is reflected in
Schedule 6.10. The share option agreements between the Company and each of
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ St. ▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇ shall have been similarly
amended (except to the extent that the concept of vesting is not relevant to any
of such option agreements);
(m) Qualification in California. Inverness-U.S. shall have taken
---------------------------
such actions as are necessary in the reasonable judgment of Parent to resolve
the issue relating to its qualification to sell products and services in the
State of California.
ARTICLE VIII
TERMINATION; AMENDMENT; WAIVER
------------------------------
Section 8.1. Termination. This Agreement may be terminated and the
-----------
transactions contemplated hereby may be abandoned at any time prior to the
Closing Date:
(a) by mutual written consent of Parent and the Shareholders;
(b) by Parent or the Shareholders if (i) any court of competent
jurisdiction or any Governmental Entity shall have issued a final order, decree
or ruling, or taken any other final action, restraining, enjoining or otherwise
prohibiting the transactions contemplated hereby and
42
such order, decree, ruling or other action is or shall have become nonappealable
or (ii) the transactions contemplated hereby have not been consummated by May
31, 2000 (the "Final Date."); provided that no party may terminate this
Agreement pursuant to this clause (ii) if such party's actions, omissions or
failure to fulfill any of its obligations under this Agreement shall have been a
principal reason that the Closing Date shall not have occurred on or before said
date;
(c) by the Shareholders (i) if any representations or warranties
of Parent shall have become untrue such that the conditions set forth in Section
7.2(a) would be incapable of being satisfied by the Final Date, provided, that
the Shareholders have not breached any of their obligations, representations or
warranties hereunder to an extent that would entitle Parent to terminate this
Agreement pursuant to Section 8.1(d); or (ii) if there shall have been a breach
by Parent of any of its respective covenants or agreements hereunder and Parent
has not cured such breach within fifteen (15) business days after notice by the
Shareholders thereof, such that the conditions set forth in Section 7.2(b) would
be incapable of being satisfied within such 15 day period or, if within 15 days
of the Final Date, by the Final Date, provided that the Shareholders have not
breached any of their obligations, representations or warranties hereunder to an
extent that would entitle Parent to terminate this Agreement pursuant to Section
8.1(d); or (iii) Parent's Board shall have withdrawn its approval of this
Agreement; or
(d) by Parent (i) if any representations or warranties of the
Shareholders shall have become untrue such that the conditions set forth in
Section 7.3(a) would be incapable of being satisfied by the Final Date provided,
that the Parent has not breached any of its respective obligations hereunder to
an extent that would entitle the Company to terminate this Agreement pursuant to
Section 8.1(c); or (ii) if there shall have been a breach by the Shareholders of
any of their covenants or agreements hereunder and the Shareholders have not
cured such breach within fifteen (15) business days after notice by the Parent
thereof, such that the conditions set forth in Section 7.3(b) would be incapable
of being satisfied within such 15 day period or, if within 15 days of the Final
Date, by the Final Date, provided that the Parent has not breached any of its
obligations hereunder to an extent that would entitle the Company to terminate
this Agreement pursuant to Section 8.1(c).
Section 8.2. Effect of Termination. In the event of the termination and
---------------------
abandonment of this Agreement by the Shareholders or Parent pursuant to Section
8.1, this Agreement shall forthwith become void and have no effect without any
liability on the part of any party hereto or its affiliates, directors, officers
or shareholders other than the provisions of this Section 8.2 and Section 8.3
and the provisions of Section 10.4. Nothing contained in this Section 8.2 shall
relieve any party from liability for any breach of this Agreement prior to such
termination for fraud or intentional misrepresentation. Notwithstanding the
foregoing, if this Agreement is terminated for any reason whatsoever, then for a
one (1) year period thereafter, neither Parent nor the Company shall directly or
indirectly (including, without limitation, through any existing or future
affiliate of such party), solicit any existing and future employee of the other
party (or any existing or future affiliate of such party) to leave his or her
employment with such other party or knowingly induce or knowingly attempt to
induce any such employee to terminate or breach his or her employment agreement,
if any, with such other party or any existing or future affiliate of the Party.
43
Section 8.3. Fees and Expenses.
-----------------
(a) Except as specifically provided in this Section 8.3, each
party shall bear its own expenses in connection with this Agreement and the
transactions contemplated hereby; provided, however, that, in the event that the
transactions contemplated by this Agreement are consummated, (i) Parent shall
pay all reasonable and documented expenses incurred by the Shareholders for
financial, legal, accounting and other advisory services, excluding legal fees
and legal expenses in excess of U.S.$75,000 except to the extent provided in
subclause (a)(ii) and (ii) the Shareholders shall pay 50% of all legal fees and
legal expenses of the Shareholders in excess of U.S.$75,000, such amount to be
deducted from the Escrow Amount if necessary, and Parent shall pay 50% of all
legal fees and legal expenses of Shareholders in excess of $75,000.
(b) If this Agreement is terminated by Parent pursuant to Section
8.1(d)(i) or Section 8.1(d)(ii) as a result of the Shareholders' intentionally
breaching any of their representations, warranties, covenants, agreements or
obligations herein with the intent to cause a termination of this Agreement at a
time when Parent is in material compliance with its obligations under this
Agreement, the parties hereby agree that the Parent would suffer direct and
substantial damages, which damages cannot be determined with reasonable
certainty. To compensate Parent for such damages, the Shareholders agree that
the breaching Shareholder(s) shall be severally liable to pay Parent the sum of
$1,000,000 in liquidated damages; provided, however, that, if and the Company is
sold, merged or otherwise acquired by a third party at any time within twenty-
four (24) months after the date of such termination, the Shareholders hereby
agree that the breaching Shareholder(s) shall be severally liable to pay Parent
a total sum of $100,000,000 in liquidated damages (including the $1,000,000
referred to above). The Shareholders hereby waive any right to set-off or
counterclaim against such amount and agree that the obligations set forth in
this Section 8.3(b) are separate and distinct from the obligations of the
parties contained elsewhere in this Section 8.3.
(c) If this Agreement is terminated by the Shareholders pursuant
to Section 8.1(c)(i) or 8.1(c)(ii) as the result of Parent intentionally
breaching any of its representations, warranties, covenants, agreements or
obligations herein with the intent to cause a termination of this Agreement at a
time when the Shareholders are in material compliance with their obligations
under this Agreement, then the parties hereby agree that the Shareholders would
suffer direct and substantial damages, which damages cannot be determined with
reasonable certainty. To compensate the Shareholders for such damages, Parent
shall pay to the Shareholders the amount of U.S.$50,000,000 immediately upon
such termination. Parent hereby waives any right to set-off or counterclaim
against such amount and agrees that the obligations set forth in this Section
8.3(c) are separate and distinct from the obligations of the parties contained
elsewhere in this Section 8.3.
(d) Each of the Shareholders and Parent acknowledges that the
agreements contained in this Article VIII (including this Section 8.3) are an
integral part of the transactions contemplated by this Agreement and that,
without these agreements, the Shareholders and Parent would not enter into this
Agreement. Accordingly, if any party fails promptly to pay the amounts required
pursuant to Section 8.3 when due (including circumstances where, in order to
obtain such payment the other party(ies) commence a suit that results in a final
nonappealable judgment against such party for such amounts), such party shall
pay to the other party(ies) (i)
44
their costs and expenses (including attorneys' fees) in connection with such
suit and (ii) interest on the amount that was determined to be due and payable
hereunder at the rate announced by Chase Manhattan Bank as its "reference rate"
in effect on the date such payment was required to be made.
(e) In the event of any termination of this Agreement pursuant to
Section 8.1, the amounts that any party becomes entitled to receive under this
Section 8.3 by reason of such termination shall be the sole and exclusive right
and remedy of such party arising out of such termination or the reasons
therefore except for equitable remedies such as injunctive relief and specific
performance; provided, however, that nothing contained in this Section 8.3 shall
relieve any party from liability for any breach of this Agreement prior to such
termination for fraud or intentional misrepresentation
Section 8.4. Amendment. This Agreement (including, subject to Section
---------
6.9, the Disclosure Schedule) may be amended only by an instrument in writing
signed by all of the parties hereto.
Section 8.5. Extension; Waiver. At any time prior to the Closing Date,
-----------------
each party hereto may (i) extend the time for the performance of any of the
obligations or other acts of the other party, (ii) waive any inaccuracies in the
representations and warranties of the other party contained herein or in any
document, certificate or writing delivered pursuant hereto or (iii) waive
compliance by the other party with any of the agreements or conditions contained
herein. Any agreement on the part of any party hereto to any such extension or
waiver shall be valid only if set forth in an instrument, in writing, signed on
behalf of such party. The failure of any party hereto to assert any of its
rights hereunder shall not constitute a waiver of such rights.
ARTICLE IX
INDEMNIFICATION
---------------
Section 9.1. General Survival. The parties agree that, regardless of any
----------------
investigation made by the Parent, the representations and warranties of the
Shareholders contained in this Agreement shall survive the Closing for the
following periods (each such period, a "Survival Period"):
(a) except for the representations and warranties of each
Shareholder set forth in Article III, the representations and warranties of all
Shareholders other than JMasel shall expire at 5:00 p.m., California time, on
the first anniversary of the Closing Date;
(b) the representations and warranties of JMasel other than those
set forth in Article III shall expire at 5:00 p.m., California time, on the
second anniversary of the Closing Date; and
(c) the representations and warranties of each Shareholder set
forth in Article III shall expire at 5:00 p.m., California time, on the fifth
anniversary of the Closing Date.
45
The parties agree that, regardless of any investigation made by the
Company, the representations and warranties of Parent contained in this
Agreement shall survive the Closing for a period ending on the last day of the
statute of limitations period applicable to claims made under U.S. federal and
state securities laws applicable to any such breached representation and
warranty; provided, however, that any claim under contract law shall not survive
beyond the one year anniversary of the Closing Date.
Section 9.2. Indemnification Provisions in General.
-------------------------------------
(a) Subject to Section 9.1, from and after the Closing Date,
Parent and the Company and their respective affiliates, officers, directors,
stockholders, representatives and agents (collectively the "Indemnitees" shall
be indemnified and held harmless by the Shareholders, severally and not jointly,
in the proportions set forth in Schedule 4.2 hereto solely from the Parent
Shares or other sums held by the Escrow Agent, from and against and in respect
of any and all Losses incurred by, resulting from, arising out of, relating to,
imposed upon or incurred by Parent, the Company or any other Indemnitee by
reason of:
(i) any inaccuracy in or breach of any of the Shareholder's
representations and warranties set forth in Article IV hereof or covenants or
agreements contained in this Agreement or any of the other Transaction Documents
to which it is a party; and
(ii) any misrepresentation contained in the Disclosure
Schedule or in any other written statement or certificate furnished to Parent or
any other Indemnitee by or on behalf of the Shareholders in connection with the
transactions contemplated by this Agreement or any of the other Transaction
Documents.
Subject to Section 9.1, from and after the Closing Date, the
Indemnitees shall be indemnified and held harmless by each Shareholder severally
from and against and in respect of any and all Losses incurred by, resulting
from, arising out of, relating to, imposed upon or incurred by any Indemnitee by
reason of any inaccuracy in or breach of any of such Shareholder's
representations and warranties contained in Article III hereof. Notwithstanding
anything else contained in this Article IX, the total liability of the
Shareholders for Losses under or in connection with this Agreement (not
including amounts owing under Section 8.3(c) and not including any Losses
arising from a breach of any Shareholder's representations and warranties set
forth in Article III shall in no event exceed the aggregate amount held by the
Share Purchase Indemnification Escrow Agent under the Share Purchase
Indemnification Escrow Agreement, which shall be the sole source for
satisfaction of the Shareholders' obligations under this Article or for any
damages resulting from any misrepresentation or breach of or default in
connection with any representations, warranties, covenants and agreements given
or made by the Shareholders in this Agreement or in the Disclosure Statements or
other Transaction Documents
For purposes of this Agreement, the term "Losses" means any
and all actual monetary damages arising from deficiencies, judgments,
settlements, demands, claims, suits, actions or causes of action, assessments,
liabilities, losses, damages (whether direct, indirect, incidental or
consequential), interest, fines, penalties, costs, expenses (including
reasonable legal, accounting and other costs and expenses of professionals)
incurred in
46
connection with investigating, defending, settling or satisfying any and all
demands, claims, actions, causes of action, suits, proceedings, assessments,
judgments or appeals, and in seeking indemnification therefor, and interest on
any of the foregoing from the date incurred until paid at the prime rate
published from time to time by Chase Manhattan Bank.
(b) Any claims for indemnification hereunder must be set forth in
writing, contain a reasonably detailed description of the nature of and the
events or circumstances underlying the claim for indemnification hereunder and
be received by the Shareholder's Agent not later than the expiration of the
relevant Survival Period (a "Survival Period Indemnification Claim").
(c) No Indemnitee shall be entitled to indemnification hereunder
for any Losses until the aggregate amount of all Losses under all Survival
Period Indemnification Claims shall exceed U.S.$250,000 (the "Floor"), at which
time all Losses incurred shall be subject to indemnification hereunder in full,
including the amount of the Floor; provided, however, that the provisions of
this Subsection (c) shall not apply with respect to Losses in respect of
Survival Period Indemnification Claims arising out of any breach of the
representations and warranties of any Shareholder contained in Article III
hereof and the Indemnitees shall be entitled to indemnification in the event of
a breach of such representations and warranties without applicability of the
Floor.
(d) No Indemnitee shall be entitled to indemnification hereunder
for any Losses for which no Survival Period Indemnification Claim is made prior
to the expiration of the relevant Survival Period.
(e) Any indemnification payments made hereunder shall constitute
an adjustment to the dollar amount of the aggregate consideration payable by
Parent to the Shareholders.
Section 9.3. Manner of Indemnification.
-------------------------
(a) To provide a fund against which an Indemnitee may assert a
Survival Period Indemnification Claim under this Article IX during the relevant
Survival Periods, the Share Purchase Indemnification Escrow Amount shall be
withheld and deposited into escrow pursuant to the Share Purchase
Indemnification Escrow Agreement in accordance with Section 2.2 hereof. The
Share Purchase Indemnification Escrow Amount so deposited, and interest and
other earnings payable thereon, shall be held and distributed in accordance with
the Share Purchase Indemnification Escrow Agreement.
(b) Each Survival Period Indemnification Claim shall be made only
in accordance with this Article IX and the Share Purchase Indemnification Escrow
Agreement (in the case of any Survival Period Indemnification Claim in respect
of which the Share Purchase Indemnification Escrow Agreement constitutes the
sole source of satisfaction).
Section 9.4. Shareholders' Agent. Each Shareholder hereby appoints JMasel
-------------------
as his, her or its representative (the "Shareholders' Agent") and the attorney-
in-fact for and on behalf of each such Shareholder, and the taking by the
Shareholders' Agent of any and all actions and the making of any decisions
required or permitted to be taken by him under this Agreement, the
47
Share Purchase Indemnification Escrow Agreement and the Registration Rights
Agreement, including the exercise of the power to (i) execute the Share Purchase
Indemnification Escrow Agreement and the Registration Rights Agreement, (ii)
authorize delivery to Parent of the Share Purchase Indemnification Escrow
Amount, or any portion thereof, in satisfaction of any Survival Period
Indemnification Claims asserted prior to the first anniversary of the Closing
Date, (iii) agree to, negotiate, enter into settlements and compromises of and
comply with orders of courts and awards of arbitrators with respect to any
Survival Period Indemnification Claims, (iv) resolve any Survival Period
Indemnification Claims and (v) take all actions necessary in the judgment of the
Shareholders' Agent for the accomplishment of the foregoing and all of the other
terms, conditions and limitations of this Agreement, the Share Purchase
Indemnification Escrow Agreement and the Registration Rights Agreement.
Accordingly, the Shareholders' Agent has unlimited authority and power to act on
behalf of and conclusively and finally bind each Shareholder with respect to
this Agreement, the Registration Rights Agreement and the Share Purchase
Indemnification Escrow Agreement and the disposition, settlement or other
handling of all Survival Period Indemnification Claims, rights or obligations
arising from and taken pursuant to each such agreement. The Shareholders will be
bound by all actions taken by the Shareholders' Agent in connection with this
Agreement, the Share Purchase Indemnification Escrow Agreement or the
Registration Rights Agreement, and Parent shall be entitled to rely on any
action or decision of the Shareholders' Agent. The Shareholders' Agent will
incur no liability with respect to any action taken or suffered by him or her in
reliance upon any notice, direction, instruction, consent, statement or other
document believed by him or her to be genuine and to have been signed by the
proper person (and shall have no responsibility to determine the authenticity
thereof), nor for any other action or inaction, except his or her own willful
misconduct. In all questions arising under this Agreement, the Registration
Rights Agreement or the Share Purchase Indemnification Escrow Agreement, the
Shareholders' Agent may rely on the advice of counsel, and the Shareholders'
Agent will not be liable to anyone for anything done, omitted or suffered in
good faith by the Shareholders' Agent based on such advice. The Shareholders'
Agent will not be required to take any action involving any expense unless the
payment of such expense is made or provided for in a manner satisfactory to him
or her. At any time, Shareholders entitled to receive 51% or more of the Parent
Shares, determined at the Closing Date, may appoint a new Shareholders' Agent by
written consent by sending notice and a copy of the written consent appointing
such new Shareholders' Agent signed by such Shareholder to Parent, the
Shareholder's Agent, each of the other Shareholders and the Escrow Agent. Such
appointment will be effective upon the later of the date indicated in the
consent or the date such consent is received by Parent and the Escrow Agent. The
Shareholders shall jointly and severally indemnify the Shareholder's Agent for
any loss, liability or expense incurred by the Shareholders Agent (other than
from willful misconduct or gross negligence) arising in connection with the
acceptance or administration of his duties hereunder. Parent shall grant
Shareholders' Agent reasonable access to information about the Parent and the
Company and reasonable assistance from Parent's and the Company's officers and
directors for purposes of performing his duties hereunder, subject to standard
confidentiality obligations by the Shareholders Agent.
Section 9.5. Third-Party Claims. If Parent becomes aware of a third-party
------------------
claim that Parent believes, in good faith, may result in the assertion by it of
a Survival Period Indemnification Claim, Parent shall notify the Shareholders'
Agent of such claim, and the Shareholders' Agent, as representative for the
Shareholders, shall be entitled to participate in any
48
defense of such third party claim. The reasonable costs of the defense of any
third-party action or claim incurred by the Shareholders' Agent shall be paid by
the Shareholders. Notwithstanding the immediately preceding sentence, Parent
shall conduct such defense, but shall not settle any such claim without the
consent of the Shareholders' Agent, provided that the Shareholders' Agent has
accepted responsibility for such claim in writing. In the absence of such
acceptance of responsibility, the Shareholders' Agent shall not unreasonably
withhold or delay his consent to any such settlement. If the Shareholders' Agent
consents to any settlement of a third party complaint, such settlement shall be
determined of the amount, together with all costs and expenses of investigation
and defense incurred by Parent in conducting the defense of such claim, which
Parent is entitled to demand from the Share Purchase Indemnification Escrow
Amount and neither the Shareholders' Agent nor the Shareholders shall have any
right to object to the amount of such demand.
Section 9.6 Special Tax Indemnification. To the extent that any of
----------------------------
HVenture, DInternational or DSt.▇▇▇▇▇▇▇ signs the Tax Escrow Agreement deposited
and its or his Tax Escrowed Shares are deposited into escrow, HVenture,
DInternational or DSt.▇▇▇▇▇▇▇, as the case may be, the Indemnitees shall be
indemnified and held harmless by HVenture, DInternational or DSt.▇▇▇▇▇▇▇, as the
case may be, against any losses incurred by, resulting from, arising out of,
relating to, imposed upon or incurred by any Indemnitees by reason of the net
proceeds of sale of its or his Tax Escrowed Shares, net of the expenses of sale,
being less than the Israeli withholding tax obligation of Parent which Parent is
required to remit to the Israeli tax authorities within seven (7) days of the
Closing Date. A claim in respect of this indemnification obligation may be made
against the Share Purchase Indemnification Escrow Amount of HVenture,
DInternational or DSt.▇▇▇▇▇▇▇, as the case may be, provided, however, that such
Share Purchase Indemnification Escrow Amount shall not constitute the sole
source of satisfaction of such indemnification claim.
ARTICLE X
MISCELLANEOUS
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Section 10.1. Entire Agreement; Assignment. This Agreement (including the
----------------------------
Disclosure Schedule) (a) constitutes the entire agreement between the parties
hereto with respect to the subject matter hereof and supersedes all other prior
agreements and understandings both written and oral between the parties with
respect to the subject matter hereof and (b) shall not be assigned by operation
of law or otherwise; provided, however, that the Parent may assign any or all of
its rights and obligations under this Agreement to any direct or indirect wholly
owned subsidiary of Parent, but no such assignment shall relieve the Parent of
its obligations hereunder if such assignee does not perform such obligations.
Section 10.2. Validity. If any provision of this Agreement or the
--------
application thereof to any person or circumstance is held invalid or
unenforceable, the remainder of this Agreement and the application of such
provision to other persons or circumstances shall not be affected thereby and to
such end the provisions of this Agreement are agreed to be severable.
49
Section 10.3. Notices. All notices, requests, claims, demands and other
-------
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by
facsimile, by registered or certified airmail (postage prepaid, return receipt
requested) or sent by internationally-recognized courier to each other party as
set forth below or to such other address as the party to whom notice is to be
given may have furnished to the other parties hereto in writing in accordance
herewith. Any such notice or communication shall be deemed to have been
delivered and received (a) in the case of personal delivery, on the date of such
delivery, (b) in the case of facsimile, on the date sent if confirmation of
receipt is received and such notice is also promptly mailed by registered or
certified mail (return receipt requested) or by internationally-recognized
courier, (c) in the case of a internationally-recognized courier, on the fourth
business day after the date when sent and (d) in the case of mailing, on the
tenth business day following that on which the piece of mail containing such
communication is posted:
if to Parent: Virata Corporation
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopier: ▇▇ (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
with a copy to: ▇▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopier: ▇▇ (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
if to the Shareholders to: Shareholders' Agent
with a copy to: ▇▇▇▇▇ ▇▇▇▇▇ or ▇▇▇▇ ▇▇▇▇▇
Eitan, Pearl, ▇▇▇▇▇▇ & ▇▇▇▇▇ Zedek
▇▇▇ ▇▇▇ ▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Telecopier: ▇▇▇▇ ▇ ▇▇▇ ▇▇▇▇
if to the Shareholders' Agent: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
c/o ▇▇▇▇▇ ▇▇▇▇▇ or ▇▇▇▇ SteinEitan,
Pearl, ▇▇▇▇▇▇ & ▇▇▇▇▇ ZedekGav
Yamz, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇
Telecopier: + 972 9 970 9001
50
Section 10.4. Governing Law; Venue; Specific Performance; Waiver of Jury
----------------------------------------------------------
Trial.
-----
(a) THIS AGREEMENT SHALL BE DEEMED TO BE MADE IN AND IN ALL
RESPECTS SHALL BE INTERPRETED, CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH
THE LAW OF THE STATE OF CALIFORNIA WITHOUT REGARD TO THE CONFLICT OF LAW
PRINCIPLES THEREOF. The parties hereby irrevocably submit to the jurisdiction of
the courts of the State of California and the Federal courts of the United
States of America located within the County of San Francisco in the State of
California solely in respect of the interpretation and enforcement of the
provisions of this Agreement and of the documents referred to in this Agreement,
and in respect of the transactions contemplated hereby, and hereby waive, and
agree not to assert, as a defense in any action, suit or proceeding for the
interpretation or enforcement hereof or of any such document, that it is not
subject thereto or that such action, suit or proceeding may not be brought or is
not maintainable in said courts or that the venue thereof may not be appropriate
or that this Agreement or any such document may not be enforced in or by such
courts, and the parties hereto irrevocably agree that all claims with respect to
such action or proceeding shall be heard and determined in such a California
State or Federal court. The parties hereby consent to and grant any such court
jurisdiction over the person of such parties and over the subject matter of such
dispute Nothing herein shall be deemed to affect the right of any party to serve
process in any manner permitted by law or to commence legal proceedings or
otherwise proceed against any other party in any jurisdiction.
(b) The parties agree that irreparable damage would occur and
that the parties would not have any adequate remedy at law 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 any Federal court or California state court located within the
County of San Francisco in the State of California, this being in addition to
any other remedy to which they are entitled at law or in equity.
(c) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY
WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND
DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN
RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY
CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY
OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH
SUCH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii)
EACH SUCH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH SUCH PARTY HAS BEEN
INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE WAIVERS AND
CERTIFICATIONS IN THIS SECTION 10.4(c).
51
Section 10.5. Descriptive Headings and Section References. The
-------------------------------------------
descriptive headings herein are inserted for convenience of reference only and
are not intended to be part of or to affect the meaning or interpretation of
this Agreement. All Article, Section, subsection, paragraph and clause
references in this Agreement are to Articles, Sections, subsections, paragraphs
and clauses, respectively, of this Agreement unless otherwise specified.
Section 10.6. Parties in Interest. This Agreement shall be binding upon
-------------------
and inure solely to the benefit of each party hereto and its successors and
permitted assigns and, except as expressly provided in this Agreement to the
contrary, nothing in this Agreement is intended to or shall confer upon any
other person any rights, benefits or remedies of any nature whatsoever under or
by reason of this Agreement nor shall any such person be entitled to assert any
claim hereunder.
Section 10.7. Personal Liability. Except as and to the extent expressly
------------------
provided elsewhere in this Agreement, this Agreement shall not create or be
deemed to create or permit any personal liability or obligation on the part of
any direct or indirect shareholder of Parent or any officer, director, employee,
agent, representative or investor of any party hereto.
Section 10.8. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original but all of which
shall constitute one and the same agreement.
52
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
duly executed on its behalf as of the day and year first above written.
VIRATA CORPORATION
By:______________________________
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Chief Executive Officer
SHAREHOLDERS:
By: _____________________________
Name: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
By: _____________________________
Name: ▇▇▇▇▇▇ ▇▇▇▇▇
By: _____________________________
Name: ▇▇▇▇▇▇▇▇ Student
By: _____________________________
Name: ▇▇▇▇▇ St. ▇▇▇▇▇▇▇
By: _____________________________
Name: ▇▇▇▇▇ ▇▇▇▇▇
By: _____________________________
Name: Holland Venture B.V.
By: _____________________________
Name: Docor International B.V.
53