PRELIMINARY AGREEMENT by and between NEW WORLD BRANDS, INC. and TELES AG INFORMATIONSTECHNOLOGIEN Dated as of July 18, 2007
Exhibit
10.1
by
and
between
NEW
WORLD BRANDS, INC.
and
TELES
AG INFORMATIONSTECHNOLOGIEN
Dated
as of July 18, 2007
1
PRILIMINARY
AGREEMENT to form a SALE AND PURCHASE AGREEMENT, dated July 18, 2007 (the
“Preliminary Agreement”), between:
New
World
Brands Inc., a corporation organized and existing under the laws of the state
of
Delaware, United States, listed on the OTC:BB having its registered office
at
▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ (the
“Seller”)
on
the
one hand, and
TELES
AG
Informationstechnologien, an Aktiengesellschaft organized and existing under
the
laws of Germany, listed on Prime Standard, having its registered office at
▇▇▇▇▇-▇▇▇▇▇▇-▇▇▇▇▇ ▇, ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇, and represented by Prof. Dr.-Ing.
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇ (the “Purchaser”)
on
the
other hand,
(individually
a “Party” and together the “Parties”).
RECITALS
WHEREAS,
IP Gear Ltd. (the “Company”) is an Israeli limited liability company
limited by shares formed and existing under the laws of Israel, registered
with
the Israeli Companies Registrar under number 513765297, having its registered
office at Yokneam Industrial ▇▇▇▇, ▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇;
WHEREAS,
the Company has a registered capital of 1,000 NIS, consisting of 1000 Ordinary
Shares, 1 NIS par value per share (the "Ordinary Shares"), and an issued capital
of 100 Ordinary Shares (the "Shares");
WHEREAS,
as of the date hereof the Seller directly owns 100% of the Shares;
WHEREAS,
the Parties intend to enter into a Sale and Purchase Agreement regarding all
of
the Shares pursuant to the terms and conditions set forth herein;
3
WHEREAS,
the Parties furthermore intend to collaborate in the sales and marketing of
TELES Group Products to approach the “North American” Market;
NOW,
THEREFORE, in consideration of the mutual covenants, representations and
warranties contained herein, the Parties hereby agree as
follows:
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A
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DEFINITIONS
AND INTERPRETATION
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1
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Certain
Terms
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Whenever
used in this Preliminary Agreement (including any annexes or schedules hereto),
the following terms shall the respective meanings given to them below in the
Articles indicated below:
“Affiliate”
means, with respect to any Person, any other Person directly or indirectly
controlling, controlled by or under common control with, such Person.
"Control" of any Person shall consist of the power to direct the
management and policies of such Person (whether through the ownership of voting
securities, by contract, as trustee or executor, or otherwise) and shall be
deemed to exist upon the ownership of securities entitling the holder thereof
to
exercise more than 50% of the voting power in the election of directors of
such
Person (or other persons performing similar functions).
“Aftermarket”
with respect to resale of third party products means products resold without
the
express and specific authorization or license of the manufacturer.
“Agreement”
means the intended Sale and Purchase Agreement
“Closing”
means completion of the sale and purchase of the Shares in accordance with
Article C I. 2.
“Closing
Consideration” means the “Purchase Price” as set out in Article B 2.1
payable at the Closing in the manner set forth in Article C I. 2.
4
“Closing
Requirements” has the meaning set forth in Article C I. 2.2.
“Company”
has the meaning set forth in the Recitals.
“CPE
Product Line” means the following:
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(i)
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all
customer premise equipment of the Company, including all products
in the
Company’s Claro and Quasar product lines (including product options and
products in beta and active development
stage);
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(ii)
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all
customer premise equipment of the Purchaser, including all products
in the
Purchaser’s VoIPBOX and VoIPGATE product lines for VoIP with H.323 and SIP
signaling and PSTN interfaces for analog, BRI, & PRI for T1/E1 and
signaling based on ISDN ITU Q.931 or CAS only (including product
options
and products in beta and active development
stage);
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(iii)
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VoIP
gateways between 4 analog/BRI lines and 4 PRI/E-i/T-1
lines;
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(iv)
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wireless
gateways (GSM, CDMA) up to 4 simultaneous calls;
and
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(v)
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all
modifications, enhancements, upgrades, and additional developments
to and
of the above.
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(vi)
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Excluding
the iGATE & vGATE product line.
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“Earn
Out” has the meaning as set forth in Article B I. 2.2.
“Effective
Date” is on July 1, 2007.
“Financial
Statements” has the meaning set forth in Article C II. 2.4.
“Indemnities”
has the meaning set forth in Article C IV. 1 and 2.
“Intellectual
Property” has the meaning set forth in Article C II. 2.8.1.
“Licenses”
has the meaning set forth on Article C II. 2.7.2.
5
“Loss”
has the meaning set forth in Article C IV. 1 and 2.
“Marked
Materials” has the meaning set forth in Article B II. 3.
“OCS”
is the abbreviation for the Office of the Chief Scientist, a department of
the
Ministry of Industry, Trade and Labour of the State of Israel.
“Partner
Contract” has the meaning as set forth in Article D 1.1.
“Party”
has the meaning as set forth in the introduction.
“Person”
means an individual, corporation, partnership, trust, or other entity, including
a governmental or political subdivision or an agency or instrumentality
thereof.
“Revenues”
means product revenues - reduced by sales reductions - resulting from the
ordinary activities of the Purchaser as recognized in the profit and loss
account under International accounting Standards (IFRS).
“Seller”
has the meaning set forth in the Introduction.
“Seller
Advances” has the meaning set forth in Article C I. 1.3.
“Shares”
has the meaning set forth in the Recitals.
“Social
Charges” has the meaning set forth in Article C II. 2.12.3.
“Taxes”
has the meaning set forth in Article C II. 2.12.3.
6
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2
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Interpretation
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In
this
Agreement, and unless it is shown from the context of the Article in question
or
from its very terms that a different construction must prevail:
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2.1
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The
references made in any document (including the Agreement) are to
be
understood as references to the said document as amended, reiterated,
supplemented, modified or replaced at a given
time;
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2.2
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The
references made to the Agreement are to be understood as references
to
this Agreement, to its annexes and schedules and any of their respective
appendices, all of which constitute an integral part of this Agreement
and
have the same contractual value;
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2.3
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The
article headings are for convenience of reference only and are not
to be
considered in construing this
Agreement;
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2.4
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The
references made to a Party to this Agreement include its successors
and
permitted assigns;
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2.5
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The
references made to the or a law include the references to any
international treaty, constitutional provision, decree, ordinance,
regulation, order or judgment, and the term "legal" shall be
construed in a similar way; and
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2.6
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The
references made to a law are references to the law as amended,
supplemented, modified, replaced or construed at a given
time.
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B
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GENERAL
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I.
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Subject
of the Sale and Purchase
Agreement
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1
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Subject
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7
The
Parties agree on their intention to enter into a Sale and Purchase Agreement
regarding all Shares of the Company.
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2
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Consideration
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2.1
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The
Parties agree on a Purchase Price in the amount of USD
1,500,000.
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2.2
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The
Parties agree on an additional payment to the Seller based on the
performance of the Purchaser following the Closing (“Earn Out”).
Therefore, the Purchaser shall pay an amount equal to 10% of the
Purchaser’s worldwide Revenues (including revenues of Purchaser’s
Affiliates) within the CPE Product Line (the “Purchaser’s CPE
Revenue”) for a period of 4 years after Closing, but in any event,
without regard to Purchaser’s Revenues or other qualification, not less
than a total amount of USD 750,000 (the “Minimum Earn
Out”). The Minimum Earn Out payment shall be payable
quarterly in an amount of USD 46,875, each quarterly payment due
within 90
days of the close of the quarter, commencing with the quarter ending
September 30, 2007. The Purchaser’s CPE Revenues shall be reviewed after
12 months retrospectively. In case of exceeding the Minimum Earn
Out, the
differential amount is due within 90 days after June 30 each (2008,
2009,
2010 and 2011). The Purchaser and the Company shall provide the
Seller a monthly sales report, not later than 15 days after the end
of
each calendar month, detailing CPE Revenues, related sales activity,
and
all data necessary or useful in calculating the amount of each Earn
Out
payment, for so long as the Earn Out is
payable.
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II.
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Obligations
of the Parties
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1
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Continuation
of the Management
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The
Seller is obliged to refrain from making any material changes in the operation
or management of the Company resulting in material adverse affects to the
management of the Company until the Closing.
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2
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Due
Diligence
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8
After
signing of the Preliminary Agreement, the Purchaser and the Seller will conduct
a Legal, Financial and Business Due Diligence as is standard practice for such
transaction, as well as management talks. Therefore, after the date hereof
and
until Closing, the Seller and the Company will provide the Purchaser with
requested data, and with a documentation of the Company’s essential legal,
financial and economic circumstances in form of copies of the corresponding
documents at the premises of the Company, and the Purchaser shall provide the
Seller with requested data and documentation (Due Diligence Request List
attached as Annex 1 and 2 to this Preliminary Agreement).
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III.
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Early
Termination Right
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1
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Contractual
Basis. The Parties agree that, the financial status of the Company
as
indicated in the presented documents as of June 30, 2007 (as attached
in
Annex 3 to this Preliminary Agreement, the “Contractual Basis”) is
the basis of the implementation of this Preliminary
Agreement.
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2
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Termination
Right. In the event that during the Due Diligence it turns out that,
contrary to the Purchaser’s prospects pursuant to the Contractual Basis
there are any facts which have a material adverse effect on the financial
condition, business, assets or prospects of the Company, the Purchaser
is
entitled to terminate the Preliminary Agreement by written notice
with
immediate effect.
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C
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CONDITIONS
OF THE SALE AND PURCHASE
AGREEMENT
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I.
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Purchase
and Sale of Shares
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1
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Purchase
and Sale of Shares
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1.1
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Upon
the terms and subject to the conditions contained herein, the Purchaser
intends to buy, and the Seller intends to sell and deliver to the
Purchaser, all of the Shares, free and clear of all liens and rights
of
any third party, for an aggregate purchase price equal to the sum
of the
Closing Consideration (as such term is defined in Article A 1) and other
consideration described herein.
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9
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1.2
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Title
to the Shares purchased by the Purchaser, as shall be contemplated
by the
Sale and Purchase Agreement, shall be transferred to the Purchaser
on the
date thereof, upon payment of the Closing Consideration, all in accordance
with Article C 2.
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1.3
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With
effect of the Effective Date, the Purchaser is entitled to profits
of the
Company. Also with effect of the Effective Date, at the Closing
the Purchaser shall pay to the Seller the sum of amounts advanced
to the
Company by Seller, and reflected on the Financial Statements as loans,
after the Effective Date (the “Seller Advances”). The
parties hereby agree that the total amount of the Seller Advances
payable
by the Purchaser pursuant to this paragraph is USD
107,500.
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2
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Closing
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2.1
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Closing.
The closing of the purchase and sale of the Shares (the "Closing")
shall take place immediately upon execution of the Sale and Purchase
Agreement latest on July 24, 2007, at the Premises of the Company
or
remotely by exchange of facsimile signatures. The Parties shall confirm
in
writing that all Closing Requirements have
occurred.
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2.2
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Closing
Requirements. The Closing shall be subject to the fulfillment of the
following conditions precedent:
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2.2.1
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Formalities.
The Purchaser and the Seller shall cause the Company to record in
the
Company’s shareholders’ registry the name of the Purchaser as the owner of
all the Shares, as far as necessary according to Israeli
law.
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2.2.2
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Approvals.
The Purchaser has provided the written notice of approval of the
Purchaser’s Supervisory Board to the transaction. The Seller has provided
the written notice of approval of the Seller’s Board of Directors or
Shareholders to the transaction if necessary according to the bylaws
and
applicable Delaware law, and the consent of Seller’s lender P&S
Spirit, LLC (an entity controlled by ▇▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇
▇▇▇▇▇▇),
and any necessary Israel governmental consents relating to the Office
of
the Chief Scientist (“OCS”).
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10
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2.2.3
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Waiver
of Claims. With effect of close of business on June 30, 2007, the
Seller shall declare towards the Company a complete waiver of claims
for
repayment of all loans, credits, open account terms, receivables
from
goods and services, bills of exchanges and any other receivables
(as
described in Annex 4 to this Preliminary Agreement), including interest,
subject to payments otherwise required by this Agreement (including,
without limitation, by paragraph
C.I.1.3).
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2.2.4
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Assignment
and Novation Agreement. With effect of the Effective Date, the Seller
shall enter into an assignment and novation agreement with the Company
subject to the following conditions: The Company assigns all rights,
claims, duties and obligations in, to and under the contracts and
agreements with PieCom Tech, dated January 12, 2006, April 6, 2006
and
January 8, 2007 (“PieCom Agreements”), to the Seller. The Seller
accepts such assignment. Upon such assignment and novation, Company
shall
be released from all rights, duties and obligations with respect
to the
PieCom Agreements and the relating Litigation (the “PieCom
Litigation”) and the Seller agrees to reimburse the Company for and
hold the Company harmless from and against any obligation to perform
any
of the assigned duties and obligations included in the PieCom Agreements
and against all claims, losses, liabilities and expenses which may
be made
or brought against the Company or which the Company may suffer or
incur as
a result of or in connection with the PieCom
Litigation occurring from the PieCom Litigation. The Seller
shall be entitled to undertake the conduct of the defense of the
Company
in respect of the PieCom Litigation, and to pursue claims arising
from the
PieCom Agreements. At the request of the Seller, the Company
shall cooperate with the Seller and execute all documents reasonably
required to enable the Seller to conduct the defense in the name
of the
Company, and to pursue claims arising from the PieCom
Agreements.
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2.2.5
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Partner
Contract. The parties shall have executed a Partner
Contract in form satisfactory to
both.
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2.2.6
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Subject
to prior or concurrent receipt of conditions enumerated in clauses
2.2.1
to 2.2.3 of this paragraph (2.2), the Purchaser shall pay the Seller
the
Closing Consideration, by wire transfer to the
Seller.
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3
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Cancellation
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11
In
the
event that the Closing Requirements are not fulfilled by July 24, 2007, either
Party shall be entitled to cancel this Agreement and the Sale and Purchase
Agreement by written notice. Such cancellation shall be considered as
cancellation of all contracts and agreements which the Parties entered into
pursuant to the covenants of the Sale and Purchase Agreement.
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II.
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Representations
and Warranties
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1
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Representations
of the Seller and the
Purchaser.
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Each
of
the Seller and the Purchaser represents and warrants to the other Party as
follows, with effect as of the Closing:
The
Seller and the Purchaser have full power and authority to enter into this
Agreement, to perform their respective obligations hereunder, to consummate
the
transactions contemplated hereby, and to make the representations and warranties
herein contained. The sale and delivery of the Shares, the execution and
performance of this Agreement, and the consummation of the transactions
contemplated hereby will, as of the Closing, have been duly authorized by all
requisite actions. The obligations of the Parties under this Agreement
constitute the legally valid and binding obligations, enforceable against each
other in accordance with its terms.
Except
the approvals pursuant to Article C I. 2.2.2, and filing of notice of transfer
of Shares with the Israeli Registrar of Companies, no consent or other
authorization of, or filing with or notice to, any person is required by or
on
behalf of the Seller or the Company or on behalf of the Purchaser in connection
with the valid execution or performance of this Agreement or the consummation
of
the transactions contemplated hereby.
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2
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Representations
of the Seller
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The
Seller represents and warrants to the Purchaser as follows, with effect as
of
the date hereof:
12
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2.1
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Corporate
Existence
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The
Company is a limited liability company limited by shares duly organized and
validly existing under the laws of Israel. The Company has full power and
authority to conduct its business and operations as presently
conducted.
The
Company has not been declared to be in judicial recovery or liquidation
proceedings or been subject to other judicial winding-up proceedings, no
administrator (court-appointed special administrator) has been appointed in
respect thereof and no other circumstances that would require the institution
of
such proceedings, are existing.
The
statutory registers, books, accounts, documents and returns, and any and all
other corporate or accounting records of the Company are up-to-date, maintained
and, if required, have been filed in accordance with all applicable laws and
regulations, except for violations or defaults that could not, either
individually or in the aggregate, have a material adverse effect on the
financial condition, business, assets or prospects of the Company.
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2.2
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Capital
Stock and Ownership
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The
Seller assures the Purchaser that the Shares of the Company have been fully
paid
up, have not been repaid in whole or in part, are free from supplementary
contributions and are not encumbered with third-party rights.
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2.3
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No
Conflicts
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The
execution and performance of this Agreement and the other agreements or
documents contemplated hereby by the Seller, and the consummation of the
transactions contemplated hereby will (i) not violate, conflict with or
result in the material breach of, or constitute a default under, (ia) any
provision of the memorandum and articles of association of the Company or the
organizational documents of the Seller, (ib) any provision of any law or
regulation applicable to the Seller or the Company, or to which any of their
respective assets are subject, (ic) any order, judgment, award of any court,
tribunal or governmental or
13
regulatory
authority applicable to the Seller or the Company, or to which any of their
assets are subject, or (id) any agreement or instrument to which the Seller
or
the Company, or to which any of their respective assets are subject; and
(ii) not result in the creation of any lien, encumbrance or any other
right of any third party upon any assets of the Company.
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2.4
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Financial
Statements
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The
Purchaser has examined during Due Diligence the audited balance sheets of the
Company for the fiscal years ended on December 31, 2006 and 2005 and the related
audited profit and loss statements of the Company for the fiscal years ending
on
such dates, and all annexes and notes thereto, and the respective audit reports
thereto and the not audited year-to-date balance sheet of the Company as of
March 31, 2007 and the balance sheet presented on June 28, 2007 (to be updated
as of June 30, 2007) and the related profit and loss statements of the
Company (collectively, the "Financial
Statements"). The Financial Statements (i) are accurate
and present fairly the financial position and the results of operations of
the
Company at the dates and for the periods to which they relate, (ii) have
been prepared in accordance with all relevant laws and regulations, including
the rules of the generally accepted accounting principles for the businesses
of
the Company ("US-GAAP"), each consistently applied throughout the periods
presented in the Financial Statements, and (iii) reflect all material
liabilities and obligations of the Company, of any nature whatsoever, whether
accrued or not, required to be recorded thereon in accordance with
US-GAAP.
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2.5
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Absence
of Changes
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2.5.1
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Except
as set forth in the Financial Statements, and the deterioration of
the
financial condition of the Company of which the Purchaser has been
fully
informed as a result of both of the conclusions of its due diligence
and
the information made available by the Seller, to the best of Seller’s
knowledge since January 1, 2007, (i) the Company has conducted its
business and operations only in the ordinary course and in a manner
consistent with past practice, and (ii) no event or condition has
occurred or existed, or would reasonably be expected to occur or
exist,
that individually or in the aggregate, would have or result in a
material
adverse effect on the business or assets of the
Company.
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14
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2.5.2
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Except
as set forth in the Financial Statements or in an Annex hereto, to
the
best of Seller’s knowledge the Company has (i) not paid any
dividend (or been the subject of a shareholder decision authorizing
the
payment of a dividend), advance on dividend, or other distribution
of any
capital stock of the Company, or purchased or redeemed, directly
and
indirectly, any shares of its capital stock (or other equity interest),
(ii) not incurred or committed to incur any indebtedness for
borrowed money, (iii) not incurred, assumed, guaranteed or
otherwise become directly or indirectly liable with respect to any
liability or obligation of the Seller or any of its Affiliates,
(iv) not forgiven, canceled, waived or released any debt, claim
or
right against the Seller or any of its Affiliates, (v) not
modified, amended or supplemented any agreement or understanding,
or any
provision or term of any agreement or understanding, with the Seller
or
any of its Affiliates, (vi) not made any payment, in cash or other
assets, to the Seller or any of its Affiliates, other than ordinary
compensation in their capacity as officers or employees of the Company
and
only in accordance and consistent with past practice, (vii)
continued to pay its suppliers and receive payments from its clients
when
due and in the ordinary course and in accordance with sound business
practices, (viii) not acquired, transferred or assigned, in any
manner whatsoever, any securities or other interests, business, real
estate, assets or contracts, and (ix) not modified the terms of
employment of any of its employees.
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2.6
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Real
Property
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2.6.1
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There
is no real property owned by the
Company.
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2.6.2
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The
Company is a party to one lease, dated December 15, 2006, (the “Current
Lease”), for the premises it uses at its registered
address. To the best of Seller’s knowledge, under the Current
Lease the Company:
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-
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has
valid rights, free and clear of any liens and adverse
claims,
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-
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enjoys
peaceful and undisturbed
possession,
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-
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is
not in default, and no event has occurred and is continuing that
constitutes or would constitute a default in any respect under the
Current
Lease,
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15
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-
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has
not received any notification relating to (i) an increase in rent
or charges other than that resulting from the indexation provision
referred to in the relevant Lease, or (ii) a non-renewal of the
Current Lease, and
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-
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has
not granted any sub-lease relating to the premises (or any portion
thereof) which are the subject of said
lease.
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In
addition, the Company is party to a second lease for premises previously, but
no
longer, used by the Company for its business operations.
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2.7
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Compliance
with Law and Other Instruments
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To
the
best of Seller’s knowledge:
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2.7.1
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Except
for violations or defaults that could not, either individually or
in the
aggregate, have a material adverse effect on the financial condition,
business or assets of the Company, and except as otherwise disclosed
in a
schedule or exhibit to this Agreement, the Company is not in violation
of
or default under (i) any provision of its memorandum and articles
of association or any provision of any applicable law or regulation
or
judicial determination or (ii) any agreement or instrument to which
it is a party.
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2.7.2
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The
Company has all permits, licenses and other authorizations (the
"Licenses") that are required for the conduct of its business and
operations as presently conducted (including Licenses relating to
health
and safety matters, environmental protection, pollution control and
employee matters), and the Company is, and all times has been, in
material
compliance with the provisions of the Licenses. The Licenses
are valid and subsisting, and the Company has not received any notice
of
any proposed withdrawal, revocation, restriction or alteration (in
particular by imposition of duties) of the
Licenses.
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2.8
|
Intellectual
Property
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To
the
best of Seller’s knowledge:
16
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2.8.1
|
The
Company has full, valid and enforceable ownership rights, or valid
rights
of use as licensee, with respect to, all designs, patents, copyrights,
trademarks, proprietary technical information, software, know-how
or any
other intellectual property rights and all pending applications therefor,
which are used by it or necessary to the conduct of or otherwise
material
to its business and operations, free and clear of all liens or any
other
right of third parties, except for the Company's obligations towards
the
Office of the Chief Scientist (the “OCS”) of the Israeli Ministry of
Trade, Industry and Labor, pursuant to the Encouragement of Industrial
Research and Development Law, 5744-1984 (the "Intellectual
Property"). The Company has not taken any action or omitted to take
any action which action or omission would waive, or result in the
waiver
of any of its rights with respect to the Intellectual Property of
the
Company, including the due registration or filing of all applicable
Intellectual Property and the maintenance of the secrecy of all
confidential Intellectual Property. The Seller makes no representation
or
warranty regarding infringement claims or rights relating to any
patent,
copyright or other intellectual property of the
Purchaser.
|
|
2.8.2
|
There
has been no notice, claim or other indication that the rights of
the
Company in the Intellectual Property are not valid or
enforceable. There has been no notice, claim or other
indication that any third party would be entitled to any additional
fees
or compensation in respect of the Intellectual Property as a result
of the
consummation of the transactions contemplated by this
Agreement. The Intellectual Property is not, to the knowledge
of the Seller, being infringed or attacked or opposed in writing
by any
Person and no infringement proceedings or other similar proceedings
have
been commenced nor is there any fact or event which could provide
a basis
for such proceedings to be commenced. There has been no notice, claim
or
other indication that the carrying on of its business by the Company
infringes any intellectual property right of any other Person, and
that
the Company uses any intellectual property right belonging to a third
Person.
|
|
2.9
|
Contracts
and Commitments
|
To
the
best Seller’s knowledge, there does not exist any event or condition that, after
notice or lapse of time or both, would constitute a default under any material
Contract by the Company. To the knowledge of the Seller or the Company, none
of
the rights of the Company under any material Contract will be subject to
termination or modification as a result of the transactions contemplated by
this
Agreement, and no other party to any material Contract would be entitled to
any
additional fees or payments as a result of the consummation of the transactions
contemplated by this Agreement.
17
|
2.10
|
Transactions
with Affiliates
|
|
2.10.1
|
Except
as set forth in the Financial Statements, and to the best of Seller’s
knowledge:
|
|
-
|
the
Company has not directly or indirectly, acquired any asset or obtained
any
service from, or disposed of any asset or furnished any service to,
or
entered into any agreement, commitment or understanding with, (i)
its Affiliate, or (ii) any director, officer or employee of the Seller
or
any of its Affiliates, and
|
|
-
|
none
of the persons named in clause (i) or (ii) of the preceding sentence,
directly or indirectly, (x) owns any interest in any asset used or
held
for use in connection with the business and operations of the Company,
(y)
owns any interest in a supplier, customer or competitor of the Company,
or
serves as an officer, director or employee of any supplier, customer
or
competitor of the Company, or (z) has received any loan from or is
otherwise a debtor of, or made any loan to or is otherwise a creditor
of,
the Company.
|
|
2.11
|
Litigation
|
Except
as
disclosed in Annex 6 hereto, here are no actions, proceedings and investigations
pending or, to the knowledge of the Seller or the Company, threatened against
or
involving the Company before any court, tribunal or governmental authority,
that
involve or would involve the expenditure by the Company of more than $5,000
or
are reasonably expected to result in an injunction against the Company. There
are no outstanding orders, judgments, decrees or injunctions issued by any
court, tribunal or governmental authority against the Company or any of its
assets.
|
2.12
|
Taxes
and Social Charges
|
To
the
best of Seller’s knowledge:
18
|
2.12.1
|
The
Company has correctly and timely filed all returns or other documents
relating to Taxes and Social Charges required to be filed by the
Company,
and all such returns were correct and complete in all material respects;
the Company has not requested or obtained any extension of time to
file
any such return. The Company has duly and timely paid all Taxes
and Social Charges that are or have been due and payable by the Company
and has duly accrued all Taxes and Social Charges which are not yet
payable. The Company has established adequate reserves on the balance
sheet of the Company at the Effective Date included in the Financial
Statements for payment for Taxes and Social Charges by the Company
relating to periods (or portions thereof) for which a return was
required
to be filed, for Taxes and Social Charges that are not then due or
payable
and has established adequate reserves for Taxes and Social Charges
relating to subsequent periods as of the date
hereof.
|
|
2.12.2
|
The
Company has duly and timely withheld all Taxes and Social Charges
required
to be withheld in connection with its business and operations (including
regarding the compensation of its employees), and such withheld Taxes
and
Social Charges have been either duly and timely paid to the appropriate
governmental authorities or properly set aside in accounts for such
purpose. There are no pending claims for Taxes or Social Charges
for which
the Company is or may become liable or which may result in a lien
upon the
assets of the Company, and to the knowledge of the Seller, no such
claim
is threatened. The Company is not currently under examination by
any
governmental authority with respect to Taxes or Social
Charges. The Company has not been contacted by or is currently
corresponding with any governmental authority with respect to the
requirement to file Tax returns and/or pay any Taxes or Social Charges.
No
waivers of any statute of limitations have been given to or requested
by
any governmental authority for the
Company.
|
|
2.12.3
|
For
the purpose of this Agreement, "Taxes" means any income, receipts,
value-added, transfer, registration, business, franchise, profits,
capital
withholding, payroll, employment, property or customs tax, duty,
governmental fee or other like assessment or charge, together with
any
interest or penalty, imposed by any governmental authority, or liability
for the payment of any of the foregoing (including as a result of
any
obligation to indemnify any other Person with respect to any of the
foregoing). "Social Charges" means any social security,
unemployment, retirement, healthcare, family benefits or other charges
or
contributions, to the extent any of the foregoing are required by
applicable laws, regulations or collective bargaining agreements
or have
otherwise become an entitlement of the employees of the Company and
involve mandatory contributions by the
employer.
|
19
|
2.12.4
|
Results
of Tax Examinations
|
In
the
event that a tax examination regarding the period until Effective Date will
result into supplementary claims for Taxes and Social Charges higher than
already recognized in the balance sheet at the Effective Date, the Seller shall
be reliable for all such supplementary claims.
|
2.13
|
Labor
Related Matters
|
|
2.13.1
|
During
the period December 31, 2005 through the date hereof, the Company
has not
experienced any collective labor dispute, strike, slowdown, picketing,
work stoppage, concerted refusal to work overtime or collective
resignation, and there is no complaint pending or, to the knowledge
of the
Seller, threatened against the Company by any of its respective past
or
present employees, trade unions or other representative labor bodies,
which could have or result in an adverse effect on the financial
condition, business, assets or prospects of the
Company.
|
|
2.13.2
|
The
Company has complied with all requirements pursuant to applicable
laws and
regulations, and the applicable collective labor agreements, with
respect
to employee representation, including those provisions relating to
the
organization of elections for a workers' council and the election
of
employees' representatives.
|
|
2.13.3
|
The
Company employs 23 employees. The terms and conditions of employment
of
all such employees do not provide for benefits of any kind to employees,
including advance notice of departure or departure payments, in excess
of
those required by the relevant laws, regulations and the applicable
collective labor agreements, other than benefits or other terms of
employment that are described in employment contracts or other materials
provided to Purchaser in response to Purchaser’s due diligence
request.
|
20
|
2.13.4
|
The
Company has not adopted an incentive agreement or a profit sharing
scheme,
other than a mandatory scheme, for its employees, legal representatives
or
directors and has not entered into any contract with such persons
which
would allow them to acquire any rights over shares of the
Company.
|
|
2.13.5
|
The
Company has no obligations of any nature in connection with the retirement
(including early retirement) of its employees or former employees
except
for those obligations which are (i) fully and adequately covered by
insurance policies and/or (ii) completely and accurately reflected
in the Financial Statements as at the respective dates thereof and
in the
books of the Company for subsequent periods as of the date
hereof.
|
|
2.14
|
Subsidies
|
To
the
best of Seller’s knowledge:
The
Company has applied for, received and used public subsidies only in accordance
with applicable laws, regulations and orders from governmental or other
authorities. No repayment of any such subsidies will become due, and
none of the rights of the Company under such subsidies will be subject to
termination or modification, as a result of the consummation of the transactions
contemplated hereunder.
|
2.15
|
Disclosure
|
The
Purchaser has carried out a technical, financial, business and legal Due
Diligence prior to Closing. The Seller’s representations and warranties only
count for those documents, facts or events that have not been disclosed to
the
Purchaser during Due Diligence despite his request, unless the Parties expressly
agreed on exceptions. However, if prior to the Closing the Purchaser discovers
facts or circumstances during Due Diligence that have not been expressly
disclosed by the Seller but that would give rise to a breach of representation
or warranty by the Seller, Purchaser shall promptly, and in any event prior
to
Closing, inform the Seller of those facts or circumstances.
21
|
III.
|
Additional
Covenants
|
|
1
|
Non
Competition
|
|
1.1
|
Commencing
on the Closing, and until the second anniversary thereof, the Seller
shall
not, and shall not cause its Affiliates to, directly or indirectly
engage
in any research and development or manufacturing activities conducted
by
the Company on the date hereof relating to all
products.
|
|
1.2
|
Commencing
on the Closing the Seller shall not, and shall not cause its Affiliates
to, directly or indirectly engage in sale, distribution, marketing
and
services of products that may compete with the Purchaser’s FWA products
(iGate and vGate product lines).
|
|
1.3
|
Commencing
1 year after the Closing the Seller shall not, and shall not cause
its
Affiliates to, directly or indirectly engage in sale, distribution,
marketing and services of products that may compete with the Company’s
products, in addition to the Purchaser’s FWA products, (the
“Competitive Products”), provided
that:
|
|
1.3.1
|
The
Seller may sell and distribute Competitive Products as part of a
customer
solution based on, or substantially incorporating, products of the
Purchaser or the Company;
|
|
1.3.2
|
The
Seller may sell and distribute Competitive Products that are after-market
or used equipment manufactured by Cisco Systems or its affiliates
(the
“Cisco Equipment”);
|
|
1.3.3
|
The
Seller may sell additional Competitive Products with the Purchaser’s prior
written consent;
|
|
1.3.4
|
All
restrictions on competition under this Section 1.3 and Section 1.2
shall
terminate upon termination of the Seller’s exclusive distribution and sale
rights pursuant to the Partner Contract, and shall only be effective
within the geographic regions of exclusivity as in effect pursuant
to the
Partner Contract. The Parties agree that in this case the Marketing
Subsidy will be terminated.
|
22
|
2
|
No
Solicitation
|
Commencing
on the Closing and until the second anniversary from the date thereof, the
Seller shall not, and shall cause its Affiliates not to, directly or indirectly,
(i) induce any employee of the Company to terminate employment with the Company,
and (ii) either individually or as owner, agent, employee, consultant or
otherwise, employ or offer employment to any person who is employed by the
Company, unless such person shall have ceased to be employed by the Company
at
least six months prior to the time such offer of employment is
extended.
|
3
|
Public
Announcements
|
From
and
after the date of this Agreement, each Party agrees to obtain the approval
of
the other Party prior to issuing any press release, written public statement
or
announcement with respect to the transactions contemplated by this Agreement;
provided, however, that the provisions of this Article 3 shall not prohibit
either Party from making any such release, statement or announcement if, upon
advice of counsel, such Party feels confident that it is required to do so
under
any applicable law or regulation, and such Party shall use reasonable efforts
to
consult with and obtain consent of the other Party with respect to the terms
and
conditions of such release, statement or announcement prior to making such
release, statement or announcement.
|
4
|
Confidentiality
of Information
|
The
Seller shall not, and shall cause its Affiliates, the Company, and their
respective employees, representatives and agents not to, use for any purpose
or
disclose to any person any proprietary information relating to the Company,
its
business and operations, or any of its assets, except as required by applicable
laws or regulations. In the event the Seller is required to disclose any such
information under any law or regulation, the Seller shall promptly notify the
Purchaser of such requirement so that the Purchaser may seek an appropriate
order in summary proceedings.
|
5
|
Approvals
and Consents
|
23
The
Seller and the Purchaser shall cooperate to give all notices and obtain as
soon
as reasonably practicable all approvals, consents and waivers from governmental
departments and agencies or from any other third parties required or deemed
necessary or beneficial for consummation of the transactions contemplated by
this Agreement. Without derogating from the aforesaid, Purchase shall provide
Seller with an undertaking towards the OCS, as shall be required in order to
receive the OCS' consent to the transfer to Shares hereunder.
|
6
|
Right
to Use Certain Marks, Logos and Corporate
Name
|
The
ownership of all trademarks, service marks, brand names or trade, corporate
or
business names of the Seller or any of its Affiliates bearing the words "IP
Gear" or the logo currently used by the Company in connection therewith (the
"Seller's Marks") shall be transferred to the Purchaser, unless it is an
integral part of the Company’s assets. The Purchaser shall grant an irrevocable,
license to the Seller, exclusive within North America and any additional
territory of exclusivity under the Partner Contract, to use the Seller’s Marks
on stationery, equipment, web, invoices, receipts, forms, packaging, advertising
and promotional materials, products, software or like materials (the "Marked
Materials") after Closing, in relation to the sales and marketing of the
existing IP Gear, Ltd. product lines within the scope of the Partner
Contract. In addition, the Purchaser shall grant an irrevocable,
nonexclusive license to the Seller, effective until such time as the Purchaser
shall have paid to the Seller all of the Minimum Earn Out payment, to use the
Seller’s Marks on the Marked Materials in relation to the Seller’s sales and
marketing of telecommunications and networking equipment and services, without
restriction based on territory or product.
|
7
|
Payment
of Increased OCS Royalties
|
|
7.1
|
“Penalty”
means, with respect to any royalty payment due to the OCS by the
Company
or the Purchaser, pursuant to the Encouragement of Industrial Research
and
Development Law, for amounts granted to the Company prior to the
Effective
Date, the increase in the royalty payment resulting from conducting
product manufacturing activities outside the state of Israel, as
compared
to the royalty payment that would have been required if the manufacturing
activities had not been conducted outside of Israel. “Penalty”
shall not include any other amounts, including without limitation
amounts
payable as a result of moving intellectual property outside of Israel
or
conducting research and development activities outside of
Israel.
|
24
“Prior
Penalty” means any Penalty which has been caused by contravention of the
Industrial Research and Development Law prior to the Closing, even though the
contravention emerges after the Closing.
“Future
Penalty” means any Penalty which will be caused by contravention of the
Industrial Research and Development Law after the Closing.
|
7.2
|
As
to Prior Penalties, the Seller shall reimburse the Purchaser or the
Company for 100% of any Penalty paid by the Purchaser or the Company
(a
“Reimbursement Payment”). The Seller shall not be liable for any
amounts payable to the OCS as a result of a settlement or compromise
between the Company or the Purchaser and the OCS unless the Seller
has
first approved the terms of the settlement or
compromise.
|
|
7.3
|
As
to Future Penalties, the Seller shall not be liable for any Reimbursement
Payments.
|
|
7.4
|
The
parties agree to make best efforts to cooperate in negotiating with
the
OCS to minimize or recharacterize any Penalty amounts in order to
accommodate the Purchaser’s or the Company’s manufacturing
plans.
|
25
|
IV.
|
Indemnification
|
|
1
|
Seller’s
Indemnification Obligations
|
Unless
expressly described otherwise in this Agreement, the Seller shall defend,
indemnify and hold harmless each of the Purchaser, its Affiliates, the Company,
and their respective officers, directors, employees, agents, advisers and
representatives (collectively, the "Purchaser’s Indemnities") from,
against and with respect to any and all claims, liabilities, losses, damages,
costs and expenses (including interest, penalties and reasonable attorneys'
and
accountants' fees and disbursements reasonably incurred in defending any of
the
foregoing or in asserting, preserving or enforcing any rights under this
Agreement), whether or not resulting from third-party claims, as determined
by a
final judgment (each of the foregoing a "Loss", and collectively
"Losses"), arising out of or as a result of:
|
1.1
|
any
material inaccuracy of any representation or warranty made by the
Seller
in this Agreement;
|
|
1.2
|
any
material breach of any covenant or obligation of Seller in
this
|
| Agreement; and |
|
1.3
|
any
catastrophic warranty or similar warranty claim, action, litigation,
investigation or proceeding arising out of the sale or service of
any
goods or products by the Company prior to the date hereof, to the
extent
that, with regard to the foregoing paragraph 1.1 the Seller has acted,
and
with regard to the foregoing paragraph 1.2, the Seller has not reflected
any risk in the Financial Statements, intentionally or with gross
negligence.
|
|
2
|
Purchaser’s
Indemnification Obligations
|
The
Purchaser shall defend, indemnify and hold harmless each of the Seller, its
Affiliates, the Company, and their respective officers, directors, employees,
agents, advisers and representatives (collectively, the "Seller’s
Indemnities") from, against and with respect to any and all claims,
liabilities, losses, damages, costs and expenses (including interest, penalties
and reasonable attorneys' and accountants' fees and disbursements reasonably
incurred in defending any of the
26
foregoing
or in asserting, preserving or enforcing any rights under this Agreement),
whether or not resulting from third-party claims, and ascertained by an official
authority (each of the foregoing a "Loss", and collectively
"Losses"), arising out of or as a result of any material breach of any
covenant or obligation of the Purchaser in this Agreement or any material
inaccuracy of any representation or warranty made by the Purchaser in this
Agreement.
|
3
|
Administration
of Claims
|
In
the
case of any claim asserted by a third party against any Indemnitee, notice
shall
be given by the Indemnitee to the other Party promptly after such Indemnitee
has
actual knowledge of any claim as to which indemnity may be sought, and the
Indemnitee shall permit the other Party (at the other Party's expense) to assume
the defense of any claim or any litigation resulting therefrom. In any event,
the Seller and the Purchaser shall cooperate in the defense of any claim or
litigation subject to this Article 3 and the records of each shall be available
to the other with respect to such defense.
|
4
|
Limitation
on Seller’s Indemnification
Obligations
|
|
4.1
|
Neither
Party shall make a claim against the other Party for indemnification
under
Article V 1 and 2 (except for claims for indemnification with respect
to
the representations and warranties set forth in Article II 2.12)
unless
and until the amount of each Loss for which indemnification is sought
exceeds a threshold amount of USD 10,000, it being understood that
if the
aggregate amount of Losses exceeds such threshold, the threshold
shall not
act as a deductible, and the Seller's indemnification obligation
shall
extend to the entire aggregate amount of the
Loss.
|
|
4.2
|
Each
Party’s aggregate liability under this Article IV shall be limited to the
amount that is equal to the Closing
Consideration.
|
|
V.
|
Miscellaneous
|
|
1
|
Binding
Effect; No Third Party
Beneficiaries
|
27
This
Agreement shall be binding upon and inure to the benefit of the Parties hereto
and their respective heirs, successors and permitted assigns. Except
as provided in Article V with respect to indemnification of any Indemnitee
hereunder, nothing in this Agreement shall confer any rights upon any Person
or
entity other than the parties hereto and their respective heirs, successors
and
permitted assigns.
|
2
|
Notices
|
Any
notice, request, instruction or other document to be given hereunder by any
Party hereto to any other Party hereto shall be in writing and sent by
registered mail with return receipt or by fax or by telex confirmed by
registered mail with return receipt, addressed as follows:
If
to
Purchaser:
TELES
AG
Informationstechnologien
Vorstand
▇▇▇▇▇-▇▇▇▇▇▇-▇▇▇▇▇
▇
▇▇▇▇▇
▇▇▇▇▇▇
▇▇▇▇▇▇▇
Attention:
▇▇▇▇ ▇▇▇▇▇▇
If
to
the Seller:
▇▇▇
▇.
▇▇▇
▇▇▇▇▇▇
▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇
Attention:
M. ▇▇▇▇▇ ▇▇▇▇▇▇
or
at
such other address for a Party as shall be specified by like notice. Any notice
which is sent in the manner provided herein shall be deemed to have been duly
given to the Party to whom it is directed upon actual receipt by such Party
(or
its agent for notices hereunder).
28
|
3
|
Expenses
and Taxes
|
Each
Party shall pay all its own costs and expenses incident to this Agreement and
the transactions contemplated by this Agreement, including legal and accounting
fees and expenses. The Purchaser shall be liable for and pay (and shall
indemnify and hold harmless the Seller against) all fees, taxes or other
governmental charges of any nature due in connection with the transactions
contemplated by this Agreement.
|
4
|
Translation
|
If
this
Agreement is translated into any language other than English, the English
version shall control and shall prevail on any question of interpretation.
|
D
|
Further
Cooperation
|
|
1
|
Sales
Cooperation
|
|
1.1
|
Partner
Contract. At the Closing the Parties shall enter into a separate
“Partner Contract” regarding the Sale and Marketing of TELES Group
Products within the “North American” Market (in the form attached as Annex
7).
|
|
1.2
|
Credit
Line. In connection with the above mentioned Partner Contract the
Purchaser shall grant the Seller a revolving line of credit in the
amount
of USD 200,000. The credit line shall be increased quarterly, to
an amount
equal to the revenues made by the Seller during the 60 days preceding
the
end of each quarter, but up to a maximum of USD
500,000.
|
|
1.3
|
Marketing
Subsidy. In consideration of the collaboration between the Parties
within the above mentioned Partner Contract, the Purchaser shall
grant to
the Seller an additional marketing subsidy in the amount of USD 200,000
per annum for a period of two years, payable at the commencement
of each
annum, whereby the payment of any amounts shall be subject to the
prior
approval of the Purchaser. A prolongation for a third year shall
be agreed
on the basis of the revenues.
|
29
|
2
|
Loan
Agreement
|
|
2.1
|
In
consideration of the collaboration between the Parties within the
Partner
Contract, the Purchaser shall provide a line of credit to the Seller
of
USD 1,000,000 pursuant to a separate loan agreement to be signed
at the
Closing. The loan agreement shall have a period of validity of
four years, in which the Seller is obliged to redeem the loan in
12
quarterly installments, starting after the first year. The Parties
agree
on a fixed interest rate of 7% per
annum.
|
|
2.2
|
The
Parties agree that the Purchaser shall under no circumstances be
treated
worse than all other current or future lenders (except for revolving
trade
credits) regarding reimbursement or the provision of
securities.
|
|
2.3
|
The
Seller shall be obliged to provide to the Purchaser unaudited preliminary
monthly information of financial situation (profit and loss statement,
balance sheet, cash flow), prepared in accordance with GAAP, not
less than
15 days after the end of each month. In the event of an important
deterioration of the financial situation (current debt to equity
ratio
less than 30%), the Purchaser shall have a right to demand an adjustment
of the securities and a loan acceleration
right.
|
|
E
|
Miscellaneous
|
|
1
|
Governing
Law and Jurisdiction
|
This
Preliminary Agreement shall be governed in all respects, including as to
validity, interpretation and effect by the laws of Germany. The Parties hereby
submit to the jurisdiction of German courts. Notwithstanding the foregoing,
the
Purchaser is also entitled to take the Seller to court at the place of the
Seller’s registered office.
30
|
2
|
Execution
Copies
|
This
Agreement shall be executed in two original copies, each of which shall be
an
original.
IN
WITNESS WHEREOF, the Parties have duly executed this Preliminary Agreement
as of
the day and year first above written.
/s/
▇▇▇▇
▇▇▇▇▇▇
/s/ ▇▇▇▇
▇▇▇▇▇▇
New
World
Brands, Inc. TELES
AG
Informationstechnologien
Name:
▇▇▇▇ ▇▇▇▇▇▇
Name:
▇▇▇▇
▇▇▇▇▇▇
Title:
President
Title:
Chief Financial
Officer
Enclosures
Annex
1 Due
Diligence Request List to Seller
Annex
2 Due
Diligence Request List to Purchaser
Annex
3 Financial
status of the Company as of June 30, 2007
Annex
4 Schedule
of Seller’s Claims towards the Company as of June 30, 2007
Annex
5 Schedule
(according to C II. 2.7.1)
Annex
6 Schedule
of Litigations
Annex
7 Partner
Contract
31