3,000,000 Shares1
Commtouch Software Ltd.
Ordinary Shares
PURCHASE AGREEMENT
March ___, 2000
U.S. BANCORP ▇▇▇▇▇ ▇▇▇▇▇▇▇ INC.
▇▇▇▇▇▇ ▇▇▇▇▇▇ PARTNERS LLC
WARBURG DILLON READ LLC,
A subsidiary of UBS AG
▇▇▇▇▇▇▇ ▇▇▇▇▇ & COMPANY
As Representatives of the several
Underwriters named in Schedule I hereto
c/o U.S. Bancorp ▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Gentlemen:
Commtouch Software Ltd., an Israeli company (the "Company"), and the
stockholders of the Company listed in Schedule I hereto (the "Selling
Stockholders") severally propose to sell to the several Underwriters named in
Schedule II hereto (the "Underwriters") an aggregate of 3,000,000 shares (the
"Firm Shares") of ordinary shares, nominal value NIS 0.05 per share (herein
called "Ordinary Shares"), of the Company. The Firm Shares consist of 1,669,000
authorized but unissued Ordinary Shares to be issued and sold by the Company and
1,331,000 outstanding Ordinary Shares to be sold by the Selling Shareholders.
The Company has also granted to the several Underwriters an option to purchase
up to 450,000 additional Ordinary Shares on the terms and for the purposes set
forth in Section 3 hereof (the "Option Shares"). The Firm Shares and any Option
Shares purchased pursuant to this Purchase Agreement are herein collectively
called the "Securities."
The Company and the Selling Shareholders hereby confirm their agreement
with respect to the sale of the Securities to the several Underwriters, for whom
you are acting as Representatives (the "Representatives").
Registration Statement and Prospectus. A registration statement on Form
F-1 (File No. 333-31836) with respect to the Securities, including a preliminary
form of prospectus, has been prepared by the Company in conformity with the
requirements of the Securities Act
------------
1 Plus an option to purchase up to 450,000 additional shares from the Company to
cover over-allotments.
of 1933, as amended (the "Act"), and the rules and regulations ("Rules and
Regulations") of the Securities and Exchange Commission (the "Commission")
thereunder and has been filed with the Commission; one or more amendments to
such registration statement have also been so prepared and have been, or will
be, so filed; and, if the Company has elected to rely upon Rule 462(b) of the
Rules and Regulations to increase the size of the offering registered under the
Act, the Company will prepare and file with the Commission a registration
statement with respect to such increase pursuant to Rule 462(b). Copies of such
registration statement(s) and amendments and each related preliminary prospectus
have been delivered to you.
If the Company has elected not to rely upon Rule 430A of the Rules and
Regulations, the Company has prepared and will promptly file an amendment to the
registration statement and an amended prospectus (including a term sheet meeting
the requirements of Rule 434 of the Rules and Regulations). If the Company has
elected to rely upon Rule 430A of the Rules and Regulations, it will prepare and
file a prospectus (or a term sheet meeting the requirements of Rule 434)
pursuant to Rule 424(b) that discloses the information previously omitted from
the prospectus in reliance upon Rule 430A. Such registration statement as
amended at the time it is or was declared effective by the Commission, and, in
the event of any amendment thereto after the effective date and prior to the
First Closing Date (as hereinafter defined), such registration statement as so
amended (but only from and after the effectiveness of such amendment), including
a registration statement (if any) filed pursuant to Rule 462(b) of the Rules and
Regulations increasing the size of the offering registered under the Act and
information (if any) deemed to be part of the registration statement at the time
of effectiveness pursuant to Rules 430A(b) and 434(d) of the Rules and
Regulations, is hereinafter called the "Registration Statement." The prospectus
included in the Registration Statement at the time it is or was declared
effective by the Commission is hereinafter called the "Prospectus," except that
if any prospectus (including any term sheet meeting the requirements of Rule 434
of the Rules and Regulations provided by the Company for use with a prospectus
subject to completion within the meaning of Rule 434 in order to meet the
requirements of Section 10(a) of the Rules and Regulations) filed by the Company
with the Commission pursuant to Rule 424(b) (and Rule 434, if applicable) of the
Rules and Regulations or any other such prospectus provided to the Underwriters
by the Company for use in connection with the offering of the Securities
(whether or not required to be filed by the Company with the Commission pursuant
to Rule 424(b) of the Rules and Regulations) differs from the prospectus on file
at the time the Registration Statement is or was declared effective by the
Commission, the term "Prospectus" shall refer to such differing prospectus
(including any term sheet within the meaning of Rule 434 of the Rules and
Regulations) from and after the time such prospectus is filed with the
Commission or transmitted to the Commission for filing pursuant to such Rule
424(b) (and Rule 434, if applicable) or from and after the time it is first
provided to the Underwriters by the Company for such use. The term "Preliminary
Prospectus" as used herein means any preliminary prospectus included in the
Registration Statement prior to the time it becomes or became effective under
the Act and any prospectus subject to completion as described in Rule 430A or
434 of the Rules and Regulations.
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Representations and Warranties of the Company and the Selling
Shareholders.
(a) The Company represents and warrants to, and agrees with,
the several Underwriters as follows:
(i) No order preventing or suspending the use of any
Preliminary Prospectus has been issued by the Commission and each Preliminary
Prospectus, at the time of filing thereof, did not contain an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; except that the
foregoing shall not apply to statements in or omissions from any Preliminary
Prospectus in reliance upon, and in conformity with, written information
furnished to the Company by you, or by any Underwriter through you, specifically
for use in the preparation thereof.
(ii) As of the time the Registration Statement (or
any post-effective amendment thereto, including a registration statement (if
any) filed pursuant to Rule 462(b) of the Rules and Regulations increasing the
size of the offering registered under the Act) is or was declared effective by
the Commission, upon the filing or first delivery to the Underwriters of the
Prospectus (or any supplement to the Prospectus (including any term sheet
meeting the requirements of Rule 434 of the Rules and Regulations)) and at the
First Closing Date and Second Closing Date (as hereinafter defined), (A) the
Registration Statement and the Prospectus (in each case, as so amended and/or
supplemented) conformed or will conform in all material respects to the
requirements of the Act and the Rules and Regulations, (B) the Registration
Statement (as so amended) did not or will not include an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, and (C) the Prospectus
(as so supplemented) did not or will not include an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they are or were made, not misleading; except that the foregoing shall not apply
to statements in or omissions from any such document in reliance upon, and in
conformity with, written information furnished to the Company by you, or by any
Underwriter through you, specifically for use in the preparation thereof. If the
Registration Statement has been declared effective by the Commission, no stop
order suspending the effectiveness of the Registration Statement has been
issued, and no proceeding for that purpose has been initiated or, to the
Company's knowledge, threatened by the Commission.
(iii) The consolidated financial statements of the
Company, together with the notes thereto, set forth in the Registration
Statement and the Prospectus comply in all material respects with the
requirements of the Act and fairly present the consolidated financial condition
of the Company and its consolidated subsidiaries indicated and the results of
operations and changes in cash flows for the periods therein specified in
conformity with United States generally accepted accounting principles
consistently applied throughout the periods involved (except as otherwise stated
therein); and the supporting schedules included in the Registration Statement
present fairly the information required to be stated therein. No
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other financial statements or schedules are required to be included in the
Registration Statement or Prospectus. ▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇▇▇ (a member of Ernst &
Young International), which has expressed its opinion with respect to the
financial statements and schedules filed as a part of the Registration Statement
and included in the Registration Statement and the Prospectus, are independent
public accountants as required by the Act and the Rules and Regulations. The
summary financial and other data included in the Registration Statement and the
Prospectus present fairly the information shown therein and have been compiled
on a basis consistent with the financial statements presented therein.
(iv) Each of the Company and Commtouch Software Inc.,
a California corporation (the "U.S. Subsidiary"), and Commtouch Software (UK)
Ltd., an English corporation (the "UK Subsidiary," and collectively the
"Subsidiaries"), has been duly organized and is validly existing as a
corporation under the laws of its jurisdiction of incorporation and Commtouch
Software Inc. is in good standing under the laws of California. Each of the
Company and the Subsidiaries has full corporate power and authority to own its
properties and conduct its business as currently being carried on and as
described in the Registration Statement and the Prospectus, and is duly
qualified to do business as a foreign corporation in good standing in each
jurisdiction in which it owns or leases real property or in which the conduct of
its business makes such qualification necessary and in which the failure to so
qualify would have a material adverse effect on the assets or properties,
business, results of operations, prospects or condition (financial or otherwise)
of the Company and the Subsidiaries, taken as a whole (a "Material Adverse
Effect").
(v) Except as contemplated in the Registration
Statement and the Prospectus, subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus, neither
the Company nor the Subsidiaries has incurred any material liabilities or
obligations, direct or contingent, or entered into any material transactions, or
declared or paid any dividends or made any distribution of any kind with respect
to its share capital stock; and there has not been any change in the share
capital stock (other than a change in the number of outstanding Ordinary Shares
due to the issuance of shares upon the exercise of outstanding options or
warrants), or any material change in the short-term or long-term debt, or any
issuance of options, warrants, convertible securities or other rights to
purchase the share capital stock, of the Company or the Subsidiaries, or any
change that had a Material Adverse Effect, or any development involving a
prospective Material Adverse Effect.
(vi) Except as set forth in the Registration
Statement and the Prospectus, there is not pending or, to the knowledge of the
Company, threatened or contemplated, any action, suit or proceeding to which the
Company or any of its subsidiaries is a party or to which any property or assets
of the Company or the Subsidiaries is subject before or by any court or
governmental agency, authority or body, or any arbitrator, which might result in
a Material Adverse Effect.
(vii) There are no contracts or documents of the
Company or the Subsidiaries that are required to be described in the Prospectus
or to be filed as exhibits to
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the Registration Statement by the Act or by the Rules and Regulations that have
not been so described or filed.
(viii) This Agreement has been duty authorized,
executed and delivered by the Company, and constitutes a valid, legal and
binding obligation of the Company, enforceable in accordance with its terms,
except as rights to indemnity hereunder may be limited by federal, state or
foreign securities laws or the policies underlying such laws and except as such
enforceability may be limited by bankruptcy, insolvency, reorganization or
similar laws affecting the rights of creditors generally and subject to general
principles of equity. The execution, delivery and performance of this Agreement
and the consummation of the transactions herein contemplated will not result in
a breach or violation of any of the terms and provisions of, or constitute a
default under, any statute, any agreement or instrument to which the Company is
a party or by which it is bound or to which any of its property is subject, the
Company's Memorandum of Association or Articles of Association, or any order,
rule, regulation or decree of any court or governmental agency or body having
jurisdiction over the Company or any of its properties; no consent, approval,
authorization or order of, or filing with, any court or governmental agency or
body is required for the execution, delivery and performance of this Agreement
or for the consummation of the transactions contemplated hereby, including the
issuance or sale of the Securities by the Company, except such as may be
required under the Act or state securities or blue sky laws; and the Company has
full power and authority to enter into this Agreement and to authorize, issue
and sell the Securities as contemplated by this Agreement.
(ix) All of the issued and outstanding equity
securities of the Company, including the outstanding Ordinary Shares, are duly
authorized and validly issued, fully paid and nonassessable, have been issued in
compliance with all Israeli and U.S. federal and state securities laws
(including, without limitation, applicable Israeli securities laws), were not
issued in violation of or subject to any preemptive rights or other rights to
subscribe for or purchase securities, and the holders thereof are not subject to
personal liability by reason of being such holders; and the share capital of the
Company, including the Ordinary Shares, conforms to the description thereof in
the Registration Statement and Prospectus. Except as otherwise stated in the
Registration Statement and Prospectus, there are no preemptive rights or other
rights to subscribe for or to purchase, or any restriction upon the voting or
transfer of, any Ordinary Shares pursuant to the Company's Memorandum of
Association or Articles of Association or any agreement or other instrument to
which the Company is a party or by which the Company is bound. All of the issued
and outstanding shares of capital stock of each of the Subsidiaries have been
duly and validly authorized and issued and are fully paid and nonassessable,
and, except as otherwise described in the Registration Statement and the
Prospectus, the Company owns of record and beneficially, free and clear of any
security interests, claims, liens, proxies, equities or other encumbrances, all
of the issued and outstanding shares of such stock. Except as described in the
Registration Statement and the Prospectus (and except for options granted after
the date of the Registration Statement and the Prospectus to employees of the
Company pursuant to the stock option plans described in the Registration
Statement and the Prospectus, which option grants have been disclosed to the
Representatives), there are no options, warrants,
5
agreements, contracts or other rights in existence to purchase or acquire from
the Company or the Subsidiaries any shares of the share capital of the Company
or the Subsidiaries. The Company has an authorized and outstanding
capitalization as set forth in the Registration Statement and the Prospectus
(except for options granted after the date of the Registration Statement and the
Prospectus to employees of the Company pursuant to the stock option plans
described in the Registration Statement and the Prospectus, which option grants
have been disclosed to the Representatives).
(x) The Securities which may be sold hereunder by the
Company have been duly authorized and, when issued, delivered and paid for in
accordance with the terms hereof, will have been validly issued and will be
fully paid and nonassessable, and the holders thereof will not be subject to
personal liability by reason of being such holders, and conforms to the
description thereof in the Registration Statement and the Prospectus. No further
approval or authority of the shareholders of the Company or the Board of
Directors of the Company is required for the sale and issuance of the Securities
hereunder.
(xi) Neither the filing of the Registration Statement
nor the offering or sale of the Securities as contemplated by this Agreement
gives rise to any rights for or relating to the registration of any Ordinary
Shares or other securities of the Company, and no person or entity holds a right
to require registration under the Securities Act of shares of capital stock of
the Company at any other time, except as disclosed in the Registration Statement
and the Prospectus.
(xii) The Company and the Subsidiaries hold, and are
operating in compliance in all material respects with, all franchises, grants,
authorizations, licenses, permits, easements, consents, certificates and orders
of any governmental or regulatory body required for the conduct of its business
and all such franchises, grants, authorizations, licenses, permits, easements,
consents, certifications and orders are valid and in full force and effect; and
the Company and the Subsidiaries are in compliance in all material respects with
all applicable federal, state, local and foreign (including, without limitation,
Israeli, English and U.S.) laws, regulations, orders and decrees.
(xiii) The Company and the Subsidiaries have good and
marketable title to all property described in the Registration Statement and the
Prospectus as being owned by them, in each case free and clear of all liens,
claims, security interests or other encumbrances except such as are described in
the Registration Statement and the Prospectus; the property held under lease by
the Company and the Subsidiaries are held by them under valid, subsisting and
enforceable leases with only such exceptions with respect to any particular
lease as do not interfere in any material respect with the conduct of the
business of the Company or the Subsidiaries.
(xiv) The Company and the Subsidiaries own or possess
all patents, patent applications, trademarks, service marks, tradenames,
trademark registrations, service ▇▇▇▇ registrations, copyrights, licenses,
inventions, trade secrets know-how, proprietary techniques, processes and rights
("Intellectual Property") used in the conduct of the business
6
of the Company and the Subsidiaries as currently carried on (including products,
services and technology contemplated by current research and development
projects) and as described in the Registration Statement and the Prospectus.
Except as stated in the Registration Statement and the Prospectus, no name which
the Company or the Subsidiaries uses and no other aspect of the business of the
Company or the Subsidiaries will involve or give rise to any infringement of, or
license or similar fees for, any Intellectual Property of others material to the
business or prospects of the Company and neither the Company nor the
Subsidiaries has received any notice alleging any such infringement or fee,
except as to matters that will not cause a Material Adverse Effect. To the
knowledge of the Company, its Intellectual Property is not being infringed by
any third parties which infringement could reasonably be expected, whether
singly or in the aggregate, to have a Material Adverse Effect.
(xv) Neither the Company nor the Subsidiaries (i) is
in violation of its respective Memorandum of Association, Articles of
Association, charter or by-laws, as the case may be, or other organizational
documents (ii) in breach of or otherwise in default in the performance of any
obligation, agreement or condition contained in any bond, debenture, note,
indenture, loan agreement or any other contract, lease or other instrument to
which any of them is subject or by which any of them may be bound, or to which
any of the property or assets of the Company or any of its subsidiaries is
subject, nor has any event occurred nor condition exist that with the notice
and/or the passage of time would give rise to such a breach or default or (iii)
is in violation of any law, ordinance, government rule, regulation or court
order or decree to which any of them is subject or by which any of them may be
bound or to which any of the property or assets of the Company or any of its
subsidiaries is subject, except in the case of clauses (ii) and (iii) for such
breaches, defaults or violations that individually or in the aggregate would not
have a Material Adverse Effect.
(xvi) The Company and its subsidiaries have filed all
Israeli, English and U.S. federal, state, local and foreign income and franchise
tax returns required to be filed and are not in default in the payment of any
taxes which were payable pursuant to said returns or any assessments with
respect thereto, other than any which the Company or any of its subsidiaries is
contesting in good faith.
(xvii) The Company has not distributed and will not
distribute any prospectus or other offering material in connection with the
offering and sale of the Securities other than any Preliminary Prospectus or the
Prospectus or other materials permitted by the Act to be distributed by the
Company.
(xviii) The Securities have been approved for
quotation upon notice of issuance on the NASDAQ National Market.
(xix) The Company has no subsidiary or subsidiaries
other than the Subsidiaries and the Company owns no capital stock or other
equity or ownership or proprietary interest in any corporation, partnership,
limited liability company, joint venture association, trust or other entity
other than the Subsidiaries.
7
(xx) Each of the Company and the Subsidiaries
maintains a system of internal accounting controls sufficient to provide
reasonable assurances that (i) transactions are executed in accordance with
management's general or specific authorization; (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain accountability for
assets; (iii) access to assets is permitted only in accordance with management's
general or specific authorization; and (iv) the recorded accountability for
assets is compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(xxi) Other than as contemplated by this Agreement,
the Company has not incurred any liability for any finder's or broker's fee or
agent's commission in connection with the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby.
(xxii) Neither the Company nor any of its affiliates
is presently doing business with the government of Cuba or with any person or
affiliate located in Cuba.
(xxiii) No labor dispute with the employees of the
Company or any of its subsidiaries exists or, to the knowledge of the Company,
is threatened; and the Company is not aware of any existing or imminent labor
disturbance by the employees of any of its principal suppliers or contractors
which could have a Material Adverse Effect. Neither the Company nor any of its
subsidiaries has violated any applicable safety or similar law applicable to its
business nor any federal or state law relating to discrimination in the hiring,
promotion or pay of employees, nor any applicable federal or state wage and
hours law, nor any provisions of the Employee Retirement Income Security Act or
the rules and regulations promulgated thereunder, the violation of any of which
could have a Material Adverse Effect. The Company is not aware of any threatened
or pending litigation between the Company or any of its subsidiaries and any of
its executive officers which, if adversely determined, could have a Material
Adverse Effect, and has no reason to believe that such officers will not remain
in the employment of the Company during the next twelve months.
(xxiv) No transaction has occurred or relationship
exists between or among the Company or the Subsidiaries and any of their
officers or directors or any affiliate or affiliates of any such officer or
director that is required to be described in and is not described in the
Registration Statement and the Prospectus.
(xxv) The Company and each of its subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks in such amounts as are customary in the business in which they are
engaged; and neither the Company nor any subsidiary has any reason to believe
that it will not be able to renew its existing insurance coverage as and when
such coverage expires or to obtain similar coverage from similar insurers as may
be necessary to continue their business at a cost that would not have a Material
Adverse Effect.
8
(xxvi) There are no affiliations with the National
Association of Securities Dealers, Inc. (the "NASD") among the Company's
officers, directors or, to the best knowledge of the Company, any five percent
or greater shareholder of the Company, or any shareholder which has acquired
restricted securities from the Company during the 12-month period immediately
preceeding the date of this Agreement, except as set forth in the Registration
Statement and the Prospectus or otherwise disclosed in writing to the
Representatives.
(xxvii) Neither the Company nor any of its
subsidiaries is an "investment company" nor
a company "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended, and the rules and regulations
thereunder (the "Investment Company Act").
(xxviii) Neither the Company nor any of its
subsidiaries or, to the knowledge of the Company, any other person associated
with or acting on behalf of the Company or any of its subsidiaries including,
without limitation, any director, officer, agent or employee of the Company or
any of its subsidiaries has, directly or indirectly, while acting on behalf of
the Company or any of its subsidiaries, (i) used any corporate funds for
unlawful contributions, gifts, entertainment or other unlawful expenses relating
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 from corporate funds; (iii) violated any provision of the Foreign
Corrupt Practices Act of 1977, as amended; or (iv) made any other unlawful
payment.
(xxix) The Company has reviewed its operations and
that of its subsidiaries and any third parties with which the Company or any of
its subsidiaries has a material relationship to evaluate the extent to which the
business or operations of the Company or any of its subsidiaries will be
affected by the Year 2000 Problem (defined below). As a result of such review,
the Company has no reason to believe, and does not believe, that the Year 2000
Problem will have a Material Adverse Effect, or result in any material loss or
interference with the Company's business or operations. The "Year 2000 Problem"
as used herein means any significant risk that computer hardware or software
used in the receipt, transmission, processing, manipulation, storage, retrieval,
retransmission or other utilization of data or in the operation of mechanical or
electrical systems of any kind will not, in the case of dates or time periods
occurring after December 31, 1999, function at least as effectively as in the
case of dates or time periods occurring prior to January 1, 2000.
(xxx) The Company does not believe that it is, and
upon the consummation of the transactions contemplated hereby and the
application of the proceeds as described in the Registration Statement and the
Prospectus under the caption "Use of Proceeds" does not believe that it will
become, a "passive foreign investment company" (herein called a PFIC) as defined
in Section 1296 of the Internal Revenue Code of 1986, as amended (herein called
the Code).
9
(xxxi) The Company has not taken and will not take,
directly or indirectly, any action designed to or that might reasonably be
expected to cause or result in stabilization or manipulation of the price of the
Ordinary Shares to facilitate the sale or resale of the Securities.
(xxxii) The Company has received from the Israel
Securities Authority an exemption from the requirement to publish a prospectus
in Israel for the offer of the Securities in the manner required by the
applicable laws of the State of Israel, which exemption was in full force and
effect on the date hereof and which shall be in full force and effect on the
date of the Prospectus, on the date that any post-effective amendment to the
Registration Statement shall become effective, when any supplement or amendment
to the Prospectus is filed with the Commission, and at each Closing Date. It is
further understood that no public offering (as defined under the laws of the
State of Israel) pursuant to the Prospectus will be made within the State of
Israel by the Company.
(xxxiii) Each of the Company and the Subsidiaries is
in material compliance with all conditions and requirements stipulated by the
instruments of approval issued by the Investment Center of the Ministry of
Industry and Commerce granted entitling it or any of its operations to the
status of "approved enterprise" under Israeli law and by Israeli laws and
regulations relating to such approved enterprise status except as would not have
a Material Adverse Effect. All information supplied by the Company with respect
to such applications was true, correct and complete in all material respects
when supplied to the appropriate authorities. The Company does not know of any
reason or circumstance that would lead to revocation of its status as an
"approved enterprise."
(xxxiv) Neither the Company nor any of its
subsidiaries is in violation of any conditions or requirements stipulated by the
instruments of approval granted to any of them by the Office of the Chief
Scientist in the Ministry of Industry & Commerce, with respect to any research
and development grants given to it by such office, which violation, individually
or in the aggregate, would have a Material Adverse Effect. The Company qualifies
as an "Industrial Company" within the definition of the Law for the
Encouragement of Industry (Taxes), 1969, of the State of Israel.
(xxxv) Except for Israeli stamp duty, which will be
paid by the Company on the Securities being sold by them, no transfer tax, stamp
duty or similar tax is payable by or on behalf of the Underwriters in connection
with: (i) the issuance by the Company of the Securities; (ii) the purchase by
the Underwriters of the Securities from the Company; (iii) the consummation by
the Company of any of its obligations under this Agreement; or (iv) assuming the
Underwriters are not subject to taxation in Israel, resale of the Securities by
the Underwriters in connection with the distribution contemplated hereby.
(xxxvi) The Company has duly and irrevocably
appointed Commtouch Software Inc., a corporation organized under the laws of the
State of California, as its agent to receive service of process in any action
against it in any United States federal or state
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court arising out of or in connection with the this Agreement or the
transactions contemplated hereby.
(xxxvii) The documents incorporated by reference in
the Prospectus, at the time they were or hereafter are filed with the
Commission, complied or when so filed will comply, as the case may be, in all
material respects with the requirements of the Securities Exchange Act of 1934,
as amended, and the rules and regulations promulgated thereunder, and, when read
together and with the other information in the Prospectus and as such documents
may be modified or superseded by the Prospectus, did not and will not contain an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were or are made, not misleading.
(b) Each Selling Shareholder represents and warrants to, and
agrees with, the several Underwriters as follows:
(i) Such Selling Shareholder is the record and
beneficial owner of, and has, and on the First Closing Date will have, valid and
marketable title to the Securities to be sold by such Selling Shareholder, free
and clear of all security interests, claims, liens, restrictions on
transferability, legends, proxies, equities or other encumbrances; and upon
delivery of and payment for such Securities hereunder, the several Underwriters
will acquire valid and marketable title thereto, free and clear of any security
interests, claims, liens, restrictions on transferability, legends, proxies,
equities or other encumbrances. Such Selling Shareholder is selling the
Securities to be sold by such Selling Shareholder for such Selling Shareholder's
own account and is not selling such Securities, directly or indirectly, for the
benefit of the Company, and no part of the proceeds of such sale received by
such Selling Shareholder will inure, either directly or indirectly, to the
benefit of the Company other than as described in the Registration Statement and
Prospectus.
(ii) Such Selling Shareholder has duly authorized,
executed and delivered a Custody Agreement ("Custody Agreement"), which Custody
Agreement is a valid and binding obligation of such Selling Shareholder, to
Norwest Bank Minnesota, N.A., as Custodian (the "Custodian"); pursuant to the
Custody Agreement the Selling Shareholder has placed in custody with the
Custodian, for delivery under this Agreement, the certificates representing the
Securities to be sold by such Selling Shareholder; such certificates represent
validly issued, outstanding, fully paid and nonassessable Ordinary Shares; and
such certificates were duly and properly endorsed in blank for transfer, or were
accompanied by all documents duly and properly executed that are necessary to
validate the transfer of title thereto, to the Underwriters, free of any legend,
restriction on transferability, proxy, lien or claim, whatsoever.
(iii) Such Selling Shareholder has the power and
authority to enter into this Agreement and to sell, transfer and deliver the
Securities to be sold by such Selling Shareholder; and such Selling Shareholder
has duly authorized, executed and delivered to ▇▇▇▇▇ ▇▇▇▇▇▇, as attorney-in-fact
(the "Attorney-in-Fact"), an irrevocable power of attorney
11
(a "Power of Attorney") authorizing and directing the Attorney-in-Fact to effect
the sale and delivery of the Securities being sold by such Selling Shareholder,
to enter into this Agreement and to take all such other action as may be
necessary hereunder.
(iv) This Agreement, the Custody Agreement and the
Power of Attorney have each been duly authorized, executed and delivered by or
on behalf of such Selling Shareholder and each constitutes a valid and binding
agreement of such Selling Shareholder, enforceable in accordance with its terms,
except as rights to indemnity hereunder or thereunder may be limited by federal
or state securities laws and except as such enforceability may be limited by
bankruptcy, insolvency, reorganization or laws affecting the rights of creditors
generally and subject to general principles of equity. The execution and
delivery of this Agreement, the Custody Agreement and the Power of Attorney and
the performance of the terms hereof and thereof and the consummation of the
transactions herein and therein contemplated will not result in a breach or
violation of any of the terms and provisions of, or constitute a default under,
any agreement or instrument to which such Selling Shareholder is a party or by
which such Selling Shareholder is bound, or any law, regulation, order or decree
applicable to such Selling Shareholder; no consent, approval, authorization or
order of, or filing with, any court or governmental agency or body is required
for the execution, delivery and performance of this Agreement, the Custody
Agreement and the Power of Attorney or for the consummation of the transactions
contemplated hereby and thereby, including the sale of the Securities being sold
by such Selling Shareholder, except such as may be required under the Act or
state securities laws or blue sky laws.
(v) Such Selling Shareholder has not distributed and
will not distribute any prospectus or other offering material in connection with
the offering and sale of the Securities other than any Preliminary Prospectus or
the Prospectus or other materials permitted by the Act to be distributed by such
Selling Shareholder.
(vi) Such Selling Shareholder has reviewed the
Registration Statement and the
Prospectus and to the best knowledge of such Selling Shareholder neither the
Registration Statement nor the Prospectus contains any untrue statement of a
material fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein not misleading regarding such
Selling Shareholder, the other Selling Shareholders, the Company or otherwise.
(vii) To the best knowledge of such Selling
Shareholder, the representations and warranties of the Company contained in
paragraph (a) of this Section 2 are true and correct.
(c) Any certificate signed by any officer of the Company and
delivered to you or to counsel for the Underwriters shall be deemed a
representation and warranty by the Company to each Underwriter as to the matters
covered thereby; any certificate signed by or on behalf of any Selling
Shareholders as such and delivered to you or to counsel for the
12
Underwriters shall be deemed a representation and warranty by such Selling
Shareholder to each Underwriter as to the matters covered thereby.
3. Purchase, Sale and Delivery of Securities.
On the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set forth, the
Company agrees to issue and sell 1,669,000 Firm Shares, and each Selling
Shareholder agrees, severally and not jointly, to sell the number of Firm Shares
set forth opposite the name of such Selling Shareholder on Schedule I hereto, to
the several Underwriters, and each Underwriter agrees, severally and not
jointly, to purchase from the Company and the Selling Shareholders the number of
Firm Shares set forth opposite the name of such Underwriter in Schedule II
hereto. The purchase price for each Firm Share shall be **[$__________] per
share. The obligation of each Underwriter to each of the Company and the Selling
Shareholders shall be to purchase from each of the Company and the Selling
Shareholders that number of Firm Shares (to be adjusted by the Representatives
to avoid fractional shares) which represents the same proportion of the number
of Firm Shares to be sold by each of the Company and the Selling Shareholders
pursuant to this Agreement as the number of Firm Shares set forth opposite the
name of such Underwriter in Schedule II hereto represents to the total number of
Firm Shares to be purchased by all Underwriters pursuant to this Agreement. In
making this Agreement, each Underwriter is contracting severally and not
jointly; except as provided in paragraph (c) of this Section 3 and in Section 8
hereof, the agreement of each Underwriter is to purchase only the respective
number of Firm Shares specified in Schedule II.
The Firm Shares will be delivered by the Company and the
Custodian to you for the accounts of the several Underwriters against payment of
the purchase price therefor by certified or official bank check or other next
day funds payable to the order of the Company or the Custodian, as appropriate,
at the offices of U.S. Bancorp ▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, or such other location as may be mutually acceptable, at
9:00 a.m. Central time on the third (or if the Securities are priced, as
contemplated by Rule 15c6-1(c) under the Exchange Act, after 4:30 p.m. Eastern
time, the fourth) full business day following the date hereof, or at such other
time and date as you and the Company determine pursuant to Rule 15c6-1(a) under
the Exchange Act, such time and date of delivery being herein referred to as the
"First Closing Date." If the Representatives so elect, delivery of the Firm
Shares may be made by credit through full fast transfer to the accounts at The
Depository Trust Company designated by the Representatives. Certificates
representing the Firm Shares, in definitive form and in such denominations and
registered in such names as you may request upon at least two business days'
prior notice to the Company and the Custodian, will be made available for
checking and packaging not later than 10:30 a.m., Central time, on the business
day next preceding the First Closing Date at the offices of U.S. Bancorp ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, or such other location
as may be mutually acceptable.
On the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set forth, the
Company hereby
13
grants to the several Underwriters an option to purchase all or any portion of
the Option Shares at the same purchase price as the Firm Shares, for use solely
in covering any over-allotments made by the Underwriters in the sale and
distribution of the Firm Shares. The option granted hereunder may be exercised
at any time (but not more than once) within 30 days after the effective date of
this Agreement upon notice (confirmed in writing) by the Representatives to the
Company setting forth the aggregate number of Option Shares as to which the
several Underwriters are exercising the option, the names and denominations in
which the certificates for the Option Shares are to be registered and the date
and time, as determined by you, when the Option Shares are to be delivered, such
time and date being herein referred to as the "Second Closing" and "Second
Closing Date", respectively; provided, however, that the Second Closing Date
shall not be earlier than the First Closing Date nor earlier than the second
business day after the date on which the option shall have been exercised. The
number of Option Shares to be purchased by each Underwriter shall be the same
percentage of the total number of Option Shares to be purchased by the several
Underwriters as the number of Firm Shares to be purchased by such Underwriter is
of the total number of Firm Shares to be purchased by the several Underwriters,
as adjusted by the Representatives in such manner as the Representatives deem
advisable to avoid fractional shares. No Option Shares shall be sold and
delivered unless the Firm Shares previously have been, or simultaneously are,
sold and delivered.
The Option Shares will be delivered by the Company to you for
the accounts of the several Underwriters against payment of the purchase price
therefor by certified or official bank check or other next day funds payable to
the order of the Company at the offices of U.S. Bancorp ▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, or such other location as may be mutually
acceptable at 9:00 a.m., Central time, on the Second Closing Date. If the
Representatives so elect, delivery of the Option Shares may be made by credit
through full fast transfer to the accounts at The Depository Trust Company
designated by the Representatives. Certificates representing the Option Shares
in definitive form and in such denominations and registered in such names as you
have set forth in your notice of option exercise, will be made available for
checking and packaging not later than 10:30 a.m., Central time, on the business
day next preceding the Second Closing Date at the office of U.S. Bancorp ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, or such other location
as may be mutually acceptable.
It is understood that you, individually and not as
Representatives of the several Underwriters, may (but shall not be obligated to)
make payment to the Company or the Selling Shareholders, on behalf of any
Underwriter for the Securities to be purchased by such Underwriter. Any such
payment by you shall not relieve any such Underwriter of any of its obligations
hereunder. Nothing herein contained shall constitute any of the Underwriters an
unincorporated association or partner with the Company or any Selling
Shareholder.
Notwithstanding anything else in this Agreement, the
Underwriters shall not solicit offers to purchase Securities in Israel from more
than 35 solicitees who are Israeli subjects, other than Accredited Investors (as
described in Section 15(d) of the Israel Securities Law - 1968), in the
aggregate and will obtain confirmation from such solicitees
14
that they are purchasing such Securities for investment purposes only and not
with a view toward distribution or sale. On or before the date two days after
the Closing Date, the Underwriters shall furnish the Company, its counsel and
the Securities Authority of the State of Israel (the "ISA") with a list of such
solicitees, if any (including their name and addresses), so as to enable the
Company to comply with the terms of the exemption issued by the ISA.
4. Covenants
(a) The Company covenants and agrees with the several
Underwriters as follows:
(i) If the Registration Statement has not already
been declared effective by the Commission, the Company will use its best efforts
to cause the Registration Statement and any post-effective amendments thereto to
become effective as promptly as possible; the Company will notify you promptly
of the time when the Registration Statement or any post-effective amendment to
the Registration Statement has become effective or any supplement to the
Prospectus (including any term sheet within the meaning of Rule 434 of the Rules
and Regulations) has been filed and of any request by the Commission for any
amendment or supplement to the Registration Statement or the Prospectus or
additional information; if the Company has elected to rely on Rule 430A of the
Rules and Regulations, the Company will prepare and file a Prospectus (or term
sheet within the meaning of Rule 434 of the Rules and Regulations) containing
the information omitted therefrom pursuant to Rule 430A of the Rules and
Regulations with the Commission within the time period required by, and
otherwise in accordance with the provisions of, Rules 424(b), 430A and 434, if
applicable, of the Rules and Regulations; if the Company has elected to rely
upon Rule 462(b) of the Rules and Regulations to increase the size of the
offering registered under the Act, the Company will prepare and file a
registration statement with respect to such increase with the Commission within
the time period required by, and otherwise in accordance with the provisions of,
Rule 462(b); the Company will prepare and file with the Commission, promptly
upon your request, any amendments or supplements to the Registration Statement
or the Prospectus (including any term sheet within the meaning of Rule 434 of
the Rules and Regulations) that, in your opinion, may be necessary or advisable
in connection with the distribution of the Securities by the Underwriters; and
the Company will not file any amendment or supplement to the Registration
Statement or Prospectus (including any term sheet within the meaning of Rule 434
of the Rules and Regulations) to which you shall reasonably object by notice to
the Company after having been furnished a copy a reasonable time prior to the
filing.
(ii) The Company will advise you, promptly after it
shall receive notice or obtain knowledge thereof, of the issuance by the
Commission the ISA, or any Israeli or other foreign regulatory body of any stop
order suspending the effectiveness of the Registration Statement, of the
suspension of the qualification of the Securities for offering or sale in any
jurisdiction, or of the initiation or threatening of any proceeding for any such
purpose; and the Company will promptly use its best efforts to (i) prevent the
issuance of any
15
stop order or to obtain its withdrawal if such a stop order should be issued and
(ii) maintain in effect the exemption granted by the ISA and, if such exemption
shall at any time not be effective, to obtain the reinstatement thereof at the
earliest possible moment.
(iii) Within the time during which a prospectus
(including any term sheet within the meaning of Rule 434 of the Rules and
Regulations) relating to the Securities is required to be delivered under the
Act, the Company will comply as far as it is able with all requirements imposed
upon it by the Act, as now and hereafter amended, and by the Rules and
Regulations, as from time to time in force, so far as necessary to permit the
continuance of sales of or dealings in the Securities as contemplated by the
provisions hereof and the Prospectus. If during such period any event occurs as
a result of which in the opinion of counsel for the Company or of counsel for
the Underwriters the Prospectus would include an untrue statement of a material
fact or omit to state a material fact necessary to make the statements therein,
in the light of the circumstances then existing, not misleading, or if during
such period it is in the opinion of counsel for the Company of counsel for the
Underwriters necessary to amend the Registration Statement or supplement the
Prospectus to comply with the Act, the Company will promptly notify you and will
forthwith amend the Registration Statement or supplement the Prospectus (at the
expense of the Company) so as to correct such statement or omission or effect
such compliance.
(iv) The Company will use its best efforts to qualify
the Securities for sale under the securities laws of such jurisdictions as you
reasonably designate and to continue such qualifications in effect so long as
required for the distribution of the Securities, except that the Company shall
not be required in connection therewith to qualify as a foreign corporation or
to execute a general consent to service of process in any state. The Company
will, from time to time, prepare and file such statements, reports, and other
documents as are or may be required to continue such qualifications in effect
for so long a period as you may reasonably request for distribution of the
Securities.
(v) The Company will furnish to the Underwriters
copies of the Registration Statement (three of which will be signed and will
include all exhibits), each Preliminary Prospectus, the Prospectus, and all
amendments and supplements (including any term sheet within the meaning of Rule
434 of the Rules and Regulations) to such documents, in each case as soon as
available and in such quantities as you may from time to time reasonably
request. Prior to the filing thereof with the Commission, the Company will
submit to you, for your information, a copy of any post-effective amendment to
the Registration Statement and any supplement to the Prospectus or any amended
prospectus proposed to be filed.
(vi) During a period of five years commencing with
the date hereof, the Company will (i) submit to the Commission quarterly
reports, which will include unaudited quarterly consolidated financial
information, on Form 6-K for the first three quarters of each fiscal year, and
file its annual report on Form 20-F within the time period prescribed under
Section 13 of the Exchange Act for the filing by domestic issuers of quarterly
reports on Form 10-Q and annual reports on Form 10-K, respectively and
16
(ii) furnish to you, and to each Underwriter who may so request in writing,
copies of all periodic and special reports furnished to shareholders of the
Company and of all information, documents and reports filed with the Commission
(including the Report on Form SR required by Rule 463 of the Commission under
the Securities Act), the Nasdaq National Market, the NASD, or the ISA. Reports
to the ISA may be furnished to you and to any such Underwriter in Hebrew if such
reports are not available in English.
(vii) The Company will make generally available to
its security holders as soon as practicable, but in any event not later than 15
months after the end of the Company's current fiscal quarter, an earnings
statement (which need not be audited) covering a 12-month period beginning after
the effective date of the Registration Statement that shall satisfy the
provisions of Section 11(a) of the Act and Rule 158 of the Rules and
Regulations.
(viii) The Company, whether or not the transactions
contemplated hereunder are consummated or this Agreement is prevented from
becoming effective under the provisions of Section 9(a) hereof or is terminated,
will pay or cause to be paid (A) all expenses (including transfer taxes
allocated to the respective transferees) incurred in connection with the
delivery to the Underwriters of the Securities, (B) all expenses and fees
(including, without limitation, fees and expenses of the Company's accountants
and counsel but, except as otherwise provided below, not including fees of the
Underwriters' counsel) in connection with the preparation, printing, filing,
delivery, and shipping of the Registration Statement (including the financial
statements therein and all amendments, schedules, and exhibits thereto), the
Securities, each Preliminary Prospectus, the Prospectus, and any amendment
thereof or supplement thereto, and the printing, delivery, and shipping of this
Agreement and other underwriting documents, including Blue Sky Memoranda, (C)
all filing fees and fees and disbursements of the Underwriters' counsel incurred
in connection with the qualification of the Securities for offering and sale by
the Underwriters or by dealers under the securities or blue sky laws of the
states and other jurisdictions which you shall designate in accordance with
Section 4(d) hereof, (D) the fees and expenses of any transfer agent or
registrar, (E) the filing fees incident to any required review by the NASD of
the terms of the sale of the Securities, (F) listing fees, if any, and (G) all
other costs and expenses incident to the performance of its obligations
hereunder that are not otherwise specifically provided for herein. If the sale
of the Securities provided for herein is not consummated by reason of action by
the Company pursuant to Section 9(a) hereof which prevents this Agreement from
becoming effective, or by reason of any failure, refusal or inability on the
part of the Company or the Selling Shareholders to perform any agreement on
their part to be performed, or because any other condition of the Underwriters'
obligations hereunder required to be fulfilled by the Company or the Selling
Shareholders is not fulfilled, the Company will reimburse the several
Underwriters for all out-of-pocket disbursements (including fees and
disbursements of counsel) incurred by the Underwriters in connection with their
investigation, preparing to market and marketing the Securities or in
contemplation of performing their obligations hereunder. The Company shall not
in any event be liable to any of the Underwriters for loss of anticipated
profits from the transactions covered by this Agreement.
17
(ix) The Company will apply the net proceeds from the
sale of the Securities to be sold by it hereunder for the purposes set forth in
the Prospectus and will file such reports with the Commission with respect to
the sale of the Securities and the application of the proceeds therefrom as may
be required in accordance with Rule 463 of the Rules and Regulations.
(x) The Company will not, without your prior written
consent, for a period of 90 days after the commencement of the public offering
of the Securities by the Underwriters (the "Lock-Up Period") offer for sale,
sell, contract to sell, grant any option for the sale of or otherwise issue or
dispose of any Ordinary Shares or any securities convertible into or
exchangeable for, or any options or rights to purchase or acquire, Ordinary
Shares, except to the Underwriters pursuant to this Agreement and except for the
issuance of options pursuant to the Company's 1996 CSI Stock Option Plan, 1999
Israeli Share Option Plan, 1999 Nonemployee Directors Plan and the 1999 Employee
Stock Purchase Plan (each as described in the Registration Statement and the
Prospectus) (the "Plans") and pursuant to the exercise of stock options or
warrants outstanding on the date hereof; provided, that no such option shall
vest and become exercisable prior to the end of the Lock-Up Period. The Company
agrees not to accelerate the vesting of any option or warrant or the lapse of
any repurchase right prior to the expiration of the Lock-Up Period.
(xi) The Company either has caused to be delivered to
you or will cause to be delivered to you prior to the effective date of the
Registration Statement a letter (the "Lock-Up Agreement") from each of the
Selling Shareholders stating that such person agrees that, from the date of
execution of this Agreement and continuing to and including the date 90 days
after the date of the Prospectus, he or she will not publicly or privately
announce any intention to, will not allow any affiliate or subsidiary, if
applicable, to, and will not itself, without the prior written consent of U.S.
Bancorp ▇▇▇▇▇ ▇▇▇▇▇▇▇ on behalf of the Underwriters, (i) offer, pledge, sell,
offer to sell, contract to sell, sell any option or contract to purchase,
purchase any option to sell, grant any option, right or warrant to purchase, or
otherwise transfer or dispose of, directly or indirectly, any Ordinary Shares or
any securities convertible into, or exercisable or exchangeable for, Ordinary
Shares, or (ii) enter into any swap or other agreement that transfers, in whole
or in part, any of the economic consequences of ownership of any Ordinary Shares
or any securities convertible into, or exercisable or exchangeable for, Ordinary
Shares (whether any such transaction described in clause (i) or (ii) above is to
be settled by delivery of Ordinary Shares or such other securities, in cash or
otherwise), in each case, beneficially owned (within the meaning of Rule 13d-3
under the Securities Exchange Act of 1934, as amended) or otherwise controlled
by the shareholder on the date of the Lock-Up Agreement or thereafter acquired;
provided, however, that, if the shareholder is an individual, the shareholder
may, without the prior written consent of U.S. Bancorp ▇▇▇▇▇ ▇▇▇▇▇▇▇ on behalf
of the Underwriters, transfer Ordinary Shares or any securities convertible
into, or exercisable or exchangeable for, Ordinary Shares either during his or
her lifetime or, on death, by will or intestacy to members of the shareholder's
immediate family or to trusts exclusively for the benefit of members of the
shareholder's immediate family or in connection with bona fide gifts; provided
that, prior to any such transfer, such transferee executes an agreement,
satisfactory to U.S. Bancorp Piper
18
Jaffray, pursuant to which such transferee agrees to receive and hold such
shares subject to the provisions of the Lock-Up Agreement and that there shall
be no further transfer except in accordance with the provisions of the Lock-Up
Agreement. For purposes of this paragraph, "Immediate family" shall mean the
shareholder's spouse, lineal descendant, father, mother, brother or sister.
(xii) The Company has not taken and will not take,
directly or indirectly, any action designed to or which might reasonably be
expected to cause or result in, or which has constituted, the stabilization or
manipulation of the price of any security of the Company to facilitate the sale
or resale of the Securities, and has not effected any sales of Ordinary Shares
which are required to be disclosed in response to Item 701 of Regulation S-K
under the Act which have not been so disclosed in the Registration Statement.
(xiii) The Company will not incur any liability for
any finder's or broker's fee or agent's commission in connection with the
execution and delivery of this Agreement or the consummation of the transactions
contemplated hereby.
(xiv) The Company will inform the Florida Department
of Banking and Finance at any time prior to the consummation of the distribution
of the Securities by the Underwriters if it commences engaging in business with
the government of Cuba or with any person or affiliate located in Cuba. Such
information will be provided within 90 days after the commencement thereof or
after a change occurs with respect to previously reported information.
(xv) The Company will use its best efforts to ensure
that it will not become a PFIC to the extent consistent with its other business
objectives. If it believes it is a PFIC, the Company will promptly notify each
U.S. holder of the Ordinary Shares (the "U.S. Holders") in order to enable U.S.
Holders to consider whether to make a QEF election or a ▇▇▇▇ to market election.
The Company will further comply with the applicable information reporting
requirements for U.S. Holders to make such elections.
(xvi) The Company is familiar with the Investment
Company Act and will conduct its affairs in such a manner to ensure that the
Company and each of the Subsidiaries was not and will not be an "investment
company" or a company "controlled" by an "investment company" within the meaning
of the Investment Company Act.
(xvii) To the extent that, and for as long as, the
laws of Israel or any other foreign jurisdiction require any permit for approval
by, or exemption of any local authority of the transactions contemplated hereby
to be legally permitted and to remain effective, the Company will obtain and
maintain each such permit, approval or exemption valid and in full force and
effect.
(xviii) In any suit (whether in a court in the United
States or any other jurisdiction) seeking enforcement of this Agreement, or
provisions of this Agreement, (i) no defense (other than a procedural defense)
given or allowed by the laws of any other state or country shall be interposed
in any suit, action or proceeding hereon unless such defense is
19
also given or allowed by the laws of the State of Minnesota, or of the United
States, (ii) if the plaintiffs therein seek a judgment in United States dollars,
the Company will not interpose any defense or objection to or otherwise oppose
judgment, if any, being awarded in such currency, and (iii) if the plaintiffs
therein seek to have any judgment (or any aspect thereof) awarded in foreign
currency linked, for the period from entry of such judgment until actual payment
thereof in full has been made, to the changes in the foreign currency-United
States dollar exchange rate, the Company will not interpose any defense or
objection to or otherwise oppose inclusion of such linkage in any such judgment.
The Company agrees that it will not initiate or seek to initiate any action,
suit or proceeding, in Israel or in any other jurisdiction other than the United
States, seeking damages or for the purpose of obtaining any injunction or
declaratory judgment against the enforcement of or a declaratory judgment
concerning any alleged breach by the Company of or other claim by you in respect
of, this Agreement or any of your rights under this Agreement, including without
limitation any action, suit or proceeding challenging the enforceability of or
seeking to invalidate in any respect the submission by the Company hereunder to
the jurisdiction of federal or Minnesota State courts or the designation of the
laws of the State of Minnesota as the law applicable to this Agreement.
(xix) If any payment of any sum due under this
Agreement from the Company is made to or received by the Underwriters or any
controlling person of any Underwriter in a currency other than freely
transferable United States dollars, whether by judicial judgment or otherwise,
the obligations of the Company under this Agreement shall be discharged only to
the extent of the net amount of freely transferable United States dollars that
the Underwriters or such controlling persons, as the case may be, in accordance
with normal bank procedures, are able to lawfully purchase with such amount of
such other currency. To the extent that the Underwriters or such controlling
persons are not able to purchase sufficient United States dollars with such
amount of such other currency to discharge the obligations of the Company to the
Underwriters or such controlling persons, as the case may be, shall not be
discharged with respect to such difference, and any such undischarged amount
will be due as a separate obligation and shall not be affected by payment or of
judgment being obtained for any other sums due under or in respect of this
Agreement.
(xx) The Company will use its best efforts to effect
and maintain the quotation of the Ordinary Shares on the Nasdaq National Market.
(b) Each Selling Shareholder covenants and agrees with the
several Underwriters as follows:
(i) Except as otherwise agreed to by the Company and
the Selling Shareholder, such Selling Shareholder will pay all taxes, if any, on
the transfer and sale, respectively, of the Securities being sold by such
Selling Shareholder, the fees of such Selling Shareholder's counsel and such
Selling Shareholder's proportionate share (based upon the number of Securities
being offered by such Selling Shareholder pursuant to the Registration
Statement) of all costs and expenses (except for legal and accounting expenses
20
and fees of the registrar and transfer agent) incurred by the Company pursuant
to the provisions of Section 4(a)(viii) of this Agreement; provided, however,
that each Selling Shareholder severally agrees to reimburse the Company for any
reimbursement made by the Company to the Underwriters pursuant to Section
4(a)(viii) hereof to the extent such reimbursement resulted from the failure or
refusal on the part of such Selling Shareholder to comply under the terms or
fulfill any of the conditions of this Agreement.
(ii) If this Agreement shall be terminated by the
Underwriters because of any failure, refusal or inability on the part of such
Selling Shareholder to perform any agreement on such Selling Shareholder's part
to be performed, or because any other condition of the Underwriters' obligations
hereunder required to be fulfilled by such Selling Shareholder is not fulfilled,
such Selling Shareholder agrees to reimburse the several Underwriters for all
out-of-pocket disbursements (including fees and disbursements of counsel for the
Underwriters) incurred by the Underwriters in connection with their
investigation, preparing to market and marketing the Securities or in
contemplation of performing their obligations hereunder. The Selling Shareholder
shall not in any event be liable to any of the Underwriters for loss of
anticipated profits from the transactions covered by this Agreement.
(iii) The Securities to be sold by such Selling
Shareholder, represented by the certificates on deposit with the Custodian
pursuant to the Custody Agreement of such Selling Shareholder, are subject to
the interest of the several Underwriters and the other Selling Shareholders; the
arrangements made for such custody are, except as specifically provided in the
Custody Agreement, irrevocable; and the obligations of such Selling Shareholder
hereunder shall not be terminated, except as provided in this Agreement or in
the Custody Agreement, by any act of such Selling Shareholder, by operation of
law, whether by the liquidation, dissolution or merger of such Selling
Shareholder, by the death of such Selling Shareholder, or by the occurrence of
any other event. If any Selling Shareholder should liquidate, dissolve or be a
party to a merger or if any other such event should occur before the delivery of
the Securities hereunder, certificates for the Securities deposited with the
Custodian shall be delivered by the Custodian in accordance with the terms and
conditions of this Agreement as if such liquidation, dissolution, merger or
other event had not occurred, whether or not the Custodian shall have received
notice thereof.
(iv) Selling Shareholder has not taken and will not
take, directly or indirectly, any action designed to or which might reasonably
be expected to cause or result in stabilization or manipulation of the price of
any security of the Company to facilitate the sale or resale of the Securities,
and has not effected any sales of Ordinary Shares which, if effected by the
Company, would be required to be disclosed in response to Item 701 of Regulation
S-K.
(v) Such Selling Shareholder shall immediately notify
you if any event occurs, or of any change in information relating to such
Selling Shareholder or the Company or any new information relating to the
Company or relating to any matter stated in the Prospectus or any supplement
thereto (including any term sheet within the meaning of
21
Rule 434 of the Rules and Regulations), which results in the Prospectus (as
supplemented) including an untrue statement of a material fact or omitting to
state any material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
(vi) In any suit (whether in a court in the United
States or any other jurisdiction) seeking enforcement of this Agreement, or
provisions of this Agreement, (i) no defense (other than a procedural defense)
given or allowed by the laws of any other state or country shall be interposed
in any suit, action or proceeding hereon unless such defense is also given or
allowed by the laws of the State of Minnesota or of the United States, (ii) if
the plaintiffs therein seek a judgment in United States dollars, the Selling
Shareholders will not interpose any defense or objection to or otherwise oppose
judgment, if any, being awarded in such currency, and (iii) if the plaintiffs
therein seek to have any judgment (or any aspect thereof) awarded in foreign
currency linked, for the period from entry of such judgment until actual payment
thereof in full has been made, to the changes in the foreign currency-United
States dollar exchange rate, the Selling Shareholders will not interpose any
defense or objection to or otherwise oppose inclusion of such linkage in any
such judgment. The Selling Shareholders agrees that it will not initiate or seek
to initiate any action, suit or proceeding, in Israel or in any other
jurisdiction other than the United States, seeking damages or for the purpose of
obtaining any injunction or declaratory judgment against the enforcement of or a
declaratory judgment concerning any alleged breach by the Selling Shareholders
of or other claim by you in respect of, this Agreement or any of your rights
under this Agreement, including without limitation any action, suit or
proceeding challenging the enforceability of or seeking to invalidate in any
respect the submission by the Selling Shareholders hereunder to the jurisdiction
of federal or Minnesota State courts or the designation of the laws of the State
of Minnesota as the law applicable to this Agreement.
5. Conditions of Underwriters' Obligations. The obligations of
the several Underwriters hereunder are subject to the accuracy, as of the date
hereof and at each of the First Closing Date and the Second Closing Date (as if
made at such Closing Date), of and compliance with all representations,
warranties and agreements of the Company and the Selling Shareholders contained
herein, to the performance by the Company and the Selling Shareholders of their
obligations hereunder and to the following additional conditions:
(a) The Registration Statement shall have become effective not
later than 5:00 p.m., Central time, on the date of this Agreement, or such later
time and date as you, as Representatives of the several Underwriters, shall
approve and all filings required by Rules 424, 430A and 434 of the Rules and
Regulations shall have been timely made; no stop order suspending the
effectiveness of the Registration Statement or any amendment thereof shall have
been issued; no proceedings for the issuance of such an order shall have been
initiated or threatened; and any request of the Commission for additional
information (to be included in the Registration Statement or the Prospectus or
otherwise) shall have been complied with to your satisfaction.
22
(b) The legality and sufficiency of the sale of the Securities
hereunder and the validity and form of the certificates representing the
Securities, all corporate proceedings and other legal matters incident to the
foregoing, and the form of the Registration Statement and of the Prospectus
(except as to the financial statements contained therein), shall have been
approved at or prior to the Closing Date by Faegre & ▇▇▇▇▇▇ LLP, U.S. counsel
for the Underwriters, and ▇▇▇▇▇ ▇▇▇▇▇ & Co., Israeli counsel for the
Underwriters.
(c) No Underwriter shall have advised the Company that the
Registration Statement or the Prospectus, or any amendment thereof or supplement
thereto (including any term sheet within the meaning of Rule 434 of the Rules
and Regulations), contains an untrue statement of fact which, in your opinion,
is material, or omits to state a fact which, in your opinion, is material and is
required to be stated therein or necessary to make the statements therein not
misleading.
(d) Except as contemplated in the Prospectus, subsequent to
the respective dates as of which information is given in the Registration
Statement and the Prospectus, neither the Company nor any of its subsidiaries
shall have incurred any material liabilities or obligations, direct or
contingent, or entered into any material transactions, or declared or paid any
dividends or made any distribution of any kind with respect to its share
capital; and there shall not have been any change in the share capital (other
than a change in the number of outstanding Ordinary Shares due to the issuance
of shares upon the exercise of outstanding options or warrants), or any material
change in the short-term or long-term debt of the Company, or any issuance of
options, warrants, convertible securities or other rights to purchase the equity
securities of the Company or any of its subsidiaries, or any material adverse
change or any development involving a prospective material adverse change
(whether or not arising in the ordinary course of business), in the general
affairs, condition (financial or otherwise), business, key personnel, property,
prospects, net worth or results of operations of the Company and its
subsidiaries, taken as a whole, that, in your judgment, makes it impractical or
inadvisable to offer or deliver the Securities on the terms and in the manner
contemplated in the Registration Statement or the Prospectus.
(e) On each Closing Date, there shall have been furnished to
you, as Representatives of the several Underwriters, the opinion of McCutchen,
Doyle, ▇▇▇▇▇ & ▇▇▇▇▇▇▇, LLP, U.S. counsel for the Company, dated such Closing
Date and addressed to you, covering the matters set forth in Schedule III
hereto.
In rendering such opinion such counsel may rely (i) as to matters of
law other than California and federal law, upon the opinion or opinions of local
counsel provided that the extent of such reliance is specified in such opinion
and that such counsel shall state that such opinion or opinions of local counsel
are satisfactory to them and that they believe they and you are justified in
relying thereon and (ii) as to matters of fact, to the extent such counsel deems
reasonable upon certificates of officers of the Company and its subsidiaries
provided that the extent of such reliance is specified in such opinion.
23
(f) On each Closing Date, there shall have been furnished to
you, as Representatives of the several Underwriters, the opinion of Naschitz,
▇▇▇▇▇▇▇ & Co, Israeli counsel for the Company, dated such Closing Date and
addressed to you, covering the matters set forth in Schedule IV hereto.
In rendering such opinion such counsel may rely (i) as to matters of
law other than Israeli law, upon the opinion or opinions of local counsel
provided that the extent of such reliance is specified in such opinion and that
such counsel shall state that such opinion or opinions of local counsel are
satisfactory to them and that they believe they and you are Justified in relying
thereon and (ii) as to matters of fact, to the extent such counsel deems
reasonable upon certificates of officers of the Company and its subsidiaries
provided that the extent of such reliance is specified in such opinion.
(g) On each Closing Date, there shall have been furnished to
you, as Representatives of the several Underwriters, such opinion or opinions
from Faegre & ▇▇▇▇▇▇ LLP, U.S. counsel for the several Underwriters, and ▇▇▇▇▇
▇▇▇▇▇ & Co., Israeli counsel for the several Underwriters, dated such Closing
Date and addressed to you, with respect to the validity of the Securities, the
Registration Statement, the Prospectus and other related matters as you
reasonably may request, and such counsel shall have received such papers and
information as they request to enable them to pass upon such matters.
(h) On each Closing Date you, as Representatives of the
several Underwriters, shall have received a letter of ▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇▇▇ (a
member of Ernst & Young International), dated such Closing Date and addressed to
you:
(i) confirming that they are independent public
accountants within the meaning of the Act and are in compliance with the
applicable requirements relating to the qualifications of accountants under Rule
2-01 of Regulation S-X of the Commission,
(ii) stating that, in their opinion, the audited
consolidated financial statements and schedules examined by them and included in
the Registration Statement and the Prospectus comply in form in all material
respects with the applicable accounting requirements of the Act and the Rules
and Regulations,
(iii) stating, as of the date of such letter (or,
with respect to matters involving changes or developments since the respective
dates as of which specified financial information is given in the Prospectus, as
of a date not more than five days prior to the date of such letter), the
conclusions and findings of said firm with respect to the financial information
and other matters covered by its letter delivered to you concurrently with the
execution of this Agreement, and the effect of the letter so to be delivered on
such Closing Date shall be to confirm the conclusions and findings set forth in
such prior letter,
(iv) stating that, at a specific date not more than
five business days prior to the date of such letter, there were any changes in
the share capital or long-term debt of the Company or any decrease in net
current assets or shareholders' equity of the Company in each case compared with
amounts shown on the December 31, 1999 audited consolidated
24
balance sheet included in the Registration Statement and the Prospectus, or for
the period from January 1, 2000 to such specified date there were any decreases,
as compared with the comparable period of the prior fiscal quarter, in total
sales of services and license fees, income before taxes or total or per share
amounts of net income of the Company, except in all instances for changes,
decreases or increases set forth in such letter,
(v) stating that they have carried out certain
specified procedures, not constituting an audit, with respect to certain
amounts, percentages and financial information that are derived from the general
accounting records of the Company and are included in the Registration Statement
and the Prospectus, including the amounts, percentages and financial information
included under the captions "Summary Consolidated Financial and Operating Data,"
"Capitalization," "Selected Consolidated Financial and Operating Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and have compared such amounts, percentages and financial
information with such records of the Company and with information derived from
such records and have found them to be in agreement, excluding any questions of
legal interpretation.
(i) On each Closing Date, there shall have been furnished to
you, as Representatives of the Underwriters, a certificate, dated such Closing
Date and addressed to you, signed by the chief executive officer and by the
chief financial officer of the Company, to the effect that:
(i) The representations and warranties of the Company
in this Agreement are true and correct, in all material respects, as if made at
and as of such Closing Date, and the Company has complied with all the
agreements and satisfied all the conditions on its part to be performed or
satisfied at or prior to such Closing Date;
(ii) No stop order or other order suspending the
effectiveness of the Registration Statement or any amendment thereof or the
qualification of the Securities for offering or sale has been issued, and no
proceeding for that purpose has been instituted or, to the best of their
knowledge, is contemplated by the Commission or any state or regulatory body;
and
(iii) The signers of said certificate have carefully
examined the Registration Statement and the Prospectus, and any amendments
thereof or supplements thereto (including any term sheet within the meaning of
Rule 434 of the Rules and Regulations), and (A) such documents contain all
statements and information required to be included therein, the Registration
Statement, or any amendment thereof, does not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, and the Prospectus,
as amended or supplemented, does not include any untrue statement of material
fact or omit to state a material fact necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading, (B)
since the effective date of the Registration Statement, there has occurred no
event required to be set forth in an amended or
25
supplemented prospectus which has not been so set forth, (C) subsequent to the
respective dates as of which information is given in the Registration Statement
and the Prospectus, neither the Company nor any of its subsidiaries has incurred
any material liabilities or obligations, direct or contingent, or entered into
any material transactions, not in the ordinary course of business, or declared
or paid any dividends or made any distribution of any kind with respect to its
share capital, and except as disclosed in the Prospectus, there has not been any
change in the share capital (other than a change in the number of outstanding
shares of Ordinary Shares due to the issuance of shares upon the exercise of
outstanding options or warrants), or any material change in the short-term or
long-term debt, or any issuance of options, warrants, convertible securities or
other rights to purchase the equity securities, of the Company, or any of its
subsidiaries, or any Material Adverse Effect or any development involving a
prospective Material Adverse Effect, and (D) except as stated in the
Registration Statement and the Prospectus, there is not pending, or, to the
knowledge of the Company, threatened or contemplated, any action, suit or
proceeding to which the Company or any of its subsidiaries is a party before or
by any court or governmental agency, authority or body, or any arbitrator, which
might result in any Material Adverse Effect.
(j) On each Closing Date, there shall have been furnished to
you, as Representatives of the several Underwriters, the opinion of
______________, counsel for the Selling Shareholders, dated such Closing Date
and addressed to you, to the effect that:
(i) Each of the Selling Shareholders is the sole
record and beneficial owner of the Securities to be sold by such Selling
Shareholder and delivery of the certificates for the Securities to be sold by
each Selling Shareholder pursuant to this Agreement, upon payment therefor by
the Underwriters, will pass marketable title to such Securities to the
Underwriters and the Underwriters will acquire all the rights of such Selling
Shareholder in the Securities (assuming the Underwriters have no knowledge of an
adverse claim), free and clear of any security interests, claims, liens or other
encumbrances.
(ii) Each of the Selling Shareholders has the power
and authority to enter into the Custody Agreement, the Power of Attorney and
this Agreement and to perform and discharge such Selling Shareholder's
obligations thereunder and hereunder; and this Agreement, the Custody Agreements
and the Powers of Attorney have been duly and validly authorized, executed and
delivered by (or by the Attorney-in-Fact on behalf of) the Selling Shareholders
and are valid and binding agreements of the Selling Shareholders, enforceable in
accordance with their respective terms (except as rights to indemnity hereunder
or thereunder may be limited by federal or state securities laws and except as
such enforceability may be limited by bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally and subject to general
principles of equity).
(iii) The execution and delivery of this Agreement,
the Custody Agreement and the Power of Attorney and the performance of the terms
hereof and thereof and the consummation of the transactions herein and therein
contemplated will not result in a breach or violation of any of the terms and
provisions of, or constitute a default under, any statute, rule or regulation,
or any agreement or instrument known to such counsel to which
26
such Selling Shareholder is a party or by which such Selling Shareholder is
bound or to which any of its property is subject, any such Selling Shareholder's
charter or by-laws, or any order or decree known to such counsel of any court or
government agency or body having jurisdiction over such Selling Shareholder or
any of its respective properties; and no consent, approval, authorization or
order of, or filing with, any court or governmental agency or body is required
for the execution, delivery and performance of this Agreement, the Custody
Agreement and the Power of Attorney or for the consummation of the transactions
contemplated hereby and thereby, including the sale of the Securities being sold
by such Selling Shareholder, except such as may be required under the Act or
state securities laws or blue sky laws.
(iv) Under the laws of the jurisdiction of domicile
of the Selling Shareholders, the (i) submission by the Selling Shareholders to
the jurisdiction of any federal or state court sitting in the City of
Minneapolis, Minnesota, (ii) waiver, to the fullest extent it may effectively do
so, of any objection which the Selling Shareholders may now or hereafter have to
the laying of venue of any such proceeding and (iii) submission by the Selling
Shareholders to the exclusive jurisdiction of such courts in any such suit,
action or proceeding, are binding upon the Selling Shareholders and, if properly
brought to the attention of the court or administrative body in accordance with
the laws of the jurisdiction of domicile of the Selling Shareholders, would be
enforceable in any judicial or administrative proceeding in such jurisdiction.
(v) Such other matters as you may reasonably request.
In rendering such opinion such counsel may rely (i) as to
matters of law other than the law of the jurisdiction(s) in which such counsel
is licensed to practice, and federal law, upon the opinion or opinions of local
counsel provided that the extent of such reliance is specified in such opinion
and that such counsel shall state that such opinion or opinions of local counsel
are satisfactory to them and that they believe they and you are justified in
relying thereon and (ii) as to matters of fact, to the extent such counsel deems
reasonable upon certificates of officers of the Company and its subsidiaries
provided that the extent of such reliance is specified in such opinion.
(k) On each Closing Date, there shall have been furnished to
you, as Representatives of the several Underwriters, a certificate or
certificates, dated such Closing Date and addressed to you, signed by each of
the Selling Shareholders or such Selling Shareholder's Attorney-in-Fact to the
effect that the representations and warranties of such Selling Shareholder
contained in this Agreement are true and correct as if made at and as of such
Closing Date, and that such Selling Shareholder has complied with all the
agreements and satisfied all the conditions on such Selling Shareholder's part
to be performed or satisfied at or prior to such Closing Date.
(l) Subsequent to the execution of this Agreement or, if
earlier, the dates as of which information is given in the Registration
Statement (exclusive of any amendment thereto) and the Prospectus (exclusive of
any supplement thereto), there shall not have been
27
(i) any change or decrease specified in the letter or letters referred to in
subparagraph (h) of this Section 5 or (ii) any change, or any development
involving a prospective change (including without limitation a change in
management or control of the Company), in or affecting the business or
properties of the Company and its subsidiaries the effect of which, in any case
referred to in clause (i) or (ii) above, is, in the judgment of the
Representatives, so material and adverse as to make it impractical or
inadvisable to proceed with the offering or delivery of the Securities as
contemplated in the Registration Statement (exclusive of any amendment thereof)
and the Prospectus (exclusive of any supplement thereto);
(m) At the execution of this Agreement, the Company shall have
furnished to the Representatives from each Selling Shareholder an executed copy
of the Lock-Up Agreement addressed to the Representatives;
(n) The Company has duly given the Nasdaq Market Notification
Form For Listing of Additional Shares required in connection with the offering
to the Nasdaq National Market.
(o) The Company shall have furnished to you and counsel for
the Underwriters such additional documents, certificates and evidence as you or
they may have reasonably requested.
All such opinions, certificates, letters and other documents
will be in compliance with the provisions hereof only if they are satisfactory
in form and substance to you and counsel for the Underwriters. The Company will
furnish you with such conformed copies of such opinions, certificates, letters
and other documents as you shall reasonably request.
6. Indemnification and Contribution.
(a) The Company and each Selling Shareholder (excluding
institutional Selling Shareholders (marked with an asterisk on Schedule I) which
do not have a representative on the Company's Board of Directors) agrees to
indemnify and hold harmless each Underwriter against any losses, claims, damages
or liabilities, joint or several, to which such Underwriter may become subject,
under the Act or otherwise (including in settlement of any litigation if such
settlement is effected with the written consent of the Company and/or such
Selling Shareholders, as the case may be), insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement, including the information deemed to be
a part of the Registration Statement at the time of effectiveness pursuant to
Rules 430A and 434(d) of the Rules and Regulations, if applicable, any
Preliminary Prospectus, the Prospectus, or any amendment or supplement thereto
(including any term sheet within the meaning of Rule 434 of the Rules and
Regulations), arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, or, in the case of the Company, arise out
of or are based upon any other documents, communications or
28
statements made by the Company or any third party with the consent of the
Company that may be deemed to constitute a prospectus or an offer to sell
securities, and will reimburse each Underwriter for any legal or other expenses
reasonably incurred by it in connection with investigating or defending against
such loss, claim, damage, liability or action; provided, however, that neither
the Company nor any Selling Shareholder shall be liable in any such case to the
extent that any such loss, claim, damage, liability or action arises out of or
is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in the Registration Statement, any Preliminary Prospectus,
the Prospectus, or any such amendment or supplement, in reliance upon and in
conformity with written information furnished to the Company by you, or by any
Underwriter through you, specifically for use in the preparation thereof; and
further provided, however, that in no event shall any Selling Shareholder be
liable under the provisions of this Section 6 for any amount in excess of the
aggregate amount of proceeds such Selling Shareholder received from the sale of
the Securities pursuant to this Agreement.
Each institutional Selling Shareholder (marked with an
asterisk on Schedule I) which does not have a representative on the Company's
Board of Directors agrees to indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to which
such Underwriter may become subject, under the Act or otherwise (including in
settlement of any litigation if such settlement is effected with the written
consent of such Selling Shareholders), insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in the
Registration Statement, including the information deemed to be a part of the
Registration Statement at the time of effectiveness pursuant to Rules 403A and
434(d) of the Rules and Regulations, if applicable, any Preliminary Prospectus,
the Prospectus, or any amendment or supplement thereto (including any term sheet
within the meaning of Rule 434 of the Rules and Regulations), arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in the Registration Statement, any Preliminary Prospectus, the Prospectus, or
any such amendment or supplement, in reliance upon and in conformity with
written information furnished to the Company or any Underwriter by such Selling
Shareholder, and will reimburse each Underwriter for any legal or other expenses
reasonably incurred by it in connection with investigating or defending against
such loss, claim, damage, liability or action; provided, however, that in no
event shall any such Selling Shareholders be liable under the provisions of this
Section 6 for any amount in excess of the aggregate amount of proceeds such
Selling Shareholder received from the sale of the Securities pursuant to this
Agreement.
(b) In addition to their other obligations under Section 6(a),
the Company and each Selling Shareholder agrees that, as an interim measure
during the pendency of any claim, action, investigation, inquiry or other
proceeding arising out of or based upon any statement or omission, or any
alleged statement or omission, described in Section 6(a), they will reimburse
each Underwriter on a monthly basis for all reasonable legal fees or other
29
expenses incurred in connection with investigating or defending any such claim,
action, investigation, inquiry or other proceeding, notwithstanding the absence
of a judicial determination as to the propriety and enforceability of the
Company's and/or the Selling Shareholder's obligation to reimburse the
Underwriters for such expenses and the possibility that such payments might
later be held to have been improper by a court of competent jurisdiction. To the
extent that any such interim reimbursement payment is so held to have been
improper, the Underwriter that received such payment shall promptly return it to
the party or parties that made such payment, together with interest, compounded
daily, determined on the basis of the prime rate (or other commercial lending
rate for borrowers of the highest credit standing) announced from time to time
by Money Rates section of the Wall Street Journal (the "Prime Rate"). Any such
interim reimbursement payments which are not made to an Underwriter within 30
days of a request for reimbursement shall bear interest at the Prime Rate from
the date of such request. This indemnity agreement shall be in addition to any
liabilities which the Company or the Selling Shareholders may otherwise have.
(c) Each Underwriter will indemnify and hold harmless the
Company and each Selling Shareholder against any losses, claims, damages or
liabilities to which the Company and the Selling Shareholders may become
subject, under the Act or otherwise (including in settlement of any litigation,
if such settlement is effected with the written consent of such Underwriter),
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon an untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement, any
Preliminary Prospectus, the Prospectus, or any amendment or supplement thereto
(including any term sheet within the meaning of Rule 434 of the Rules and
Regulations), or arise out of or are based upon the omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, in each case to the extent, but only
to the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in the Registration Statement, any
Preliminary Prospectus, the Prospectus, or any such amendment or supplement, in
reliance upon and in conformity with written information furnished to the
Company by you, or by such Underwriter through you, specifically for use in the
preparation thereof, and will reimburse the Company and the Selling Shareholders
for any legal or other expenses reasonably incurred by the Company or any such
Selling Shareholder in connection with investigating or defending against any
such loss, claim, damage, liability or action.
(d) Promptly after receipt by an indemnified party under
subsection (a), (b) or (c) above of notice of the commencement of any action,
such indemnified party shall, if a claim in respect thereof is to be made
against the indemnifying party under such subsection, notify the indemnifying
party in writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve the indemnifying party from any liability
that it may have to any indemnified party. In case any such action shall be
brought against any indemnified party, and it shall notify the indemnifying
party of the commencement thereof, the indemnifying party shall be entitled to
participate in, and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party, and after notice from the
30
indemnifying party to such indemnified party of the indemnifying party's
election so to assume the defense thereof, the indemnifying party shall not be
liable to such indemnified party under such subsection for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation; provided, however,
that if, in the sole judgment of the Representatives, it is advisable for the
Underwriters to be represented as a group by separate counsel, the
Representatives shall have the right to employ a single counsel to represent the
Representatives and all Underwriters who may be subject to liability arising
from any claim in respect of which indemnity may be sought by the Underwriters
under subsection (a) or (b) of this Section 6, in which event the reasonable
fees and expenses of such separate counsel shall be borne by the indemnifying
party or parties and reimbursed to the Underwriters as incurred (in accordance
with the provisions of the second paragraph in subsection (a) above). An
indemnifying party shall not be obligated under any settlement agreement
relating to any action under this Section 6 to which it has not agreed in
writing.
(e) If the indemnification provided for in this Section 6 is
unavailable or insufficient to hold harmless an indemnified party under
subsection (a), (b) or (c) above, then each indemnifying party shall contribute
to the amount paid or payable by such indemnified party as a result of the
losses, claims, damages or liabilities referred to in subsection (a), (b) or (c)
above, (i) in such proportion as is appropriate to reflect the relative benefits
received by the Company and the Selling Shareholders on the one hand and the
Underwriters on the other from the offering of the Securities or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company and
the Selling Shareholders on the one hand and the Underwriters on the other in
connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by the Company and the Selling
Shareholders on the one hand and the Underwriters on the other shall be deemed
to be in the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company and the Selling Shareholders bear to
the total underwriting discounts and commissions received by the Underwriters,
in each case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company, the Selling Shareholders or the Underwriters and the parties' relevant
intent, knowledge, access to information and opportunity to correct or prevent
such untrue statement or omission. The Company, the Selling Shareholders and the
Underwriters agree that it would not be just and equitable if contributions
pursuant to this subsection
31
(e) were to be determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to in the
first sentence of this subsection (e). The amount paid by an indemnified party
as a result of the losses, claims, damages or liabilities referred to in the
first sentence of this subsection (e) shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending against any action or claim which is the subject of
this subsection (e). Notwithstanding the provisions of this subsection (e), no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Securities underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages that such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations in
this subsection (e) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(f) The obligations of the Company and the Selling
Shareholders under this Section 6 shall be in addition to any liability which
the Company and the Selling Shareholders may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls any
Underwriter within the meaning of the Act; and the obligations of the
Underwriters under this Section 6 shall be in addition to any liability that the
respective Underwriters may otherwise have and shall extend, upon the same terms
and conditions, to each director of the Company (including any person who, with
his consent, is named in the Registration Statement as about to become a
director of the Company), to each officer of the Company who has signed the
Registration Statement and to each person, if any, who controls the Company or
any Selling Shareholder within the meaning of the Act.
7. Representations and Agreements to Survive Delivery. All
representations, warranties, and agreements of the Company herein or in
certificates delivered pursuant hereto, and the agreements of the several
Underwriters, the Company and the Selling Shareholders contained in Section 6
hereof, shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any Underwriter or any controlling person
thereof, or the Company or any of its officers, directors, or controlling
persons, or any Selling Shareholders or any controlling person thereof, and
shall survive delivery of, and payment for, the Securities to and by the
Underwriters hereunder.
8. Substitution of Underwriters.
(a) If any Underwriter or Underwriters shall fail to take up
and pay for the amount of Firm Shares agreed by such Underwriter or Underwriters
to be purchased hereunder, upon tender of such Firm Shares in accordance with
the terms hereof, and the amount of Firm Shares not purchased does not aggregate
more than 10% of the total amount of Firm Shares set forth in Schedule II
hereto, the remaining Underwriters shall be obligated to take up and pay for (in
proportion to their respective underwriting obligations hereunder as set forth
in Schedule II hereto except as may otherwise be determined by you) the Firm
Shares that the withdrawing or defaulting Underwriters agreed but failed to
purchase.
(b) If any Underwriter or Underwriters shall fall to take up
and pay for the amount of Firm Shares agreed by such Underwriter or Underwriters
to be purchased hereunder, upon tender of such Firm Shares in accordance with
the terms hereof, and the amount of Firm Shares not purchased aggregates more
than 10% of the total amount of Firm
32
Shares set forth in Schedule II hereto, and arrangements satisfactory to you for
the purchase of such Firm Shares by other persons are not made within 36 hours
thereafter, this Agreement shall terminate. In the event of any such termination
neither the Company nor any Selling Shareholder shall be under any liability to
any Underwriter (except to the extent provided in Section 4(a)(viii), Section
4(b)(ii) and Section 6 hereof) nor shall any Underwriter (other than an
Underwriter who shall have failed, otherwise than for some reason permitted
under this Agreement, to purchase the amount of Firm Shares agreed by such
Underwriter to be purchased hereunder) be under any liability to the Company or
the Selling Shareholders (except to the extent provided in Section 6 hereof).
If Firm Shares to which a default relates are to be purchased
by the non-defaulting Underwriters or by any other party or parties, the
Representatives or the Company shall have the right to postpone the First
Closing Date for not more than seven business days in order that the necessary
changes in the Registration Statement, Prospectus and any other documents, as
well as any other arrangements, may be effected. As used herein, the term
"Underwriter" includes any person substituted for an Underwriter under this
Section 8.
9. Effective Date of this Agreement and Termination.
(a) This Agreement shall become effective at 10:00 a.m.,
Central time, on the first full business day following the effective date of the
Registration Statement, or at such earlier time after the effective time of the
Registration Statement as you in your discretion shall first release the
Securities for sale to the public; provided, that if the Registration Statement
is effective at the time this Agreement is executed, this Agreement shall become
effective at such time as you in your discretion shall first release the
Securities for sale to the public. For the purpose of this Section, the
Securities shall be deemed to have been released for sale to the public upon
release by you of the publication of a newspaper advertisement relating thereto
or upon release by you of telexes offering the Securities for sale to securities
dealers, whichever shall first occur. By giving notice as hereinafter specified
before the time this Agreement becomes effective, you, as Representatives of the
several Underwriters, or the Company may prevent this Agreement from becoming
effective without liability of any party to any other party, except that the
provisions of Section 4(a)(viii), Section 4(b)(ii) and Section 6 hereof shall at
all times be effective.
(b) You, as Representatives of the several Underwriters, shall
have the right to terminate this Agreement by giving notice as hereinafter
specified at any time at or prior to the First Closing Date, and the option
referred to in Section 3(b), if exercised, may be cancelled at any time prior to
the Second Closing Date, if (i) the Company shall have failed, refused or been
unable, at or prior to such Closing Date, to perform any agreement on its part
to be performed hereunder, (ii) any other condition of the Underwriters'
obligations hereunder is not fulfilled, (iii) trading on the New York Stock
Exchange or the American Stock Exchange shall have been wholly suspended, (iv)
minimum or maximum prices for trading shall have been fixed, or maximum ranges
for prices for securities shall have been required, on the New York Stock
Exchange or the American Stock Exchange, by such
33
Exchange or by order of the Commission or any other governmental authority
having jurisdiction, (v) a banking moratorium shall have been declared by
Federal or New York authorities, or (vi) there has occurred any material adverse
change in the financial markets in the United States or an outbreak of major
hostilities (or an escalation thereof) in which the United States is involved, a
declaration of war by Congress, any other substantial national or international
calamity or any other event or occurrence of a similar character shall have
occurred since the execution of this Agreement that, in your judgment, makes it
impractical or inadvisable to proceed with the completion of the sale of and
payment for the Securities. Any such termination shall be without liability of
any party to any other party except that the provisions of Section 4(a)(viii),
Section 4(b)(ii) and Section 6 hereof shall at all times be effective.
(c) If you elect to prevent this Agreement from becoming
effective or to terminate this Agreement as provided in this Section, the
Company and the Attorney-in-Fact, on behalf of the Selling Shareholders, shall
be notified promptly by you by telephone or telegram, confirmed by letter. If
the Company elects to prevent this Agreement from becoming effective, you and
the Attorney-in-Fact, on behalf of the Selling Shareholders, shall be notified
by the Company by telephone or telegram, confirmed by letter.
10. Default by One or More of the Selling Shareholders or the
Company. If one or more of the Selling Shareholders shall fail at the First
Closing Date to sell and deliver the number of Securities which such Selling
Shareholder or Selling Shareholders are obligated to sell hereunder, and the
remaining Selling Shareholders do not exercise the right hereby granted to
increase, pro rata or otherwise, the number of Securities to be sold by them
hereunder to the total number of Securities to be sold by all Selling
Shareholders as set forth in Schedule I, then the Underwriters may at your
option, by notice from you to the Company and the non-defaulting Selling
Shareholders, either (a) terminate this Agreement without any liability on the
part of any non-defaulting party or (b) elect to purchase the Securities which
the Company and the non-defaulting Selling Shareholders have agreed to sell
hereunder.
In the event of a default by any Selling Shareholder as referred to in
this Section 10, either you or the Company or, by joint action only, the
non-defaulting Selling Shareholders shall have the right to postpone the First
Closing Date for a period not exceeding seven days in order to effect any
required changes in the Registration Statement or Prospectus or in any other
documents or arrangements.
If the Company shall fail at the First Closing Date to sell and deliver
the number of Securities which it is obligated to sell hereunder, then this
Agreement shall terminate without any liability on the part of any
non-defaulting party.
No action taken pursuant to this Section shall relieve the Company or
any Selling Shareholders so defaulting from liability, if any, in respect of
such default.
11. Information Furnished by Underwriters. The statements set forth
in the last paragraph of the cover page and under the caption "Underwriting," in
any Preliminary
34
Prospectus and in the Prospectus constitute the written information furnished by
or on behalf of the Underwriters referred to in Section 2 and Section 6 hereof.
12. Notices. Except as otherwise provided herein, all
communications hereunder shall be in writing or by telegraph and, if to the
Underwriters, shall be mailed, telegraphed or delivered to the Representatives
c/o U.S. Bancorp ▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇, except that notices given to an Underwriter pursuant to Section 6 hereof
shall be sent to such Underwriter at the address stated in the Underwriters'
Questionnaire furnished by such Underwriter in connection with this offering; if
to the Company, shall be mailed, telegraphed or delivered to it at ▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇; if to any of
the Selling Shareholders, at the address of the Attorney-in-Fact as set forth in
the Powers of Attorney, or in each case to such other address as the person to
be notified may have requested in writing. All notices given by telegram shall
be promptly confirmed by letter. Any party to this Agreement may chancre such
address for notices by sending to the parties to this Agreement written notice
of a new address for such purpose.
13. Persons Entitled to Benefit of Agreement. This Agreement shall
inure to the benefit of and be binding upon the parties hereto and their
respective successors and assigns and the controlling persons, officers and
directors referred to in Section 6. Nothing in this Agreement is intended or
shall be construed to give to any other person, firm or corporation any legal or
equitable remedy or claim under or in respect of this Agreement or any provision
herein contained. The term "successors and assigns" as herein used shall not
include any purchaser, as such purchaser, of any of the Securities from any of
the several Underwriters.
14. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Minnesota.
15. Agent for Service of Process; Jurisdiction. Each of the
parties hereto irrevocably (i) agrees that any legal suit, action or proceeding
arising out of or based upon this Agreement or the transactions contemplated
hereby may be instituted in any Federal or State Court in the City of
Minneapolis, Minnesota, (ii) waives, to the fullest extent it may effectively do
so, any objection which it may now or hereafter have to the laying of venue of
any such proceeding and (iii) submits to the exclusive jurisdiction of such
courts in any such suit, action or proceeding. The Company hereby designates and
appoints Commtouch Software Inc. as its authorized agent (the "Authorized
Agent") upon whom process may be served in any such action arising out of or
based on this Agreement or the transactions contemplated hereby which may be
instituted in any Minnesota Court by any Underwriter or by any person who
controls any Underwriter, expressly consents to the jurisdiction of any such
court in respect of any such action, and waives any other requirements of or
objections to personal jurisdiction with respect thereto. Such appointment shall
be irrevocable unless and until a successor authorized agent acceptable to the
Underwriters in their sole and absolute discretion shall have been appointed by
the Company. The Company represents and warrants that the Authorized Agent has
agreed to act as such agent for service at process and agrees to take any and
all action, including the filing of any and all documents and
35
instruments, that may be necessary to continue such appointment in full force
and effect as aforesaid. Service of process upon the Authorized Agent and
written notice of such service to the Company shall be deemed, in every respect,
effective service of process upon the Company.
16. Judgment Currency. In respect of any judgment or order given
or made for any amount due hereunder that is expressed and paid in a currency
(the "judgment currency") other than United States dollars, the Company and
Selling Shareholders, as the case may be, will indemnify each Underwriter
against any loss incurred by such Underwriter as a result of any variation as
between (i) the rate of exchange at which the United States dollar amount is
converted into the judgment currency for the purpose of such judgment or order
and (ii) the rate of exchange at which such Underwriter on the date such
judgment currency is actually received by the Underwriter is able to purchase
United States dollars with the amount of the judgment currency so received by
such Underwriter. The foregoing indemnity shall constitute a separate and
independent obligation of the Company and Selling Shareholders and shall
continue in full force and effect notwithstanding any such judgment or order as
aforesaid. The term "rate of exchange" shall include any premiums and costs of
exchange payable in connection with the purchase of or conversion into United
States dollars.
[Signature Page Follows]
36
Please sign and return to the Company the enclosed duplicates of this
letter whereupon this letter will become a binding agreement between the
Company, the Selling Shareholders and the several Underwriters in accordance
with its terms.
Very truly yours,
COMMTOUCH SOFTWARE LTD.
By ______________________________
Its: ____________________________
SELLING SHAREHOLDERS
By ______________________________
Attorney-in-Fact
Confirmed as of the date first above mentioned, on behalf of themselves and the
other several Underwriters named in Schedule II hereto.
U.S. BANCORP PIPER ▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇ PARTNERS LLC
INCORPORATED
WARBURG DILLON READ, LLC
a subsidiary of UBS AG
▇▇▇▇▇▇▇ ▇▇▇▇▇ & COMPANY
BY U.S. BANCORP ▇▇▇▇▇ ▇▇▇▇▇▇▇
By ______________________________
Managing Director
37
SCHEDULE I
Selling Shareholders
-------------------------------------------------------------------------------
Number of
Firm Shares
Name to be Sold
-------------------------------------------------------------------------------
Israel Growth Fund L.P. 400,000
-------------------------------------------------------------------------------
k.t. Concord Venture Fund (Cayman), L.P. 331,810
-------------------------------------------------------------------------------
k.t. Concord Venture Fund (Israel), L.P. 66,340
-------------------------------------------------------------------------------
k.t. Concord Venture Advisors (Cayman), L.P. 2,719
-------------------------------------------------------------------------------
k.t. Concord Venture Advisors (Israel), L.P. 531
-------------------------------------------------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇ 100,000
-------------------------------------------------------------------------------
▇▇▇▇ ▇▇▇ 100,000
-------------------------------------------------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ 50,000
-------------------------------------------------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ 20,000
-------------------------------------------------------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ 165,000
-------------------------------------------------------------------------------
Nomura* 31,000
-------------------------------------------------------------------------------
Oceanic Bank and Trust Ltd.* 31,800
-------------------------------------------------------------------------------
Rumson Capital, L.L.C.* 31,800
-------------------------------------------------------------------------------
SCHEDULE II
List of Underwriters
Underwriter Number of Firm Shares1
----------- ----------------------
U.S. Bancorp ▇▇▇▇▇ ▇▇▇▇▇▇▇ Inc..........................
▇▇▇▇▇▇ ▇▇▇▇▇▇ Partners LLC..............................
Warburg Dillon Read, LLC................................
▇▇▇▇▇▇▇ ▇▇▇▇▇ & Company.................................
=======================
Total Underwriters (_____) 3,000,000
=======================
------------------
1 The Underwriters may purchase up to an additional 450,000 Option Shares, to
the extent the option described in Section 3(b) of the Agreement is exercised,
in the proportions and in the manner described in the Agreement.
SCHEDULE III
1. The U.S. Subsidiary is a corporation duly organized,
validly existing and in good standing under the laws of the State of California.
Each of the Company and the U.S. Subsidiary is duly qualified to transact
business and is in good standing as a foreign corporation in each state of the
United States where the character of its activities requires such qualification,
except where the failure to be so qualified would not have a Material Adverse
Effect. The U.S. Subsidiary has full corporate power and authority to own or
lease its properties and conduct its business as currently being carried on and
as described in the Registration Statement and the Prospectus.
2. All of the issued and outstanding shares of capital stock
of the U.S. Subsidiary are duly authorized, validly issued, fully paid and
nonassessable, and are owned of record and beneficially by the Company, free and
clear of any security interests, claims, liens, proxies, equities or other
encumbrances. There are no outstanding securities of the U.S. Subsidiary
convertible into or evidencing the right to purchase or subscribe for any shares
of capital stock of the U.S. Subsidiary, there are no outstanding or authorized
options, warrants, rights or any other agreements of any character obligating
the U.S. Subsidiary to issue any shares of its capital stock or any securities
convertible into or evidencing the right to purchase or subscribe for any shares
of such stock. Except as otherwise stated in the Registration Statement and the
Prospectus, there are no preemptive rights or other rights to subscribe for or
to purchase, or any restriction upon the voting or transfer of, any Ordinary
Shares pursuant to any agreement or other instrument known to us to which the
Company is a party or by which the Company is bound.
3. The Registration Statement has become effective under the
Securities Act; any required filing of the Prospectus, and any supplements
thereto, pursuant to Rule 424(b) has been made in the manner and within the time
period required by Rule 424(b), or if the Rule 434 Term Sheet was used, the
required filing has been made in the manner and within the time period required
by Rule 434; and, to the best of our knowledge, no stop order suspending the
effectiveness of the Registration Statement or suspending or preventing the use
of the Prospectus is in effect and no proceedings for that purpose have been
instituted or are pending or, to our knowledge, are contemplated by the
Commission.
4. The Registration Statement and the Prospectus (except as to
the financial statements and schedules and other financial data contained
therein, as to which we do not express an opinion) comply as to form in all
material respects with the requirements of the Securities Act and with the Rules
and Regulations thereunder, and the Registration Statement has been duly
executed by the Company.
5. Neither the Company nor either of the Subsidiaries is an
"investment company" or an entity "controlled" by an "investment company" as
such terms are defined in the Investment Company Act.
III-1
6. Neither the issue and sale by the Company of the Securities
as contemplated by the Purchase Agreement nor the execution and delivery of the
Purchase Agreement by the Company nor the consummation of any other transactions
contemplated by the Purchase Agreement will (with or without the passage of time
and/or notice) conflict with, or result in a breach or violation of or
constitute a default under (A) the Articles of Incorporation or Bylaws of the
U.S. Subsidiary, (B) any agreement or instrument filed as an exhibit to the
Registration Statement, or known to us and made available to us in English, to
which the Company or either of the Subsidiaries is a party or by which it is
bound or to which any of its properties is subject, (C) any applicable United
States federal or state law or regulation, or (D) to our knowledge, any order,
writ injunction or decree, of any jurisdiction, court or governmental
instrumentality applicable to the Company or either of the Subsidiaries.
7. The information required to be set forth in the
Registration Statement in answer to Item 10 (insofar as if relates to such
counsel) of Form F-1 is to the best of our knowledge accurately and adequately
set forth therein in all material respects or no response is required with
respect to such Item, and the description of the Company's option plans and the
options granted and which may be granted thereunder, and the description of
options granted other than under the Company's option plans, set forth in the
Prospectus accurately and fairly presents the information required to be shown
with respect to said plans and options to the extent required by the Securities
Act and the Rules and Regulations.
8. To the best of our knowledge, each of the Company and the
U.S. Subsidiary holds, and is operating in compliance in all material respects
with, all franchises, grants, authorizations, licenses, permits, easements,
consents, certificates and orders of any governmental or self-regulatory body
required for the conduct of its business and all such franchises, grants,
authorizations, licenses, permits, easements, consents, certifications and
orders are valid and in full force and effect.
9. To our knowledge, there are no franchises, contracts,
leases or other documents which are of a character required to be described or
referred to in the Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement, which are not described, referred to and
filed as required.
10. To our knowledge, there is no pending or threatened
action, suit, investigation or proceeding before any court or governmental
agency, authority or body or any arbitrator involving the Company or either of
the Subsidiaries or any of their property or assets of a character required to
be disclosed in the Registration Statement which is not adequately disclosed in
the Prospectus, and the statements in the Prospectus under the heading "Shares
Eligible for Future Sale" are correct in all material respects.
11. No consent, approval, waiver, license, authorization,
order or other action by or filing with any United States federal or state court
or governmental agency, body or authority is required in connection with the
execution and delivery by the Company of the Purchase Agreement or for the issue
and sale of the Securities by the Company or the
III-2
consummation of any other transactions contemplated by the Purchase Agreement,
except for filings and other actions required pursuant to the Securities Act
and/or the Exchange Act, as amended, and the Rules and Regulations, required by
the NASD and such as may be required under state securities or blue sky laws in
connection with the purchase and distribution of the Securities by the
Underwriters.
12. To our knowledge, the Company meets the test to qualify as
a "foreign private issuer" set forth in Rule 405, and, as no other form is
authorized or prescribed for use by the Company, the Company meets all the
conditions necessary for the use of Form F-1.
13. The statements made in the Prospectus under the caption
"U.S. Tax Considerations Regarding Ordinary Shares Acquired by US. Taxpayers,"
to the extent that they constitute matters of law or legal conclusions, have
been reviewed by us and fairly reflect the status of such provisions purported
to be summarized and are correct in all material aspects.
14. To the best of our knowledge, all holders of securities of
the Company having rights to the registration of Ordinary Shares, or other
securities, because of the filing of the Registration Statement by the Company
have waived such rights or such rights have been satisfied, or have expired by
reason of lapse of time following notification of the Company's intent to file
the Registration Statement; to the best of our knowledge, except as described in
the Registration Statement there are no contracts, agreements or understandings
between the Company and any person granting such person the right to require the
Company to file a registration statement under the Securities Act with respect
to any securities of the Company owned or to be owned by such person or to
require the Company to include such securities in the securities registered
pursuant to the Registration Statement or any future registration statement of
the Company; to our knowledge, neither the filing of the Registration Statement
nor the offering or sale of the Ordinary Shares as contemplated by the Purchase
Agreement gives rise to any rights for or relating to the registration of any
Ordinary Shares or other securities of the Company, except as otherwise
described in the Prospectus.
15. To the best of our knowledge, neither the Company nor the
U.S. Subsidiary (A) is in violation of its Memorandum or Articles of
Association, or other governing documents, (B) neither the Company nor either of
the Subsidiaries is in default in any material respect, and no event has
occurred which, with notice or lapse of time or both, would constitute such a
default, in the due performance or observance of any term, covenant or condition
contained in any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which it is a party or by which it is bound or to
which any of its properties or assets is subject or (C) is in violation in any
material respect of any law, ordinance, governmental rule, regulation or court
decree to which it or its property or assets may be subject or has failed to
obtain any material license, permit, certificate, franchise or other
governmental authorization or permit necessary to the ownership of its property
or to the conduct of its business, except in the case of clauses (B) and (C) for
such violations or failures that, individually or in the aggregate, would not
have a Material Adverse Effect.
III-3
16. The Purchase Agreement has been duly authorized, executed,
and delivered by the Company and constitutes a valid, legal and binding
obligation of the Company enforceable in accordance with its terms (except as
rights to indemnity hereunder may be limited by federal or state securities laws
and except as such enforceability may be limited by bankruptcy, insolvency,
reorganization or similar laws affecting the rights of creditors generally and
subject to general principles of equity) and all corporate authorizations and
consents necessary for the execution and delivery of the Purchase Agreement and
the consummation of the transactions contemplated thereby have been given.
17. To the best of our knowledge, neither the Company nor
either of the Subsidiaries owns any real property except as otherwise described
in the Prospectus; and all real property and buildings held under lease by the
Company and the Subsidiaries are held by them under valid and enforceable
leases, with such exceptions as are not material and do not interfere with the
use made and proposed to be made of such property and buildings by the Company
and the Subsidiaries.
18. To the best of our knowledge, there are no material
contracts, indentures, mortgages, loan agreements, notes, leases or other
agreements or instruments or other documents relating to the Company and the
Subsidiaries which are not described or referred to in or filed with the
Registration Statement and the Prospectuses; the statements in the Registration
Statement and the Prospectus, insofar as such statements refer to material
contracts, indentures, mortgages, loan agreements, notes, leases, employment
agreements and other agreements, arrangements or instruments to which the
Company or either of the Subsidiaries is a party, are accurate and adequate in
all material respects.
19. To the best of our knowledge, there is no litigation,
action, suit or governmental proceeding or investigation pending, threatened or
contemplated to which the Company or either of the Subsidiaries is a party or to
which any property of the Company or the Subsidiaries is subject, or that seeks
to restrain, enjoin or prevent the execution and delivery of the Purchase
Agreement, or the consummation of the transactions contemplated thereby, or that
questions the legality or validity of any such transaction or that seeks to
recover damages or obtain other relief in connection with any such transactions,
or which would could be reasonably be expected to have a Material Adverse
Effect, if determined adversely to the Company or the Subsidiaries.
20. The statements set forth in the Prospectuses describing
U.S. statutes and regulations and the statements in the Registration Statement
and the Prospectuses with respect to matters of U.S. law, including the
statements under the captions "Risk Factors -- Risks Relating to the Company,"
"Business -- Government Regulation," "Management," "Shares Eligible for Future
Sale," and "U.S. Tax Considerations Regarding Ordinary Shares Acquired by U.S.
Taxpayers," and "Where You Can Find More Information" are insofar as they
describe U.S. statutes, rules, or legal conclusions and insofar as they describe
the contents of certain provisions of the U.S. Subsidiary's Articles of
Incorporation or bylaws or other organizational documents, do not contain any
untrue statement of a material fact or
III-4
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading.
21. The Company has duly and irrevocably appointed the U.S.
Subsidiary, a corporation organized under the laws of the State of California,
as its agent to receive service of process in any action against it in any
federal or state court sitting in the City of Minneapolis, Minnesota, has
waived, to the fullest extent it may do so, any objection which it may have now
or hereafter to the laying of venue of any such proceeding, and has effectively
submitted to the exclusive jurisdiction of such courts in any such suit, action
or proceeding.
22. The Company has duly given the Nasdaq National Market
Notification Form For Listing of Additional Shares required in connection with
the offering to the Nasdaq National Market.
III-5
SCHEDULE IV
1. The Company has been duly incorporated and is validly
existing as a corporation under the laws of Israel, and has full corporate power
and authority to own or lease its properties and conduct its business as
described in the Registration Statement. To the best our knowledge, the Company
has no subsidiaries other than the Subsidiaries, and owns no equity interest in
any corporation, partnership, limited liability company or other entity other
than the Subsidiaries.
2. The Company has an authorized and outstanding
capitalization as set forth in the Prospectus; the share capital of the Company
conforms as to legal matters to the description thereof contained in the
Prospectus under the caption "Description of Share Capital"; proper corporate
proceedings have been taken to validly authorize such authorized share capital;
all of the outstanding Ordinary Shares have been duly and validly issued and are
fully paid and nonassessable and the holders thereof are not subject to personal
liability by reason of being such holders; and no preemptive rights of, or
rights of refusal in favor of, shareholders exist with respect to the
Securities, or the issue and sale thereof, pursuant to the Memorandum or
Articles of Association and other governing documents of the Company and, to the
our knowledge, there are no contractual preemptive rights, rights of first
refusal or rights of first co-sale with respect to the issue and sale of the
Securities.
3. The Securities to be issued and sold by the Company under
the Purchase Agreement have been duly authorized and, when issued, delivered and
paid for in accordance with the terms of the Purchase Agreement, will have been
validly issued and will be fully paid and nonassessable, and the holders thereof
will not be subject to personal liability by reason of being such holders.
Except as otherwise stated in the Registration Statement and Prospectus, there
are no preemptive rights or other rights to subscribe for or to purchase, or any
restriction upon the voting or transfer of, any Ordinary Shares pursuant to the
Company's Memorandum or Articles of Association or any agreement or other
instrument known to us to which the Company is a party or by which the Company
is bound.
4. As of the date of the Purchase Agreement, we did not own
any equity security of the Company or any instrument convertible into or any
right to purchase any equity security of the Company. 5. The description of the
Company's Option plans and options granted and which may be granted thereunder
and the options granted otherwise than under such plans, all as set forth in the
Prospectus, accurately and fairly presents the information with respect to such
plans and options.
6. Neither the execution and delivery of the Purchase
Agreement, the issue and sale by the Company of the Securities sold by the
Company as contemplated by the Purchase Agreement nor the consummation of any
other transactions contemplated by the Purchase Agreement will (with or without
notice and/or the passage of time) conflict with,
IV-1
result in a violation of, constitute a default under or result in a breach of
(A) the Memorandum or Articles of Association or other governing documents of
the Company, (B) any agreement, indenture or instrument known to us to which the
Company is a party or by which it is bound or to which any of its properties is
subject, (C) any applicable law, rule, regulation, administrative regulation or
decree, or (D) so far as is known to us, any order, writ, injunction or decree,
of any jurisdiction, court or governmental instrumentality.
7. To the best of our knowledge, the Company holds, and is
operating in compliance in all material respects with, all franchises, grants,
authorizations, licenses, permits, easements, consents, certificates and orders
of any governmental or self-regulatory body required for the conduct of its
business and all such franchises, grants, authorizations, licenses, permits,
easements, consents, certifications and orders are valid and in full force and
effect.
8. To the best of our knowledge, all holders of securities of
the Company having rights to the registration of Ordinary Shares, or other
securities, because of the filing of the Registration Statement by the Company
have waived such rights or such rights have been satisfied, or have expired by
reason of lapse of time following notification of the Company's intent to file
the Registration Statement; to the best of our knowledge, except as described in
the Registration Statement there are no contracts, agreements or understandings
between the Company and any person granting such person the right to require the
Company to file a registration statement under the Securities Act with respect
to any securities of the Company owned or to be owned by such person or to
require the Company to include such securities in the securities registered
pursuant to the Registration Statement or any future registration statement of
the Company; to our knowledge, neither the filing of the Registration Statement
nor the offering or sale of the Ordinary Shares as contemplated by the Purchase
Agreement gives rise to any rights for or relating to the registration of any
Ordinary Shares or other securities of the Company, except as otherwise
described in the Prospectus.
9. No consent, approval, authorization, exemption or order of
any court or Israeli governmental agency or body or, to the best of our
knowledge, any financial institution, is required in connection with the
execution and delivery by the Company of the Purchase Agreement or for the
issuance and sale of the Securities as contemplated by the Purchase Agreement
and the consummation of the other transactions contemplated in the Purchase
Agreement, except such as have been obtained in connection with the purchase and
distribution of the Securities by the Underwriters or such consents, approvals,
authorizations, exemptions or orders, the lack of which will not have a Material
Adverse Effect; to the best of our knowledge, no proceedings to rescind or
modify such consents, approvals, authorizations, exemptions or orders have been
instituted and are pending or contemplated by any Israeli authority; and an
exemption in connection with the offering contemplated by the Registration
Statement has been granted by the ISA.
10. Upon issuance and delivery of the Ordinary Shares being
sold by the Company against payment therefor pursuant to the Purchase Agreement,
the Underwriters in each case acquire good and valid title to such Ordinary
Shares in each case (so far as it
IV-2
depends on the Company) free and clear of all liens, encumbrances, equities,
preemptive rights and other claims arising through the Company; the Ordinary
Shares conform in all material respects to the description thereof contained in
the Prospectus; and no further approval or authority of the shareholders or the
Board of Directors of the Company is required for the issuance and sale of the
Ordinary Shares.
11. To the best of our knowledge, the Company (i) is not in
violation of its Memorandum or Articles of Association, or other governing
documents, (ii) is not in default in any material respect, and no event has
occurred which, with notice or lapse of time or both, would constitute such a
default, in the due performance or observance of any term, covenant or condition
contained in any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument known to us to which the Company is a party or by which
it is bound or to which any of its properties or assets is subject, or (iii) is
not in violation in any material respect of any law, ordinance, governmental
rule, regulation or court decree to which it or its property or assets may be
subject or has failed to obtain any material license, permit, certificate,
franchise or other governmental authorization or permit necessary to the
ownership of its property or to the conduct of its business, except in the case
of clauses (ii) and (iii) for such violations or failures that, individually or
in the aggregate, would not have a Material Adverse Effect.
12. The Company has full power and authority to enter into the
Purchase Agreement; the Purchase Agreement has been duly authorized, executed
and delivered by the Company and constitutes a valid, legal and binding
obligation of the Company enforceable in accordance with its terms (except as
rights to indemnity thereunder may be limited by Israeli public policy and
except as such enforceability may be limited by bankruptcy, insolvency,
reorganization or similar laws affecting the rights of creditors generally and
subject to general principles of equity) and all corporate authorizations and
consents necessary for the execution and delivery of the Purchase Agreement and
the consummation of the transactions contemplated thereby have been given.
13. The Company has all requisite corporate power and
authority to issue, sell and deliver the Ordinary Shares being issued and sold
by it in accordance with and upon the terms and conditions set forth in the
Purchase Agreement; all corporate action required to be taken by the Company for
the due and proper authorization, issuance, sale and delivery of the Ordinary
Shares has been validly and sufficiently taken; the filing of the Registration
Statement and the Prospectus with the Commission and, to the extent required
with the appropriate Israeli authorities, has been duly authorized by and on
behalf of the Company and the Registration Statement has been duly executed by
the Company in accordance with Israeli law.
14. To the best of our knowledge, the Company does not own any
real property except as otherwise described in the Prospectus; and all real
property and buildings held under lease by the Company are held by it under
valid, subsisting and enforceable leases, with such exceptions as are not
material and do not interfere with the use made and proposed to be made of such
property and buildings by the Company.
IV-3
15. To the best of our knowledge, there is no litigation,
action, suit or governmental proceeding or investigation pending to which the
Company is a party or to which any property of the Company is subject, or that
seeks to restrain, enjoin or prevent the execution and delivery of the Purchase
Agreement, or the consummation of the transactions contemplated thereby, or that
questions the legality or validity of any such transaction or that seeks to
recover damages or obtain other relief in connection with any such transactions,
or which would could be reasonably be expected to have a Material Adverse
Effect, if determined adversely to the Company.
16. The certificates for the Securities to be sold by the
Company and delivered on the Closing Date are in due and proper form under
Israeli law.
17. The statements set forth in the Prospectus describing
Israeli statutes and regulations and the statements in the Registration
Statement and the Prospectus with respect to matters of Israeli law, including
the statements describing Israeli law under the captions "Risk Factors - Risks
Relating to Operations in Israel," "Dividend Policy," "Management's Discussion
and Analysis of Financial Condition and Result of Operations - Effective
Corporate Tax Rates," "Business - Employees," "Management," "Certain
Transactions," "Description of Share Capital," "Israeli Taxation and Investment
Programs," "Conditions in Israel," "ISA Exemption," and "Enforceability of Civil
Liabilities," insofar as they describe Israeli statutes, rules, or legal
conclusions and insofar as they describe the contents of certain provisions of
the Company's Memorandum of Association, Articles of Association or other
organizational documents, do not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
18. No Israeli stamp or other issuance or transfer taxes or
duties and, assuming that none of the Underwriters is subject to taxation in
Israel, capital gains, income, withholding or other taxes are payable by or on
behalf of the Underwriters to any Israeli taxing authority in connection with:
(a) the issuance of the Securities; (b) the sale and delivery by the Company of
the Securities in the manner contemplated in the Purchase Agreement; or (c) the
sale and delivery outside of Israel by the Underwriters to the initial
purchasers thereof in the manner contemplated by the Purchase Agreement.
19. The Company has duly and irrevocably appointed the
Subsidiary, a corporation organized under the laws of the State of California,
as its agent to receive service of process in any action against it in any U.S.
federal or state court sitting in the City of Minneapolis, Minnesota arising out
of or in connection with the Purchase Agreement or the transactions contemplated
thereby
20. Under the laws of Israel, the submission by the Company to
the jurisdiction of any federal or state court sitting in the City of
Minneapolis, Minnesota and the designation of the law of the state of Minnesota
to apply to the Purchase Agreement is binding upon the Company and, if properly
brought to the attention of the court or
IV-4
administrative body in accordance with the laws of Israel,
would be enforceable in any judicial or administrative proceeding in Israel.
21. Subject to certain time limitations, an Israeli court may
declare a foreign civil judgment enforceable if it finds that: (i) the judgment
was rendered by a court which was, according to the laws of the state of the
court, competent to render the judgment, (ii) the judgment is no longer
appealable, (iii) the obligation imposed by the judgment is enforceable
according to the rules relating to the enforceability of judgments in Israel and
the substance of the judgment is not contrary to public policy, and (iv) the
judgment is executory in the state in which it was given. Even if the above
conditions are satisfied, an Israeli court will not enforce a foreign judgment
if it was given in a state whose laws do not provide for the enforcement of
judgments of Israeli courts (subject to exceptional cases) or if its enforcement
is likely to prejudice the sovereignty or security of the State of Israel. An
Israeli court also will not declare a foreign judgment enforceable if (i) the
judgment was obtained by fraud, (ii) there was no due process, (iii) the
judgment was rendered by a court not competent to render it according to the
laws of private international law in Israel, (iv) the judgment is at variance
with another judgment that was given in the same matter between the same parties
and which is still valid, or (v) at the time the action was brought `in the
foreign court a suit in the same matter and between the same parties was pending
before a court or tribunal in Israel.
IV-5
