Exhibit 4.7
INKSURE TECHNOLOGIES INC.
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
MARCH 4, 2002
TABLE OF CONTENTS
PAGE
ARTICLE 1. Purchase and Sale of the Shares...............................1
1.1 Purchase and Sale of the Shares...................................1
1.2 Closing...........................................................1
1.3 Delivery..........................................................2
ARTICLE 2. Representations and Warranties of the Company and Supercom....2
2.1 Organization, Good Standing and Qualification.....................2
2.2 Capitalization, Voting Rights.....................................2
2.3 Subsidiaries......................................................3
2.4 Authorization.....................................................3
2.5 Valid Issuance....................................................4
2.6 Governmental Consents.............................................4
2.7 Offering..........................................................4
2.8 Litigation........................................................4
2.9 No Violations.....................................................4
2.10 Financial Statements..............................................5
2.11 No Material Change................................................5
2.12 Contracts and Other Commitments...................................6
2.13 Related-Party Transactions........................................7
2.14 Patents and Trademarks............................................7
2.15 Employees.........................................................8
2.16 Permits..........................................................10
2.17 Environmental and Safety Laws....................................10
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2.18 Title to Property and Assets.....................................10
2.19 Insurance........................................................10
2.20 Taxes............................................................10
2.21 Brokers and Finders..............................................10
2.22 Disclosure.......................................................11
ARTICLE 2A Representations and Warranties of Supercom...................11
2A.1 Organization, Good Standing and Qualification....................11
2A.2 Authorization....................................................11
2A.3 Good Title to Stockholder Shares.................................11
2A.4 Litigation.......................................................11
2A.5 No Violations....................................................11
2A.6 Brokers and Finders..............................................11
ARTICLE 3. Representations and Warranties of the Investor...............12
3.1 Authorization....................................................12
3.2 No Violations....................................................12
3.3 Investment Intent................................................12
3.4 Legends..........................................................13
3.5 Investment Experience............................................13
3.6 Accredited Investor..............................................13
3.7 Brokers and Finders..............................................13
ARTICLE 4. Conditions To the Investor's Obligations at Closing..........13
4.1 Representations and Warranties...................................13
4.2 Performance......................................................14
4.3 Filing of Certificate of Incorporation...........................14
4.4 Reservation of Shares............................................14
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4.5 Board of Directors...............................................14
4.6 Employment Agreement.............................................14
4.7 Compliance Certificate...........................................14
4.8 Secretary's Certificate..........................................14
4.9 Opinion of Counsel...............................................14
4.10 Due Diligence....................................................14
4.11 Proceedings and Documents........................................14
ARTICLE 5. Conditions To the Company's Obligations at Closing...........14
5.1 Representations and Warranties...................................15
5.2 Payment of Purchase Price........................................15
ARTICLE 6. Covenants of the Company.....................................15
6.1 Taxes............................................................15
6.2 Satisfaction of Conditions to Closing............................15
6.3 Financial Information............................................15
6.4 Insurance........................................................16
6.5 Compliance with Laws.............................................16
6.6 Preservation of Corporate Existence..............................16
6.7 Conversion Shares................................................16
6.8 Inspection Rights................................................16
ARTICLE 6A. Covenants of Supercom........................................16
6A.1 Guaranty of Redemption Obligations...............................16
ARTICLE 7. Indemnification..............................................16
7.1 Indemnification..................................................18
7.2 Right to Defend; Compromise of Claims; Contribution..............20
7.3 Remedies.........................................................20
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ARTICLE 8. Miscellaneous................................................21
8.1 Survival of Warranties...........................................21
8.2 Successors and Assigns...........................................21
8.3 Titles and Subtitles.............................................21
8.4 Notices..........................................................21
8.5 Amendments and Waivers...........................................21
8.6 Severability.....................................................22
8.7 Independence of Covenants and Representations and Warranties.....22
8.8 Further Assurances...............................................22
8.9 Governing Law....................................................22
8.10 Counterparts.....................................................22
8.11 Entire Agreement.................................................22
iv
INKSURE TECHNOLOGIES INC.
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (this
"AGREEMENT") is made as of the 4th day of March, 2002, by and among InkSure
Technologies Inc., a Delaware corporation (the "COMPANY"), Supercom Ltd., an
Israeli corporation ("SUPERCOM"), and the investor listed on EXHIBIT A hereto
(the "INVESTOR").
RECITALS
WHEREAS, the Company has authorized 1,312,785 shares of Series A
Convertible Preferred Stock, par value $0.01 per share (the "PREFERRED STOCK"),
of the Company, with the designations, preferences and rights set forth in the
Amended and Restated Certificate of Incorporation attached hereto as EXHIBIT B
(the "CERTIFICATE OF INCORPORATION"); and
WHEREAS, the Company desires to issue and sell 171,232 shares of
Preferred Stock (the "COMPANY SHARES") to the Investor on the terms and
conditions set forth herein; and
WHEREAS, Supercom is the holder of 1,141,553 shares of Preferred Stock
(the "STOCKHOLDER SHARES") that it desires to sell to the Investor; and
WHEREAS, the Investor desires to purchase the Company Shares and the
Stockholder Shares (collectively, the "SHARES") on the terms and conditions set
forth herein; and
WHEREAS, the parties wish to set out certain representations, warranties,
covenants and understandings with respect to the above matters.
PROVISIONS
In consideration of the foregoing recitals and the mutual covenants
herein, the undersigned parties agree as set forth herein.
ARTICLE 1. PURCHASE AND SALE OF THE SHARES
1.1 PURCHASE AND SALE OF THE SHARES. Subject to the terms and
conditions hereof, at the Closing (as defined below), (a) the Company will sell,
issue and deliver, and the Investor agrees to purchase from the Company, the
Company Shares, as set forth on EXHIBIT A and (b) Supercom will sell and
deliver, and the Investor will purchase from Supercom, the Stockholder Shares,
as set forth on EXHIBIT A.
1.2 CLOSING. Subject to the terms and conditions hereof, the
closing of the purchase and sale of the Shares pursuant to Section 1.1 (the
"CLOSING") shall take place on March 4, 2002 , at the offices of Fulbright &
▇▇▇▇▇▇▇▇ L.L.P., ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇,
▇▇▇ ▇▇▇▇ ▇▇▇▇▇, or at such other time or place as the Company and the Investor
may mutually agree (the "CLOSING DATE").
1.3 DELIVERY. At the Closing, subject to the terms and
conditions hereof, the Company and Supercom will deliver to the Investor the
Shares to be purchased by the Investor, against payment of the purchase price of
an aggregate of $1,150,000 by check or wire transfer to accounts designated by
the Company and Supercom.
ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND SUPERCOM
The Company and Supercom each hereby represent and warrant to the
Investor, on a joint and several basis, as of the Closing:
2.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company
is duly organized, validly existing and in good standing under the laws of the
State of Delaware and the Company has all requisite power and authority to enter
into this Agreement and to carry out the provisions hereof. The Company is duly
qualified to conduct its business as currently conducted and is in good standing
as a foreign corporation in all jurisdictions in which the nature of its
business or location of its properties requires such qualification, except where
the failure to be so qualified would not have a material adverse effect on the
business, financial condition, results of operations or prospects of the Company
and its Subsidiaries, taken as a whole (a "MATERIAL ADVERSE EFFECT").
2.2 CAPITALIZATION, VOTING RIGHTS.
(a) The authorized capital stock of the Company consists of (i)
13,000,000 shares of common stock, par value $.01 per share (the "COMMON
STOCK"), of which 5,066,796 shares are issued and outstanding, and (ii)
2,000,000 shares of Preferred Stock, of which 1,141,553 shares are issued and
outstanding. SCHEDULE 2.2(a) contains an accurate list of the name of each
stockholder of the Company and the number of outstanding shares of each class of
capital stock of the Company held by such stockholder. All of the outstanding
shares of the capital stock of the Company are duly authorized and validly
issued, fully paid and nonassessable, and were issued in accordance with the
registration or qualification provisions of the Act, and any relevant state
securities laws or pursuant to valid exemptions therefrom.
(b) Except as set forth herein or on SCHEDULE 2.2(b), no
preemptive rights, rights of first refusal or similar rights exist with respect
to the shares of capital stock of the Company and no such rights arise or become
exercisable by virtue of or in connection with the transactions contemplated
herein. No antidilution or similar rights arise by virtue of or in connection
with the issuance and delivery of the Company Shares or the Common Stock
issuable upon conversion of the Shares in accordance with the Certificate of
Incorporation (the "CONVERSION SHARES"). The Company has reserved 600,000 shares
of Common Stock for issuance under its 2001 Stock Option Plan (the "PLAN"), of
which 169,350 are covered by option grants which are presently outstanding.
Except as set forth on SCHEDULE 2.2(b) or as otherwise described in this
paragraph (b), there are no outstanding or authorized rights, options, warrants,
2
convertible securities, subscription rights, conversion rights, exchange rights
or other agreements of any kind that could require the Company to issue or sell
any shares of its capital stock (or securities convertible into or exchangeable
for shares of its capital stock). The Company has granted to ▇▇▇ ▇▇▇▇▇ an option
(the "ROZEN OPTION") to purchase 300,480 shares of the Common Stock of the
Company at an exercise price of $150,000, and has granted to ▇▇▇▇ ▇▇▇▇▇▇▇ an
option (the "▇▇▇▇▇▇▇ OPTION") to purchase up to 478,469 shares of the Common
Stock of the Company at an exercise price of U.S. $0.966 per share. Neither the
Rozen Option nor the ▇▇▇▇▇▇▇ Option were granted pursuant to the Plan. Except as
set forth on SCHEDULE 2.2(B), the Company has no obligation to register any
shares of its capital stock under the Act. Except as set forth on SCHEDULE
2.2(B), the Company is not obligated directly, indirectly or contingently to
purchase or redeem any shares of its capital stock.
(c) On or prior to the Closing, the Company and Supercom will
have (i) converted all outstanding principal and accrued interest on
approximately $1.42 million loaned from Supercom and all other intercompany
indebtedness (other than as described in this paragraph (c)) of the Company and
its Subsidiaries to Supercom into a contribution to the capital of the Company,
(ii) sold all of the issued and outstanding common stock of Kromotek Inc. held
by the Company to Supercom in exchange for conversion into a contribution to the
capital of the Company by Supercom of $930,000 of principal and interest on
Supercom's loan to the Company, (iii) issued and delivered the Stockholder
Shares to Supercom in consideration of the foregoing contribution of capital of
the Company (v) entered into a promissory note in the amount of $250,000 in
favor of Supercom (the "Remaining Note") and (vi) Supercom will exchange
1,141,503 shares of Common Stock (the "Exchanged Common Stock") for the
Stockholder Shares to be delivered by Supercom to the Investor hereunder, the
Exchanged Stockholder Shares will be canceled on the books of the Company and
Supercom shall execute deliver any instruments of transfer requested by the
Company in connection with the transactions described in this subsection (the
"REORGANIZATION").
2.3 SUBSIDIARIES. Each subsidiary of the Company (a
"SUBSIDIARY") is listed on SCHEDULE 2.3. Each Subsidiary is a corporation or
limited liability company duly organized, validly existing and in good standing
under the laws of the state of its incorporation or formation and is qualified
to do business as a foreign corporation in each jurisdiction where it is
required to be so qualified, except where failure to be so qualified would not
reasonably be expected to have a Material Adverse Effect. Each Subsidiary is
wholly owned by the Company.
2.4 AUTHORIZATION. The Company has the right, power and
authority to enter into and perform its obligations under this Agreement and the
other agreements contemplated hereby. All corporate action on the part of the
Company, its officers, directors and stockholders necessary for the
authorization, execution and delivery of this Agreement and the other agreements
contemplated hereby, the performance of all obligations of the Company
hereunder, the authorization, issuance (or reservation for issuance), sale and
delivery of the Company Shares being sold hereunder and the Conversion Shares
has been taken. This Agreement constitutes the valid and legally binding
obligation of the Company, enforceable in accordance with its terms, except (a)
as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and
other laws of general application affecting enforcement of creditors' rights
generally, (b) as limited by laws relating to the availability of specific
performance, injunctive relief, or other equitable remedies and (c) to the
extent any non-competition or indemnification
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provisions of this Agreement may be limited by applicable federal or state
securities laws or by public policy.
2.5 VALID ISSUANCE. The Company Shares being purchased by the
Investor hereunder, when issued, sold and delivered in accordance with the terms
of this Agreement, will be duly authorized and validly issued, fully paid and
nonassessable, with no personal liability attaching to the ownership thereof,
free and clear of any liens whatsoever, other than liens arising out of the acts
or omissions of the Investor, and with no restrictions on the voting rights
thereof and other incidents of record and beneficial ownership pertaining
thereto other than as provided for herein. The Conversion Shares have been duly
authorized and validly reserved for issuance and, upon issuance in accordance
with the terms of the Preferred Stock set forth in the Certificate of
Incorporation, will be duly authorized and validly issued, fully paid and
nonassessable, with no personal liability attaching to the ownership thereof,
free and clear of any liens whatsoever, other than liens arising out of the acts
or omissions of the Investor, and with no restrictions on the voting rights
thereof and other incidents of record and beneficial ownership pertaining
thereto.
2.6 GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company, Supercom or any Subsidiary (except such as have been obtained) is
required in connection with the consummation of the transactions contemplated by
this Agreement.
2.7 OFFERING. Assuming the truth and accuracy of the Investor's
representations set forth in Article 3 of this Agreement, the offer, sale and
issuance of the Company Shares as contemplated by this Agreement is exempt from
the registration requirements of the Act and any applicable state securities
laws, and requires no filing under the Act or any applicable state securities
law that has not been made (except for filings that may be made after the
Closing, which shall be timely made).
2.8 LITIGATION. Except as set forth on SCHEDULE 2.8, there is
no action, suit, proceeding or investigation pending or, to the Company's
knowledge, currently threatened against the Company or any of its Subsidiaries
or their properties or assets, nor is the Company aware that there is a basis
for any of the foregoing. The Company is not nor is any of its Subsidiaries a
party or subject to the provisions of any order, writ, injunction, judgment or
decree of any court or government agency or instrumentality except for those
having general applicability. There is no action, suit, proceeding or
investigation by the Company or any Subsidiary currently pending or that the
Company or any Subsidiary intends to initiate.
2.9 NO VIOLATIONS. Neither the Company nor any Subsidiary is in
violation or default of any provision of its Certificate of Incorporation or
Bylaws as currently in effect, or in any material respect of any instrument,
contract, judgment, order, writ or decree to which it is a party or by which it
is bound, or of any provision of any federal or state statute, rule or
regulation applicable to the Company or such Subsidiary. The execution, delivery
and performance of this Agreement and the consummation of the transactions
contemplated hereby will not result in any such violation on the part of the
Company or any Subsidiary or be in conflict with, or constitute (with or without
the passage of time and giving of notice) a default on the part of the Company
4
or any Subsidiary under any such instrument, contract, judgment, order, writ or
decree or an event that results in the creation of any lien, charge or
encumbrance upon any assets of the Company or any Subsidiary or the suspension,
revocation, impairment, forfeiture, or nonrenewal of any permit, license,
authorization or approval applicable to the Company or any Subsidiary, their
respective business or operations or any of their respective assets or
properties.
2.10 FINANCIAL STATEMENTS.
Prior to the Closing, the Company shall have furnished to the
Investor its balance sheet as of September 30, 2001 and its statements of
operations and cash flows for the nine-month period ended September 30, 2001
(the "FINANCIAL STATEMENTS"). A copy of the Financial Statements is attached to
SCHEDULE 2.10 hereto. The Financial Statements, together with any notes thereto
(if any), have been prepared in accordance with the books and records of
Supercom, the Company and each Subsidiary (which are true and correct in all
material respects) and fairly present the financial position of the Company and
its Subsidiaries on a pro forma consolidated basis as of the dates thereof and
the results of its operations and cash flows for the period then ended. Except
as disclosed or provided for in the balance sheet as of September 30, 2000, as
of the date hereof, there are no material liabilities of the Company or its
Subsidiaries, taken together as a whole, of any kind whatsoever, whether
accrued, contingent or otherwise, other than liabilities incurred in the
ordinary course of business consistent with past practice since the date of such
balance sheet.
2.11 NO MATERIAL CHANGE. Except as set forth on SCHEDULE 2.11,
since September 30, 2001 there has not been:
(a) any change in the assets, liabilities, financial condition,
or operating results of the Company and its Subsidiaries, taken together as a
whole, from that reflected in the Financial Statements, except for changes in
the ordinary course of business that have not been, in the aggregate, material
and adverse;
(b) any damage, destruction or loss, whether or not covered by
insurance, that would have a Material Adverse Effect;
(c) any waiver or compromise by the Company or any Subsidiary
of a valuable right or of a material debt owed to the Company and the
Subsidiaries, taken together as a whole;
(d) any satisfaction or discharge of any lien, claim, or
encumbrance or payment of any obligation by the Company or any Subsidiary,
except in the ordinary course of business and that is not material to the
business, properties, prospects or financial condition of the Company and its
Subsidiaries, taken together as a whole;
(e) any change to a contract or arrangement by which the
Company or any Subsidiary or any of their assets is bound or subject that is
material to the Company and the Subsidiaries, taken together as a whole;
(f) any material change in any compensation arrangement or
agreement with any employee, officer, director or stockholder;
5
(g) any sale, assignment, or transfer of any patents,
trademarks, copyrights, trade secrets, or other intangible assets;
(h) any resignation or termination of employment of any key
officer of the Company or any Subsidiary;
(i) receipt of notice that there has been a loss of, or order
cancellation by, any customer of the Company or any Subsidiaries, that is
material to the Company and the Subsidiaries, taken together as a whole;
(j) any material mortgage, pledge, transfer of a security
interest in, or lien, created by the Company or any Subsidiary, with respect to
any of its properties or assets, except liens for taxes not yet due or payable;
(k) any material loans or guarantees made by the Company or any
Subsidiary to or for the benefit of their employees, stockholders, officers, or
directors, or any members of their immediate families, other than travel
advances and other advances made in the ordinary course of their business;
(l) any declaration, setting aside, or payment of any dividend
or other distribution of the Company's assets in respect of any of the Company's
capital stock, or any direct or indirect redemption, purchase, or other
acquisition of any of such stock by the Company;
(m) to the best of the Company's knowledge, any other event or
condition of any character that is reasonably likely to have a Material Adverse
Effect; or
(n) any agreement or commitment by the Company or any
Subsidiary to do any of the things described in this Section 2.11.
2.12 CONTRACTS AND OTHER COMMITMENTS. Except as set forth on
SCHEDULE 2.12, the Company and its Subsidiaries do not have and are not bound by
any contract, agreement, lease, or commitment, written or oral, absolute or
contingent, other than (i) contracts for the purchase of supplies and services
that were entered into in the ordinary course of business and that do not
involve more than One Hundred Thousand Dollars ($100,000), and do not extend for
more than one year beyond the date hereof, (ii) sales contracts entered into in
the ordinary course of business, (iii) contracts terminable at will by the
Company on no more than thirty (30) days' notice without cost or liability to
the Company which neither involve any employment or consulting arrangement nor
are material to the conduct of the Company's or any Subsidiary's business and
(iv) confidentiality agreements. Neither the Company or its Subsidiaries, nor,
to its knowledge, any other party to any contract covered by clauses (i)-(iv)
above or any contract set forth on SCHEDULE 2.12, is in default under any such
contract. Employment and consulting contracts and contracts with labor unions,
and license agreements and any other agreements relating to the Company's
acquisition or disposition of patent, copyright, trade secret or other
proprietary rights or technology (other than standard end-user license
agreements) shall not be considered to be contracts entered into in the ordinary
course of business.
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2.13 RELATED-PARTY TRANSACTIONS. Except as set forth on SCHEDULE
2.13 hereto or as contemplated by Section 2.2(c), no holder of 5% or more of any
class of capital stock of the Company at the time such transaction was entered
into, or any director, officer or employee of the Company or any Subsidiary, or
family member of any such person, or any corporation, partnership, trust or
other entity in which any such person, or family member of any such person, has
an interest or is an officer, director, trustee, partner or holder of any equity
interest, (i) is a party to any transaction with the Company or any Subsidiary,
including, without limitation, any contract, agreement or other arrangement
providing for the employment of, furnishing of services by, rental of real or
personal property from, license of Necessary Intellectual Property (as defined
below) or otherwise requiring payments or involving other obligations to or from
the Company or any Subsidiary or (ii) owns any assets used in the business of
the Company or any Subsidiary.
2.14 PATENTS AND TRADEMARKS.
(a) "INTELLECTUAL PROPERTY" means all intellectual property,
including, without limitation, (i) patents, patent applications, patent rights,
trademarks, trademark applications, copyrights, copyright applications,
know-how, franchises, licenses, proprietary processes and formulae, layouts,
processes, inventions, and (ii) all proprietary rights pertaining to any product
or service manufactured, sold, distributed or marketed, or used, employed or
exploited in the development, manufacture, license, sale, distribution,
marketing or maintenance thereof, and all documentation and media constituting,
describing or relating to the foregoing. The Company and its Subsidiaries own or
have a valid and enforceable license to use any and all Intellectual Property
necessary for the operation of the business of the Company and its Subsidiaries
as now conducted or proposed to be conducted (the "NECESSARY INTELLECTUAL
PROPERTY"), which Necessary Intellectual Property is set forth on Schedule 2.14
hereto. The Company has no knowledge of any misappropriation of, infringement
of, alleged infringement of or conflict with the rights of others with respect
to the Necessary Intellectual Property.
(b) The Company has no knowledge that any of its or its
Subsidiaries' employees is obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that would
interfere with such employee's duties to the Company or that would conflict with
the Company's and its Subsidiaries' business as proposed to be conducted.
Neither the execution nor delivery of this Agreement will, to the best of the
Company's knowledge, conflict with or result in a breach of the terms,
conditions or provisions of, or constitute a default under, any contract,
covenant or instrument under which any employee is now obligated. The Company
does not believe it is or will be necessary to utilize any inventions,
trademarks or proprietary information of any of its employees made prior to
their employment by the Company, except for such inventions, trademarks or
proprietary information as have been assigned to the Company.
(c) The Company and its Subsidiaries have the right to use,
sell, license and dispose of, and have the right to bring actions for the
infringement of, and, where necessary, has made timely and proper application
for the registration of all Necessary Intellectual Property and such rights to
use, sell, license, dispose of and bring actions are exclusive with respect to
such Intellectual Property. There are no royalties, honoraria, fees or other
payments payable by the
7
Company or its Subsidiaries to any person by reason of the ownership, use,
license, sale or disposition of the Necessary Intellectual Property, other than
in connection with licensed Intellectual Property.
(d) The Company and its Subsidiaries have used commercially
reasonable efforts to safeguard and maintain the secrecy and confidentiality of,
and its proprietary rights in, all Necessary Intellectual Property. Schedule
2.14 contains a true and complete list of all applications and filings made or
taken pursuant to federal, state, local and foreign laws by the Company and its
Subsidiaries to perfect or protect its interest in the Necessary Intellectual
Property, including, without limitation, all patents, patent applications,
trademarks, trademark applications, service marks and servicemark applications.
(e) The Company has not, nor have any of its Subsidiaries or
any affiliate, sent to any third party or otherwise communicated to another
person in the past five years any charge, complaint, claim, demand or notice
asserting infringement or misappropriation of, or other conflict with, any
Necessary Intellectual Property right of the Company or any Subsidiary by such
other person or any acts of unfair competition by such other person, nor to the
best knowledge of the Company, is any such infringement, misappropriation,
conflict or act of unfair competition occurring or threatened.
2.15 EMPLOYEES.
(a) Each employee, consultant and officer of the Company and
its Subsidiaries has on or prior to the date hereof executed a Proprietary
Information and Inventions Agreement in the form attached as Exhibit C. The
Company is not aware that any of its or any Subsidiary's employees, consultants
or officers is in violation thereof.
(b) Except as set forth in Schedule 2.15, no employee of the
Company or its Subsidiaries has an employment agreement or understanding,
whether oral or written, with the Company or such Subsidiary which is not
terminable on notice by the Company or such Subsidiary without cost or other
liability to the Company or such Subsidiary. Except as set forth in Schedule
2.15, no employee of the Company or its Subsidiaries has advised the Company or
its Subsidiaries (orally or in writing) that he or she intends to terminate his
or her employment.
(c) To the Company's knowledge, the Company and its
Subsidiaries have complied in all material respects with all foreign and
domestic laws relating to the hiring of employees and the employment of labor,
including provisions thereof relating to wages, hours, equal opportunity,
collective bargaining and the payment of social security and other taxes. The
Company and its Subsidiaries do not have knowledge of any labor relations
problems being experienced by it (including, without limitation, any union
organization activities, threatened or actual strikes or work stoppages or
material grievances).
(d) Except as set forth on Schedule 2.15, (i) the Company and
its Subsidiaries are not delinquent in payments to any employees for any wages,
salaries, commissions, bonuses or other direct compensation for any services
performed by them to date or amounts required to be reimbursed to such employees
and upon any termination of the employment of any such employees, (ii) there is
no unfair labor practice complaint against the Company or its
8
Subsidiaries pending before the National Labor Relations Board or any other
governmental entity, (iii) there is no labor strike, material dispute, slowdown
or stoppage pending or, to the best knowledge of the Company, threatened against
or involving the Company or its Subsidiaries, (iv) no labor union currently
represents the employees of the Company or its Subsidiaries, and (v) to the best
knowledge of the Company, no labor union has taken any action with respect to
organizing the employees of the Company or its Subsidiaries. The Company and its
Subsidiaries are not a party to or bound by any collective bargaining agreement
or union contract.
(e) Schedule 2.15 sets forth a true and complete list of all
Employee Benefit Plans (as used in this Section 2.15, the "Plans") (i) that
cover any employees of the Company or its Subsidiaries (A) that are maintained,
sponsored or contributed to by the Company or its Subsidiaries or (B) with
respect to which the Company or its Subsidiaries is obligated to contribute or
has any liability or potential liability, whether direct or indirect or (ii)
with respect to which the Company and its Subsidiaries has any liability or
potential liability on account of the maintenance or sponsorship thereof or
contribution thereto by any present or former ERISA Affiliate of the Company or
its Subsidiaries. The Company, its Subsidiaries and their respective ERISA
Affiliates are not, and have never maintained or been, obligated to contribute
to a Multiple Employer Plan, a Multi-Employer Plan or a Defined Benefit Pension
Plan.
(f) For the purposes of this Section 2.15, the following terms
shall have the following meanings:
"DEFINED BENEFIT PENSION PLAN" means shall have the meaning set forth in
Section 3(35) of ERISA.
"EMPLOYEE BENEFIT PLAN" means any (a) qualified or non-qualified Employee
Pension Benefit Plan (including any Multiple Employer Plans or
Multi-Employer Plans), (b) Employee Welfare Benefit Plan, or (c) employee
benefit, fringe benefit, compensation, incentive, bonus or other plan,
program or arrangement, whether or not subject to ERISA and whether or
not funded.
"EMPLOYEE WELFARE BENEFIT PLAN" shall have the meaning set forth in
Section 3(1) of ERISA.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder.
"ERISA AFFILIATES" means, with respect to any person, any other person
that is a member of a "controlled group of corporations" with, or is
under "common control" with, or is a member of the same "affiliated
service group" with such person as defined in Section 414(b), 414(c), or
414(m) or 414(o) of the Code.
"MULTI-EMPLOYER PLAN" shall have the meaning set forth in Section 3(37)
of ERISA.
"MULTIPLE EMPLOYER PLAN" means shall have the meaning set forth in
Section 413 of the Code.
9
2.16 PERMITS. The Company and each Subsidiary has all
franchises, permits, licenses, and any similar authority necessary for the
conduct of its business as now being conducted by it, the lack of which would
have a Material Adverse Effect. Neither the Company nor any Subsidiary is in
default in any respect under any of such franchises, permits, licenses, or other
similar authority.
2.17 ENVIRONMENTAL AND SAFETY LAWS. Neither the Company nor any
Subsidiary is in violation of any statute, law or regulation relating to the
environment or occupational health and safety, and no material expenditures are
or will be required in order to comply with any such statute, law or regulation.
There are no proceedings pending or, to the best knowledge of the Company,
threatened against the Company or its Subsidiaries alleging any such violation
or involving any of their past operations or any real property currently used by
the Company or its Subsidiaries. The Company and its Subsidiaries have not
received any written or oral notice or report with respect to it or its
facilities regarding any (i) actual or alleged violation of any such statute,
law or regulation or (ii) actual or potential liability arising under such
statute, law or regulation, including, without limitation, any investigatory,
remedial or corrective obligation.
2.18 TITLE TO PROPERTY AND ASSETS. The Company and the
Subsidiaries own, or lease under valid leases, all facilities, machinery,
equipment and other assets necessary for the conduct of their business as
conducted as of the date hereof and as proposed to be conducted. The Company and
each Subsidiary owns its respective properties and assets free and clear of all
mortgages, liens, loans and encumbrances, except such encumbrances and liens
that arise in the ordinary course of business and do not materially impair the
Company's or such Subsidiary's ownership or use of such property or assets. With
respect to the property and assets it leases, the Company and each Subsidiary is
in compliance with such leases and holds a valid leasehold interest free of any
liens, claims or encumbrances. Supercom does not own any assets used in the
business of the Company or any Subsidiary.
2.19 INSURANCE. The Company and each Subsidiary has insurance on
its properties and business in such amounts, of such types and covering such
casualties, risks and contingencies as is ordinarily carried by companies
engaged in similar businesses and owning similar properties in the same general
area in which the Company or such Subsidiary operates.
2.20 TAXES. The Company and each Subsidiary has filed all
federal, state, local and other tax returns and reports required by law to be
filed (including, without limitation, those due in respect of its properties,
income, franchises, licenses, sales and payrolls), and has paid all such taxes
applicable to periods through the day of the Closing, and there are no pending
or threatened claims against the Company or any Subsidiary for past due taxes.
There are no outstanding waivers or agreements by the Company or any Subsidiary
for the extension of the time for the payment of any tax.
2.21 BROKERS AND FINDERS. Neither the Company nor any Subsidiary
has used or retained any broker, investment banker, financial advisor, finder or
agent in connection with this Agreement or the transactions contemplated hereby.
10
2.22 DISCLOSURE. This Agreement and any other written materials
and financial projections which have been provided by or on behalf of the
Company to the Investor or any of its respective directors, officers, partners,
employees, representatives or agents, taken as a whole, are true and authentic
in all material respects. The representations and warranties made by or on
behalf of the Company to the Investor in this Agreement do not contain any
untrue statement of a material fact and do not omit to state a material fact
required to be stated therein or necessary to make the statements made, in the
context in which made, not false or misleading.
ARTICLE 2A. REPRESENTATIONS AND WARRANTIES OF SUPERCOM
Supercom hereby represents and warrants to the Investor as of the Closing:
2A.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. Supercom is
duly organized, validly existing and in good standing under the laws of Israel
and has all requisite power and authority to enter into this Agreement and to
carry out the provisions hereof.
2A.2 AUTHORIZATION. Supercom has the right, power and authority
to enter into and perform its obligations under this Agreement and the other
agreements contemplated hereby to which Supercom is a party. All corporate
action on the part of Supercom, its officers, directors and stockholders
necessary for the authorization, execution and delivery of this Agreement and
the other agreements contemplated hereby to which Supercom is party, the
performance of all obligations of Supercom hereunder, the sale and delivery of
the Stockholder Stock being sold hereunder has been taken. This Agreement
constitutes the valid and legally binding obligation of Supercom, enforceable in
accordance with its terms, except (a) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, and other laws of general application
affecting enforcement of creditors' rights generally, (b) as limited by laws
relating to the availability of specific performance, injunctive relief, or
other equitable remedies and (c) to the extent any non-competition or
indemnification provisions of this Agreements may be limited by applicable
federal or state securities laws or by public policy.
2A.3 GOOD TITLE TO STOCKHOLDER SHARES. The Stockholder Shares
being purchased by the Investor hereunder, when sold and delivered in accordance
with the terms of this Agreement, will be duly authorized and validly issued,
fully paid and nonassessable, with no personal liability attaching to the
ownership thereof, free and clear of any liens whatsoever, other than liens
arising out of the acts or omissions of the Investor, and with no restrictions
on the voting rights thereof and other incidents of record and beneficial
ownership pertaining thereto other than as provided for herein.
2A.4 LITIGATION. There is no action, suit, proceeding or
investigation pending or, to Supercom's knowledge, currently threatened against
Supercom that questions the validity of this Agreement, the Reorganization or
could affect any of the properties or assets of the Company and its
Subsidiaries.
11
2A.5 NO VIOLATIONS. The execution, delivery and performance of
this Agreement, and the consummation of the transactions contemplated hereby
will not result in any violation on the part of Supercom or be in conflict with,
or constitute (with or without the passage of time and giving of notice) a
default on the part of Supercom under any instrument, contract, judgment, order,
writ or decree to which Supercom is a party or by which it is bound.
2A.6 BROKERS AND FINDERS. Supercom has not used or retained any
broker, investment banker, financial advisor, finder or agent in connection with
this Agreement or the transactions contemplated hereby.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR
The Investor hereby represents and warrants as of the Closing:
3.1 AUTHORIZATION. The Investor has the right, power and
authority to enter into and perform its obligations under this Agreement and the
other agreements contemplated hereby and thereby. All action on the part of the
Investor and its officers, directors, stockholders, partners, members or
managers, as applicable, necessary for the authorization, execution and delivery
of this Agreement and the other agreements contemplated hereby or thereby, and
the performance of all obligations of such Investor hereunder and thereunder,
has been taken or will be taken prior to the Closing. This Agreement constitutes
a valid and legally binding obligation of such Investor, enforceable in
accordance with its terms, except (a) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, and other laws of general application
affecting enforcement of creditors' rights generally, (b) as limited by laws
relating to the availability of specific performance, injunctive relief, or
other equitable remedies and (c) to the extent any non-competition or
indemnification provisions of such agreements may be limited by applicable
federal or state securities laws or by public policy.
3.2 NO VIOLATIONS. The execution, delivery and performance of
this Agreement , and the consummation of the transactions contemplated hereby
will not result in any violation on the part of such Investor or be in conflict
with or constitute (with or without the passage of time and giving of notice) a
default on the part of such Investor under any of its organizational or charter
documents, as applicable, or a default on the part of such Investor under any
instrument, contract, judgment, order, writ or decree, or an event that results
in the creation of any lien, charge or encumbrance upon any assets of such
Investor or the suspension, revocation, impairment, forfeiture, or nonrenewal of
any material permit, license, authorization, or approval applicable to such
Investor, its business or operations or any of its assets or properties.
3.3 INVESTMENT INTENT. The Investor will acquire the Preferred
Stock and, if the Preferred Stock is converted, the Conversion Shares
(collectively, the "SECURITIES") for the Investor's own account for investment
and not with a view to, or in connection with, any resale or other distribution
of any part thereof, and the Investor has no present intention of selling or
otherwise distributing the same. The Investor acknowledges that the Securities
are not registered under the Act or other applicable securities laws and that
they may not be sold, transferred, offered for sale, pledged, hypothecated or
otherwise disposed of without registration under such
12
Act and other applicable securities laws, except pursuant to an exemption from
such registration available under the Act and other applicable securities laws.
In this connection, the Investor represents that the Investor is familiar with
Rule 144 of the Act, as presently in effect, and understands the resale
limitations imposed thereby and by the Act.
3.4 LEGENDS. It is understood that the certificates evidencing
the Securities may bear one or all of the following legends:
(i) "The securities represented by this certificate have
not been registered under the Securities Act of 1933, as amended, and,
accordingly, may not be offered for sale, sold or otherwise transferred except
(i) upon effective registration of the securities represented by this
certificate under the Securities Act of 1933, as amended, or (ii) upon an
exemption from such registration requirements."
(ii) Any legend required by the Blue Sky laws of any
other state to the extent such laws are applicable to the shares represented by
the certificate so legended.
(iii) Any legend required by any of the agreements entered
into by the parties hereto as of the date hereof.
3.5 INVESTMENT EXPERIENCE. The Investor is an investor in
securities of privately held companies, such as the Company, can bear the
economic risk of its investment, and has such knowledge and experience in
financial or business matters that it is capable of evaluating the merits and
risks of the investment in the Securities.
3.6 ACCREDITED INVESTOR. The Investor is an "accredited
investor" within the meaning of Rule 501 of Regulation D promulgated under the
Act, as presently in effect. The Investor (i) has been afforded the opportunity
to ask questions of, and receive answers from, the officers and/or directors of
the Company, acting on its behalf, concerning the Company, and to obtain any
additional information, to the extent that the Company possesses such
information or can acquire it without unreasonable effort or expense, necessary
to verify the accuracy of the information furnished, and (ii) has availed itself
of such opportunity to the extent such Investor considers appropriate in order
to permit such Investor to evaluate the merits and risks of an investment in the
Company.
3.7 BROKERS AND FINDERS. The Investor has not used or retained
any broker, investment banker, financial advisor, finder or agent in connection
with this Agreement or the transactions contemplated hereby.
ARTICLE 4. CONDITIONS TO THE INVESTOR'S OBLIGATIONS AT CLOSING
The obligations of the Investor under Section 1.1 hereof are subject to
the fulfillment on or before the Closing Date of each of the following
conditions:
4.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company and Supercom contained in Article 2 and Article 2A
shall be true on and as of the
13
Closing with the same effect as though such representations and warranties had
been made on and as of the date of the Closing.
4.2 PERFORMANCE. The Company and Supercom shall have performed
and complied with all agreements, obligations and conditions contained in this
Agreement that are required to be performed or complied with by it on or before
the Closing.
4.3 FILING OF CERTIFICATE OF INCORPORATION. The Certificate of
Incorporation shall have been filed with the Secretary of State of Delaware.
4.4 RESERVATION OF SHARES. The Company shall have reserved a
sufficient number of shares of Common Stock for issuance upon the conversion to
Common Stock of the Shares.
4.5 BOARD OF DIRECTORS. ▇▇▇▇ ▇▇▇▇▇▇▇ shall have been appointed
to the Board of Directors of the Company and named Chairman thereof.
4.6 EMPLOYMENT AGREEMENT. ▇▇▇▇ ▇▇▇▇▇▇▇ and the Company shall
have entered into an employment agreement in a form satisfactory to ▇▇. ▇▇▇▇▇▇▇.
4.7 COMPLIANCE CERTIFICATE. The President of the Company shall
have delivered to the Investor, a certificate, dated the date of the Closing,
stating that the conditions specified in Sections 4.1 through 4.3 have been
fulfilled.
4.8 SECRETARY'S CERTIFICATE. The Company shall have delivered a
certificate of the Secretary of the Company, certifying (i) the Company's
Certificate of Incorporation (including the Certificate of Incorporation) and
By-laws, (ii) resolutions of its Board of Directors and stockholders authorizing
the transaction and the issuance of the Securities and (iii) the incumbency of
the officers executing the transaction documents.
4.9 OPINION OF COUNSEL. The Investor shall have received from
Fulbright & ▇▇▇▇▇▇▇▇ L.L.P. and Israeli counsel to Supercom opinions dated as of
the Closing Date in a form satisfactory to the Investor.
4.10 DUE DILIGENCE. The Investor shall be satisfied in its sole
discretion with the results of its due diligence investigation and review of the
Company and its Subsidiaries.
4.11 PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated at or prior to the
Closing, including, without limitation, the Reorganization, and all documents
incident thereto shall be reasonably satisfactory in form and substance to the
Investor at the Closing and the Investor shall have received all such
counterpart original and certified or other copies of such documents as such
Investor may reasonably request.
14
ARTICLE 5. CONDITIONS TO THE COMPANY'S OBLIGATIONS AT CLOSING
The obligations of the Company to the Investor under this Agreement are
subject to the fulfillment or the Company's express written waiver, on or before
the Closing, of each of the following conditions by such Investor:
5.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of such Investor contained in Article 3 shall be true on and as of
the Closing with the same effect as though such representations and warranties
had been made on and as of such Closing.
5.2 PAYMENT OF PURCHASE PRICE. The Investor shall have
delivered the purchase price for the shares of Preferred Stock purchased by such
Investor in accordance with Section 1.3.
ARTICLE 6. COVENANTS OF THE COMPANY
6.1 TAXES. All United States federal, state or local sales,
use, transfer, stamp (including documentary stamp taxes, if any), excise,
recording, income, capital gain, franchise and other similar taxes or
governmental charges, but not including income taxes imposed on any Investor,
with respect to the securities issued pursuant to this Agreement or upon
conversion of the Preferred Stock in accordance with the Certificate of
Incorporation shall be borne by the Company.
6.2 SATISFACTION OF CONDITIONS TO CLOSING. Supercom and the
Company shall use their best efforts to satisfy the conditions set forth in
Article 4, including, without limitation, completing the Reorganization on terms
acceptable to the Investor.
6.3 FINANCIAL INFORMATION. For so long as the Investor and its
subsidiaries hold, in the aggregate, at least 100,000 (as adjusted for stock
splits, stock dividends and the like) or more shares of Preferred Stock or
Common Stock, the Company will deliver the following reports to the Investor:
(a) As soon as practicable after the end of each fiscal year,
and in any event within 90 days thereafter, consolidated balance sheets of the
Company and its Subsidiaries, if any, as of the end of such fiscal year, and
consolidated statements of income and consolidated statements of changes in cash
flow of the Company and its Subsidiaries, if any, for such fiscal year, prepared
in accordance with GAAP and setting forth in each case in comparative form the
figures for the previous fiscal year, all in reasonable detail and audited by
independent public accountants selected by the Company, together with a
certificate of the Company executed by the chief executive officer or principal
financial or accounting officer of the Company certifying that all covenants to
be complied with by the Company hereunder have been complied with (or setting
forth in reasonable detail any covenants that have not been so complied with).
(b) As soon as practicable after the end of the first, second
and third quarterly accounting periods in each fiscal year of the Company, and
in any event within 60 days thereafter, a consolidated balance sheet of the
Company and its Subsidiaries, if any, as of the end of each such quarterly
period, and consolidated statements of income and consolidated statements of
change in cash flow of the Company for such period and for the current fiscal
year
15
to date, prepared in accordance with GAAP (other than for accompanying notes),
subject to changes resulting from normal year-end audit adjustments, for the
same periods of the previous fiscal year, all in reasonable detail and signed by
the principal financial or accounting officer of the Company, together with a
certificate of the Company executed by the chief executive officer or principal
financial or accounting officer of the Company certifying that all covenants to
be complied with by the Company hereunder have been complied with (or setting
forth in reasonable detail any covenants that have not been so complied with).
6.4 INSURANCE. The Company shall maintain such other insurance
with such coverages and in such amounts as shall be determined by the Boards of
the Company and its Subsidiaries, including such insurance as the Board of the
Company shall deem necessary to protect the assets of the Company and its
Subsidiaries, which shall include, at a minimum, director and officer insurance
and error and omission insurance.
6.5 COMPLIANCE WITH LAWS. The Company will, and will cause its
Subsidiaries to, comply in all material respects with the requirements of all
laws, rules, regulations and orders.
6.6 PRESERVATION OF CORPORATE EXISTENCE. For as long as the
Preferred Stock or any Conversion Shares remains outstanding, the Company will
preserve and maintain its corporate existence, rights, franchises and privileges
in the jurisdiction of its incorporation, and qualify and remain qualified, as a
foreign corporation in each jurisdiction in which such qualification is
necessary or desirable in view of its business and operations or the ownership
of its properties.
6.7 CONVERSION SHARES. The Company shall take any and all
actions necessary to ensure that the issuance and delivery of the Conversion
Shares does not and shall not (a) violate any law to which the Company or any of
its assets is subject, (b) violate any provision of the Certificate of
Incorporation or Bylaws of the Company, (c) conflict with, result in a breach
of, constitute a default under, result in the acceleration of, create in any
party the right to accelerate, terminate, modify or cancel, or require any
notice under any contract to which the Company is a party or by which any of the
assets of the Company is bound or (d) result in the imposition of any lien upon
any of the assets of the Company.
6.8 INSPECTION RIGHTS. The Investor and its representatives
shall have the right to visit and inspect any of the properties of the Company
or any of its Subsidiaries, and to discuss the affairs, finances and accounts of
the Company or any of its subsidiaries with its officers, and to review such
information as is reasonably requested all at such reasonable times and as often
as may be reasonably requested.
ARTICLE 6A. COVENANTS OF SUPERCOM
6A.1 GUARANTY OF REDEMPTION OBLIGATION. Supercom hereby
absolutely, unconditionally and irrevocably guarantees to the Investor full and
prompt payment, without set-off, defense, counterclaim or reduction, of the
Liquidation Preference Amount (as defined in Article V, Section 2 of the
Certificate of Incorporation)(the "Guaranteed Obligations"), up to a maximum of
US$1.0 million (the "Maximum Obligation") which may be due and owing to the
16
Investor from the Company upon the occurrence of a Change of Control of Supercom
(as defined in Article V, Section 2 of the Certificate of Incorporation) prior
to July 31, 2002 even if the funds of the Company legally available for
redemption are insufficient or the Company is otherwise prohibited from paying
such amounts. Subject to the other terms of this Article 6A, this guaranty
constitutes an absolute and continuing guarantee of payment of the Guaranteed
Obligations, and not merely of collection thereof. The liability of Supercom
hereunder is direct and, subject to the other provisions of this Article 6A,
unconditional, and may be enforced without requiring the Investor to first
resort to any other right, remedy or security. Notwithstanding any amendment to
the Certificate of Incorporation subsequent to the date hereof, in no event
shall Supercom's obligation pursuant to this Section 6A.1 exceed the lesser of
(i) the aggregate amount of Liquidation Preference Amount, as presently defined
in the Certificate of Incorporation in the form attached hereto, for all the
Shares which has not already been paid by the Company, or (ii) the Maximum
Obligation.
6A.2 PRIMARY OBLIGATION. No invalidity, irregularity or
unenforceability of all or any part of the Guaranteed Obligations (including,
without limitation, as a result of the Company's bankruptcy, or insolvency, or
pursuant to any assignment for the benefit of creditors, receivership, or
similar proceeding) will affect, impair or be a defense to this guaranty, and
this guaranty will be a primary obligation of Supercom and, subject to the other
terms of this Article 6A, nothing will discharge or satisfy the liability of the
Supercom hereunder except the full payment and performance of the Guaranteed
Obligations. Supercom will be jointly and severally liable with the Company for
payment and performance of the Guaranteed Obligations, and Supercom hereby
waives any right to require the exhaustion of any remedy, or to require that the
Investor first attempt to collect any of the Guaranteed Obligations from the
Company. No act or omission or delay by the Investor or course of dealing
between the Investor or the Company will constitute a waiver of the rights and
remedies of the Investor under this Article 6A; provided, however, that
notwithstanding anything to the contrary contained in this Article 6A, any claim
for payment of any of the Guaranteed Obligation must be made by the Investor no
later than one (1) year from the date of this Agreement or be forever waived.
6A.3 CLAWBACK. If any claim is ever made on the Investor for
repayment or recovery of any amount or amounts received by the Investor in
payment, or on account of any of the Guaranteed Obligations, and the Investor
repays all or part of such amount(s), Supercom will be and remain liable
hereunder for the amount so repaid or recovered to the same extent as if such
amount had never originally been received by the Investor, notwithstanding any
termination hereof or any cancellation of any certificate evidencing the Shares;
provided, however, in no event will Supercom's obligation under this Article 6A
exceed the Maximum Obligation.
6A.4 WAIVERS BY SUPERCOM. Supercom, to the fullest extent now or
hereafter not prohibited by applicable law, hereby waives: (a) all suretyship
defenses and defenses in the nature thereof; and (b) notice of acceptance
hereof. In addition, Supercom waives any right to seek contribution,
indemnification, subrogation, reimbursement or restitution from the Company,
until all of the Guaranteed Obligations have been indefeasibly paid in full.
6A.5 REORGANIZATION TRANSACTIONS. In furtherance of the
Reorganization contemplated by Section 2.2(c), Supercom hereby acknowledges and
agrees as follows:
17
(a) in connection with the Reorganization, prior to the Closing
Date (i) Supercom will exchange the Exchanged Common Stock for the Stockholder
Shares to be delivered by Supercom to the Investor hereunder, (ii) that the
Exchanged Stockholder Shares will be canceled on the books of the Company and
(iii) that Supercom shall execute deliver any instruments of transfer requested
by the Company in connection with such transactions;
(b) Supercom acknowledges receipt of the Remaining Note and the
obligation of the Company represented thereby;
(c) subject to and upon the consummation of the Closing,
Supercom hereby converts into a contribution to the capital of the Company
US$930,000 of indebtedness of the Company to Supercom in consideration of the
delivery to Supercom by the Company of all outstanding shares of Kromotek Inc.,
and Supercom hereby acknowledges that it has received such shares from InkSure,
together with any necessary instruments of transfer;
(d) subject to and upon the consummation of the Closing, (i)
Supercom hereby converts into a contribution to the Capital of the Company all
remaining indebtedness of the Company and its Subsidiaries to Supercom, other
than as contemplated by this Section 6A.5 and Section 2.2(c), together with any
interest accrued or payable in respect thereof, outstanding as of the Closing
Date, including, without limitation approximately US$1.42 million of
intercompany indebtedness and (ii) Supercom and the Company hereby agree that
the Extension of Credit Line Agreement made and entered into the 1st day of
January, 2000 is hereby terminated ; and
(e) Supercom hereby agrees, from time to time and without
further consideration, to execute and deliver such further documents and take
such further actions as reasonably may be required to implement and effectuate
the transactions contemplated in this Section 6A.
ARTICLE 7. INDEMNIFICATION
7.1 INDEMNIFICATION.
(a) Indemnification by Company and Supercom. In addition to all
other rights and remedies available to the Investor at law or in equity
(subject, in the case of Supercom, to the limitation contained in Section 7(c)),
the Company and Supercom, on a joint and several basis, shall indemnify, defend
and hold harmless the Investor and its affiliates, stockholders, officers,
directors, employees, agents, representatives and permitted assigns from and
against any loss, liability, demand, claim, action, cause of action, cost,
damage, deficiency, penalty, fine or expense, including interest, penalties,
reasonable attorneys' fees and expenses and all reasonable amounts paid in
investigation, defense or settlement of any of the foregoing (collectively,
"LOSSES") which any such party may suffer, sustain or become subject to, as a
result of:
(i) any misrepresentation or breach of a representation
or warranty (when viewed individually or in the aggregate) on the part of the
Company or Supercom under Article 2 and Article 2A; or
18
(ii) without duplication, any misrepresentation in or
omission from any of the representations or warranties contained in any of the
certificates or other documents furnished to the Investor by the Company or
Supercom.
(b) Indemnification by the Investor. In addition to all other
rights and remedies available to the Company at law or in equity, the Investor
shall indemnify, defend and hold harmless the Company and its affiliates,
stockholders, officers, directors, employees, agents, representatives and
permitted assigns from and against any Losses which any such party may suffer,
sustain or become subject to, as a result of:
(i) any misrepresentation or breach of a representation
or warranty (when viewed individually or in the aggregate) on the part of the
Investor under Article 3; or
(ii) without duplication, any misrepresentation in or
omission from any of the representations or warranties contained in any of the
certificates or other documents furnished to the Company by the Investor.
(c) Limitations.
(i) No claim for indemnification pursuant to this
Article 7 shall be made, other than pursuant to Section 2.21 or Section 2A.6,
unless the aggregate Losses incurred by the party to be indemnified (the
"INDEMNIFIED PARTY") exceed $25,000, at which time all Losses (without regard to
materiality qualifiers) shall be subject to indemnification under this Article
7.
(ii) Supercom shall not be liable for, or otherwise
obligated for, any losses pursuant to this Article 7 or otherwise under this
Agreement (other than pursuant to Article 6A) for any amount in excess of the
cash consideration received by it for the Stockholder Shares, as set forth on
EXHIBIT A; provided, that, nothing contained herein shall limit Supercom's
liability pursuant to Article 6A.
(d) Other Limitation. Notwithstanding the foregoing, and
subject to the following sentence, upon judicial determination, which is final
and no longer appealable, that the act or omission giving rise to the
indemnification hereinabove provided resulted primarily out of or was based
primarily upon the Indemnified Party's gross negligence, fraud or willful
misconduct (unless such action was based upon the Indemnified Party's reliance
in good faith upon any of the representations, warranties, covenants or promises
made by the party required to provide indemnification under paragraphs (a) or
(b) above (the "INDEMNIFYING PARTY")) by the Indemnified Party, the Indemnifying
Party shall not be responsible for any Losses sought to be indemnified in
connection therewith, and the Indemnifying Party shall be entitled to recover
from the Indemnified Party all amounts previously paid in full or partial
satisfaction of such indemnity, together with all costs and expenses of the
Indemnifying Party reasonably incurred in effecting such recovery, if any. The
indemnity, contribution and expense reimbursement obligations that the
Indemnifying Party has under this Section 7.1 shall be in addition to any
liability that the Indemnifying Party may otherwise have. The Indemnifying Party
further agrees that the indemnification and reimbursement commitments set forth
in this Agreement shall apply
19
whether or not the Indemnified Party is a formal party to any such lawsuits,
claims or other proceedings.
(e) Payment of Claims. Any indemnification of any Indemnified
Party by the Indemnifying Party pursuant to this Section 7.1 shall be effected
by wire transfer of immediately available funds from the Indemnifying Party to
an account designated by the Indemnified Party within 15 days after the
determination thereof.
7.2 RIGHT TO DEFEND; COMPROMISE OF CLAIMS; CONTRIBUTION. Each
Indemnifying Party shall have the right to compromise or defend, at its own
expense and by its own counsel reasonably satisfactory to such Indemnified
Party, any matter involving the asserted liability of any Indemnified Party;
PROVIDED, HOWEVER, that no compromise of any claim shall be made without the
consent of the Indemnified Party unless such compromise results in the full and
unconditional release of all claims against the Indemnified Party by the party
asserting such claim. The opportunity to compromise or defend as herein provided
shall be a condition precedent to any liability of an Indemnifying Party under
the provisions of this Section 7.2. If any Indemnifying Party shall undertake to
compromise or defend any such asserted liability, it shall promptly notify the
Indemnified Party and any other Indemnifying Party of its intention to do so. An
Indemnified Party shall cooperate with the Indemnifying Party and its counsel at
the Indemnifying Party's expense in the defense against any such asserted
liability and in any compromise thereof. Such cooperation shall include, but not
be limited to, furnishing the Indemnifying Party with any books, records or
information reasonably requested by the Indemnifying Party and taking such
action as the Indemnifying Party may reasonably request to mitigate or reduce
any claim. After an Indemnifying Party has notified an Indemnified Party of its
intention to undertake to compromise or defend any asserted liability, the
Indemnifying Party shall not be liable for any additional legal expenses
incurred by the Indemnified Party unless the Indemnifying Party fails to
prosecute the defense of such claim. If the Indemnifying Party shall desire to
compromise any such asserted liability by the payment of a liquidated amount
which the party asserting such liability is willing to accept in exchange for
fully and unconditionally releasing all claims against the Indemnified Party,
and the Indemnified Party shall refuse to consent to such compromise, then the
Indemnifying Party's liability under this Article 7 with respect to such
asserted liability shall be limited to the amount so offered in compromise.
Under no circumstances shall the Indemnified Party compromise any asserted
liability without the written consent of the Indemnifying Party. Nothing
contained herein shall be deemed to limit any right of contribution Supercom may
have against the Company under applicable law.
7.3 REMEDIES.
The Parties shall each have and retain all other rights and remedies
existing in their favor at law or equity, including, without limitation, any
actions for specific performance and/or injunctive or other equitable relief
(including, without limitation, the remedy of rescission) to enforce or prevent
any violations of the provisions of this Agreement. Without limiting the
generality of the foregoing, the Company hereby agrees that in the event the
Company fails to convey any number of Conversion Shares to the Investor in
accordance with the provisions of this Agreement and the Preferred Stock, the
Investors' remedy at law may be inadequate. In such event, the Investor shall
have the right, in addition to all other rights and remedies it may
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have, to specific performance of the obligations of the Company to convey such
number of Conversion Shares.
ARTICLE 8. MISCELLANEOUS
8.1 SURVIVAL OF WARRANTIES. The warranties, representations and
covenants of the Company and the Investor contained in or made pursuant to this
Agreement shall survive the execution and delivery of this Agreement and the
Closing and shall in no way be affected by any investigation of the subject
matter thereof made by or on behalf of the Investor or the Company; PROVIDED,
HOWEVER, that Supercom shall have no further liability or obligation under this
Agreement (i) pursuant to Article 2 or Article 2A after the date which is two
(2) years after the Closing Date other than with respect to the representations
and warranties made by it pursuant to Section 2.2, Section 2.4, Section 2.6 and
Article 2A hereof and (ii) pursuant to Article 6A in accordance with the time
periods set forth therein.
8.2 SUCCESSORS AND ASSIGNS. Except as otherwise provided
herein, the terms and conditions of this Agreement shall inure to the benefit of
and be binding upon the respective successors and permitted assigns of the
parties. Nothing in this Agreement, express or implied, is intended to confer
upon any party other than the parties hereto or their respective successors and
permitted assigns any rights, remedies, obligations, or liabilities under or by
reason of this Agreement, except as expressly provided in this Agreement.
8.3 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
8.4 NOTICES. Any notice, request, demand, waiver, consent,
approval, or other communication which is required or permitted to be given to a
party hereunder shall be in writing and shall be deemed given only if delivered
to such party personally or sent to such party by recognized overnight courier
or by registered or certified mail (return receipt requested), with postage and
registration or certification fees thereon prepaid, addressed to the party at
the address indicated for such party on the signature page hereof, or to such
other address or person as any party may have specified in a notice duly given
to the other party as provided herein. Such notice, request, demand, waiver,
consent, approval or other communication shall be deemed to have been given as
of the date so delivered.
8.5 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Investor;
provided, that, Supercom's consent will be required in connection with any
amendment that affects Supercom's rights and obligations under this Agreement.
Any amendment or waiver effected in accordance with this paragraph shall be
binding upon each holder of any Securities at the time outstanding, each future
holder of all such Securities, and the Company.
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8.6 SEVERABILITY. If one or more provisions of this Agreement
are held to be invalid and unenforceable in any jurisdiction, then, to the
fullest extent permitted by law, (i) the other provisions hereof shall remain in
full force and effect in such jurisdiction and shall be liberally construed in
order to carry out the intentions of the parties hereto as nearly as may be
possible and (ii) the invalidity or unenforceability of any provision hereof in
any jurisdiction shall not affect the validity or enforceability of such
provision in any other jurisdiction.
8.7 INDEPENDENCE OF COVENANTS AND REPRESENTATIONS AND
WARRANTIES. All covenants hereunder shall be given independent effect so that if
a certain action or condition constitutes a default under a certain covenant,
the fact that such action or condition is permitted by another covenant shall
not affect the occurrence of such default, unless expressly permitted under an
exception to such initial covenant. In addition, all representations and
warranties hereunder shall be given independent effect so that if a particular
representation or warranty proves to be incorrect or is breached, the fact that
another representation or warranty concerning the same or similar subject matter
is correct or is not breached will not affect the incorrectness of or a breach
of a representation and warranty hereunder.
8.8 FURTHER ASSURANCES. The parties agree, from time to time
and without further consideration, to execute and deliver such further documents
and take such further actions as reasonably may be required to implement and
effectuate the transactions contemplated in this Agreement.
8.9 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the substantive domestic laws of the State of New
York, without application of the conflicts of laws principles thereof.
8.10 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
8.11 ENTIRE AGREEMENT. This Agreement and the other documents
referred to herein constitute the entire agreement among the parties with
respect to the subject matter hereof and thereof and no party shall be liable or
bound to any other party in any manner by any warranties, representations, or
covenants except as specifically set forth herein or therein.
[Signature Pages Follow]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first set forth above.
COMPANY:
INKSURE TECHNOLOGIES INC.
By:
-------------------------------------
Name:
Title:
SUPERCOM:
SUPERCOM LTD.
By:
-------------------------------------
Name:
Title:
INVESTOR:
EL-AD INK LLC
By:
-------------------------------------
Name:
Title:
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DISCLOSURE SCHEDULES
EXHIBIT A
Schedule of Investors
Aggregate
Number of Shares of Aggregate
Investor Preferred Stock Purchase Price
-------- ------------------- --------------
EL-AD INK LLC 1,312,785 $1,150,000
EXHIBIT B
Certificate of Incorporation
EXHIBIT C
Proprietary Information and Inventions Agreement